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U.S. Dept. of the Treasury.
Press releases.
HI
LIBRARY
JUL 2 "1979
ROOM Hon/
TREASURY DEPARTMENT
\WA
DepartmentoftheTREASURY
ASHINGTON,D.C. 20220
TELEPHONE 566-2041
FOR RELEASE AT 12:15 P.M.
NOVEMBER 14, 1977
REMARKS BY THE HONORABLE C. FRED BERGSTEN
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE
f
WOMAN S NATIONAL DEMOCRATIC CLUB
WASHINGTON, D.C.
The United States in an Interdependent World Economy
Less than two weeks ago, I returned from a visit with
Secretary Blumenthal to five key countries in the Middle East.
The interdependence of the world economy — and the interdependence
of economic and political developments on a global scale —
were never clearer than during that trip:
— Decisions to be made shortly by Saudi Arabia,
Iran and other oil exporting countries will have
a major, perhaps a decisive, impact on whether the
United States and other industrialized countries
will make further progress in 1979 in bringing
down both inflation and unemployment.
— The success of the United States in maintaining a
stable exchange rate for the dollar is viewed in
Saudi Arabia as having a crucial impact on its own
economy, since all Saudi government revenues accrue
in dollars.
-2—
If Egypt can -realistically foresee an era of rapid
economic growth, its zeal for peace will clearly
increase. If Israel can limit its expenditures on
military hardware, its beleagured economy will be
strengthened immensely. If Saudi Arabia can use
its oil wealth to promote peace in the Middle East,
the entire world will benefit greatly.
— And if the United States can continue to
cooperate economically with all of the countries
in the region, its ability to help bring about such
a peace will rise immeasurably.
These are dramatic instances of how policies in one
part of the world affect all other countries, both politically
and economically. They are symbolic of the pervasive
interdependence of the global economy and of our mutual need for
economic and political cooperation. This interdependence of the
world economy is one of the most widely accepted, yet misunderstood
concepts of our time. Americans generally welcome an economic
interdependence that stimulates domestic production, creates
jobs, produces a wealth of consumer choice at reasonable cost,
offers opportunities for investment abroad — and contributes
to a peaceful world. Indeed, we take for granted the immense
benefits created by the exchange of goods, money, and
services which link the world!s economies.
Yet we are often not prepared to accept the fact that
interdependence can create problems for our economy at home, and
-3demand a positive effort on our part to bear our share of the
international responsibilities of global economic progress.
And we often fail to understand that the economic policies we
pursue at home and in our relations with other nations can
have a profound impact on such diverse and vital areas as
the prospects for peace in the Middle East, the future
development of the less developed nations, the stability of
the world economy, and our political relations with our closest
trading partners.
Vivid examples of the failure of some Americans to grasp
the significance of our interdependence are several current
proposals which would risk grave harm for the American economy,
and for the world role of the United States:
— rejection of the need to pare decisively our
consumption of energy, and to expand our production of
all available energy sources;
— calls for the erection of barriers against U.S.
trade with other countries;
— opposition to the extension of adequate levels of
foreign assistance to countries in need of such
outside help, or even to withdraw from the process
of international cooperation for development of the
poorest countries.
All of these issues are now before the Congress and the
American people. The Carter Administration has taken a clear
position on all of them, and seeks the widest possible support
-4for its views.
But the greater need at this point in time is
for far greater understanding of several underlying realities:
the deep dependence of the United States on the world economy;
the resulting imperative of U.S. economic cooperation with
other countries, both rich and poor; and the intimate ties
between these issues and the central goals of American foreign
policy.
U.S. Dependence on the World Economy
The United States is deeply involved in the international
economy:
— One out of every eight manufacturing jobs in this
country produces for export. For example, exports
take 40 percent of total U.S. production of constructiona
machinery and 30 percent of our aerospace output.
— One out of every three acres of American farm land
produces for export. Over half of our wheat, soybeans
and rice is sold abroad.
— Almost one out of every three dollars of U.S.
corporate profits now derives from the international
activities of U.S. firms, including their foreign
investments as well as their exports.
— The share of trade in our Gross National Product
has almost doubled over the last decade or so; the
level of exports now equals the total plant and
equipment expenditure of our entire private sector.
-5—
Imports provide more than one-fourth of our
consumption of twelve of the fifteen key
industrial raw materials.
These may be surprising figures to many Americans.
Yet
they indicate clearly that the U.S. economy derives many crucial
benefits from our involvement in international trade and
investment.
To be sure, our deep involvement in the world economy
sometimes brings.problems as well as benefits.
Lagging economic
growth in the rest of the world has depressed U.S. exports by
at least $13 billion this'year, retarding our economic growth.
Surges of imports can cause severe adjustment problems for
firms and workers in particular industries.
Brazil have driven up the price of coffee.
Frosts in
Many of our
present economic problems derive from the unprecedented bout
of double-digit inflation experienced in 1973 and 1974 —
which was largely caused by OPEC oil pricing, lagging
harvests in the Soviet Union and elsewhere, and currency
realignments which were necessary to restore the international
competitiveness of the American economy.
But there is no escape from the reality of interdependence.
Indeed, our challenge is not to escape from an interdependence
which creates problems as well as benefits, but to work
closely with .other nations to overcome our common problems
-6in a mutually beneficial manner.
In addition to our own reliance
on economic events outside our borders, this is true also because
our economic policies are often of decisive importance to
other countries:
—
our economy is by far the largest in the world;
—
our trade significantly exceeds that of all other
countries;
— we are by far the world's largest consumer of
oil and other raw materials;
—
we are the world's largest producer and exporter
of food;
—
our dollar lies at the center of the world monetary
system;
—
our capital and money markets generate massive
investment flows to others, and in recent years
have received still larger levels of incoming
investment from the rest of the world.
What we do at home is thus critical to others abroad.
The success of overall American foreign policy as well as
the future of the American economy, hinges significantly on
whether we can forge an effective international economic policy.
-7U.S. International Economic Policy
The basic philosophy of this Administration is that
"domestic" and "international" economic issues are inextricably linked. Our own high energy consumption strengthens
the ability of OPEC countries to raise world oil prices,
which in turn creates balance of payments difficulties for
us and for other countries as well. Our maintenance of an
open trading market provides essential support for jobs
abroad and jobs here, both directly and through its effects
on the trade policies of others. A well functioning monetary
system, reasonably stable commodity prices, and healthy
international competition are essential components of our
fight against inflation and unemployment. Indeed, each
issue to which I have referred has critical dimensions both
at home and abroad.
There is a similarly intense relationship between
internal and external economic concerns in most other
countries as well. And the actions of many of these countries,
like the actions of the United States, can have major effects
on their trading partners including the United States — and,
indeed, on the entire world economy. Hence, it is essential
that we and they work ever more closely together. At a
minimum, this requires that each country resist the perennial
temptation to export its internal problems — the result of
which can only be emulation and retaliation by others, with
consequent costs for all. This is a second fundamental
-8principle underlying the approach of the Carter Administration to international economic policy.
But such collaboration must go beyond the avoidance of
beggar-thy-neighbor measures.
powers —
The world's major economic
including, on at least some issues, key developing
countries as well as the industrial powers —
must, in a
positive sense, exercise collective responsibility for the
stability and progress of the world economy.
They must
consult constantly on their individual goals, and on the
means to carry out those goals.
They must monitor each
others' performances in achieving agreed goals. They must
take explicit account of conditions and policies elsewhere
in formulating their own national policies.
This search for
effective exercise of collective international economic
responsibility is a third fundamental element of the philosophy of the Carter Administration.
Any such effort requires widespread public support, on
a largely bi-partisan basis., .. Honest differences will of
course emerge, as they should, over how best to pursue these
interests.
But the debate should be over means, not ends,
because of the imperative of continued —
indeed heightened
—
U.S. engagement in constructive economic collaboration with
countries around the world.
I will refer to four specific
issues where such steps are now required of the United States,
in both our economic interest and those of the world as a
whole.
-9The President's energy legislation is undoubtedly the
most important foreign policy, as well as domestic, legislation to be considered by the Congress this year. Adoption
of an effective energy program is essential in terms of
many of the objectives I have mentioned today:
— to enable us to continue to reap the benefits
of international energy trade without undue
dependence on, and hence vulnerability to,
external forces;
— to reduce our international trade deficit, and
thereby assure continued confidence in the dollar;
— to reduce inflationary pressures in the world
economy, as well as our own, and thereby provide
a base for more rapid economic growth and
reduction of unemployment;
The second major area requiring cooperative action
involves international trade and the problems which increasing
import competition cause domestic industries. Imports are an
extremely sensitive issue in such sectors as shoes, textiles,
steel, and electronic products, not only in the United States,
but in other nations as well. In some cases, a rapid surge
-10of imports can threaten jobs and harm domestic industries,
generating strong pressures for protectionist actions.
Our policy is to look into serious problems of import
competition on a case-by-case basis. We are convinced that
adjustment to such competition, rather than shielding our
economy from it, should remain the primary objective of U.S.
policy. But we fully recognize that industries cannot
adjust overnight, and that mutual cooperation to moderate
trade flows may be necessary in exceptional cases. We are
studying the steel situation carefully and the President
will soon receive the report of an interagency task force
on a comprehensive policy program to assist that industry.
Our objective, above all, is to act in a manner consistent
with the preservation of the open international trading
system to which all Administrations have been committed for
over forty years, and which provides vital benefits to our
entire economy.
Yet there are those who seek far-reaching restrictions
on imports into this country — an approach which would add
to our inflation, reduce rather than increase the number of
jobs available to American workers, and rupture U.S. relations with a wide range of industrialized and developing
countries. Any such efforts must be rejected. Indeed, the
Congress will in the near future be asked to implement the
further liberalization of world trade which will be worked
out in the current Multilateral Trade Negotiations in Geneva,
-11to enable our society to reap further benefits from international specialization and to help avoid a backward slide
toward protectionism.
A third area is the international monetary system. Over
the past months, we have negotiated a $10 billion expansion
of the resources available to the .International Monetary
Fund — the institutional core of world monetary arrangements.
Successful implementation of this program will help assure
-continued stability for such arrangements, and continued
confidence in them — with important benefits for confidence
in the world economy and financial system as a whole.
OPEC countries will be contributing about one half of
this $10 billion facility. Borrowers from the facility will
have to undertake extensive policy measures to responsibly
adjust their own economies. The U.S. share of the total is
only 17 percent, but the facility cannot proceed without us.
The Senate Foreign Relations Committee has already indicated
its support for the necessary legislation by unanimous vote,
and we hope that the Congress will move quickly to provide
the full amount on an urgent basis.
A fourth issue is foreign aid. The developing countries
have become critical markets for the United States, taking
over 40 percent of our exports of manufactured goods. They
play host to over one quarter of our foreign investments.
They supply many of our key raw materials. They exhibit the
most dynamic growth of any group of countries in the world
-12economy.
A number of them have become a truly "international
middle class" by virtue of their rapid development and proven
ability to compete effectively in world trading and capital
markets.
U.S. cooperation with these countries is thus essential
in terms of our purely economic interests, in addition to
our humanitarian concerns for their hundreds of millions of
poor people and their central importance to the resolution
of key political issues, such as the Middle East and South
Africa. In this vein, the Administration has sought — and
will continue to seek — increased foreign assistance,
expanded opportunities for trade and new forms of collaboration regarding commodities and private investment flows.
Yet there have been pressures to cut back in all these
areas instead. The House of Representatives at one point
last summer even adopted legislation which would have forced
the World Bank and some of the other key international
institutions through which we extend help to the poorer
nations to reject our help, thereby effectively taking the
United States our of these institutions. Recent House
actions have cast serious doubt on the future of the Overseas
Private Investment Corporation, a U.S. Government corporation
which promotes U.S. private investment to the poorest developing countries — on the grounds that its activities create an
"exp^-'t °f jobs," which its exceedingly careful procedures
-13in fact assure cannot happen. This too is a critical area
where we must move forward, not backward.
Conclusion
I have chosen to summarize a few issues where U.S.
economic policies clearly have a major impact on both the
future strength of our domestic economy and that of the rest
of the world. All of these issues are now before the American
public. Our response as a nation to them is crucial.
In energy, we face a choice between responsible domestic
legislation which will help reduce our dependence on foreign
oil imports, alleviate our trade deficit, and encourage the
development of alternative sources of energy — or a policy
of costly neglect, with increasingly serious repercussions
on our domestic economy and the world as a whole.
In trade, we face the prospect of a sound, pragmatic
approach to problems of import competition and a commitment
to reap further benefits from international exchange — or a
policy of self-destructive protectionism which can only harm
ourselves and our trading partners.
In the international monetary system, we can choose to
support our fair share of the contributions to the new
expansion of the International Monetary Fund — or we can
risk disruption of worldwide financial stability.
In our relations with the developing countries, we can
continue to increase our foreign assistance, offer expanded
-14opportunities for trade, and work' out new forms of cooperation
in the areas of commodities and private investment — or we
can reject the needs of hundreds of millions of the poorest
people on this planet and accept the possibility of heightened
confrontation in the future.
The choice is ours. The impact of our choices will be
immense, both at home and abroad. We cannot afford to ignore
the issues before us. Your support is needed to help the
American people and the Congress understand the benefits and
opportunities which our interdependence has offered us, and
our responsibility to act in a manner which will preserve
those benefits in the future.
EMBARGOED FOR RELEASE
EXPECTED AT 10:30 A.M.
E.S.T. OR UPON DELIVERY
REMARKS OF
THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
TO THE
NATIONAL FOREIGN TRADE CONVENTION
NEW YORK, NEW YORK
NOVEMBER 14, 1977
I welcome this opportunity to discuss the foreign trade
position of the United States.
The most recent interest in international trade comes, of
course, from our record deficit for 1977 -- which we expect will
reach about $30 billion tnis year. A deficit of this size is
worrisome and certainly cannot be allowed to persist forever.
Through the Economic Policy Group, I am focusing the energies and
resources of all Executive Department agencies on finding
solutions to the problem. It is important, however, to keep the
trade deficit in perspective.
— First, the deficit represents only about 1-1/2 percent of
our total GNP.
— Second, the United States possesses today one of the
strongest and most rapidly growing economies in the world.
— Third, despite vigilant and continuing scrutiny, we have
seen as yet no evidence of significant deterioration in our
relative competitive position.
— Finally, against unfair trade our antidumping and
countervailing duty statutes provide a potent recourse to protect
domestic industries.
There is, accordingly, no reason for panic and no excuse for
reations in ways that jeopardize the overall health of the U.S.
economy or that adversely affect world recovery in general.
Our policy should reflect a thorough understanding of the
real character of tne trade deficit.
B-549
-2In tnis, two factors stand out -- oil imports, and tne U.S.
economic recovery. It is chiefly these factors tnat nave led th
growtn of own imports to outpace tne growth of our exports.
Of tnese two factors, oil is the most important. A
five-fold increase in oil prices and an 80 percent increase in
tne volume of U.S. oil imports since 1972 togetner are the most
significant single cause of the current trade deficit. U.S. oil
purchases will total about $45 billion in 1977, compared with
$4.7 billion in 1972.
This has coincided with the decline of domestic production,
since 1972, of 1.5 million barrels a day, while our consumption
has increased by 2.5 million barrels a day.
OPEC imports of U.S. goods and services, while rising
rapidly, nave not kept pace with this extraordinary growth of oi
trade. This year our trade deficit with the OPEC countries
snould be about.$30 billion.
The second major factor has been the difference in economic
performance performance the United States and the other major
trading countries. In a sense, we are victims of our own succes
— our imports are outpacing our exports because our economy is
growing more rapidly than those of our trading partners.
During the last two years, the U.S. economy has grown in
real terms at an annual rate of about 5 1/2 percent while the
rest of tne OECD has averaged only about 4 percent. This is a
snarp reversal of traditional postwar growth. During the 1960s
and early 1970s, for example, U.S. real growth averaged 4.2
percent annually and the rest of the OECD averaged 6.8 percent.
Foreign demand for our capital goods has been particularly
sluggish, because investment is lagging in Europe, Japan, and
elsewnere.
High oil prices and foreign exchange constraints have cause
many of our developing trading partners to reduce their imports
as part of broader stabilization programs. Mexico and Brazil,
for example — two of our ten largest export markets — have
recently accounted for snarp declines in U.S. exports.
In tne agricultural sector -- which accounted for a
substantial increase in U.S. exports during the early 1970's -our trade balance has been hurt by the otherwise happy fact that
harvests around the world have recently Improved.
So, tne main factors causing our deficit have little to do
with tne inherent competitiveness -- the price and quality — of
our ^oods and services.
-3Tnere is no evidence that the U.S. competitive position has
deteriorated significantly in export markets during the past 18
Tionths. On a nation-by-nation basis, our exports nave basically
neld their own.
An initial study indicates that the U.S. share of industrial
country markets did not change significantly in volume between
tne last half of 1976 and tne first half of 1977. A small loss
in the U.S. snare measured by value reflects a smaller rise in
dollar export prices of our goods — in other words, slower
inflation rates here — rather than a greater volume of goods
sold by our competitors.
We have held our own or slightly improved our exports to the
two fastest-growing economies — Japan and West Germany — and
maintained or increased our share of manufactured goods in J_3 of
tne Ij^ major non-OPEC markets.
Over the longer term, it is clear that we have reversed the
trend of the late 1960s and early 1970s, when our declining share
of world manufactured exports was falling because of the
declining competitiveness of U.S. products and the overvaluation
of the dollar. Since our historical low point in 1972, the U.S.
share of world export markets has risen significantly in
virtually every major U.S. manufacturing sector, except transport
equipment.
In" summary, our current deficit does not reveal any
significant loss of our competitiveness. This is, of course, no
reason for smugness. Given our oil import bill, we need a
dynamic export sector that seizes every legitimate opportunity to
increase our competitiveness. In production and marketing, our
efforts at innovation and enterprise must be unstinting. We are
now a trading nation, an economy that depends on vigorous
leadership in world trade.
Having set the background let me sketch for you our basic
approach to the deficit problem.
We have ruled out three approaches that would directly
injure the U.S. economy as a whole.
The first would be to restrict imports artificially — for
example, through import quotas, increased tariffs, an import
surcharge, or an import deposit scheme. This would be
inconsistent with our commitment to open trade, would invite
retaliation by other nations, and would have a clearly
destructive impact on our exports, on world trade in general, and
on tne U.S. and world economies.
Second, we have absolutely ruled out efforts to depress
-4artificially the value of tne dollar. Our exchange rate policy
is, as I stated it in Houston on October 19, is that a strong
U.S. dollar is in tne U.S. and international interest, tnat world
economic conditions point to a strong dollar, that a
depreciation of tne dollar is not required by our trade deficit,
that such a depreciation is not an answer to tne deficit, that
exchange rates should reflect underlying economic and financial
conditions and should be permitted to adjust to changes in those
underlying conditions, and that we will intervene in foreign
markets only to counter disorderly conditions.
Third, we have ruled out the deliberate reduction of
domestic U.S. economic growth-to reduce U.S. demand for imports.
This would be a tail-wagging-the-dog approach -- to attempt to
handle our foreign trade position by increasing unemployment and
reducing production at home. This is unacceptable to us, and to
our partners in the global economy who would suffer from its
spill-over effects.
Instead, our approach to the deficit is integrated with our
goals for the domestic and world economy generaly.
Our approach is to implement an effective domestic energy
policy, so as to reduce our dependence on oil imports and to
encourage our trading partners who are in a position to do so to
resume more vigorous economic growth, consistent with the
world-wide effort to reduce inflation. In the meantime, we must
continue to keep inflation under control at home and to increase
our own productivity.
Internationally, we are defending the open, liberal trade
and payments system. We are pursuing a substantial
liberalization of trade through the Multilateral Trade
Negotiations. We are working toward a broadening and
strengthening of the international consensus on export credits.
We believe that exchange rates should be permitted to play their
appropriate role in the adjustment process. And we are enforcing
domestic statutes designed to protect domestic industries from
unfair foreign trade practices.
We are also urging that countries running large trade and
current account surpluses move promptly to reduce and, over time,
eliminate those surpluses. We are working particularly closely
with the Japanese authorities on this. We and the Japanese nave
agreed to establish a Joint U.S.-Japan Trade Facilitation
Committee to help reduce Japan's large and persistent surpluses
in ways which expand, rather than constrict, trade. This is in
the interest of both countries and is a major step forward in the
friendly cooperation that should characterize all of our
relations with Japan.
-5Tne Departments of Commerce and Agriculture zr» takin* -e.;
" ^ ^ ? ^ t 0 ^Prove tne flow of information to U.S. industries
and producers about trading opportunities overseas.
S
An
hal,„
important aspect of our effort to improve the U.S. trade
oaiance is tne activity of tne Export-Import Bank. Our ultimate
o*ai 13 to reduce, and ultimately eliminate, tne
C
r P
UCtiVe
competition that exists between official
ei!St " L°?,
export credit agencies. But this must come through a
n^J^n6
agreement. In tne interim, tne Eximbank holds a big
5Sth-i?2 a h?«° U r expor !r d r i v e - From 1973 through 1976, Eximbank
u lzatlons
supported exports with a value of $12 billion per
year on tne average — equal to 18 percent of U.S. manufactured
goods exported in those years.
«,,„„J^r rnf. luturs' tne Eximbank will increase substantially its
prt of
- U.S. exports. It has recently lowered its interest
fl
f rtne
llllrJt,
"
[ . stimulus to U.S. sales abroad, while remaining
eftJl
y
^
f
"itniti tne internationally agreed guidelines on
official export credits.
fin.n!!! 3I"w taki,ng care not to trigger-a trade war through trade
fn
• / V ? ? k a " i m p o r t a n t step last year with an agreement
n
on basic guidelines for officially supported export credits. It
\LnlU e f, Se !! t ^ al t h a t w e b r o a d e n and strengthen those guidelines,
and tne United States has made proposals to achieve that
objective. Tnis goal was endorsed at the London Economic Summit
in ,1ay, and discussions have been initiated for an International
Arrangement to succeed the present Consensus.
At home, serious problems of import competition threaten
U.S. jobs in particular industries. We are handling these
problems expeditiously case by case, but always within the
context of our overall commitment to negotiate a regime of more
open world trade. Where injury is due to unfair foreign trade
practices, notably export subsidies or dumping, our laws provide
strong remedies to protect U.S. industries. Where adjustment
!-!! X ?5 a 2 ce 1 S n e ? d e d > w e "ill provide it. Adjustment is and
fir"ms?
° U r P r i m a r y r e s P ° n s e to tne problems of non-competitive
We recognize that industries cannot adjust overnight.
;.utual cooperation to moderate trade flows — as in the cases of
exceptionH'ca^sf^ ^ imp°rtS " ^ be —ssary in very
M„n.^e4.are,tJnyi?g t0 achieve international agreement in the
S
ari ll
I ^
. M e S o t i a f c i ^ s on precisely what trade measures
are acceptable m tnese cases — and to definT~wnen tney are
-6justified. We are also working on a new international
subsidy/countervailing duty code in the VTM to define more
precisely wnat are fair and unfair trade practices, and how
nations snould respond to unfair trade.
I am convinced that these efforts reflect a sound, pragmatic
approach to the problems created by our record deficit. In this
a H w ^ ! i C a n ^ i m p ! u ? v e o u r international trade position without
adversely affecting our domestic economy or tne economies of
otner nations. This is the only sensible course.
Looking to the immediate future, the United States cannot
expect to reduce tne trade deficit substantially unless we slow
tne growth of oil imports.
Tnat is precisely the objective of the President's energy
program. With a strong emphasis on conservation and incentives
tor new production, the program would begin reducing our oil
import needs rapidly. By 1985, it would reduce projected oil
imports by 4.5 million barrels a day ~ for an annual savings of
$ o billion, at today's oil prices.
. The enerSY program is the most urgent priority of this
Administration. It is a balanced, fair and effective plan that
provides tne only real alternative to increasing dependence on
foreign oil and, consequently, an increasing trade deficit.
Looking to the longer term, we must recognize that the
world trading system will face a number of structural problems.
First, tne massive increases in energy costs over the last 5
years nave not yet worked their way through the world economy.
becond — partly as a result of these higher energy costs, but
also of otner fundamental developments — world growth rates may
well be significantly lower in the last quarter of tne twentieth
century than tney were during the third quarter.
Third, tne pattern of growth among the industrial countries
may nave snifted structurally. For some years, the United States
may grow faster than the rest of the OECD, notably Europe,
wnereas tne opposite situation neld during the first postwar
generation. Fourth, the developing countries will be
increasingly formidable competitors -- they have already doubled
their share of world trade in the last decade.
These structural developments will produce intensified
pressures everywhere to export more and to restrain imports in
order to maintain employment and production. It is obvious'that
these pressures are inconsistent with each other in a world
context.
-7Our task is to make that world context prevail. We must
meet these challenges through strengthened international
cooperation.
We have already made major progress in creating a new
international monetary system which, while not perfect, is
clearly better than any feasible alternative. We have also
helped assure that sufficient official financing is available so
tnat the system can accommodate wide variations in economic
performance and high energy costs.
We have agreed on a strategy for sustained
recovery — an international commitment
economic growth and price stability, to
pressure, and to make rapid progress in
international trading system.
world economic
to promote domestic
resist protectionist
reforming the
We have agreed to progress in the Multilateral Trade •
Negotiations. The continued liberalization of trade is tne only
sure antidote to increasing protectionist pressures. Our people
must be shown, by clear results, that employment and production
are increased more by expanding trade — on a fair, competitive
basis — than by retreating into inefficient, "siege" economies.
To ensure that we are ready will be tne Administration's to
priority over the coming months. We need an economy where real
investment grows at 10 percent a year or better, where
productivity returns to the robust growth rates of the early and
mid-1960's, where capital is formed as quickly as men and women
enter the work force to use it, where innovation and risk taking
reap a full reward.
This will take some doing. Business investment remains
sluggish, and businessmen remain uncertain, after the battering
of double-digit inflation and severe recession. Real profit
remains too low to sustain vigorous real growth.
Within several months, the Administration will present its
tax and budget policies for 1979. We intend this to be a charte
for a full and balanced recovery of investment, growth, and
employment over the coming years.
Obviously, we face formidable economic problems, both
internationally, and at home. But there are clear paths through
those problems.
-8By working together, ratner than against each other, we all
can assure an increased measure of prosperity for ourselves and
:ur
children. Tnat is our goal, and with the orzper policies, I
am convinced we can achieve it.
0OO0
Departmental theTREASURY
TELEPHONE 566-2041
WASHINGTON, D.C. 20220
November 14, 1977
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,200 million of 13-week Treasury bills and for $3,301 million
of 26-week Treasury bills, both series to be issued on November 17, 1977,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
13-week bills
maturing February 16, 1978
Price
High
Low
Average
Discount
Rate
98.466 a/
6.069%
98.458
6.100%
98.460
6.092%
26-week bills
maturing May 18, 1978
Investment
Rate 1/
Discount Investment
Price
Rate
Rate 1/
6.25%
6.28%
6.27%
96.789 b/ 6.351%
96.774
6.381%
96.778
6.373%
6.65%
6.69%
6.68%
a/ Excepting 1 tender of $150,000
b/ Excepting 1 tender of $10,000
Tenders at the low price for the 13-week bills were allotted 44%.
Tenders at the low price for the 26-week bills were allotted 2%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
$
28,380,000
Boston
3,563,210,000
New York
23,525,000
Philadelphia
61,375,000
Cleveland
25,130,000
Richmond
31,050,000
Atlanta
354,430,000
Chicago
47,580,000
St. Louis
15,345,000
Minneapolis
78,765,000
Kansas City
21,315,000
Dallas
271,245,000
San Francisco
270,000
Treasury
TOTALS
$4,521,620,000
Accepted
$
28,380,000
1,809,940,000
23,525,000
27,975,000
21,070,000
25,530,000
76,505,000
25,215,000
10,665,000
78,085,000
18,195,000
54,970,000
270,000
Received
$
36,555,000
5,232,800,000
25,165,000
44,190,000
30,905,000
8,850,000
334,545,000
43,260,000
25,400,000
39,580,000
19,775,000
501,830,000
310,000
$2,200,325,000 c/ $6,343,165,000
c/Includes $ 371,825,000 noncompetitive tenders from the public.
dVlncludes $ 155, 920,000 noncompetitive tenders from the public.
^/Equivalent coupon-issue yield.
B-550
Accepted
$
26,555,000
2,895,940,000
5,365,000
19,290,000
13,455,000
8,850,000
83,565,000
17,260,000
18,400,000
30,480,000
8,190,000
173,030,000
310,000
$3,300,690,000 d/
WASHINGTON, D.C. 20220
TELEPHONE 566-2041
FOR RELEASE AT 4:15 P.M.
November 14, 1977
TREASURY TO AUCTION $3f750 MILLION OF 2-YEAR NOTES
The Department of the Treasury will auction $3,750 million
of 2-year notes to refund $2,516 million of notes held by the
public maturing November 30, 1977, and to raise $1,234 million
new cash. Additional amounts of these notes may be issued
at the average price of accepted tenders to Government accounts
and to Federal Reserve Banks for their own account in exchange
for $112 million maturing notes held by them, and to Federal
Reserve Banks as agents of foreign and international monetary
authorities for new cash only.
Details about the new security are given in the attached
highlights of the offering and in the official offering
circular.
oOo
Attachment
B-551
HIGHLIGHTS CF TREASURY
OFFERING TO THE PUBLIC
OF 2-YEAR NOTES
TO BE ISSUED NOVEMBER 30, 1977
November 14, 1977
Amount Offered:
To the public
Description of Security:
Term and type of security
Series and CUSIP designation
$3,750 million
2-year notes
Series W-1979
(CUSIP No. 912827 HF 2)
Maturity date November 30, 1979
Call date
Interest coupon rate
No provision
To be determined based on
the average of accepted
bids
Investment yield To be determined at auction
Premium or discount.... To be determined after auction
Interest payment dates
May 31 and November 30
Minimum denomination availaole
$5,000
Terms of Sale:
Metnod of sale
Accrued interest payable by
investor
Preferred allotment
Deposit requirement 5% of face amount
Deposit guarantee by designated
institutions
Key Dates:
Deadline for receipt of tenders
Settlement date (final payment due)
a) cash or Federal funds
b) cneck drawn on bank
within FRB district wnere
submitted
c) cneck drawn on bank outside
FRB district where
submitted
Delivery date for coupon securities.
Yield auction
None
Noncompetitive Did for
$1,000,000 or less
Acceptable
Tuesday, November 22, 1977
by 1:30 p.m. EST
Wednesday, November 30, 1977
Monday, November 28, 1977
Friday, November 25, 1977
Monday, December 5, 1977
EMBARGOED FOR RELEASE
LXPkcTfcb 9 P.M.
P.S.T. OR UPON DELIVERY
Remarks of
The Honorable W. Michael Blumenthal
Secretary of the Treasury
to the
U.S.-U.S.S.R. Trade and Economic Council
Los Angeles, California
November 14, 1977
I appreciate the honor of speaking to you tonight, an honor
shared with Minister Patolichev, the distinguished representative
of the Soviet Union.
We attach special value to the presence of Minister
Patolichev here tonight. We know how difficult it is for him to
leave his heavy responsibilities in Moscow and journey nearly
halfway around the world to Los Angeles. We welcome him as an
old friend and valued colleague.
The presence here of high officials and business leaders of
our two countries is indicative of our mutual interest in
strengthening Soviet-American economic relations.
As a personal note, let me add that I am here tonight
because I favor expanded U.S.-Soviet trade — I am aware of both
the prospects and the problems of this trade — and I am willing
to work toward a sustained, healthy expansion of this trade.
We can take satisfaction in the great strides made in
developing closer ties in recent years. At the same time, we
recognize that much remains to be done.
Before I go into this, however, let me describe some of the
recent history.
B-552
-2Just six years ago, trade between the Soviet Union and the
United States was small. Two-way trade totaled $221 million in
1971. The Summit Meeting at Moscow in May 1972 marked a turning
point in our economic relations. It produced an agreement on
basic principles, which underscored the importance of commercial
and economic ties to our overall relations. Formation of the
Joint U.S.-U.S.S.R. Commercial Commission and the negotiation of
commercial agreements followed shortly thereafter.
With official encouragement, trade rapidly increased and
economic ties were broadened. By 1976, two-way trade totaled
$2.5 billion, about 12 times the 1971 level. Over 58 U.S. firms,
for example, had entered into industrial cooperation agreements
with their Soviet counterparts, and many other such agreements
were under negotiation.
The formation of the U.S.-U.S.S.R. Trade and Economic
Council in 1973 was an important step in fostering economic
relations.
Even after passage of the Trade Act of 1974, U.S.-Soviet
trade continued to grow, reaching $2.1 billion in 1975 and $2.5
billion in 1976. This was principally because of large shipments
of U.S. agricultural goods
Soviet imports of U.S. manufactured goods also increased
in 1975 and 1976, due in part to a "pipeline effect." Contracts
had been signed before passage of the Trade Act, and the
Export-Import Bank continued to finance U.S. exports in
accordance with prior commitments.
By 1977, we have seen a downturn in U.S.-Soviet trade.
Total trade fell to less than $1.4 billion in the first eight
months of 1977, compared with almost $1.9 billion in the
comparable period of 1976. In large part, this reflects reduced
purchases of U.S. grain, after the bumper harvest in the Soviet
Union last year. These purchases are expected to rise again as a
result of the shortfall in the Soviet grain harvest this year.
But U.S. exports of manufactured goods also decreased
markedly, to $391 million in the first eight months of 1977, a
decrease of 28 percent compared with the same period of 1976.
Our projections indicate that this downward trend in manufactured
goods will be even more pronounced during the rest of 1977.
There are indications of a downturn in Soviet purchases from
most other Western countries, also. This is probably due in part
to Soviet efforts to reduce their trade deficit with the West and
to restrain the rate of increase in their hard-currency debt.
-3That brings us to today — and to the question of the future
of U.S.-Soviet trade. Will we remain where we are today, or can
we expect expansion? And what can we do to encourage this
expansion?
I am happy to note that there are signs of progress toward
tne normalization of economic relations which we all desire.
Tnere has been an improvement in the tone of the political
relations between our two countries. There has also been an
increase in the number of persons emigrating from the Soviet
Union. In working toward normalization, factors like these
affect Soviet-American economic relations, and can help to
maintain trade momentum and improve the structure we have built.
I believe that these favorable developments are being noted
by the American people and the Congress, as well as by the
Executive Brancn. We hope that trends will continue to a point
where we can reach complete normalization of our trading and
credit relations.
I joined Minister Patolichev in a meeting with President
Carter, during the Minister's brief stop in Washington before
coming up here. The President expressed his hope for expanded
economic relations with the U.S.S.R. in the improving context
wnich I have just discussed. He also looked forward to the time
wnen these relations would be fully normalized.
Our economic relations not only are deeply affected by our
political relations, but they in turn influence our political
relations in ways which are almost always beneficial. They lead
to closer contacts between our two peoples, which lead to
improved understanding, which then can strengthen the fabric of
peace. They give both of our nations an enduring interest in
continued good relations.
Our relations inevitably comprise elements of both
cooperation and competition. By promoting economic
relationships, we foster the cooperative aspects, to our mutual
benefit and the benefit of the entire world, which so deeply
desires continued peace.
The United States Government strongly favors increased trade
witn the Soviet Union and the continued improvement of economic
relationships. It is a major aspect of our goal of building a
better and more cooperative international environment.
I would like to see our economic relations develop still
more as a tie between our nations, linking our two systems, so
different in many respects, in mutually advantageous
collaboration.
-4On the American side, the development of such relations
should be in harmony with basic principles which we consider to
be essential elements of our system. We rely on private
initiative as the impetus behind economic activity in the United
States. We prefer to limit government intervention to what is
required in the national interest. In international trade, we
are committed to an open trading system, although we recognize
that in some circumstances it may be necessary for governments to
intervene.
We recognize that in doing business with a much different
system, such as that of the Soviet Union, a large measure of
adaptation is necessary to reach solutions acceptable to both
sides. The commercial agreement negotiated in 1972 provided that
both governments would promote cooperation in projects for the
development of natural resources and in manufacturing.
The United States has been a latecomer in this field,
compared with other major Western nations which have entered into
more cooperation agreements than the United States. These have
involved, for example, gas field equipment and large diameter
pipe, to be paid for with natural gas — forestry equipment and
pulp plants, to be paid for with wood products —
and aluminum refineries, to be paid for with aluminum. The
agreements have resulted in large increments of trade between the
Soviet Union and these countries.
Americans are catching up, however, as indicated by new
agreements between American enterprises and their Soviet
counterparts. The United States Government welcomes such
cooperation, while recognizing that the decision to participate
rests with the parties directly concerned. We can all take
satisfaction from the increasing number of cooperative
arrangements successfully underway or under negotiation.
These arrangements have varied widely in type, from simple
licensing agreements to complex compensation deals in which
American companies supply hundreds of millions of dollars worth
of equipment and services — and products of the project are
exported from the Soviet Union with proceeds used to rep&y loans
from Western banks.
Compensation arrangements were involved in about one-fourth
of the value of Soviet orders placed in the United States for
machinery in the 1973-1975 period. Deputy Minister Sushkov has
indicated that an even larger percentage will involve
compensation arrangements in the 1976-1980 period.
However, these arrangements pose special problems.
-5In some cases, significant problems come from the very large
size of the projects, the large credits required, and the
tremendous quantities of product to be marketed outside the
Soviet Union. The dimensions of such projects exceed the
capacity of all except the largest consortiums of Western
countries, and even these feel the need of assurances of support
from their governments. In seme cases the projects are so large
that they can have significant impact upon the economy of the
United States -- for example, projects involving large imports of
materials in short supply, or manufactured goods in quantities
which might cause market disruption.
Problems have arisen in resolving differences in customary
practices in the two countries. For example, American investors
frequently think in terms of equity investment in foreign
projects, but this has not been possible in the Soviet Union.
Also, American firms have had a legitimate interest participating
in quality control of products to be sold outside the Soviet
Union under the American firm's brand name. In some cases, there
has been the problem of determining the degree of administrative
responsibility to be exercised by an American firm over
operations in the Soviet Union to which it contributes its
know-how.
There have also been problems in agreeing upon prices, and
tne basis for adjusting prices to reflect inflation and changes
in world markets. On the Soviet side, there has been the desire
to insure stable marketing arrangements as an important element
in long-term planning.
Experience has shown that, with good will on both sides,
sucn problems can be resolved. In the process, both sides gain a
better understanding of each other's point of view, paving the
way for further advances in cooperation.
An important problem in our trade relations is the imbalance
between our imports and exports. In 1976, U.S. exports to the
Soviet Union totaled over $2.3 billion, while our imports totaled
only $221 million. These imports were principally raw materials
and semi-processed goods—platinum-group metals, petroleum and
products, and chrome ore. Finished manufactured products
accounted for a minor share.
We believe that there are important markets which can be
developed in the United States for Soviet products under existing
trading conditions. We have welcomed the opportunity to
collaborate in marketing seminars and to explore means of
developing markets for Soviet products in the United States. We
look forward to cooperating in similar seminars in the future.
-6Industrial cooperation arrangements involving compensation
or buy-back provisions, also offer possibilities of greatly
increasing Soviet exports to the United States. The Occidental
Petroleum fertilizer project is a good example. It is expected
to generate billions of dollars in Soviet exports to the United
States of ammonia and other products over the years.
There have been other significant moves in developing our
economic relations. About a year ago, Belarus Machinery of
U.S.A., Inc., of Milwaukee, was formed to market Soviet tractors
and related equipment in the United States. The U.S.-U.S.S.R.
Marine Resources Company was set up in Seattle in mid-1976, with
ownership divided equally between the Soviet fishing fleet
organization and the Bellingham Cold Storage Company.
There is also the possibility that Soviet banking interests
will be represented more actively in the American banking
community.%
These developments can strengthen the infrastructure of
U.S.-Soviet economic relations and foster better understanding.
Much remains to be done in promoting Soviet-American
commercial relations. There is a need for more complete and
timely information on Soviet projects, to assist American
businessmen in meeting Soviet import needs. Negotiating
procedures need to be improved so that agreement can be reached
more quickly. Better working conditions in Moscow and an
increase in the number of accredited offices would promote
U.S.-Soviet commercial relations, as would the facilitation of
visas and travel for American businessmen.
In the process of developing cooperation between the
economies of our two countries, the U.S.-U.S.S.R. Trade and
Economic Council plays an important role. It does more than
provide facilities and assistance, to businessmen in promoting
trade. It serves a valuable purpose in identifying existing and
potential problems, and assisting in their solution. It brings
to the attention of both governments the difficulties encountered
by businessmen, and it makes recommendations as to how to resolve
them. It has emphasized the need for a stable and predictable
commercial environment in which economic relations can flourish,
without being hostage to passing political, considerations.
I commend the Council for the valuable functions it has so
effectively carried out, and look forward to its continued
service in strengthening relations between our countries.
-7In conclusion, I would like to read to you a message from
President Carter to the Council. It is signed by the President
at the White House and reads as follows:
"I am pleased to greet the delegates at this meeting of
the directors and Members of the U.S.-U.S.S.R. Trade
and Economic Council.
In the few years since its inception, this Council has
become a catalyst in the expansion of U.S.-Soviet trade
relations and has provided a much needed forum for the
resolution of problems and for the discussion of new
ideas. My Administration firmly supports expanded
bilateral trade as an important factor in promoting
world peace and goodwill.
"I hope that the Council will continue its efforts to
strengthen the commercial and economic ties between our
two countries, and that this meeting will be a highly
productive one for all concerned."
I would like to add my own personal good wishes to those of
those of the President for the continuing success of the Council.
Thank you.
Departmental theTREASURY
WASHINGTON, D.C. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
EXPECTED AT 12:00 P.M. EST
NOVEMBER 16, 1977
REMARKS BY HELEN B. JUNZ
DEPUTY ASSISTANT SECRETARY OF THE TREASURY
FOR COMMODITIES AND NATURAL RESOURCES
BEFORE THE
CONFERENCE BOARD CONFERENCE ON THE
INTERNATIONAL BUSINESS OUTLOOK
WEDNESDAY, NOVEMBER 16, 1977
The North/South Dialogue: Where Do We Go From Here?
Your program committee has asked me to talk about
,T
The North/South Dialogue: Where Do We Go From Here?" This
title, however, faces me with somewhat of a problem because
in order to discuss "Where we go from here", we need to
have a fairly clear view of where we are. This has been
made particularly difficult because the phrase "North/South
Dialogue" has been used by the developing countries (LDCs)
to cover a multitude of questions, problems, and demands
to which they expect the developed countries (DCs) to make
positive responses.
In its broadest sense, the North/South Dialogue addresses
the LDCs' demands for the establishment of a New International
Economic Order (NIEO). The supporters of the NIEO argue that
B-553
- 2-
the current world economic structure is arranged in such
a way that the developed countries reap a more than
proportionate share of growth in prosperity and advances
in technology. Consequently, the eye-catching or better,
ear-catching parts of the dialogue largely have concerned
themselves with a number of demands aimed at changing the
existing market and political structure, demands that of
their nature could neither be met nor, if met, would actually
achieve the LDCs1 goals in the longer-run. Moreover, this type
of dialogue has tended to obscure both some of the very serious
problems confronting individual countries during most of the
1970fs and the solutions the world community could realistically
develop. For this reason, I shall attempt to focus on those
economic issues which are 'pressing and which can be resolved
to the demonstrable benefits of both the South and the North.
Frustration on the part of the developing countries about
the way the world economy functioned and their role within
the world economic structure has in fact been growing for a
long time. With the rising post-war prosperity, aspirations
in all countries, developed and developing also have been
rising and frustrations among the poorest within and among
nations have been increasing commensurately. In many developing
countries, levels of frustration may well have risen even
-
J -
further because of unrealistic expectations of the salutary
effects of political independence on domestic economic problems
and on the well-being of their populations.
But, in the past,
the developing countries generally have not spoken with one
voice nor have they been as vocal about their wishes and their
needs as in recent years.
The turn the North/South Dialogue
has taken in this respect clearly is associated with the oil
embargo of 1973 and subsequent events.
In the' post-war era, there are few watersheds in international relations which are as clearly defined or as pervasive
in their effect on world economic affairs as the successful
actions of the OPEC oil cartel.
OPEC's demonstrated ability
to stun industrialized economies served a catalytic function
among LDCs, prompting them to close ranks as never before and
to direct their efforts toward the creation of organizations
that would enable them to duplicate OPEC's success in other
commodities.
As we are all aware, the euphoria in LDCs which accompanied
OPECTs success consequently turned to dismay, as prices for
commodities, other than oil, fell sharply when in 1974 the
world economy suffered its most severe recession since the 1930s.
Once the commodity boom busted, OPECTs higher oil prices had a
doubly negative impact on oil-importing LDCs.
First, higher oil
prices contributed significantly to the recession, thus reducing
- 4-
demand for LDC exports and disrupting economic progress.
Second, the quadrupling of oil prices by raising import costs
not just of oil, but also of manufactured products had direct
and devastating effects on the external payments balances of
LDCs.
Ironically, the greater the damage of OPEC actions,
the more the "South" turned to the developed countries of the
"North" to solve their difficulties.
Thus, it was not
surprising that, when the DCs sought a consumer/producer
dialogue on energy, the LDCs insisted the dialogue be
broadened to include virtually every major issue in LDC/DC
economic relations.
Consequently, when the Conference on
International Economic Cooperation (CIEC) met in December, 19
it established four commissions to deal with issues arising i
energy, development, raw materials, and finance.
It would not be very meaningful to attempt to strike a
balance on the result of CIEC.
The Conference was part of
the ongoing, evolving dialogue and because of its structure,
with 19 LDCs deriving their mandate from the Group of 77,
which had shaped the NIEO, there was little negotiating
flexibility.
It meant that anything short of full endorse-
ment of all the elements of the NIEO could not be considered
a success by the LDCs.
Nevertheless, I believe that the CIEC
made a major contribution in helping to delineate the realist
limits to demands and commitments of developing and developed
- 5-
countries.
Concretely, the DCs committed themselves to
increase aid flows and to negotiate a Common Fund to facilitate
the financing of commodity agreements. On the other hand, the
LDCs failed to convince the developed countries that the
solution to. many development problems lies in structural
changes in the world economy.
In particular, developed
countries argued throughout CIEC that many of the LDCsT
proposals, which would have impeded the functioning of
the goals they sought, but would actually be counter productive.
Most of the issues raised during CIEC remain on the table
in some form or other, and
can roughly be grouped under the
headings of development assistance, external debt, trade, and
commodity policy.
With respect to development assistance (ODA) participants
in CIEC were able to agree on the need for progressive and
substantial increases in part through a capital increase in
the World Bank.
In addition, DCs agreed to provide a $1 billion
Special Action Program for low income countries with the
most acute financial needs.
While these are important commitments, it is even more
important to recognize that there are limits in this area.
First
there is a real limit to what ODA can achieve.
Resource
transfer can promote development, but it cannot ensure it.
Unfortunately, as we ourselves have come to learn in the
- 6-
context of urban and regional development, economic progress
is not to be bought by money alone.
Authorities must assure
that their own policies as well as the social/economic-climate
is conducive to the productive use of financial resources.
Second, developed countries have limited resources,
for which there are numerous competing uses.
LDCs too often
dismiss this type of limit as purely political.
But even in
countries as wealthy as the United States, the ability to tax
and borrow for all sorts of purposes is circumscribed and increased
foreign assistance means increased tax burdens or government
deficits.
These financial limits are real for responsible
governments, and become increasingly important during prolonged
periods of high unemployment and large budgetary deficits.
Finally, the degree of flexibility with respect to the
amounts of official development assistance that can be
provided also depends importantly on the perceived effectiveness
with which countries employ these resources to improve the
well-being of all their citizens.
A second major issue related to the flow of ODA involves
the repayment of assistance loans already made.
The LDCs
ar^ue that for many countries debt burdens are excessive©
Consequently, they seek immediate debt relief for general
categories of LDCs, especially the poorest among them and they
identify debt relief as an accepted form of development
- 7-
assistance.
The LDCs' demands in this respect proved to be so
fundamentally incompatible with the views of the DCs that the
ministerial representatives to the concluding meeting of the
CIEC simply declared that "The participants could not reach
agreement on the various aspects of external indebtedness."
The issue of debt relief will be with us for some time
to come.
Our position on debt relief is economically sound
and has been clearly presented to the LDCs in numerous fora.
We cannot accept proposals for generalized or automatic
debt relief because adoption of such proposals would violate
the fundamental character of loan agreements, in which rights
and obligations are contractually agreed between an individual
debtor and creditor.
Moreover, we believe the diversity of
individual debt situations justifies fully, and in fact
requires, the traditional case-by-case approach.
The effect of
generalized debt relief would be to redistribute aid flows
on the basis of past borrowings and debt service payments,
rather than on the basis of current need.
In addition,
generalized debt relief would tend to cast in doubt the
creditworthiness of LDCs, penalizing those countries which
have worked hard to establish a good credit standing and need
to maintain their access to capital markets.
while the flows of official capital are important to the
development process, they constitute only a fraction of overall
- 8-
capital needs of LDCs.
Therefore, maintenance of a favorable
investment climate is a paramount element in achieving development aims, both in terms of preserving domestic capital
availabilities for domestic use and in attracting sufficient
private capital flows from abroad.
According to projections
made by the World Bank, an average rate of real growth of
6 1/2 percent in the LDCs for the period 1977-1985 will be
associated with a total capital flow of $62 billion in current
dollars.
Moreover, the Bank estimates that private lending
and direct investment will account for over 56 percent of
the capital flow to LDCs between now and 1985, compared to
46 percent in 1967-1973.
The Bank cautions that these
projections provide only an order of magnitude, but I feel
that even given a wide margin of error they illustrate my
point.
During the course of CIEC, considerable progress was
made on identifying those elements essential to a favorable
investment climate.
However, when it came to assurances
regarding the actual security of investment there was little
real progress.
The seriousness of the issue of security of investment
can be illustrated by developments in the LDC raw materials
sector.
Developing countries' investment policies have
frequently included outright expropriation of raw materials
- 9-
projects and/or the forced renegotiation of investment contracts.
The net effect of this has been to reduce the attractiveness
of foreign investment in the raw material and primary industries
in LDCs.
In fact, the current pattern of investment shows a
shift away from the development of relatively rich resources in
LDCs to higher cost
projects in developed countries, where
there is a lesser perceived risk of abrupt and arbitrary political
changes in the way of doing business.
If these trends continue,
mineral prices will inevitably be higher than they need be and
LDCs will not be able to develop their natural resources, and
consequently, will suffer losses in employment opportunities
and export earnings.
The need for foreign capital to develop raw material
projects in LDCs is substantial, to say the least. A recent
World Bank study, assuming relatively moderate growth in world
demand, estimated that gross investment in the nine major
non-fuel minerals would need to total $73 billion over the
period 1976-1980 if world requirements are to be met;
$39 billion of this investment would need to be in LDCs.
For
the period 1981-85, the figures were $106 billion and $57 billion,
respectively.
.
Thus, investment requirements in raw materials
TfiCs are estimated to total $95 billion over the decade
starting last year.
The Bank goes on to project that foreign
ra-ital sources will have to provide up to two-thirds of that
- 10 -
$95 billion.
We believe that policy actions should help assure
that these investment flows will actually occur.
The major
emphasis should be on improving the investment climate in the
developing countries and this could be helped along by
multilateral efforts.
For example, the expression of interest
by a multilateral institution such as the World Bank at the
early stages of a project - and the prospect of eventual World
Bank participation - is likely to promote and facilitate
contract terms under which the interests of the host country
and the foreign investor are sufficiently protected to
reduce significantly the chances' of expropriation or forced
renegotiation.
Consequently, we are supporting increased lending for
investment in the raw materials sector by the World Bank Group.
The Administration has requested, and the Congress has authorized,
a $1.6 billion subscription by the United States to an $8.4 billion
increase in the capital of the IBRD.
DCs
We, as well as other
have expressed the hope that this increase will enable the
Bank to broaden its activities in the energy and raw materials
area
without prejudicing other priorities.
On the bilateral side, the U.S. Overseas Private Investment
Corporation (OPIC) along with its counterpart institutions in
othei industrialized countries can aid in reducing political
- 11 -
risk through greater involvement in investment in raw materials
projects.
OPIC already has taken steps to increase its
participation in minerals projects.
While the objective need for significant investment flows
into the raw material area is undisputed, LDCs view such
investments with mixed feelings. A major tenet of the
NIEO is that DCs, through their market power, exploit the
natural resources of LDCs cheaply, while monopolistic practices
of business and labor drive up prices of goods manufactured
in the DCs. As a consequence, there is a long-run tendency for
the terms of trade of LDCs to decline.
In addition, this
theory holds that restrictive practices in DCs also prevent
the LDCs from sharing the DCs1 technological advances and
hamper, their efforts to broaden their productive base away
from raw materials into sectors that have greater employment
and value added potential.
This theory has given rise to
two sorts of demands; first, in the trade and investment area f
the transfer of technology and preferential access for LDC
products to the markets of DCs and, second, for indexation of
commodity prices and other commodity policies with the aim
of improving the LDCTs terms of trade.
With regard to market access a number of important policy
initiatives have already been taken.
However, the potential
effect of many of these initiatives has not yet been
- 12 -
realized.
Most DCs are operating generalized preference schemes
for LDC exports and there is the standing commitment within
the MTN to provide "special and more favorable treatment" for
LDC trade.
In addition, LDCs will not be expected to
provide trade concessions "inconsistent with their economic,
financial and development needs" in return for the concessions
they receive from advanced economies in the MTN.
A brief survey of the composition of non-oil LDC exports
in the past twenty years or so demonstrates that real progress
toward increasing LDC manufactured exports can be made. World
Bank calculations show that in 1955, 76 percent of total LDC
exports is accounted for by agricultural products, 13 percent
by ores and minerals, and only 10 percent by manufactures.
By
1976 agricultural products accounted for only 43 percent, ores
and minerals were essentially unchanged at 16 percent, and
the share of manufactures had quadrupled to 41 percent.
The LDCs' share in total world exports of manufactures grew
from 4.3 percent in 1960 to 6.7 percent in 1975. While these data
chart impressive progress, these advances are concentrated among
relatively few LDCs.
Nevertheless, the framework for significant
expansion in LDC trade is being established.
But in order
to realize the potential, LDCs for their part must establish
themselves as reliable and efficient suppliers in the market;
developed countries for their part must manage their economies
- 13 -
so as to overcome sectoral difficulties that occur as new
capacity and efficient suppliers enter world markets.
Although trade concerns remain vitally important, the
LDCs have made commodity policy one of the major if not the
major issue of the dialogue. As producers and exporters of
primary commodities, they see themselves as powerless to
affect their economic future in a world dominated by raw
material consumers.
Inflation and recession in the developed
world have direct and significant effects on the economic
situation in the LDCs and it is their current objective to
reduce these effects through the establishment of international
commodity agreements.
The LDCs' concern for commodity price stability is
readily understandable.
Fluctuating commodity earnings can
disrupt economic development plans through periodic reductions
in domestic savings, tax revenues, and foreign exchange flows
and they can distort overall patterns of development through
surges in inflation. Moreover, declining prices, even if
temporary, can result in high unemployment in particular
sectors, which in turn can lead to political instability.
The LDCs' concern about large fluctuations in commodity
prices is shared by consuming countries.
First, economic
instability in LDCs and large variations in profitability
can discourage investment flows and result in supply difficulties
- 14 -
in the longer run.
Second, large increases in primary commodity
prices, even if later reversed, can fuel inflation in the
industrial economies. Manufacturers and food
processors
may justify price hikes on the basis of changes in input costs.
Consequently, temporary increases in the prices of raw materials
may get translated into price changes for finished goods.
And increases in consumer costs, in turn, provide justification
for wage increases.
Once wage costs move up, the commodity price
rise becomes imbedded in the price structure because of the
downward stickiness of nominal
wages. • The overall effect is
a ratcheting-up of the general price level.
The recognition of mutual producer/consumer interests in
the commodity area has led the Carter Administration to take
•a positive posture towards the negotiation of commodity
agreements that aim to stabilize prices.
If such agreements
are to be effective, they ideally should operate through
buffer stocks of sufficient size to defend both price
floors and price ceilings.
Buffer stock operations allow
the price mechanism to perform its function of allocating
resources to the most efficient producers.
Supply controls -
export or production quotas - are less acceptable, because they
can reduce supplies and raise prices, rather than stabilize
them.
Under a supply control system, low cost producers are
forced to cut back along with high cost producers, thereby
- 15 -
locking the industry into less efficient patterns of production.
In addition, production controls and export quotas also tend
to freeze existing production and market patterns since both
are usually allocated on the basis of some past average of
market shares.
Even with an international stock arrangement, price
stabilization results may be diminished by domestic tax
policies when they prevent producers from realizing higher
revenues stemming from higher prices. Under such circumstances,
new investment will be deterred and the tax authorities,
in effect, control production and supply and tend to render
international price stabilization efforts ineffective.
In practice, it is not easy to negotiate and implement
effective price stabilization agreements.
The nature of
production and distribution differs from commodity to
commodity and from country to country.
Thus, different kinds
of commodities may require different types of buffer stock
arrangements.
For example, the tin agreement depends in part
on an internationally held stocking mechanism.
For sugar,
internationally coordinated, nationally held stocks have been
agreed upon.and the coffee agreement promotes the holding of
national stocks through export quota arrangements
in the case
of coffee, frequent allocation of country quotas ensures
that production patterns remain flexible.
- 16 -
The tin and coffee agreements, as well as the proposed
sugar agreement, all hold sufficient promise for price
stabilization efforts to be effective and, therefore, U.S.
participation was considered to be warranted.
For the LDCs,
however, price stabilization through commodity agreements
represents only one step towards their overall commodity
objectives.
They seek to establish a mechanism by which
both prices and export revenues can be raised automatically.
This would be achieved in part by indexing commodity prices to
the prices of manufactured exports from developed countries. We,
on the other hand, consistently have rejected attempts to set
artificial prices in any commodity agreement.
The focal point of the international commodity discussions
currently are the negotiations on a Common Fund which are
taking place in Geneva at this time.
The LDCs sees the Common
Fund as a broad commodity organization, which would not only
finance buffer stocks, but also a whole range of other
activities in the commodity area.
The type of Common Fund
we have in mind would facilitate the financing of buffer
stock agreements only.
It would do so by consolidating the
financial activities of buffer stock organizations in the
Common Fund and, thereby, achieving significant financial
efficiencies.
Because the Common Fund has become an issue
of central political significance to LDCs, bridging the gap
- 17 -
between our concept of a Common Fund and that of the UNCTAD
may be even more difficult than it otherwise would have been.
I have attempted to outline some of the major issues
we have faced and will continue to face in the Dialogue.
The
question that still remains is "where do we go from here"?
As I indicated earlier, the Dialogue as we have come to know
it involves a virtually unchanging compendium of numerous
LDC demands and proposals, some justified and reasonable
and some not.
During the course of the dialogue, we have attempted
to move away from those issues on which we could only make
a hollow response and to impart a greater sense of realism
to the discussions.
On many issues, the interests of developed
and developing countries intertwine.
But political rhetoric
has tended to obscure those areas in which actual progress
has been and is being made. A true Dialogue would attempt
to determine which elements of the issues I have discussed
stand little or no chance of being resolved.
We should
attempt to eliminate these issues from the current agenda
and concentrate on those where the need is most pressing
and where we have some hope of making real progress.
Realistically, even with the greatest "political will,"
we can only do so much to alleviate the hardships suffered by
parts of our own population as well as those faced in the
- 18 -
developing world.
The most important contribution we can make
is to assure a return to sustainable, adequate economic growth.
An expanding world economy would provide more reliable markets
and more stable prices for exports of LDCs as well as create
an economic environment which would do much to keep the
international trading system free.
While we can make significant
direct contributions by means of transfers of resources to
LDCs, we must also bear in mind that the most critical factors
in development are the policies and efforts of the developing
countries themselves.
LDC governments must have the political
will to address their problems realistically and to marshall
domestic support for required policy changes.
We -can aid
in resolving the continuous and serious problems of poverty
and development, but our help cannot substitute for their
resolute efforts.
The potential of official financial
assistance, while important, pales in comparison to private
sector financing.
Thus, while governments have a critical
part to play in encouraging and supporting the development
process, the private sector at home and abroad must continue
to play the major role.
We have already committed ourselves to increasing aid
flows, to a constructive approach to commodity problems, to
developing trade opportunities for LDCs and to putting in place
sufficient official resources to bridge temporary external
- 19 -
payments problems for developed and developing countries alike.
We are now entering a stage of the dialogue where our
focus - recently expanded in CIEC - must narrow to specific
objectives which have been identified or given added
significance during the course of the last three years. We
feel that CIEC's broad scope has given the dialogue perspective
and given its participants a stronger purpose, but that we
must now proceed to a workaday setting and get on with the
job.
It is our hope that the LDCs share this view and that
we will be able to effectively move the discussions into
specialized fora where the objectives are definable and
where the work can proceed with a minimum of political
rhetoric.
DepartmentoftheJR
^WASHINGTON, D.C. 20220
TELEPHONE 566-2041
FOR RELEASE AT 4:00 P.M.
November 15, 1977
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $5,800 million, to be issued November 25, 1977.
This offering will provide $300
million of new casn for tne
Treasury as the maturing bills are outstanding in the amount of
$5,505 million. The two series offered are as follows:
90-day bills (to maturity date) for approximately $2,300
million, representing an additional amount of bills dated
August 25, 1977,
and to mature February 23, 1978
(CUSIP No.
912793 N8 5 ) , originally issued in the amount of $3,404 million,
the additional and original bills to be freely interchangeable.
181-day Dills for approximately $3,500 million to be dated
November 25, 1977, and to mature May 25, 1978
(CUSIP No.
912793 Q5 8) .
Botn series of bills will be issued for casn and in
excnange for Treasury bills maturing November 25, 1977.
Federal Reserve BanKS, for themselves and as agents of foreign
and international monetary authorities, presently hold $2,748
million of tne maturing bills. These accounts may exchange
Dills tney nold for tne bills now being offered at tne weighted
average prices of accepted competitive tenders.
The bills will be issued on a discount basis under
competitive ana noncompetitive Didding, and at maturity
their par amount will oe payable without interest. Except for
definitive bills in the $100,U0U denomination, which will be
available only to investors who are aole to show that tney are
required oy law or regulation to hold securities in physical
form, Doth series of Dills will be issued entirely in
book-entry form in a minimum amount of $10,000 and in any
higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Brancnes, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks ana
Brancnes and at tne Bureau of the Public Debt, Washington,
n c
20226/ up to 1:30 p.m., Eastern Standard time, Monday,
Novek>er 21, 1977.
Form PD 4632-2 (for 26-weeK
series) or Form PD 4632-3 (for 13-weeK series) should be used
to submit tenaers for bills to be maintained on the book-entry
records of tne Department of tne Treasury.
B-554
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
Dorrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
tor the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on November 25, 1977, in cash or
other immediately available funds or in Treasury bills maturing
November 25, 1977.
Cash adjustments will be made for
CeS bet een the
fnofo^
"
P « value of the maturing bills
accepted in exchange and the issue price of the new bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt*
Contact: George G- Ross
202/566-2356
FOR IMMEDIATE RELEASE November 15, 1977
Treasury Announces Meetings With Tax Authorities
From France, Germany, and the United Kingdom
The Treasury Department today announced that representatives from the Office of the Assistant Secretary (Tax Policy)
and the Internal Revenue Service are meeting regularly with
tax authorities from France, Germany, and the United Kingdom
to improve cooperation in practical ways under existing tax
treaties.
These efforts include the study of more effective methods
of avoiding double taxation, simplification of arrangements
for the assistance of taxpayers through mutual consultation,
and the exchange of tax-related information.
Tax treaties between the United States and other countries
provide for the relief of double taxation on profits and income.
Such treaties also authorize the exchange of information to
carry out the purposes of the treaties and to prevent tax evasion.
The growth of international operations by both companies
and individuals has made it necessary for the United States and
other countries to meet and coordinate exchanges of information.
These meetings are intended to assist each country in ascertaining
the tax liabilities of taxpayers who have interests and activities
in more than one of the countries.
These exchanges are made in accordance with the provisions
of the relevant tax treaties and under rules which protect the
confidentiality of a taxpayer's affairs.
oOo
B-555
Contact: A.M. Hattal
202/566-8381
FOR IMMEDIATE RELEASE November 15, 19 77
TREASURY ANNOUNCES INITIATION OF
ANTIDUMPING INVESTIGATION ON AUDIBLE SIGNAL ALARMS,
FROM JAPAN
The Treasury Department announced today that it will
begin an antidumping investigation of audible signal alarms
from Japan.
The Treasury Department's announcement followed a
summary investigation conducted by the U.S. Customs Service
after receipt of a petition filed on behalf of Delta Electric
Division of Halle Industries, Inc., alleging that the merchandise was being dumped in the United States. Information contained in the petition indicates that audible signal alarms
imported from Japan are being sold in the U.S. at less than
fair value. The petition also includes information indicating that the alleged "less than fair value" sales may be
injuring a U.S. industry. If sales at less than fair value
are determined by Treasury, the U.S. International Trade Commission will decide the injury question.
For purposes of Treasury's investigation, the term
"audible signal alarms," also referred to as "smoke detector
horns," means electromechanical audible signal alarms having
a signal of at least 85 dbA at 10 feet and suitable for use
as a component of smoke detectors.
Notice of this action will appear in the Federal Register
of November 16, 1977.
Imports of this merchandise from Japan in calendar year
1976 were valued at approximately $2 million, and during the
first nine months of 1977, $3.5 million.
o
B-556
0
o
ttmentoltheJREASURY
TELL
, D.C. 20220
E 566-2041
November 21, 1977
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,301 million of 13-week Treasury bills and for $3,502 million
of 26-week Treasury bills, both series to be issued on November 25, 1977,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
13-week bills
maturing February 23, 1978
Price
Discount
Rate
98.483
98.477
98.479
6.068%
6.092%
6.084%
26-week bills
maturing May 25. 1978
Investment \
:
Rate 1/
Price
6.25%
6.27%
6.26%
Discount
Rate
6.367%
6.392%
6.385%
:: 96.799
: 96.786
: 96.790
Investment
Rate 1/
6.67%
6.70%
6.69%
Tenders at the low price for the 13-week bills were allotted 26%.
Tenders at the low price for the 26-week bills were allotted 6%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTSAND TREASURY:
Accepted
Received
$
19,235,000
Boston
3,691,705,000
New York
27,265,000
Philadelphia
54,455,000
Cleveland
27,245,000
Richmond
49,600,000
Atlanta
523,815,000
Chicago
41,315,000
St. Louis
23,330,000
Minneapolis
24,520,000
Kansas City
48,760,000
Dallas
276,625,000
San Francisco
$
15,235,000
1,907,815,000
27,265,000
34,040,000
20,245,000
35,030,000
99,940,000
19,475,000
18,110,000
24,520,000
44,540,000
54,690,000
$
225,000
225,000
Location
Treasury
TOTALS
Received
$4,808,095,000
-26,005,000
4,747,150,000
10,420,000
81,820,000
48,075,000
13,575,000
476,150,000
48,175,000
20,740,000
28,420,000
15,260,000
543,645,000
195,000
$2,301,130,000a/: $6,059,630,000
a/includes $ 346,960,000 noncompetitive tenders from the public.
b/lncludes $ 163,635,000 noncompetitive tenders from the public.
^/Equivalent coupon-issue yield.
B-557
Accepted
$
7,005,000
2,843,950,000
10,420,000
36,820,000
37\075,000
13,075,000
186,150,000
20,175,000
14,740,000
27,920,000
9,260,000
295,145,000
195,000
$3,501,930,000b/
REMARKS BY THE
SECRETARY OF THE TREASURY
THE HONORABLE W. MICHAEL BLUMENTHAL
BEFORE
THE BOND CLUB OF NEW YORK, INCORPORATED
NOVEMBER 21, 1977
It's good to be here today — to discuss a problem that
concerns us greatly in Washington — the weak condition of our
equities markets.
We're not dealing here with merely a Wall Street problem.
The ability of American companies to raise equity capital — to
expand without adding to debt burdens -- is a key requirement
for a sustained, non-inflationary economic expansion. The health
of the economy — and our economic future -- depends on it.
The issue is how to provide more equity capital. For it is
equity capital which will help generate new products, new plant
and equipment, new jobs and, ultimately, a better quality of life
for all Americans.
Ironically, tne weakness of equity markets comes at a time
when our capital markets, as a whole, are the envy of the world.
In 1976, they provided a total of $236.5 billion in net new
long-term funds for public and private purposes — compared to
$142 billion raised in 1972v
This size is unmatched by any other country, not to mention
the depth, flexibility and openness of our capital markets. No
other country can raise and allocate large amounts of capital
with less government interference. And no other country can
direct capital more effectively to where it is needed.
Indeed, the other major segments of our capital markets —
for government securities, corporate bonds, and mortgage credit
— are relatively healthy and performing well.
During 1977, for example, the Federal Government expects to
issue more than $50 billion of securities, excluding rollovers.
State and local governments will increase their outstanding
long-term debt by $24 billion. In the case of municipal issuers,
that represents a 28 percent increase over 1976.
B-558
-2The corporate bond markets have provided $30 billion in new
funds through long-term debt securities this year. At the same
time interest rates in this sector remained nearly flat. The
rates of AA-rated industrials were 7.97 percent at the beginning
of this year, and are only slightly higher now at 8.05 percent.
We find the same impressive performance in the mortgage
markets which have financed near record levels of housing starts
— a "key to our economic expansion. Despite this rapid growtn,
mortgage rates have remained stable, and funds have been
plentiful.
Yet while these segments of our capital markets — primarily
involving debt securities -- have done relatively well, our
equity markets have been languishing.
The Dow Jones Industrial Average has dropped nearly 200
points this year, to about the same level it was in 1964 -without adjusting for inflation. This represents a dramatic
erosion of the equity values of recent years.
With that erosion in values, it is small wonder that
individual investors have left the market in droves. Tne number
of individual shareholders dropped from 31 million in 1970 to
less than 25 million recently.
Many individuals have found other investments with better
safety of principal and after-tax returns — for example,
corporate bonds — and an increasing amount of individual savings
is finding its way into pension funds and other institutions.
Probably adding to this disenchantment is a feeling by
individuals that they cannot compete with institutional
investors.
Moreover, not only individuals have shifted away from common
stocks. Private pension funds, for example, with now over $100
billion in common stocks, have been placing a larger share of new
investment in fixed-income securities. Common stocks held by
pension funds have declined from 70.8 percent of tneir total
assets in 1972 to 64.6 percent in 1976.
This is a serious development, because pension funds and
other institutional investors have become the mainstays of tne
equity markets. In 1976, institutions accounted for 70 percent
of the value of all New York Stock Exchange public trading.
These developments in the equity markets are having a
profound and worrisome effect on new issues.
The amount of public offerings of newly-issued equity
securities has fallen dramatically since the late 1960fs. From
1968 through 1972, industrial firms raised an annual average of
$7.4 billion in common stock offerings. Since 1973, such common
stock offerings have averaged only $2.6 billion per year.
-3Only tne higher quality, well-capitalized companies have
enjoyed access to the equity markets in recent years. The
problem is even more serious for companies seeking to sell equity
to the public for the first time. During the first six months of
1977, initial common stock offerings by these companies totaled
only $230 million, compared to $3.3 billion in 1972.
The result has been a dramatic -- and disturbing -- rise in
the percentage of debt in the capital structure of American
manufacturers — from 51 percent in 1958 to over 86 percent in
1976.
Tnis means that many companies cannot raise additional debt
unless tneir equity base expands. If they are mature and blessed
witn adequate cash flow, they can expand their equity with
retained earnings. But for younger, growing firms that need
expansion capital so badly, the unavailability of equity sets in
motion a vicious cycle:
Without new equity capital they cannot grow — without
growth they cannot increase their earnings — and without
earnings they cannot raise new debt or external equity.
Data from the SEC show this situation starkly. Registered
securities offerings by smaller companies -- those with assets of
less than $5 million — have dropped from a high of 698 in a
single year, 1969, to only 41 in the three years of 1974 through
1976.
<~
If tne markets do not have new capital for these smaller
companies, where can they turn? They will fail, or grow too
slowly, or turn to larger companies to be acquired.
That kind of pressure for more concentration is not, in my
view, a healthy trend. It enhances the danger that we are
stifling the kind of innovation and new development which smaller
enterprises typically engender.
Tnis risk is a severe drag on American technological
advancement, on productivity and competitiveness. A significant
number of new products and other technological advances are made
by individual inventors or small businesses -- enough so that
restricting their flow of capital could foreclose important
breakthroughs that lie ahead. Among these companies starved for
capital today could be another Xerox, Polaroid or IBM.
So the problems and possible consequences of the weak
condition of the equity markets are serious and merit the
immediate attention of this Administration. And as we look at
tne problem, three underlying causes appear paramount.
The first -- and most important — is inflation. The
investment community recognizes that inflation breeds recession
-4— that the reaction of business to prospects of accelerating
inflation is to limit expansion and to curtail outlays, rather
than trying to beat the price rise. We all have learned that
inflation is not good for stock prices.
The second is low profits. The investment community has not
been deceived by the reports of soaring profits. We have all
long since learned that profits reported by conventional methods
disregard the true costs of replacing the capital and inventories
used in the conduct of business.
When earnings are adjusted for inflation, they show that
profits have not soared. Indeed, they have not even kept pace
with the growth of real GNP. Since the mid 1960's, real GNP has
grown by over a third, while profits adjusted for inflation have
risen by only a fifth.
A third cause has been the economic impact of the
quintupling of the price of oil since 1973. This has adversely
affected economic growth, inflation, unemployment rates and
corporate profits.
There are other negative factors affecting our equity
markets, as well. One of them — and its impact is hard to gauge
— is the strain on the securities industry itself. The industry
nas been affected recently by some fundamental changes,
particularly the growing institutionalization of the markets and
the elimination of fixed brokerage commissions in May, 1975.
Because of these economic and regulatory changes, this
industry has faced some painful adjustments. Institutional
brokerage, at one time a financial mainstay, has become
increasingly unprofitable. The industry has responded
creatively, developing new products and new profit centers, such
as options.
But those new endeavors carry their own regulatory and
financial problems. This is a capital intensive industry, and
those who do not have access to capital are not surviving. Not
all have that access, and events in recent years have not
encouraged new entrants. The number of NYSE member firms doing
business with the public fell from 476 at the beginning of 1973,
to 371 at the end of June of this year.
Related to the problem of the declining number of individual
investors, the number of full-time registered representatives of
New York Stock Exchange member firms decreased from 40,000 in
1972 to 36,000 in 1976. As the industry contracts, its efforts
to attract new investors and to hold old ones also contract.
Uncertainty about the outcome of the SEC proceeding on Rule
390 may also be having an important effect. Some firms, those
-5that believe off-board trading is likely, are moving to acquire
other firms with retail-order flow to improve their
competitiveness. Others, uncertain of the effect on them of
possible changes, are becoming more conservative about committing
their capital — or are seeking mergers with other firms.
The SEC nas done a fine job in maintaining public confidence
in the integrity of our markets. I have discussed the Rule 390
proceeding with Chairman Williams, and I am confident that the
Commission will deal responsibly with this complex problem. The
Treasury has already stressed to the Commission the importance of
gradual changes in this area to minimize uncertainty and the
danger of disruption.
I am certain that the Commission will not ignore the obvious
risks of removal of restrictions on off-board trading before
appropriate modifications to the present system are in place. I
am also gratified that the leaders of the securities industry are
already taking steps toward the development of an effective
national market system as mandated by the 1975 amendments to the
securities laws.
Tnere are other concerns that no doubt have contributed to
the weakness in our equity markets, but these would fade in
importance once we begin to rebuild public and business
confidence in our future economic performance.
If the future is perceived as a continuation of slow growth,
nigh unemployment, and high inflation in the years ahead, the
equity markets will continue to languish. If, however, the
future promises improvements, the markets can and will recover.
Providing those improvements -- improvements that will lift
all sectors of our economy to higher ground — is the central
task of this Administration's economic policies.
I am here to tell you today that we are aware of this task,
and that we intend to carry it out in the months ahead. The job
will not be easy. As Mayor LaGuardia used to say, it calls for
"patience and fortitude.w
Basic, long-term predictable and consistent policies will be
needed. The emphasis, above all, must and will be on the private
sector, on the market mechanism, and on reliance on the genius of
the free enterprise system.
Unemployment, inflation, lagging investment and
productivity, low profits, a languishing stock market — all
these cannot be solved by massive government programs, by
spending our way out of deep troughs, or by clamping down on
private businesses with new restrictions or edicts. So we will
do our job and rely on American industry and on all of you here
to do yours.
-6The problems will begin to be solved only when business
executives, singly and collectively, decide that the best course
toward profitability is through expansion. Then the building
blocks of investment and risk-taking decisions -- decisions that
take place tens of thousands of times every day in executive
offices throughout the country — begin to add up to a solid
structure of new business activity.
Tnat's a basic reality. And that's why we will rely on a
steady, prudent set of policies for lasting economic results,
fully aware that the really big problems take time to solve.
The essential first step is to spell out in full detail a
cogent, comprehensive economic strategy -- where the sum of our
policies promotes a sustained, noninflationary expansion.
As the energy plan and Social Security bills emerge from
Congress, and we make final tax and budget decisions in January,
the shape of our economic policy for the years ahead will be
clear.
Tne fundamental element in our strategy is the private
sector. Four out of five jobs in America are private jobs.
Wnile government can provide temporary work for the disadvantaged
and for millions of new job-seekers entering the labor force each
year, the real opportunity for lasting, meaningful jobs is in the
private sector.
For the jobs to be there requires investment and risk
capital -- much more than is available today for American
business.
We must expect to provide greater incentives for investment
and business risk-taking, principally by adjusting our tax
structure.
Tne forthcoming tax proposals will contain incentives for
capital formation, both for corporations and individuals.
We
specially for venture cap
course, take this into account in designing reforms to reduce or
eliminate unjustified tax preferences.
The tax proposals will also take into account the ultimate
shape of the energy program and the Social Security tax increases
already scheduled and those now under consideration in the
Congress, to ensure that these measures do not amount to a drag
on the economy.
We must scale down the increasing bite that Federal income
taxes take from the incomes of American workers. The average
-7share is now 13 percent and rising, as inflation pushes incomes
into higher marginal tax rates. It had traditionally been 10 to
12 percent,' and we should aim for a return to that level.
We will also continue our fight against inflation, building
on the success made this year in moderating price increases.
Tnat ties in closely with an economic expansion fueled by greater
productivity and disciplined public spending.
For example, we must control Federal spending to allow the
budget to move into balance as unemployment and growth reach
acceptable levels. Federal deficits are neither necessary nor
desirable in an economy making full use of its resources.
As a rule of tnumb, we should not allow the percentage of
GNP by Federal spending to exceed 21 percent in the long run.
Tnat's about where it was over the past decade, but it has risen
in recent years.
Finally, this Administration recognizes that it is important
to devote more attention to our capital markets as such. In the
Treasury, we have taken steps to do just that, including the
creation of a new Deputy Assistant Secretary whose functions are
concentrated in capital markets problems.
For too long, capital market questions have been viewed
principally through the eyes of regulators. We are trying to
look at all parts of our capital markets in relation to each
otner so that the Administration can help ensure the proper
functioning of this vital part of our economy.
Wnat is needed, then, is for all of us to work together.
Let us not forget that ours is the strongest and the most
productive economy in the world.
With sound government policies, with a confident business
sector, and with the strong and innovative capital markets which
you represent, the future is indeed bright.
I hope that you will all give us the benefit of your
experience and judgment, so that together we can transform this
bright promise into the reality of a better future for all of us.
0OO0
CONTACT:
Alvin M. Hattal
202/566-8381
FOR IMMEDIATE RELEASE November 21, 1977
SAFEWAY AND GRAND UNION TO
STEP UP USE OF $2 BILLS IN STORES
Safeway Stores, Inc., and Grand Union Company have agreed
to assist the U.S. Treasury Department in its continuing effort
to demonstrate the benefits and practicality of using the $2
bill, Under Secretary Bette B. Anderson said today.
Safeway will use the $2 bills in its Washington Division,
the company's second largest. All 165 Safeway stores in Northern
Virginia, Washington, D.C, Maryland, Delaware, and Southern
Pennsylvania are participating. Grand Union's 24 stores in the
Glen Falls-Sarasota County area of New York will take part in the
effort beginning early in 1978. Both chains will continue the
project throughout the six states for about six months.
A similar effort undertaken by major retailers in Portland,
Oregon, increased the circulation rate of $2 bills in that area
by more than 2,000 per cent in just two months, the Treasury says.
As a result of the program, circulation of the $2 bill in the
Portland area has remained high and circulation of the $1 bill
has declined 15 per cent, confirming the anticipated displacement
effect. Comments from Portland retailers to the Treasury Department
indicate that customers were not only "very happy to receive $2
bills as change" but also that the use of $2 bills was met with
negligible customer or employee resistance. One retailer reported
that "there has been no change in the frequency of errors, and the
time to handle one additional denomination is offset by handling
only half as many $1 bills."
The Treasury Department has been seeking the active support
of major retail companies because it believes that individuals
receive their small-denomination currency primarily from retailers
in cash transactions. Basically, Mrs. Anderson said, the Treasury
is asking only that $2 notes be routinely used by the businesses
in
normal day-to-day transactions.
B-559
(OVER)
- 2 "We are very pleased that two industry leaders such as
Safeway and Grand Union have agreed to help us," Mrs. Anderson
said. "We welcome this opportunity for cooperation between the
public and private sectors and are encouraged by the public
spirit displayed by Safeway, Grand Union, and others in this
effort to reduce the cost of government. We sincerely hope that
other retailers will follow this lead."
0O0
FOR RELEASE AT 4:00 P.M.
November 21, 1977
TREASURY TO AUCTION $2,750 MILLION OF 4-YEAR 1-MONTH NOTES
The Department of the Treasury will auction $2,750 million
of 4-year 1-month notes to raise new cash. Additional amounts
of the notes may be issued to Federal Reserve Banks as agents
of foreign and international monetary authorities at the
average price of accepted tenders.
Details about the new security are given in the attached
highlights of the offering and in the official offering
circular.
Attachment
B-560
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 4-YEAR 1-MONTH NOTES
TO BE ISSUED DECEMBER 7, 1977 November 21, 1977
Amount Offered;
To the public
$2,750 million
r
Description of Security:
Term and type of security
Series and CUSIP designation
Maturity date December 31, 1981
Call date
Interest coupon rate
4-year 1-month notes
Series L-1981
(CUSIP No. 912827 HG 0)
No provision
To be determined based on
the average of accepted bids
Investment yield To be determined at auction
Premium or discount
To be determined after auction
Interest payment dates
June 30 and December 31
(first payment on June 30, 1978)
Minimum denomination available
$1,000
Terms of Sale:
Method of sale
Yield Auction
Accrued interest payable by
investor
None
Preferred allotment
Noncompetitive bid for
$1,000,000 or less
Deposit requirement 5% of face amount
Deposit guarantee by designated
institutions
Acceptable
Key Dates:
Deadline for receipt of tenders
Wednesday, November 30, 1977,
by 1:30 p.m., EST
Settlement date (final payment due)
a) cash or Federal funds
Wednesday, December 7, 1977
b) check drawn on bank
within FRB district where
submitted
Monday, December 5, 1977
c) check drawn on bank outside
FRB district where
submitted
Friday, December 2, 1977
Delivery date for coupon securities. Monday, December 12, 1977
FOR RELEASE AT 4:00 P.M.
November 22, 1977
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $5,800 million, to be issued December 1, 19//.
Tnis offering will provide $400
million of new casn for the
Treasury as the maturing bills are outstanding in the amount of
$ 5,402 million. The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,300
million, representing an additional amount of bills dated
September 1, 1977, and to mature March 2, 1978
< C ^ * "°*
912793 N9 3 ) , originally issued in the amount of $3,304 million,
the additional and original bills to be freely intercnangeable.
182-day bills for approximately $3,500 million to be dated
December 1, 1977,
and to mature June 1, 1978
(CUSIP N O .
912793 Q6 6).
Botn series of bills will be issued for cash and in
excnanqe for Treasury bills maturing December 1, 1977.
Feoelal Reserve BanKS, for themselves and as agents of foreign
and international monetary autnorities, presently hold $2,536
million of the maturing bills. These accounts may exchange
Dills Jney hold for tne bills now being offered at the weighted
average prices of accepted competitive tenders.
Tne bills will be issued on a discount basis under
competitive and noncompetitive Didding, and at maturity
their par amount will oe payable without interest. Except for
definitive bills in the $100,000 denomination, which will be
available only to investors who are aole to show that tney are
required oy law or regulation to hold securities in physical
form, both series of Dills will be issued entirely in
book-entry form in a minimum amount of $10,0 00 and in any
S e r ^ O u S multiple, on tne records either of the Federal
Reserve Banks and Brancnes, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks ana
Branches and at tne Bureau of the Public DeDt, Washington,
n c
20226, up to 1:30 p.m., Eastern Standard time, Monday,
«' r=^r
9fl 1Q77
Form PD 4632-2 (tor 26-weeK
sertesTor Form'pb 4632-3 (for 13-wee* series) should be used
" s u b m i t tenders for bills to be maintained on the book-entry
records of the Department of tne Treasury.
B-561
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
borrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on December 1, 1977,
in cash or
other immediately available funds or in Treasury bills maturing
December 1, 1977.
Cash adjustments will be made for
differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
FOR IMMEDIATE RELEASE
November 22, 1977
RESULTS OF AUCTION OF 2-YEAR NOTES
The Department of the Treasury has accepted $3,769 million of
$8,700 million of tenders received from the public for the 2-year notes,
Series W-1979, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 7,12% 1/
Highest yield
Average yield
7.14%
7.13%
The interest rate on the notes will be 7-1/8%. At the 7-1/8% rate,
the above yields result in the following prices:
Low-yield price 100.009
High-yield price
Average-yield price
99.972
99.991
The $3,769 million of accepted tenders includes $697 million of
noncompetitive tenders and $2,872 million of competitive tenders
(including 53% of the amount of notes bid for at the high yield) from
private investors. It also includes $200 million of tenders at the
average price from Federal Reserve Banks as agents for foreign and
international monetary authorities in exchange for maturing securities.
In addition, $999 million of tenders were accepted at the average
price from Government accounts and Federal Reserve Banks for their own
account in exchange for securities maturing November 30, 1977, ($112
million) and from Federal Reserve Banks as agents for foreign and international monetary authorities for new cash ($887 million).
1/ Excepting 4 tenders totaling $95,000
B-562
FOR IMMEDIATE RELEASE
Contact: A. Hattal
202-566-8381
November 22, 1977
TREASURY ANNOUNCES START
OF TWO ANTIDUMPING INVESTIGATIONS
The Treasury Department announced today that it will
begin antidumping investigations on imports of steel wire
strand for prestressed concrete from Japan and India.
The Treasury Department's announcement followed a
summary investigation conducted by the U.S. Customs Service
after receipt of a petition filed on behalf of five domestic
producers. Information contained in the petition indicates
that this merchandise is being sold in the U.S. at less
than fair value. The petition also includes information
indicating that the alleged "less than fair value" sales
may be injuring a U.S. industry.
For purposes of Treasury's investigation, the term
"steel wire strand for prestressed concrete" means wire
strand of carbon steel for prestressing concrete, provided
for in item number 642.1020 of the Tariff Schedules of the
United States. Prestressed concrete is now widely used in
the construction of bridge girders, beams, pilings, railroad
ties, and a variety of building products.
Notice of these actions will appear in the Federal
Register of November 23, 1977.
Imports of steel wire strand for prestressed concrete
from Japan were valued at approximately $2 8.7 million during
calendar year 19 76, and from India, approximately $0.6 million.
0 0 0
B-563
FOR RELEASE AT 11:30 A,M,
November 23, 1977
TREASURY OFFERS $3,000 MILLION OF 139-DAY TREASURY BILLS
The Department of the Treasury, by this public notice, invites
tenders for approximately $3,000 million of 139 -day Treasury bills to
be issued December 2, 1977, representing an additional amount of bills
dated October 20, 1977,
maturing April 20, 1978
(CUSIP NO.
912793 P8 3 ) .
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will be
payable without interest. Except for definitive bills in the $100,000
denomination, which will be available only to investors who are able
to show that they are required by law or regulation to hold securities
in physical form, this series of bills will be issued entirely in bookentry form in a minimum amount of $10,000 and in any higher $5,000
multiple, on the records either of the Federal Reserve Banks and
Branches, or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and Branches
and at the Bureau of the Public Debt, Washington, D. C
20226, up to
1:30 p.m., Eastern Standard time, Tuesday, November 29, 1977. Form
4632-2 (modified) should be used to submit tenders for bills to be
maintained on the book-entry records of the Department of the
Treasury.
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.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank of
New York their positions in and borrowings on such securities may
submit tenders for account of customers, if the names of the customers
and the amount for each customer are furnished. Others are only
permitted to submit tenders for their own account.
Payment for the full par amount of the bills applied for must
accompany all tenders submitted for bills to be maintained on the
book-entry records of the Department of the Treasury. A cash adjustment will be made on all accepted tenders for the difference between
the par payment submitted and the actual issue price as determined in
the auction.
B-564
-2No deposit need accompany tenders from incorporated banks and
trust companies and from responsible and recognized dealers in
investment securities for bills to be maintained on the book-entry
records of t e W r a l Reserve Banks and Branches, or for bills iksued"irf
bearer form, where authorized. A deposit of 2 percent of the par
amount of the bills applied for must accompany tenders for. such bills
from others, unless an express guaranty of payment by an incorporated
bank or trust company accompanies the tenders.
. ?^ - -. v ^: . :1 r
" Public announcement.will"be made by the Department of the
Treasury p X the'amount and price range of accepted bads. Competitive^.
bidders will be advised of the acceptance or rejection of their_ :-^r{'rq
tenders. The Secretary of the Treasury expressly reserves "the right
to accept or reject any or all tenders, in whole or in part,r and £he
Secretary's action shall be final. Subject to these reservations, Ufjfc
noncfbmpeXitiye tenders for $500,000 or less without stated "price from
any one bidder will be accepted in full at the weighted average price r
(in three'"(decimal's'")'''of" accepted competitive^ bids.
• • ' ^
Settlement for accepted tenders for bills" to be maintained on the
book-entry records of Federal Reserve Banks and Branches,, and bills *
issued in "bearer" form must be made or completed at the Federal Reserve, .-,
Bank or Branch or at tne Bureau of the Public Debt in cash or other
immediately available funds on December 2, 1977,
.
m
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'
"'" Under Sections 454(b) and 1221(5) of the' Internal ReVenue Code of',
1954 the amount of discount at' which' these bills 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.,.",^ , V
Accordingly, the owner of these bills (other than life insurance
companies) must include... in his or her Federal income tax .return, as
ordinary^gainor : lo'ss/ the differencV betwee"rv the .price. Vaid for ( the p \ >
bills ' on orl^inaT isVue or on subsequent purcliase^' and. the amount,."^11 2
actually received either upon sale'pr redemption at maturity Idurins 1 ,
the taxable year for which the return is made.
Department of \the; Treasury 'Circular'V^ No". 4*18 (current 'revision),.;,
Public DeDt'Series^-Nos; 26-76 and 27-76,, and this^ notice,, prescribe \,
the terras' of tbese^ Treasury"bills'7 and govern the conditions of their/' '
issuet" Copies of the:"'circulars _ and'Vender .rprms^ may. be obtained from '"**'
any Federal"" Reserve Bank, or'Branch,, or from the Bureau pf the" Public
Debt.
D
oOo
FOR RELEASE AT 12:00 NOON
TUESDAY, NOVEMBER 29, 197 7
REMARKS BY THE HONORABLE DANIEL H. BRILL
ASSISTANT SECRETARY FOR ECONOMIC POLICY
U.S. TREASURY DEPARTMENT
BEFORE THE SEVENTH EUROPEAN INSTITUTIONAL INVESTOR CONFERENCE
LONDON, NOVEMBER 29, 1977
I appreciate very much the opportunity of meeting
with this distinguished group to discuss the economic
policies of the Carter Administration, and the economic
philosophies underlying them. There is some slight
confusion and misunderstanding on these matters in the
States. This is not surprising.. In fact, whenever policy
is formed in a democracy, cries arise that it lacks coherence and consistency. I'm afraid that policies in a
democracy seldom conform to neat theoretical constructs or
rigorous logic. And that is especially true in a diverse,
continental democracy with a government featuring separation of powers, vigorous bicameralism, and limited
mechanisms for enforcing party discipline.
Perhaps confusion is diminished by distance; I suspect
your perspective from across the Atlantic enables you to
see more clearly than those close to the scene the underlying structure of the Administration's goals and strategies.
In evaluating this structure, I am sure you recognize
that, in any democratic society, there are multiple goals
to be achieved and a multiplicity of interests to be served.
Economic growth that is not equitably shared cannot be
maintained in a democracy. Economic growth at the expense of
.environmental deterioration is not acceptable. A rapid rise
in economic activity is desirable, but if it is at a pace
that triggers serious inflation, it is neither acceptable nor
sustainable.
In sum, economic policies in a democratic society must
be aimed at optimizing results across a range of objectives,
rather than maximizing the achievement of any single objective.
The result, often, is that no one is ever completely satisfied.
B-565
-2Moreover, a democratic society suffers under the
pressure of time. The economic problems to be addressed
are exceedingly difficult and the economic and social
adjustments required by most solutions take time to effect.
Yet given the political realities of the election process,
there is only a short time-horizon in which progress toward
goals must be demonstrated. The result, often,is that it
is difficult to implement programs addressed to longerrange problems, unless the severity of the problem is
evident and the danger of inaction imminent.
I advance these considerations as constraining conditions, not as excuses. For I don't believe there is a need
for excuses. The Carter Administration, on taking office,
set forth a number of objectives. Even in the short time
span of 10 months there is much progress to report. On
growth and inflation, the Administration set forth, in its
first budget message, the objectives of achieving real
economic growth during 1977 of about 6 percent, a reduction
in unemployment to a rate of about 7 percent, and keeping
the inflation rate to about 6 percent.
What is the record? It appears likely that real
growth of the year will come close to the target. Our
current estimate is that the rise in real GNP from the fourth
quarter of 197 6 to the fourth quarter of this year will approximate 6 percent.
We have already shaved one full percentage point off
the unemployment rate, with further reduction in sight before
the year end. The inflation rate, as measured by the GNP
deflator, is likely to show a rise of about 6 percent. And
this progress has been achieved by policies directed at stimulating our domestic economy, not at the expense of our trading
partners.
Recounting the extent of success to date does not suggest
that we intend to rest on our laurels. Economic growth must
be sustained; it will not continue by itself. Both inflation
and unemployment must be reduced further. U.S. merchandise
trade with other nations must move toward better balance.
What are the principles guiding the process by which
these problems will be addressed? First, by maximizing the
contribution of the private sector. This Administration
clearly recognizes the need to seek solutions that are
-3enduring, productive and, insofar as possible in a fluid
world economy, permanent. Solutions resting principally
on government intervention in the market place generally
do not meet these criteria. There is an appropriate role
for government actions to stimulate the private sector,
as a bridge over the period until private sector responses
to government stimulus gain full momentum. But these
government programs should be scheduled to self-destruct,
so that as the economy reaches fuller utilization of
resources, the government is not competing with the private sector for scarce financial, human and physical
resources.
Let me illustrate how this approach to economic
problems is designed to work in practice—and, indeed, how
it has worked. The most dramatic example relates to the
actions on the tax rebate earlier this year. You will
recall that the economic program announced by the new
Administration was framed in the economic environment of
late 197 6. At that time, the economy was stalled on dead
center. Real gross national product was rising at little
more than a one percent annual rate, and unemployment was
hovering around the 8 percent level.
A stimulus package was submitted to the Congress
designed to move the economy rapidly to a faster growth
rate—principally by a tax refund--and then to sustain this
faster growth rate through a program emphasizing the creation of jobs by public sector spending until growth in the
private sector could absorb more of the unemployed. But as
the economy dug out of the winter storms, it became clear
that the private economy was generating a vigorous recovery
even without further stimulus. Given prospects of vigorous
growth, but given also the unfortunate accompaniment of
soaring prices, the decision was made to rescind the request
for additional immediate stimulus.
I stress this point, for it is not usual in the annals
of government policymaking in our country for any Administration to modify its fiscal program so soon after submission to
Congress. To some critics, this was an example of economic
confusion and inconsistency on the part of a new and inexperienced Administration. To me, it was an example of the
application of a fundamental philosophy which accepts the
need for government stimulation of the private sector, but is
willing to withdraw government intervention when the private
sector demonstrates the capability of solving problems on its
own.
-4In the event, the act of rescinding the rebate
request has been vindicated. Economic growth in the
first quarter of the year—a quarter hampered by fierce
winter conditions in its early weeks—rose at a 7-1/2
percent annual rate. And this was followed by further
rapid growth, with real GNP rising at an over 6 percent
annual rate in the second quarter and at close to 5 percent in the third quarter. The current flow of statistics
suggests that the 5 percent rate is likely to be maintained
this quarter and into the next year.
I am confident that the same principles will continue
to guide the formulation of economic policy next year and
into the years beyond. There is no slackening in adherence
to the commitment to reduce further both the rate of inflation and the rate of unemployment, a commitment underscored
by the Administration's support of legislation (the Humphrey/
Hawkins bill) that embeds these objectives as national policy.
And there is no slackening in the Administration's
dedication to maintaining a satisfactory rate of economic
growth. At the moment, there does appear to be a need for
further government stimulation of the economy, not to move
the economy faster, but to sustain its current pace longer.
Specifically, there is the need to insure that the private
economy will pick up sufficient momentum during 197 8 to
support our growth objectives as present government stimulus
programs, now reaching full tide, are scheduled to phase
down.
The key element in the picture will be the response of
business investment. We need a faster rate of business
capital outlays than we have been achieving in recent years.
This is not only for short-run growth objectives, but over
the longer-term to improve our productivity, maintain our
competitiveness in international markets and provide a
capital stock adequate for our growing labor force. Therefore, our economic program next year must and will address
the economy's need for a more rapid rate of capital formation.
It is not possible at this juncture to specify the full
dimensions or exact nature of the tax program'now being
evaluated by the President. Partly, this is because several
important components, which can have significant effects on
the economy, are still in the state of evolution in Congress.
-5For example, the timing and extent of any need for
stimulus will depend on the likely impact next year
and in 1979 of the final form of legislation relating
to our social insurance funds and to our energy problem.
But even aside from any shorter-term requirements
for fiscal assistance in sustaining economic growth, the
longer-term needs for capital formation will be addressed
in the Administration's tax program. Our capital stock has
not been growing commensurately with the growth in our
labor force. If we are to provide the infrastructure
needed to support a full-employment economy, business
fixed investment will have to grow at a rate of at least
9 to 10 percent a year, in real terms. Capacity utilization, net return on investment and balance sheet constraints
are usually regarded as key determinants of business capital outlays. The tax proposals under consideration would
work directly on all of these variables.
Moreover, the need for faster growth in our capital
stock is enlarged by the investment requirements for pollution abatement and for the conversion of energy sources from
imported oil to domestically available coal. When these
needs are added to the investment needs noted earlier, you
can see that the capital requirements of the U.S. economy
are huge.
These requirements cannot be met if government commandeers
too large a share of the financial and physical resources
available, or if the incentives for business investment are inadequate, or if excessive regulation impedes the efficient
allocation of resources to these ends. That is why our policies are directed at constraining the share that Federal
expenditures take of our real output, why incentives for investment will be enhanced, and why the grip of bureaucratic
control is being loosened.
These principles underly the Administration's approach to
our foremost economic/social/political problem--energy. There
is no need for me to recount for you the dimensions of the
problem--the exceptionally high consumption of energy by the
U.S. economy, the exceptionally high component of energy consumption represented by imported oil, and the impact of these
on our price structure and our balance of payments.
These current problems are bad enough. If they are not
addressed promptly and effectively, the problems 7 or 8 years
-6from now will be worse. We are addressing these problems,
and it should be emphasized that the essentials of the
energy program put forth by the Administration rest heavily
on utilizing the market mechanism, both to induce energy
conservation as well as to encourage additional energy
resource development.
There has been some impatience from our friends
abroad at what may appear to be a slow pace in the response
to the energy problem. In extenuation, I would remind you
that adjustment to an era of high energy costs is painful.
It is especially painful in the United States, where our
geography permits—indeed requires—extensive energy use in
travel for employment and in the conduct of business, where
our infrastructure has developed in a way that maximizes
energy use, where our traditional aspiration of the singlefamily home in the suburbs—an aspiration so widely achieved
in our society—also involves heavy energy consumption.
Those who are puzzled or dismayed by the length of the debate
in our Congress on the Administration's energy proposals may
not appreciate how extensive will be the change in the
"American way of life" as we come to grips with the new energy
era.
As we make progress in conserving energy and enhancing
domestic energy production, we will simultaneously be making
progress on another problem of serious concern to us—the
deficit in our balance of international trade. Most of our
trade deficit is accounted for by growing expenditures for
oil imports. In 1972, the cost of oil imported by the U.S.
was $4-1/2 billion; this year we will be paying $45 billion
for oil imports--and the bulk of this increase represents
higher prices rather than higher quantities of imports. The
program submitted by the President to cope with the problem
in both the short- and long-term will undoutedly be modified
in the Congress in some respects, but we are confident that
a viable and effective program will evolve.
There is not sufficient time in your meeting schedule
to discuss many other elements of the Administration's
economic policies—social security reform, welfare reform,
international trade policy, for example. But in the time
available, I welcome questions on these or any other aspects
of our program.
oOo
V
«
tP"rimentoftheJRE/\$URY
SHINGTON, D.C. 20220
TELEPHONE 566-2041
November 28, 1977
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,300 million of 13-week Treasury bills and for $3,500 million
of 26-week Treasury bills, both series to be issued on December 1, 1977,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows;
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
13-week bills
maturing March 2, 1978
26-week bills
maturing J u n e 1» I 9 7 8
Price
Discount
Rate
Investment
Rate 1/
Discount Investment
Price
Rate
Rate 1/
98.484
98.467
98.469
5.997%
6.065%
6.057%
6.17%
6.24%
6.24%
96.797 a/ 6.336%
96.773
6.383%
96.779
6.371%
6.64%
6.69%
6.67%
a/ Excepting 1 tender of $150,000
Tenders at the low price for the 13-week bills were allotted 94%
Tenders at the low price for the 26-week bills were allotted 38%
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
$
21,355,000
Boston
3,726,055,000
New York
31,980,000
Philadelphia
52,145,000
Cleveland
25,890,000
Richmond
32,505,000
Atlanta
247,560,000
Chicago
41,165,000
St. Louis
16,640,000
Minneapolis
35,660,000
Kansas City
34,485,000
Dallas
264,600,000
San Francisco
3,360,000
Treasury
TOTALS
$4,533,400,000
Accepted
$
11,355,000
1,794,055,000
31,980,000
27,145,000
23,830,000
32,345,000
141,420,000
21,145,000
8,460,000
31,600,000
31,425,000
142,300,000
3,360,000
$
36,075,000
5,796,745,000
36,940,000
81,540,000
24,065,000
16,515,000
409,545,000
32,675,000
24,145,000
18,905,000
13,505,000
547,000,000
$2,300,420,000 b/
$7,040,485,000
2,830,000
h/T ludes $ 317 ,450, 000 noncompetitive tenders from the public.
CVT eludes $ 142,085,000 noncompetitive tenders from the public.
1/Equivalent coupon-issue yield.
~B-566
Accepted
Received
$
16,075,000
2,968,045,000
36,940,000
25,340,000
14,965,000
15,705,000
198,345,000
12,055,000
22,285,000
17,020,000
7,505A)00
163,2o/,000
2,830,0CT0
$3,500,310,000 c/
7>
fyUl
&)S7£'
STATEMENT OF
WILLIAM J. BECKHAM, JR.
ASSISTANT SECRETARY (ADMINISTRATION)
U. S. DEPARTMENT OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON COMPENSATION AND
EMPLOYEE BENEFITS OF THE HOUSE POST OFFICE
AND CIVIL SERVICE COMMITTEE
NOVEMBER 30, 1977
Madam Chairwoman and Members of the Subcommittee:
I appreciate the opportunity to testify on the GAO
Report indicating the need for a reevaluation of the special
retirement policy for federal law enforcement and firefighting
personnel.
We have a considerable interest in this report because
there are currently over 8,000 law enforcement personnel in
the Department of the Treasury covered under the special
provisions of that policy. Some of our enforcement personnel
(approximately 150), are also covered, by law, under the
separate District of Columbia Fire and Police Retirement
System.
The activities of these employees are arduous and
rigorous and require a vigorous staff. For this reason
Congress included Treasury Agents under provisions of the
special retirement policy. This policy was intended to be
an inducement for early retirement and thereby provide for
a younger, more vigorous force in order to perform these
duties more effectively.
The GAO Report is critical of this policy for a number
of reasons, including the fact that while the law provides
for early retirement with increased benefits to assure
continuance of a young and vigorous force, this is in fact
not the case; namely, most law enforcement personnel have
retired in the past considerably beyond the optional retirement age. We also recognized this fact in a survey we conducted
some years ago; that is, many of our law enforcement officers
did not retire early under provisions of that law. We were
therefore happy to see recent Congressional amendments to the
retirement policy requiring mandatory retirement and a maximum
entry age provision.
St*. 7-
- 2 -
However, the recent amendments in Public Law 93-350
requiring early mandatory retirement do not come into effect
until January 1978. We believe that these amendments may
affect the GAO findings and our own experience. Therefore
we feel it is advisable to wait until we can objectively
assess the effect of the recent amendments before committing
ourselves to the changes in retirement policy recommended by
the GAO. In fact, the impact of these amendments may not be
apparent for at least one or two years.
In conclusion, we realize that the early retirement
program of law enforcement employees is not without the
problems pointed out by the GAO, but we believe it is premature to assess it as ineffective. As I have stated above,
the impact of the two provisions of PL 93-350 requiring
mandatory retirement and maximum entry age guidelines have
not yet been realized. We plan to use these provisions
rigorously in order to maintain the youthful, vigorous
workforce we need to carry out our enforcement activities
most effectively. We do concur with part of GAO's recommendations regarding secondary coverage positions; that is, we
believe a closer look should be taken at these positions by
the Civil Service Commission and the law enforcement agencies
to ensure that experience in a primary covered position is a
positive requirement and that coverage is warranted.
This concludes my formal statement. I will be happy to
answer any questions.
FOR RELEASE UPON DELIVERY
EXPECTED AT 9:30 A.M.
November 29, 1977
Statement of
Donald C. Lubick
Deputy Assistant Secretary (Tax Legislation)
before the
Subcommittee on Improvements in Judicial Machinery
of the
Senate Committee on the Judiciary
Mr. Chairman and Members of the Subcommittee:
I welcome the opportunity to appear before you today to
express the views of the Department of the Treasury on
S. 2266, which would establish a uniform law on the subject
of bankruptcy. We commend the work of the Subcommittee and
its staff in balancing the concerns of debtors, creditors
and the Internal Revenue Service.
Just over two years ago, the Treasury Department testified
before this Subcommittee on proposals to revise the bankruptcy laws. Then, as now, we were concerned about protecting the integrity of the voluntary assessment nature of
our Federal tax system. Provisions which reduce or minimize
tax liabilities in bankruptcy will inevitably increase the
attractiveness of bankruptcy for both debtors and creditors
(other than the Federal Government), and thus can serve only
to undermine taxpayer confidence in the equity of our tax
system.
S. 2266 recognizes these problems and approaches certain
procedural areas affecting taxes, such as priority and nondischargeability, differently from H.R. 8200, the counterpart
of S. 2266 which has been reported out by the House Judiciary
Committee. I would like to review for the Subcommittee just
a few of the provisions of S.' 2266, which we believe equitably
balances the desire to rehabilitate debtors and protect
private voluntary creditors on the one hand, and, on the
other hand, the need to protect the integrity of our voluntary assessment system.
3-563
- 2 Trust Fund Taxes ~
Sections 507(5) (C) and 523(a) (1) (A)
Under the bill, any taxes that a debtor was required to
withhold from wages or collect from customers and failed to
turn over to the Government before bankruptcy would be nondischargeable regardless of age. They would also be entitled
to priority in bankruptcy proceedings. These provisions,
which deal with "trust fund liabilities", differ frorn^
H.R. 8200, which would deny priority for, and make dischargeable, trust fund liabilities if the accompanying
return was due over two years before bankruptcy. The bill
will give the Internal Revenue Service a realistic opportunity
to audit, assess and collect trust fund liabilities before
bankruptcy, and it will also serve to discourage the use of
bankruptcy as a device for avoiding the payment of these
liabilities by persons who have converted the funds for
their own use.
One of our most significant concerns in terms of the
collection of taxes is the way in which a particular taxpayer handles withholding. Trust fund taxes accounted for
approximately 64 percent of the tax revenues collected in
fiscal 1976 ($194 billion out of $302.5 billion). By law,
the income and social security taxes that an employer
withholds from wages and salaries that it pays to employees
must be held in a special trust for the Government. This is
no less true in the case of excise taxes collected from
consumers. Thus, to the extent that the amounts withheld are
used to pay other creditors prior to bankruptcy, the fiduciary
has breached a public trust. There is no reason to relieve
these fiduciaries from the resulting consequences of their
action simply because of their subsequent involvement in
bankruptcy proceedings.
Delinquency in this area is continually increasing and
presents a very serious problem. S. 2266 addresses this
problem by enabling the Service to protect the revenue not
only by giving it time before bankruptcy within which to
detect the dissipation of amounts withheld by employers and
responsible officers but also by making trust fund liabilities
nondischargeable after bankruptcy. This is significant, for
example, in the case of social security withholding, where
the Government is required to credit the amounts withheld,
whether or not paid over, against an employee's social
security tax account.
The two-year time limitation in the House bill with
respect to the nondischargeability accorded trust fund taxes
- 3 would place undue strains on the normal assessment and
collection process. Indeed, the limitation could discourage
forebearance on the part of the Service toward taxpayers who
are temporarily unable to pay their withholding taxes, but
who could do so if given sufficient time. The provisions of
H.R. 8200 reflect the assumption that the Government can
always protect itself as a creditor by promptly filing a
notice of tax lien. However, the filing of a notice of lien
does not assure collection, particularly if the underlying
liability is dischargeable. Moreover, under the House bill,
liens on both real estate and personal property would be
subordinated until the costs of administration, wage claims
and certain customer deposits were paid in full. In addition, under present audit techniques, the two-year limitation would put an undue strain on the Service to uncover the
circumstances where a lien must be filed, particularly since
the two-year period begins to run from the due date of the
return, whether or not filed. Finally, sound administrative
practice calls for the limited use of notices of lien. The
filing of a notice of tax lien frequently has exceedingly
serious financial consequences for a taxpayer, especially a
business taxpayer. It may have the effect of curtailing the
credit or restricting the financing of the business. As a
result, many businesses which are only experiencing temporary financial problems, and which might otherwise have
been rehabilitated, may be forced into bankruptcy. S. 2266
deals with this problem, as does present law, by allowing
the Government to collect withholding taxes from a financially
troubled taxpayer without being compelled to file a notice
of lien.
Taxes Assessed Before Bankruptcy — Sections 507(5) (A) and
523(a)(1)(A)
Under present law, unsecured taxes (other than amounts
required to be withheld) for which a return was due more
than three years before bankruptcy are (with certain limited
exceptions) not given any priority over other unsecured
claims in bankruptcy proceedings. If unpaid, they will also
be discharged. This has created difficulties for the
Service. These difficulties would be substantially eliminated
by the provisions of S. 2266 which grant priority for
unsecured taxes assessed within two years before bankruptcy.
The approach follows a recommendation made by the General
Accounting Office in 1973 and resubmitted earlier this year,
although GAO would grant priority for income taxes assessed
within three rather than two years of bankruptcy. (Comptroller
- 4 General, Report to Joint Committee on Internal Revenue
Taxation, Collection of Taxpayers1 Delinquent Accounts by
the Internal Revenue Service, GAP B-137762, August 9, 1973,
and February 16, 1977; see letter dated March 18, 1977 from
the Comptroller General to the Chairman of the House Judiciary
Committee.)
The audit cycles for the examination and disposition of
income tax returns are 26 months in the case of individuals
and 27 months in the case of corporations- Also, employment
tax returns of a business taxpayer are examined at the same
time that the income tax return of the taxpayer is examined
and for the same period. Thus, of necessity in most cases,
tax deficiencies and underpayments will have been determined
only a short time before the present three-year priority/nondischargeability period, following the filing of the return,
expires. The Internal Revenue Service, therefore, has
little time for assessment and collection before expiration
of the three-year period. This is inherently inconsistent
with the general rules which normally give the Service three
years after a return is filed within which to assess a tax
and six years after assessment within which to collect the
tax by levy or court proceedings.
The provisions of S. 2266, by extending priority and
thus nondischargeability to all taxes assessed within two
years before bankruptcy, reflect the audit cycles and also
the special nature of the Government as a tax creditor in
bankruptcy proceedings. Unlike other creditors, the Government has no control over those who owe it money by failing
to pay their taxes on time. Moreover, it is taxpayers
generally who will bear the burden of increased taxes if the
Government is unable to effectively pursue the collection of
tax delinquencies.
Preferences — Section 547
Traditionally, the bankruptcy laws have allowed the
trustee to recover for the benefit of the estate certain
amounts (known as voidable preferences) that the debtor paid
over to creditors within four months before the case began,
at a time when he was insolvent. Among the prerequisites
for recovery, the trustee must show that the transfer was
made in satisfaction of a so-called "antecedent debt", due
and owing at the time of the transfer. The present bankruptcy
statute does not define the term "antecedent debt", but in
practice the preference provisions have rarely been applied
so as to invalidate the payment of taxes made within four
months of bankruptcy.
- 5 S. 2266 clarifies present law by providing a specific
exception under the preference provisions for any debt
required to be paid under the Internal Revenue Code — unlike
the House bill, under which Federal tax deposits, voluntary
tax payments (including estimated taxes), and levies could
arguably be viewed as voidable preferences. Had the provisions of H.R. 8200, as so interpreted, been in effect
during fiscal 1976, the Government would have been required
to turn over to trustees in bankruptcy up to $2 58 million.
We believe that the preference provisions of S. 2266
resolve an issue too important to be left to judicial
construction.
Payment of Taxes in Kind — Sections 1130(e) and 1325(c)
S. 2266 would also retain present law under which all
taxes due in bankruptcy proceedings must be paid in cash
under the Internal Revenue Code. Thus, in effect, it would
reverse H.R. 8200 to the extent that the House bill would
allow Federal tax claims to be paid in property other than
cash, such as unmarketable securities and real estate.
The Treasury Department strongly urges the adoption of the
provisions of S. 2266 in this regard.
Under the Internal Revenue Code, all taxes must now be
paid in cash, or by check or money order. There is no compelling reason to depart from sound tax administration in
order to allow the trustee of a financially troubled taxpayer to pay off tax obligations in kind. An undesirable
burden would be placed on the Government, when the sale of
assets to produce cash could be more efficiently discharged
by the trustee in bankruptcy without unduly prolonging the
administration of the estate. Sale by the trustee would
eliminate continuous controversies over the value of the
assets in question and any potential conflicts of interest
between the Government and the issuer of stocks or securities
which may be involved in tax litigation. Moreover, to the
extent that the assets could not be sold, the burden would
rightly be placed upon the estate, rather than the general
public which ultimately bears the burden when there is an
inability to collect taxes under our self-assessment system.
It is not relevant that other creditors can be paid in
kind. Clearly, the Government is not in the same posture as
these other creditors. There is no reason to equate the
Government, which extends credit on an involuntary basis,
with a private creditor engaged in an active trade or
business.
- 6 Conclusion
In summary, I would like to emphasize our belief that
the Subcommittee has done an outstanding job in developing a
bankruptcy bill which equitably resolves the problems raised
under current law and prior bankruptcy proposals.
We will not make specific comments on sections 346 and
7 28 of the bill, since they apply only to state and local
taxes. We will, however, be considering similar provisions
as they apply to Federal taxes in conjunction with H.R. 9973
which has been referred to the House Ways and Means Committee.
I would be pleased to try to answer any questions that
you might have.
o 0 o
CONTACT: A. M. Hattal
202/566-8381
November 29, 1977
FOR IMMEDIATE RELEASE
UNITED STATES AND DENMARK DISCUSS REVISING THEIR
INCOME TAX TREATY AND NEGOTIATING AN ESTATE TAX TREATY
Representatives of the United States and Denmark have
recently concluded exploratory talks in Washington aimed
at revising the income tax treaty between the two countries,
which was signed in 1948, and at negotiating an estate tax
treaty between the two countries.
The proposed new income tax treaty, like the existing
one, will seek to prevent double taxation and to facilitate
mutual trade and investment. Thus, it will be concerned
with the tax treatment of individuals * and companiesf income
from business, investment, and personal services and with
procedures for administering the provisions of the treaty.
The 1977 "model" income tax treaty developed by the Organization for Economic Cooperation and Development (OECD) will
be taken into account along with the current U.S. "model"
income tax treaty, the text of which was released by the
Treasury Department on May 17, 1977.
The purpose of the proposed estate tax treaty will be
to prevent double taxation of estates and inheritances.
The discussions will take into account the OECD "model"
estate tax treaty, and the U.S. "model" estate tax treaty,
the text of which was released by the Treasury Department on
March 16, 1977.
The Treasury invites persons wishing to submit comments
concerning the proposed income and estate tax treaties to
send them to Dr. Laurence N. Woodworth, Assistant Secretary
of the Treasury, U.S. Treasury Department, Washington, D.C.
20220.
This announcement will appear in the Federal Register of
December 1, 1977.
oOo
B-569
FOR RELEASE ON DELIVERY
EXPECTED AT 10:00 A.M.
November 30, 1977
STATEMENT BY
ARNOLD NACHMANOFF
DEPUTY ASSISTANT SECRETARY OF TREASURY
FOR DEVELOPING NATIONS
BEFORE THE
PANAMA CANAL SUBCOMMITTEE
OF THE
HOUSE MERCHANT MARINE 5 FISHERIES COMMITTEE
I am pleased to be here today to testify before the Subcommittee on some of the economic and financial benefits the
U.S. and Panama will derive from the Panama Canal Treaty and
the economic cooperation arrangements associated with the
treaty. The Subcommittee has provided the Treasury with a
list of questions that it wishes answered for the record. I
have provided a written response for those questions which
Treasury is qualified to answer, given its limited role in
the negotiations. Other agencies will address questions not
within the purview of the Treasury. In this connection, I
wish to note that Treasury did not participate directly in
the treaty negotiations. Its contribution was to recommend
economic cooperation arrangements, and to provide advice
on the financial arrangements for the new Panama Canal
Commission. On issues not related to these two areas, I will
therefore defer to the expertise of the other Administration
witnesses.
B-^Zii
-21.
Benefits to Panama and the U.S.—A Broad Perspective
I would like to address the subject of benefits—both
for the U.S. and Panama—from a broad perspective to supplement
the more detailed information provided by other administration
witnesses on this subject.
The Treasury believes that the treaties will have a
beneficial effect, not only for the United States and Panama,
but for the entire world trading community.
The shipping
industry and those whom it serves have a continuing interest
in preventing abrupt or arbitrary closure of the canal. A
cooperative relationship between Panama and the united States
established by the new treaties should maximize the prospects
for its safe, uninterrupted and efficient operation.
Absence
of a new treaty and that relationship creates an element of
uncertainty and instability in the canal environment.
Once
the new treaties are ratified and implemented, the prospect
of interruptions to the operations of the canal will be
significantly reduced.
Since 1974 the Panamanian economy experienced a protracted
slowdown, with growth rates declining from an average of
7.3 percent in the prior decade to 2.6 percent in 1974,
1.7 percent in 1975 and no growth in 1976. Although a number
of factors contributed to this slowdown, a major contributing
cause was a marked decrease in private investment as a
result of uncertainty over the future of the canal.
-3The Government of Panama attempted to compensate for
the decline in private investment by increasing public
investment.
This policy, however, resulted in an increase
in the central government budget deficit from $69 million
in 1973 to $122 million in 1976.
The need to finance this
deficit, as well as Panama's current account deficits, caused
total public sector debt to rise from $0.6 billion in 1973
to $1.4 billion in 1976.
Yet, despite these troubling developments, there is
reason for cautious optimism about the future of Panama's
economy.
Panama has negotiated two stabilization agreements
with the International Monetary Fund and has taken steps to
reduce the government deficit and limit public sector debt.
Sustained world economic recovery should help to stimulate
demand for Panamanian exports and thereby narrow Panama's
current account deficit.
From an economic perspective, the treaty helps to assure
that Panama will be a viable treaty partner and provides
Panama with a vital stake in the successful operation
of the canal.
While not a panacea for Panama's economic
difficulties, these arrangements will provide a much-needed
extra boost that will facilitate Panama's long-term economic
development.
More important to Panama's economy, settlement of the
longstanding canal isssue by ratification of the treaties
-4should markedly improve the investment climate in Panama.
We expect foreign and domestic private investment in Panama
to rise appreciably, leading to increased employment,
reduced budgetary pressure on the Government of Panama,
and improvement in Panama's external accounts.
This is
important to the United States inasmuch as greater economic
stability and an improved standard of living in Panama will
reinforce Panama's ability to act as our partner in the canal
enterprise.
The proposed economic cooperation arrangements, which
were described by Ambassador Linowitz, are also being undertaken in the same spirit of mutual benefit.
Whereas the
benefits that Panama will receive from these economic
cooperation arrangements are readily apparent, there are
also benefits for the U.S. One corollary of Panama's
economic development will be increased opportunities for
U.S. businessmen and investors in Panama's free enterprise
economy.
The plans for Eximbank and OPIC programs in
Panama will help U.S. businessmen take advantage of these
opportunities.
In addition, it can be expected that
Panama's economic development will result in its-becoming
an expanding market for U.S. exporters, who now meet 40
percent of Panama's non-oil import needs.
This projected
market expansion is expected to give rise to more applications
-5for Eximbank support, and Eximbank has indicated that
its business could well amount to more than $200 million
over the next five years.
This will mean more jobs and
exports for the U.S. economy and be achieved with no added
burden to the taxpayer since the Exim program will be
financed under existing authorizations.
All of the components of the economic arrangements
present a reasonable level of risk, and will not jeopardize
the continued successful operation of the programs involved.
Each of the institutions will subject proposed loans and
guarantees to its standard rules, and, most importantly,
will assure that prospective borrowers are "creditworthy."
The portfolio risk to Eximbank as a result of its
offer, for example, will be small.
With an additional $200
million to Panama over five years, exposure in Panama will
amount to less than 1.37 percent of Eximbank's total existing
portfolio.
Project risk will be controlled in the usual
manner, since each transaction will be subject to normal
Eximbank financial, legal and engineering criteria—including
Eximbank's statutory requirement to find a reasonable
assurance of repayment.
As for the Overseas Private Investment Corporation, its
guarantee of $20 million in borrowing by the Panamanian
development bank would raise OPIC s exposure in Panama to
only 8.5 percent of its total existing portfolio, a reasonable
-6level of portfolio risk.
The risk to OPic will be further
reduced by a Government of Panama guarantee. OPic has
also stipulated that its offer to Panama depends on terms
being negotiated which are acceptable to the OPIC Board.
This will be the first time OPIC has participated in
financing the expansion of a government-owned development
bank, although OPIC is permitted to do so by long-standing
OPIC Board policy guidelines.
The Panamanian development
bank, COFINA, is engaged in supporting the development of
small to medium private enterprises in Panama through project
lending.
This function is both wholly compatible with
OPIC s mission and in accord with our view that it should
help strengthen the private sector of Panama's economy.
A final point that should be noted about the economic
cooperation arrangements is that they will not increase the
burden of the U.S. taxpayer, as any loans contained in
these arrangements will be non-concessional, thus, assuring
that there will be no indirect subsidy to the borrowers.
Also, much of the proposed assistance is in the form of
guarantees, which only obligate agencies of the U.S. government
in the unlikely event of default.
Even if default should
occur, all three agencies maintain self-financed reserves
against which the defaults are charged, thereby insulating
the taxpayer from any direct cost.
-72.
Effect of Financial provisions of the Treaty on Treasury
Receipts
"
At this point, I would like to turn to a second major
issue about which the Subcommittee has indicated its concern:
the net effect of the financial aspects of the treaties on the
Treasury's receipts.
Specifically, the Subcommittee has re-
quested that Treasury compare its existing financial transactions with the Panama Canal Company to the new financial
relationship that will exist with the Panama Canal Commission.
As requested, a detailed statement to this effect has been
submitted for the record.
However, I would like to make
a few general observations about the effect of the Canal
treaties on Treasury receipts.
At present the combined operations of the Panama Canal
Company and the Canal Zone Government are basically selffinancing.
Revenues from Company operations and from
certain Government activities generally cover expenses
of both the Company and the Government.
Indeed, in the
period 1903 to the end of the transition quarter, 1976, the
Treasury has recovered virtually all of the $1.9 billion of
total outlays during this period.
The net impact of present
arrangements on Treasury thus depends on whether revenues
from total canal operations exceed expenses.
Under the new treaty arrangements, the net impact of
the canal operations will also depend on whether revenues
-8cover expenses.
The new Panama Canal Commission is designed
to be self-sustaining; and based on the best information
available to Treasury and the negotiators, it is anticipated
that total revenues from the new canal operation will be
sufficient to cover all expenses.
With regard to the Committee's inquiry on interest
payments, the Administration will seek repeal of that
requirement in the implementing legislation.
This decision
emanated from the negotiators' effort to balance three policy
objectives:
(1) to keep the Commission self-sustaining;
(2) to avoid an uneconomic increase in tolls; and (3) to
help assure Panama's stake in the efficient operation of
the canal by providing Panama with an equitable share
of the benefits.
To reconcile these goals, they determined
that it was necessary for national policy reasons for the
U.S. government to forego the receipt of interest.
This
does not mean, however, that Treasury will forego receipts
from the Commission if earnings permit dividends to be
paid.
Mr. Chairman, this concludes my formal statement.
I will be happy to answer any questions the Committee
may have.
FOR RELEASE AT 4:00 P.M.
November 29,
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $5,600 million, to be issued December 8, 1977.
This offering will provide $ 400 million of new casn for tne
Treasury as the maturing bills are outstanding in the amount of
$5,211 million. The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,200
million, representing an additional amount of bills dated
September 8, 1977, and to mature March 9, 1978
(CUSIP No.
912793 P2 6), originally issued in the amount of $3,203 million,
the additional and original bills to be freely interchangeable.
182-day Dills for approximately $3,400 million to be dated
December 8, 1977,
and to mature June 8, 1978
(CUSIP No.
912793 Q7 4).
Botn series of bills will be issued for cash and in
excnange for Treasury bills maturing December 8, 1977.
Federal Reserve Banxs, for themselves and as agents of foreign
and international monetary authorities, presently hold $2,622
million of the maturing bills. These accounts may exchange
Dills tney nold for tne Dills now being offered at the weighted
average prices of accepted competitive tenders.
The bills will be issued on a discount basis under
competitive and noncompetitive Didding, and at maturity
their par amount will oe payable without interest. Except for
definitive bills in the $100,000 denomination, which will be
available only to investors who are aole to show that they are
required by law or regulation to hold securities in physical
form, Doth series of Dills will be issued entirely in
book-entry form in a minimum amount of $10,000 and in any
higher $5,000 multiple, on tne records either of the Federal
Reserve Banks and Brancnes, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks ana
Branches and at tne Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time, Monday,
December 5, 1977.
Form PD 4632-2 (for 26-weeK
series) or Form PD 4632-3 (for 13-weex series) should be used
to submit tenders for bills to be maintained on the book-entry
records of the Department of tne Treasury.
B-5^*
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
borrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for t\\§
difference between the par payment submitted and the actuals
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust/company
accompanies the tenders.
'
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on December 8, 1977,
in cash or
other immediately available funds or in Treasury bills maturing
December 8, 1977.
Cash adjustments will be made for
differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
oOo
November 29, 1977
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S 139-DAY BILL AUCTION
Tenders for $3,004 million of 139-day Treasury bills to be issued
on December 2, 1977, and to mature April 20, 1978, were accepted at the
Federal Reserve Banks and Treasury today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Price
High - 97.581
Low
- 97.575
Average - 97.578
Discount Rate
6.265%
6.281%
6.273%
Investment Rate
(Equivalent Coupon-Issue Yield)
6.51%
6.53%
6.52%
Tenders at the low price were allotted
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
1/
Received
Accepted
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
$ 9,305,000
5,630,360,000
50,010,000
65,225,000
46,355,000
1,280,000
852,100,000
32,510,000
26,000,000
23,200,000
510,000
668,815,000
90,000
$ 1,485,000
2,042,550,000
4,510,000
10,225,000
20,715,000
280,000
426,000,000
11,410,000
TOTAL
$7,405,760,000
$3,003,970,000 1/
8,880,000
510,000
477,315,000
90,000
Includes $14,160,000 noncompetitive tenders.
B-572
CONTACT: Al Hattal
202/566-8381
FOR IMMEDIATE RELEASE November 29, 1977
TREASURY DEPARTMENT ANNOUNCES
SIX STEEL-DUMPING INVESTIGATTON:s
The Treasury Department today announced that it is
beginning six antidumping investigations involving cold
rolled and galvanized carbon steel sheets from Belgium,
France, West Germany, Italy, the Netherlands, and the
United Kingdom.
The announcement follows a summary investigation by
the U.S. Customs Service, after receipt of a petition on
October 25, 1977 from National Steel Corporation alleging
that the products were being dumped into the United States
from these six countries.
Information received from the petitioner indicates that
the prices of cold rolled and galvanized carbon steel sheets
from the six countries are less than the prices of the same
products sold in the home market. The petition also includes
information intended to show that the U.S. industry is being
injured by reason of the alleged "less than fair value" imports.
Under the Antidumping Act,a tentative determination must
be made within six months and a .final determination within
three months thereafter. If sales at less than fair value are
determined by the Department of the Treasury, the question of
injury will subsequently be decided by the U.S. International
Trade CommissionImports of cold rolled sheets from Belgium, France, West
Germany, Italy, the Netherlands, and the United Kingdom were
valued at approximately $164 million in 1976. Imports of
galvanized sheets from the subject countries during the same
period were valued at approximately $53 million.
Notices of the actions will appear in the Federal Register
of Friday, December 2.
*
B-573
*
*
FOR IMMEDIATE RELEASE
November 30, 1977
RESULTS OF AUCTION OF 4-YEAR l-MONTH TREASURY NOTES
The Department of the Treasury has accepted $2,751 million of
$5,407 million of tenders received from the public for the 4-year
1-month notes, Series L-1981, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 7.29% 1/
Highest yield
Average yield
7.32%
7.31%
The interest rate on the notes will be 7-1/4%. At the 7-1/4% rate,
the above yields result in the following prices:
Low-yield price 99.845
High-yield price
99.741
Average-yield price 99.776
The $2,751 million of accepted tenders includes $390 million of
noncompetitive tenders and $2,361 million of competitive tenders
(including 91% of the amount of notes bid for at the high yield) from
private investors.
In addition, $685 million of tenders were accepted at the average
price from Federal Reserve Banks as agents for foreign and international
monetary authorities for new cash.
1/ Excepting 3 tenders totaling $170,000
B-574
EMBARGOED FOR RELEASE UPON DELIVERY
EXPECTED AT 9 P.M.
NOVEMBER 30, 1977
REMARKS BY
THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
TO THE
NEW YORK BOARD OF TRADE
NEW YORK, NEW YORK
NOVEMBER 30, 1977
Tonight, I want to discuss two separate, but closely related
subjects — the prospects for our nation's economy, and the
financial prospects for New York City.
As in every community in America, the destiny of this city
is linked to tne rise and fall of general business activity. But
New York also has unique financial problems that require the
special attention of this Administration — something we are
doing with a great deal of care.
I'a like to begin with the state of the nation's economy
today. What I have to report is that we've made good progress
tnis year, and that we can look forward to more progress in 1978.
We've made solid gains in unemployment, with the addition of
nearly tnree million new jobs this year -- in inflation, with an
average rate in the past three months of less than 4 percent.
Industrial production — retail sales — and housing are all
growing steadily.
And the expansion is still strong and balanced, without
serious distortions, well into its third year since the trough of
tne 197^-75 recession. Inventories are under control, for
example, with no real imbalance, and corporate liquidity and
consumer debt are in good shape. Next year, we are aiming for
GNP growth close to 5 percent.
But despite these solid gains, we face several major
economic problems — problems that need a great deal of our
attention. They remind me of what Casey Stengel said about one
of nis baseball teams: "In many areas we have too strong a
weakness."
-2The first problem is inflation.
The experience of the past three months — with inflation
rates less than four percent — is no more typical than the more
than 10 percent rate averaged during the first quarter of this
year. The fact is that these variations in the inflation rate
were due to swings in food price and energy trends — while the
basic, underlying rate stays at 6 to 6 1/2 percent. And that
rate clearly is far too high.
It amounts to an intolerable drain on the purchasing power
of American families — a serious drag on the capabilities of
businesses to do their jobs — and a serious challenge to the
credibility and competence of the Federal government.
Just as inflation helped breed this past recession, it
continues to hold us back from further expansion.
If consumers see prices headed back up, they curtail their
spending plans, increasing savings instead. The same holds for
businesses, whose reaction is to curtail outlays and reduce
risks.
Therefore, 1978 must see us all work hard to reduce
inflationary pressures. It is a task in which all of us —
labor, business, government — must share the responsibilities.
The second major problem is unemployment. Seven million
Americans unable to find work amount to a tragic waste of our
human resources.
Perhaps most vexing is that much of this unemployment is
structural, and is not responding to the cyclical improvement in
the economy as a whole.
For women and minorities, especially those in the older
cities of the Northeast and upper Midwest, unemployment is far
above the national average, and improvement is lagging. In fact,
in some cases, unemployment has actually increased this year —
the rate for black workers, for example, stands at 13*9 percent,
one-half a point higher than a year earlier.
Closely linked to unemployment is our third major problem —
inadequate investment — which has seriously affected our rate of
job formation. Because not enough new industrial capacity is
being added, full utilization of that capacity no longer means
full employment. When there was full capacity in 1968, for
example, unemployment was only 3^6 percent. But when we reached
full capacity in 1973f unemployment stood at 1.9 percent — and
if we reach full capacity again in 1978 or 1979, the unemployment
rate would probably be even higher.
-3The only solution is to encourage real growth rates of
business fixed investment of nine to 10 percent until we bring
tne share of investment up to at least 12 percent of GNP.
In the last quarter, that rate of investment was only 2
percent, not far from the chronically low rates of recent years.
Since 1969, the annual rate has averaged only 2.7 percent —
actually only 2.3 percent, excluding investment for pollution
control. And by the end of this year, new investment will still
not be at the real level it was in 1971*.
Much of this reluctance to invest comes from a low level of
business confidence in the future. The turbulent events of the
early and mid-1970's left enough bad memories to make any
executive play it safe.
There is a danger, however, in ignoring the fundamental
soundness of this expansion, in failing to add strength to the
expansion — and thereby letting this pessimism become
self-fulfilling.
So a major emphasis of this Administration has been to
develop policies that can rebuild that confidence.
We've based this approach on a keen appreciation of both the
possibilities and limitations of government actions. We can
encourage, we can stimulate growth. But the jobs, the long-term
growth and stability just won't be there until business
executives decide to invest and take risks again. This is the
real key to our problems of inflation, unemployment and growth.
Capital formation is certainly a central objective of the
President's tax proposals, which we are getting ready for
Congress.
In the development of this legislation, the goals of
easing the burden of taxation on Americans, on providing
incentives for business to invest will, along with other
important reforms, loom large.
The President has not made any final decision yet, but I can .
tell you that we are aiming for an overall tax cut that is quite
substantial.
Witn tne other parts of our economic policy, we will
exercise the same care to encourage business expansion. As the
President stated last week, he will lay out in January his
overall economic plan — much of which is already in place but
has not been presented as a comprehensive entity.
-4Once we get from Congress the energy and Social Security
legislation — once we put in final form our tax and 1979 budget
proposals — we will have in place a clear outline of where we
intend to go economically.
Tnis is something I have emphasized repeatedly. Probably
the best thing government can do for business at this point is to
settle on a firm economic game plan — clearly indicate what
goals we want to achieve and how we intend to achieve them —
laying out, in other words, a stable, dependable set of policies.
For only then can businesses plan with some certainty how to
invest their hard-won capital — how to use their resources most
profitably and productively — and how to contribute to the
long-term expansion we are depending on.
That same kind of certainty is necessary for New York City
to solve its financial problems. I'd like to devote the rest of
my remarks to that subject, especially the role that the Federal
government will have in the solution of those problems.
Let me begin by not detailing where to place the blame for
these problems. That is now simply a part of history.
What is important today are solutions — with Federal, state
and city governments working in concert, and with business and
labor providing their own unique contributions.
This is particularly timely because the legislation covering
federal lending to the city — currently $2.3 billion a year —
expires next June 30, only seven months away. And Congressional
hearings on the future of that lending relationship may begin as
early as January.
Tnat leaves us much to do in a short time. It will not be
easy. Within the next two months, we hope to propose legislation
that will have the support of the city, state and Carter
Administration.
I discussed this in meetings here last week with Governor
Carey, Mayor Bearae, Mayor-elect Koch, and Controller Goldin. The
meetings confirmed to me that all of us are seeking the same goal
— restoration of a financially independent and economically
healthier New York — and we're all willing to do our part.
During tne last two years, the crisis-filled atmosphere has
made it difficult for city and state leaders to concentrate on a
longer term and comprehensive plan for the cityfs future.
However, 1978 represents a true crossroads, and itfs time to
develop such a plan.
-5Let me also sound a note of caution. There are some here
who think that, if even such a plan is not developed, the city
will at least get Congress to go along with an extension of
seasonal lending. I think that they are indulging in undue
optimism. Remember that the 1975 lending bill passed the House
by only 10 votes. Also, Congress expects these actions to be
taken as a condition to any extension of federal lending —
seasonal or otherwise.
I should also add emphatically that this Administration will
not interject itself into the issues that must be decided
locally. We have no inclination to decide such essentially local
issues as rent control, union contracts, or city university
tuition.
In that spirit, then, let me describe the broad steps which
I discussed with your elected leaders last week.
The heart of these steps is a budget plan and a financing
plan for the city covering the duration of any extension of
federal lending beyond June 1978. In other words, if Congress is
asked to support a three-year extension, then, these plans must
cover those three years — with the assurance that no further
borrowing plan will be needed.
This means that the city must get into a condition of
recurring budget balance by the end of the plan period. It
simply is unlikely that New York can re-enter the long term
market for the full amount of its annual long terms needs —
roughly $1 billion — unless its budget is in recurring balance
and is expected to stay in balance.
I realize that there are different definitions of recurring
budget balance. Indeed, the city's budget today is balanceds
under State law. Yet approximately $600 million of operating
expenses — which should be carried in the operating budget —
are carried in the capital budget. This complies with State law
which gives the city eight more years to phase that $600 million
back into the operating budget.
But the plain fact is that an operating budget isn't
balanced unless total revenues and total operating expenses are
equal. Potential lenders in the long-terra markets know this.
Congress knows this. And neither will be confident of the city's
fiscal condition until the budget is balanced this way.
This means that.the operating expenses must be phased out of
the capital budget over the period of any lending extension. We
realize that tnis will be difficult — adding roughly $130
million more to the expense side of the operating budget during
each of tne next three years or so, and still balancing the
budget. Yet I don't believe the city has a choice.
-6Another element essential to restoration of confidence is
the continuance of a strong and independent financial review
mechanism. The city must make hundreds of difficult and complex
decisions in arriving at its overall budget and financing plans.
In my view, there is no escaping the conclusion that, for those
decisions to be perceived as credible and responsible, they must
be reviewed and concurred in by a statutory group with power and
prestige. Tne present Emergency Financial Control Board or a
similar body will have to continue while the budget and financing
plans are translated into action.
Let me say here that we recognize how much New York has
accomplished since early 1975. Decisive action taken here has
been painful in human terms, but ultimately necessary. About
60,000 positions have been pared from city payrolls. Certain
services have been reduced or ended. Even the way in which the
city is governed has been changed.
We recognize too, that there are limits on what the city can
do. Welfare and Medicaid costs, for example, involve automatic
shares of total payments to city residents. Debt service and
pension benefits are very difficult to change.
Tnis is where a greater state involvement is necessary. As
President Carter said often during the 1976 campaign, cities,
first and foremost, are political subdivisions of states. The
Carter Administration and Congress must be convinced that your
State has fully used its ability to provide fiscal aid to the
city, before we continue a major federal lending role.
Tne second basic step required during the next few weeks is
development of a financing plan for the city. It should cover
the same period as the budget plan.
After all, New York City's two principal sources of
borrowing today will expire next June 30 — the federal lending
program and tne union retirement system loans. A financing plan
for tne period after that is necessary. Its result should be a
fully independent borrowing status for the city.
We realize that a central part of this city plan will be the
proposed extension of federal lending. Nevertheless, a key to
its credibility will be how it satisfies those needs which are
not accommodated by Treasury.
In addition, we will look closely at the State's involvement
in this financing plan. For example, the State may be able to
satisfy a meaningful portion of New York City's short-terra
borrowing needs during the financing plan period.
So far, I have broadly discussed steps to be taken by the
city and State. I'd like now to describe what the Administration
is going to do.
-7First, I should note that we already have done a lot.
During the city's current fiscal year, grants to New York City
will total $3,67 billion, a 33 percent increase over the $2.75
billion provided during fiscal 1976.
Some of these funds include direct budget assistance for the
city, and some involve community development or job funding. But
all provide assistance to the city. Let me describe some of the
major parts of this Federal aid.
In February, we proposed an expanded CETA jobs program, and
Congress agreed. New York City will receive $308 million more
this year than it would have received without this Carter
proposal.
In February, we proposed an extension and expansion of
countercyclical revenue sharing, and Congress agreed. New York
City will receive this year $135 million more than it would have
otherwise.
Also in February, we proposed an emergency public works
program, and Congress agreed. New York City's depressed
construction industry will receive $190 million this year through
this program, which it otherwise would not have obtained.
In March, we proposed a change in the Community Development
Block Grants funding formula, and Congress agreed. New York City
will receive $64 million more under the new formula.
Also in March, we proposed a new $400 million annual program
of "Urban Development Action Grants". These discretionary HUD
grants will be made shortly, and New York City should receive a
portion of them.
Moreover, this is not all we plan to do. The President has
pledged to propose an urban policy early in 1978 that is certain
to contain additional sources of assistance for New York City.
When this urban aid proposal takes final shape, I believe it
will round out our comprehensive approach to help solve the
city's problems — and to underscore the Carter Administration's
commitment to helping the city through its crisis.
Now, some have suggested recently a fundamental change in
the character of Treasury lending to New York City — changes
which, they contend, would contribute more to solving the city's
financing problems than our loans now contribute. Let me say in
response that I, for one, remain open-minded to the possibility
— if the proposals are part of an effective overall city and
state strategy that meets the requirements laid out by Congress
and the Administration.
-8Let me add one final note. Up to now, 1 have talked about
actions that might be taken by governments at all levels. In my
view, that is far too narrow a focus.
If the city's problems are to be solved, all of you here
tonight — your neighbors and colleagues in business as well —
must play a more active role. The business community here — the
banks and brokers, the garment industry, the professionals and
all the rest — must work hard to attract and hold business here
and facilitate the city's return to the private capital markets.
The labor leaders and the employees of this great city must
continue their extraordinary record of restraint. The citizens
must recognize the necessary choices between city services and
limited funds.
But even more important, all segments of the city must work
together. If the country and the Congress are to be convinced
that this city deserves additional support, they cannot be
greeted by a spectacle of divisiveness and dispute. Rather, It
must see that the past three years have led to a spirit of
cooperation, sacrifice and dedication, all directed at building a
vital future.
As your new Mayor formulates a responsible plan for the next
four years, he must receive visible and real, not grudging,
support from all quarters within the city. Lacking such support,
our efforts in Washington are not likely to succeed.
My own estimation is that we will succeed. The Carter
Administration cares deeply about this city, and is working hard
to help it recover. By helping itself and with assistance from
Albany and Washington, and from you, it will recover.
Let me close, ladies and gentlemen, simply by agreeing with
the sentiments which I am sure most of you have towards your
city. It is one of the greatest on earth — in many ways the
real capital of this country. The Carter Administration believes
in New York and is committed to its health.
FOR RELEASE UPON DELIVERY
EXPECTED AT 11:00 A.M.
WEDNESDAY, NOVEMBER 30, 19 77
REMARKS BY THE
DEPUTY SECRETARY OF THE TREASURY
ROBERT CARSWELL
BEFORE
THE SECURITIES INDUSTRY ASSOCIATION
NOVEMBER 30, 1977
It is a pleasure to be here with you this morning. I would
like to discuss with you the general need of our economy for
increased capital formation and the role of the Treasury in
ensuring that our capital markets help to meet this need. The
3EC and the various bank regulatory agencies are, of course,
actively concerned with capital markets questions. But in the
Administration itself, it is the Treasury — by force of history,
capacity and inclination -- that has boon concerned with capital
formation, capital markets questions and overall policy in these
areas. Moreover, the Treasury's perspective is — and ought to
be -- different from that of the regulators.
The Treasury's mandate is broader, namely the coordination
of all Government policy to ensure the health and effeciency of
the free market process that raises and allocates capital. We
are concerned with both the formation of capital and its
allocation among different sectors of the economy and between
debt and equity. Obviously, the public confidence engendered by
effective regulation of the securities markets and of financial
intermediaries is an essential element of this process. But
Government policy must involve more than regulation.
For instance, in the late 1950's it was clear that
continuing expansion of the economy — after the shortages
induced by the Korean war had been satisfied — required a higher
rate of caoital investment than then appeared likely. During the
196u campaign both candidates recognized this requirement.
After the election, the Treasury studied various proposals
for accelerated depreciation and other stimuli and eventually
proposed the investment tax credit. This measure has proved an
effective tool for stimulating investment. While it did not
change the shape of the capital markets, the ITC did generate new
types of financing and by improving business cash flow and
profitability, it increased the opportunity for business to raise
needed equity capital.
B-575
-2The same type of issue that confronted the economy in 1960
is with us again in the form of an unsatisfactory rate of capital
formation and unsatisfactory allocations of capital between debt
and equity and among different sectors of the economy.
While business capital outlays have been growing this year,
the rate at which these expenditures have been rising is not
adequate. We estimate that, to achieve and then sustain a full
employment economy, investment in new plant and equipment should
grow faster than real output, at a rate of 9 to 10 percent a
year, to restore the level of investment to at least 12 percent
of real output. For the past several years, we have fallen short
of that goal, and more recently the shortfall has widened. For
example, business fixed investment last quarter grew at only a 2
percent annual rate in real terms, and represented only 9-1/2
percent of real GNP.
The sharp decline in investment during the past three years
has virtually halted the uninterrupted increase in the U.S.
capital/labor ratio since World War II. By the end of 1977 the
productive capital stock per worker will be little greater than
it was in 1974.
This decline in the rate of growth of capital per worker has
been mirrored in declining productivity. For the 20 years prior
to 1970, productivity grew at a rate of about 2.8 percent per
year. So far this decade, the rate has averaged only 2.1 percent
— a reduction of one-fourth. Although part of this slowdown is
clearly associated with the depressed output levels of the
recession period, that does not explain the entire phenomenon.
In any case, we cannot afford to let this trend continue. The
economy, and all of us, are paying the price — in terms of
increased costs and higher rates of inflation — of the reduced
productivity growth associated with our failure to expand and
modernize our capital stock at a sufficiently rapid rate.
Unhappily, recent soundings on business capital spending
plans for next year do not suggest a dramatic pickup, at least
not in the absence of some new incentives.
Increasing the rate of capital formation is a prime
objective of the Administration. It was addressed in the tax
reform package originally drafted by the Treasury, and there is
no secret about the components under consideration: a reduction
in corporate taxes, an increase in the investment tax credit,
accelerated depreciation, and eventual elimination of the double
taxation of dividends through partial integration of taxes
imposed on a corporation and its shareholders. These proposals,
together with consideration of the elimination of the special tax
treatment of capital gains as part of a reduction of individual
tax rates,
engendered
a great
public
debate.
these
Would
proposals
they workable?
lead to simplification?
Would
they
achieve
their Were
intended
goals?
-3-
In my view, that debate has been very useful, not only for
us but for the business and financial communities as well. With
respect to double taxation, for example, businessmen and
financial analysts have criticized for years the disparate tax
treatment of interest and dividends paid by corporations.
Partial integration had been suggested for some time as a way of
dealing with that problem. But as a result of the debate in the
past months, many understand more fully the changes it might
bring; some now hold different views on partial integration and
now are doubtful about the net benefits it would bring to the
creation of equity capital.
As you are aware, the President has explained that the
Administration would review the tax reform package in light of
this debate and developments in the economy and in Congressional
treatment of the energy package and social security, taxes. We
are in the process of doing so now.
The forthcoming tax proposals will contain incentives for
capital formation, both for corporations and individuals.
As Secretary Blumenthal has stated, we fully understand the
important role that preferential tax rates for capital gains have
played in encouraging capital formation — especially for venture
capital and new businesses. We will, of course, take this into
account in designing reforms to reduce or eliminate unjustified
tax preferences.
" While the level of investment in the economy is a critical
factor, it is only the beginning of our concerns in this area.
Is capital being efficiently allocated by the markets, or are
structural impediments distorting the sectors to which capital
flows and the form which investment takes? Just last week,
Secretary Blumenthal spoke about the relationship of the
depressed state of our equity markets to the ability of American
business to raise equity capital. The examination of these
questions is a relatively recent development in the Executive
Branch of the Government. Prior to the 1970's, there was really
no office in the Executive Branch whose job was to think about
these problems. Then, in the 1970's, Secretary Simon brought to
the Treasury a new sensitivity to capital markets issues. First,
an office dealing primarily with banking matters was created.
Then a second office, for securities markets questions, was
established to be an effective line of communication with the
securities industry. I understand that the securities markets
office served well as a channel of communication.
We are now placing increased emphasis on this area. In
April, we created the position of Deputy Assistant Secretary for
Capital Markets to oversee capital markets questions and are
adding to Treasury staff several men and women with strong
backgrounds in this area.
-4I should also emphasize that we do not intend to downplay
the communications link that has been established. To the
contrary, I hope it will grow so that we have the continuing
benefit of your views. Indeed, Stephen J. Friedman, our Deputy
Assistant Secretary in this area, and Roger Altman, the Assistant
Secretary for Domestic Finance, have been engaged in a continuing
effort to. talk with you about problems of mutual interest.
Now, what do we plan to do in this area? Let me address
that question first by making quite clear what we do not intend
to do. We do not intend to create yet another system of federal
regulation. Nor do we intend to substitute a new mechanism for
credit allocation in lieu of the marketplace.
We have confidence in the market system which has served
this country well. Our interests lie — as President Carter has
consistently emphasized — in ways to enhance that system by
eliminating structural barriers which have arisen over the years,
by advocating more sensible and less cumbersome regulatory
policies where appropriate and by implementing basic, consistent
economic policies to encourage capital formation.
There is much hard thinking and hard analysis to be done.
Wo are hopeful that an increased capacity at the Treasury in
tnese areas will make a significant contribution.
I would like to discuss with you a few of the projects we
hrve in mind. First, it is most important that the capital
markets be viewed as a whole. In addition to the aggregate level
of financial investment, rigidities that distort the allocation
of that investment between public and private borrowers, between
debt and equity, between big companies and small, and among
different kinds of financial intermediaries are all matters
deserving close attention. There is, at any given time, only one
pot of savings, and an investment in one sector means no
investment in another. For instance, savings bankers have been
at some pains to point out that while elimination or reduction of
Jouble taxation on corporate earnings might make equity
securities more attractive, it also might reduce deposits at
thrift institutions, possibly injuring the prospects for housing
finance. Similarly, the volume and structure of the Treasury's
debt financing program obviously have a major impact on other
credit markets — as does any monetary policy decision to change
the level of interest rates. Finally, we have to understand
better the relationship to the capital formation process of
different participants in the markets.
Some of these questions are illustrated by two sets of
issues we are studying: bank securities activities and venture
capital. Senator Williams has promised a report on bank
participation in certain aspects of the securities business
shortly, and intends to hold hearings next year. There are
-5
already pending bills to impose minimum standards of training and
examination on bank employees engaged in securities brokerage,
and to permit banks to underwrite municipal revenue bonds.
Congressional interest has also been expressed in the activities
of banks in arranging private placements. Voluminous reports on
one or more of these topics have been produced by the SEC and the
Federal Reserve Board.
What is our role in this area and what considerations do we
think are important? First, we do not believe that this is the
type of issue that should be resolved solely by a legal analysis
of a statute enacted in 1933. Our capital markets and business
practices have changed dramatically in the last 40 years. The
analysis must also evaluate the actual and potential effects of
these activities on capital markets mechanisms — both short
range and long. Let me use bank brokerage activities as an
example. Would these acitivities create risks for depository
institutions? Is the brokerage relationship with a trust
department or a commercial client inconsistent with the
bank's obligations to the client?
Are there benefits that might flow from bank brokerage
activities? Or would a more likely result be to disable or
destroy an already effective execution system and
over-concentrate our financial markets?
These questions and others must be examined — and answered.
What are the proper roles of banks and securities firms in the
capital raising process and what special values are served by
insulating the securities industry from bank competition? What
is the meaning of "equal regulation" in this highly regulated
area? And in view of the special steps that we take to buttress
public confidence in the banking system, is it prudent to permit
banks to expand farther beyond their traditional borders?
The same kind of questions can be asked about the other
issues in the Glass-Steagall area. They are hard questions, and
we will be seeking your help and that of the bankers in
formulating our answers.
Similarly, fundamental questions may be asked in the
"venture capital" area.
The level of public offerings of common stock has fallen
precipitously. From 1968 through 1972, industrial companies
raised an average of $7.4 billion per year from the sale of
common stock. Since 1973, such common stock offerings have
averaged only $2.6 billion per year. The drop off is even more
serious for companies seeking public equity for the first time.
For the first six months of 1977, such offerings totalled only
$230 million, compared to $3.3 billion for the entire year of
1972.
-6What is the significance of those facts? There is
surprisingly little reliable published information available on
the availability of equity capital for small, growing businesses.
wo do not really know whether the present apparent inadequacy is
simply a cyclical down-turn in new financing, or whether a ••
combination of regulatory rigidities and tax policy is really
having a decisive dampening impact on innovation. We are trying
to explore the dimensions of this problem, its causes, and
possible cures.
Some venture capitalists point to the tax structure and the
increase in the effective rate of the capital gains tax as major
causes of the relative unavailability of venture capital. But
this is a far more complex matter than that. Inflation has made
serious inroads on corporate profitability and decreased the
attractiveness of equity securities. Moreover, changes in the
markets, particularly secondary markets, are very important -especially the progressive institutionalization of trading and
the flight of the individual investor.
There are many fine, young companies in technologically
promising areas with good growth records that trade at very low
multiples. The market for their securities is thin — or
nonexistent. How much of that is caused by unhappy remembrances
of the bad risk investments of the 1960s and how much by more
recent developments is difficult to sort out. Whatever the
reason it means that these investments have relativeley illiquid
markets.
If the venture capitalist sees no way to liquidate his
investment, it may not be made. Or, if made, it may produce
qreat pressure for acquisition by a large company.
It is essential that we come to understand the relationship
between these changes in the secondary markets and the capital
raising process. The trend toward increased institutionalization
may well have reduced the aggregate pool of money available for
investment in small growing companies. Present institutional
investment policies — circumscribed by prudent man rules and the
need to demonstrate consistent return — may simply be
incompatible with the risks associated with that type of
investment. If so, then perhaps you and we should be focussing
on more imaginative incentives and marketing techniques rather
than on across the board tax relief.
Nevertheless, let us assume that changes in the tax laws are
what is needed. Major problems remain. Who are we really trying
to help? All small businesses or just growing ones? Only high
technology or new technology companies? If high technology is
our goal, is that best achieved by helping a major company with
demonstrated technological capacity, or one just starting in a
garage? Remember that this is not merely a question of finding a
-7good definition, for each change has a fiscal impact. If the
class of companies affected is broad, then the fiscal impact is
great. The Treasury is prepared to seriously consider special
tax treatment for the "venture capital" problem, but we very much
need your help in fashioning the right approach — and in
thinking of creative alternatives.
In closing, I would emphasize to you again our commitment to
this area and our desire for your views and a<lvicc on capital
formation and capital markets questions. It may be that we will
not always agree on the Treasury's conclusions. But I hope we
can agree on the process by which we reach those conclusions.
0OO0
EMBARGOED FOR RELEASE UPON DELIVERY
EXPECTED AT 9 P.M.
NOVEMBER 30, 1977
REMARKS BY
THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
TO THE
NEW YORK BOARD OF TRADE
NEW YORK, NEW YORK
NOVEMBER 30, 1977
Tonight, I want to discuss two separate, but closely related
subjects — the prospects for our nation's economy, and the
financial prospects for New York City.
As in every community in America, the destiny of tnis city
is linked to tne rise and fall of general business activity. But
New York also has unique financial problems that require tne
special attention of this Administration — sometning we are
doing witn a great deal of care.
I'd like to begin with the state of the nation's economy
today. Wnat I nave to report is tnat we've made good progress
tnis year, and tnat we can look forward to more progress in 1978.
We've mane solid gains in unemployment, with tne addition of
nearly tnree million new jobs this year — in inflation, with an
average rate in tne past three montns of less than 4 percent.
Industrial production — retail sales — and housing are all
growing steadily.
And the expansion is still strong and balanced, without
serious distortions, well into its third year since the trough of
tne 1974-75 recession. Inventories are under control, for
example, with no real imbalance, and corporate liquidity and
consumer debt are in good shape. Next year, we are aiming for
GNP growtn close to 5 percent.
But despite these solid gains, we face several major
economic problems — problems that need a great deal of our
attention. They remind me of what Casey Stengel said about one
of nis baseball teams: "In many areas we have too strong a
weakness."
B-576
-2Tne first problem is inflation.
The experience of the past three months — with inflation
rates less than four percent ~ is no more typical than the more
tnan 10 percent rate averaged during the first quarter of tnis
year
Tne fact is tnat these variations in the inflation rate
were'oue to swings in food price and energy trends — wnile tne
basic, underlying rate stays at 6 to 6 1/2 percent. And tnat
rate clearly is far too high.
It amounts to an intolerable drain on the purchasing power
of American families ~ a serious drag on the capabilities of
businesses to do their jobs -- and a serious challenge to tne
credibility and competence of the Federal government.
Just as inflation nelped breed this past recession, it
continues to nolc us back from further expansion.
If consumers see prices neaded back up, they curtail tneir
spending plans, increasing savings instead. The same holds for
businesses, wnose reaction is to curtail outlays and reduce
risks.
Tnerefore, 1978 must see us all work hard to reduce
inflationary pressures. It is a task in which all of us —
labor, business, government — must share the responsibilities.
Tne second major problem is unemployment. Seven million
Americans unable to find work amount to a tragic waste of our
numan resources.
Pernaps most vexing is tnat mucn of this unemployment is
structural, ana is not responding to tne cyclical improvement in
tne economy as a wnole.
For women ana minorities, especially tnose in the older
cities of tne Nortneast and upper Midwest, unemployment is far
above tne national average, and improvement is lagging. In fact,
in some cases, unemployment has actually increased this year
tne rate for black workers, for example, stands at 13.9 percent,
one-naif a point nigner tnan a year earlier.
Closely linked to unemployment is our third major problem -inadequate investment -- wnicn nas seriously affected our rate of
job formation. Because not enougn new industrial capacity is
being aadea, full utilization of tnat capacity no longer means
full employment. Wnen tnere was full capacity in 1968, for
exampie, unemployment was only 3.6 percent. But wnen we reachea
full capacity in 1973, unemployment stood at 4.9 percent -- and
if we reacn full capacity again in 1978 or 1979, the unemployment
rate wouia probably be even higher.
-3Tne only solution is to encourage real growth rates of
business fixed investment of nine to 10 percent until we bring
tne share of investment up to at least 12 percent of GNP.
In the last quarter, tnat rate of investment was only 2
percent, not far from tne cnronically low rates of recent years.
Since 1969, tne annual rate nas averaged only 2.7 percent —
actually only 2.3 percent, excluding investment for pollution
control. And by tne end of tnis year, new investment will still
not be at tne real level it was in 1974.
Much of tnis reluctance to invest comes from a low level of
business confidence in the future. The turbulent events of the
early and mid-1970's left enough bad memories to make arty .
executive play it safe.
Tnere is a danger, nowever, in ignoring the fundamental
soundness of tnis expansion, in failing to add strength to tne
expansion -- and tnereby letting this pessimism become
self-fulfilling.
So a major empnasis of this Administration >has been to
develop policies tnat can rebuild tnat confidence.
We've based tnis approach on a keen appreciation of botn the
possibilities and limitations of government actions. We can
encourage, we can stimulate growth. But the jobs, the long-term
growtn and stability just won't be tnere until business
executives decide to invest and take risks again. This is the
real key to our problems of inflation, unemployment-and growtn.
Capital formation is certainly a central objective-of the
President's tax proposals, which we are getting ready Tor
Congress.
In tne development of tnis legislation, the goals of
easing tne burden of taxation on Americans, on providing
incentives for business to invest will, along withcother
important reforms, loom large.
Tne President nas not made any final decision yet, but I. can
tell you tnat we are aiming for an overall tax cut that is quite
substantial.
Witn tne otner parts of our economic policy, we will
exercise tne same care to encourage business expansion. As the
President stated last week, ne will lay out in January his
overall economic plan — mucn of which is already in place but
nas not been presentee as a comprehensive entity.
-4Once we get from Congress the energy and Social Security
legislation — once we put in final form our tax and 1979 budget
proposals — we will nave in place a clear outline of where we
intend to go economically.
Tnis is something I have emphasized repeatedly. Probably
tne best tning government can do for business at this point is to
settle on a firm economic game plan — clearly indicate what
goals we want to acnieve and how we intend to achieve them —
laying out, in other words, a stable, dependable set of policies.
For only then can businesses plan with some certainty how to
invest their hard-won capital -- how to use their resources most
profitably and productively — and how to contribute to the
long-term expansion we are depending on.
Tnat same kind of certainty is necessary for New York City
to solve its financial problems. I'd like to devote the rest of
my remarks to that subject, especially the role that the Federal
government will have in the solution of those problems.
Let me begin by not detailing where to place the blame for
tnese problems. That is now simply a part of history.
What is important today are solutions — with Federal, state
and city governments working in concert, and with business and
labor providing tneir own unique contributions.
r.
Tnis, is particularly timely because the legislation covering
federal lending to the city — currently $2-3 billion a year —
expires next June 30, only seven months away. And Congressional
nearings on tne future of tnat lending relationship may begin as
early as January.
Tnat leaves us mucn to do in a short time. It will not be
easy. Witnin tne next two months, we nope to propose legislation
tnat will nave tne support of the city, state and Carter
Administration.
I discussed this in meetings here last week with Governor
Carey, Mayor Beame, Mayor-elect Kocn, and Controller Goldin. The
meetings confirmed to me that all of us are seeking the same goal
— restoration of a financially independent and economically
nealtnier New York — and we're all willing to do our part.
During tne last two years, tne crisis-filled atmosphere nas
mace it difficult for city and state leaders to concentrate on a
longer term and comprenensive plan for the city's future.
However, 1978 represents a true crossroads, and it's time to
develop sucn a plan.
-5Let me also sound a note of caution. There are some here
wno tnink tnat, if even sucn a plan is not developed, the city
will at least get Congress to go along with an extension of
seasonal lending. I think that they are indulging in undue
optimism. Remember tnat the 1975 lending bill passed the House
by only 10 votes. Also, Congress expects these actions to be
taken as a condition to any extension of federal lending —
seasonal or otnerwise.
I snould also add empnatically tnat tnis Administration will
not interject itself into tne issues that must be decided
locally. We have no inclination to decide such essentially local
issues as rent control, union contracts, or city university
tuition.
In that spirit, tnen, let me describe the broad steps wnich
I discussed witn your elected leaders last week.
Tne neart of tnese steps is a budget plan and a financing
plan for the city covering tne duration of any extension of
federal lending beyond June 1978. In other words, if Congress is
asked to support a tnree-year extension, then, these plans must
cover tnose tnree years -- with tne assurance that no further
borrowing plan will be needed.
Tnis means tnat tne city must get into a condition of
recurring budget balance by tne end of tne plan period. It
simply is unlikely tnat New York can re-enter tne long term
market for tne full amount of its annual long terms needs — •
rougnly $1 billion — unless its budget is in recurring balance
anc is expected to stay in balance.
I realize tnat tnere are different definitions of recurring
budget balance. Indeed, tne city's budget today is balanceds
uncer State law. Yet approximately $600 million of operating
expenses -- wnicn snould be carried in the operating budget —
are carried in tne capital budget. This complies with State law
whicn gives tne city eignt more years to phase that $600 million
back into tne operating budget.
But tne plain fact is tnat an operating budget isn't
balanced unless total revenues ana total operating expenses are
equal. Potential lenders in tne long-term markets know this.
Congress knows tnis. Ana neitner will be confident of tne city's
fiscal condition until tne budget is balanced this way.
Tnis means tnat tne operating expenses must be pnasea out of
tne capital budget over tne period of any lending extension. We
realize tnat tnis will be difficult — adding roughly $130
million more to tne expense side of tne operating budget during
eacn of tne next tnree years or so, and still balancing tne
budget. Yet I don't believe the city has a choice.
-6Anotner element essential to restoration of confidence is
tne continuance of a strong and independent financial review
mecnanism. Tne city must make hundreds of difficult and complex
decisions in arriving at its overall budget and financing plans.
In my view, there is no escaping the conclusion that, for those
aecisions to be perceived as credible and responsible, they must
be reviewed and concurred in by a statutory group with power anc
prestige. Tne present Emergency Financial Control Board or a
similar body will nave to continue wnile tne budget and financing
plans are translated into action.
Let me say nere that we recognize how much New York has
aecomplisned since early 1975. Decisive action taken here has
been painful in numan terms, but ultimately necessary. About
60,000 positions nave been pared from city payrolls. Certain
services nave been reduced or ended. Even the way in whicn the
city is governed nas been cnanged.
We recognize too, tnat tnere are limits on what tne city can
co. Welfare and Medicaid costs, for example, involve automatic
snares of total payments to city residents.* Debt service and
pension benefits are very difficult to change.
Tnis is wnere a greater state involvement is necessary. As
President Carter said often during the 1976 campaign, cities,
first and foremost, are political subdivisions of states. The
Carter Administration and Congress must be convinced that your
State nas fully used its ability to provide fiscal aid to the
city, before we continue a major federal lending role.
Tne second basic step required during the next few weeks is
development of a financing plan for tne city. It should cover
tne same period as tne budget plan.
After all, New York City's two principal sources of
borrowing today will expire next June 30 -- tne federal lending
program and tne union retirement system loans. A financing plan
for tne period after tnat is necessary. Its result should be a
fully independent borrowing status for tne city.
We realize tnat a central part of this city plan will be tne
proposed extension of federal lending. Nevertheless, a key to
its credibility will be now it satisfies tnose needs whicn are
not accommodated by Treasury.
In addition, we will look closely at tne State's involvement
in tnis financing plan. For example, the State may be able to
satisfy a meaningful portion of New York City's short-term
borrowing needs during tne financing plan period.
So far, I nave broadly aiscussed steps to be taken by the
city ana State. I'd like now to describe what tne Administration
is going to ao.
-7First, I snould note that we already have done a lot.
During the city's current fiscal year, grants to New York Citywill total $3.67 billion, a 33 percent increase over the $2.75
billion provided during fiscal 1976.
Some of these funds include direct budget assistance ,for the
city, and some involve community development or job funding. But
all provide assistance to the city. Let me describe some of tne
major parts of tnis Federal aid.
In February, we proposed an expanded CETA jobs program, and
Congress agreed. New York City will receive $308 million more
tnis year tnan it would have received without this Carter
proposal.
In February, we proposed an extension and expansion of
countercyclical revenue snaring, ano Congress agreed. New York
City will receive tnis year $135 million more than it would have
otnerwise.
Also in February, we proposed an emergency public works
program, ano Congress agreed. New York City's depressed
construction industry will receive $190 million this year through
tnis program, wnich it otnerwise would not have obtained'.
In Marcn, we proposed a cnange in tne Community Development
Block Grants funding formula, ana Congress agreed. New York City
will receive $64 million more under the new formula.
Also in March, we proposed a new $400 million annual program
of "Urban Development Action Grants". These discretionary HUD
grants will be maoe snortly, and New York City should receive a
portion of tnem.
Moreover, tnis is not all we^plan to do. Tne President has
pledged to propose an urban policy early in 1978 that is certain
to contain additional sources of assistance for New York City.
Wnen tnis urban aid proposal takes final snape, I believe it
will round out our comprenensive approach to help solve the
city's problems -- and to underscore the Carter Administration's
commitment to nelping tne city tnrough its crisis.
Now, some nave suggested recently a fundamental cnange in
tne cnaracter of Treasury lending to New York City — cnanges
wnicn, tney contend, would contribute more to solving tne city's
financing problems tnan our loans now contribute. Let me say in
response tnat I, for one, remain open-minded to tne possibility
— if tne proposals are part of an effective overall city and
state strategy that meets tne requirements laid out by Congress
and tne Administration.
-8Let me ado one final note. Up to now, I nave talked about
actions tnat mignt be taken by governments at all levels. Ih my
view, tnat is far too narrow a focus.
If tne city's problems are to be solved, all of you here
tonignt — your neignbors and colleagues in business as well —
must play a more active role. The business community here — the
banks ano brokers, tne garment industry, the professionals and
all tne rest — must work nard to attract and hold business nere
and facilitate tne city's return to the private capital markets.
Tne labor leaders and the employees of tnis great city must
continue tneir extraordinary record of restraint. The citizens
must recognize tne necessary choices between city services and
limited funds.
But even more important, all segments of the city must work
together.••.?-If. tne country and tne Congress are to be convinced
tnat tnis city deserves additional support, tney cannot be
greeted by a spectacle of aivisiveness and dispute. Rather, it
must see tnat the past three years nave led to a spirit of
cooperation, sacrifice ano dedication, all directed at building a
vital future.
As your new Mayor formulates a responsible plan for tne next
four years, ne must receive visible and real, not grudging,
support from all quarters within the city. Lacking sucn support,
oun, efforts in Washington are not likely to succeed.
My own estimation is that we will succeed. The Carter
Administration cares deeply about this city, and is working hard
to nelp it recover. By helping itself and with assistance from
Albany ano Washington, ano from you, it will recover.
Let me close, laaies and gentlemen, simply by agreeing with
tne sentiments wnicn I am sure most of you nave towards your
city. It is one of tne greatest on earth -- in many ways tne
real capital of this country. Tne Carter Administration believes
in New York ano is committed to its health.
-0-
FOR RELEASE AT 4:00 P.M.
December 1, 1977
TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
$3,505 million, or thereabouts, of 364-day Treasury bills to be dated
December 13, 1977, and to mature December 12, 1978 (CUSIP No. 912793 R8 1 ) .
The bills, with a limited exception, will be available in book-entry form only,
and will be issued for cash and in exchange for Treasury bills maturing
December 13, 1977.
This issue will not provide new money for the Treasury as the maturing
issue is outstanding in the amount of $3,505 million, of which $2,136 million is
held by the public and $1,368 million is held by Government accounts and the
Federal Reserve Banks for themselves and as agents of foreign and international
monetary authorities.
Additional amounts of the bills may be issued to Federal
Reserve Banks as agents of foreign and international monetary authorities.
Tenders
from Government accounts and the Federal Reserve Banks for themselves and as
agents of foreign and international monetary authorities will be accepted at the
average price of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their par amount will be payable without interest.
Except for definitive bills in the $100,000 denomination, which will be available
only to investors who are able to show that they are required by law or regulation
to hold securities in physical form, this series of bills will be issued entirely
in book-entry form on the records either of the Federal Reserve Banks and Branches,
or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and Branches and at the
Bureau of the Public Debt, Washington, D. C. 20226, up to 1:30 p.m., Eastern
Standard time, Wednesday, December 7, 1977.
Form PD 4632-1 should be used to
submit tenders for bills to be maintained on the book-entry records of the
Department of the Treasury.
Each tender must be for a minimum of $10,000.
be in multiples of $5,000.
Tenders over $10,000 must
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.
B-577
(OVER)
-2Banking institutions and dealers who make primary markets in Government
securities and report daily to the Federal Reserve Bank of New York their positions
with respect to Government securities and borrowings thereon may submit tenders
for account of customers, provided the names of the customers are set forth in
such tenders.
Others will not be permitted to submit tenders except for their
own account.
Payment for the full par amount of the bills applied for must accompany all
tenders submitted for bills to be maintained on the book-entry records of the
Department of the Treasury.
A cash adjustment will be made for the difference
between the par payment submitted and the actual issue price as determined in
the auction.
No deposit need accompany tenders from incorporated banks and trust companies
and from responsible and recognized dealers in investment securities, for bills
to be maintained on the book-entry records of Federal Reserve Banks and Branches,
or for definitive bills, where authorized.
A deposit of 2 percent of the par
amount of the bills applied for must accompany tenders for such bills from others,
unless an express guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.
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 $500,000 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 for bills to be maintained on the records
of Federal Reserve Banks and Branches must be made or completed at the Federal
Reserve Bank or Branch on December 13, 1977,
i n cash or other immediately avail-
able funds or in Treasury bills maturing December 13, 1977.
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 bills (other than life insurance companies) issued hereunder must
-3include in his Federal income tax return, as ordinary gain or loss, the
difference between the price paid for the bills, whether on original issue or
on a subsequent purchase, and the amount actually received either upon sale or
redemption at maturity during the taxable year for which the return is made.
Department of the Treasury Circulars, Public Debt Series - Nos. 26-76 and
27-76, and this notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue.
Copies of the circulars and tender forms may be
obtained from any Federal Reserve Bank or Branch, or from the Bureau of the
Public Debt.
FOR IMMEDIATE RELEASE
Contact: George Ross
566-2356
December 1? 1977
TREASURY ANNOUNCES REGULATIONS ON
REFUNDING OF INDUSTRIAL
DEVELOPMENT BONDS
The Department of the Treasury announced today the
issuance of proposed amendments to the Treasury Regulations
governing refundings of industrial development bonds.
The proposed amendments will be effective generally
with respect to refunding obligations issued after 5:00 p.m.
EST, November 4, 1977. However, in the case of refundings
of certain housing obligations, the proposed amendments will
apply only to refunding obligations issued after December 1,
1977. The text of the proposed amendments is attached.
The Treasury had previously announced that it expected
that the proposed amendments would be issued by December 1,
1977, and would be effective generally with respect to
refunding obligations issued after 5:00 p.m. EST,
November 4, 1977.
Industrial development bonds are government obligations issued to raise capital for private businesses.
Usually, no governmental unit is liable for payment of
debt service on the bonds; the bondholders look solely to
the credit of a private corporation that agrees to meet
the debt service.
Under section 103(a) of the Internal Revenue Code,
interest on state and local government obligations is
generally exempt from tax. Section 103(b) of the Code,
however, generally denies tax exemption to interest on
industrial development bonds (as defined in section 103(b)(2))
issued after April 30, 1968.
In general, the proposed amendments to the Regulations
prohibit tax exempt refundings of industrial development
bonds issued before the effective date of section 103(b)
if the refunding extends the maturity of the outstanding
bonds. An extension of the maturity of those tax exempt
obligations is tantamount to a new tax exempt financing
and is inconsistent with the 1968 legislation limiting
the availability of such financing.
B-578
- 2 The 1968 Amendments allowed continued tax exemption
for certain industrial development bonds if substantially
all of the proceeds are used for facilities specified in
the statute. The proposed amendments prohibit tax exempt
advance refundings of these issues. An advance refunding
is an issue issued more than 180 days in advance of the
maturity or call date of the original issue. The proceeds
of the refunding issue are generally invested in federal
securities pending call or retirement of the original
issue. To permit tax exempt advance refundings would
mean that a face amount of tax exempt bonds equal to
twice the cost of a given facility could be outstanding
during the period commencing with the issuance of the
refunding issue and ending with the call or retirement
of the original issue. This contravenes the Congressional
requirement that substantially all the proceeds of an
industrial development bond must be used "to provide" a
facility described in the statute in order to qualify for
tax exemption.
The Treasury recognizes, however, that a prohibition
on tax exempt refunding of industrial development bonds may,
in certain cases, cause hardship to state and local governments. The Treasury, therefore, announced that it will
ask Congress to consider amending section 103(b) of the
Code to allow advance refundings in such cases.
The amendments, in the form of a Notice of Proposed
Rule Making amending section 1.103-7 of the Treasury
Regulations, are expected to be published in the Federal
Register for December 6, 1977.
o 0 o
Note to Editors:
See Treasury News Release B-536
(November 4, 1977) and B-545
(November 9, 1977).
NOTICE OF PROPOSED RULEMAKING
REFUNDINGS OF
INDUSTRIAL DEVELOPMENT BONDS
Section 1.103-7 is amended by adding two new sentences
the end of paragraph (d)(1) and adding a new paragraph (e)
read as follows:
§1.103-7 Industrial development bonds.
*********
(d) Refunding obligations; old rules—(1) General
rule. * *~~* This paragraph does not apply to refunding issues to which paragraph (e) applies. See
paragraph (e)(8).
(e) Refunding obligations; new rules—(1) Treatment as industrial development bonds. A refunding issue
satisfies the trade or business test of section 103(b) (2) (A)
if the prior issue satisfied the trade or business test.
If the refunding issue also satisfies the security
interest test of section 103(b)(2)(B), the refunding
issue is an issue of industrial development bonds.
(2) Special transitional rule. (i) Notwithstanding paragraph (e)(1), a refunding issue is not
an issue of industrial development bonds i f —
(A) The prior issue was issued before the effective
date of section 103(b) (May 1, 1968, or January 1, 1969,
if the transitional rules of §1.103-12 are applicable);
and
(B) The refunding issue matures no later than the
prior issue.
(ii) For purposes of paragraph (e)(2)(i)(B), if
portions of the prior issue mature on different dates,
corresponding portions of the refunding issue must
mature on or before each such maturity date. Thus,
for example, if one-half of the prior issue matures on
January 1, 19 80, and the other half matures on January 1,
1985, then one-half of the refunding issue must mature
on or before January 1, 1980, and the other half must
mature on or before January 1, 1985.
- 2 (iii) A portion of an issue is deemed to mature
at the time a mandatory sinking fund redemption is
made.
(iv) The issuer may treat particular obligations
which are part of a multipurpose issue (defined in
paragraph (e)(7)(D) as used to refund particular
prior issues. See example (5) of paragraph (e)(9).
(3) Exempt facilities. In general, the proceeds
of a refunding issue are used to provide an exempt
facility (within the meaning of section 103(b)(4)) if
substantially all of the proceeds of the prior issue
were used to provide an exempt facility. However, the
proceeds of a refunding issue are not used to provide
an exempt facility if the refunding issue is issued
more than 180 days before the prior issue is redeemed.
(4) Industrial parks. In general, the proceeds of
a refunding issue are used to acquire or develop land
as the site for an industrial park (within the meaning
of section 103(b)(5)) if substantially all of the
proceeds of the prior issue were used for such acquisition or development. However, the proceeds of a refunding issue are not used for such acquisition or development if the refunding issue is issued more than 180 days
before the prior issue is redeemed.
(5) Small issues. The proceeds of a refunding
issue are not used as described in section 103(b)(6)(A)(i)
or (ii) if the refunding issue is issued more than 180
days before the prior issue is redeemed.
(6) Definitions. (i) A refunding issue is an
issue the proceeds of which are used to pay principal,
interest, or call premium on another issue (the "prior
issue") or reasonable incidental costs of the refunding
(e.g., legal and accounting fees, printing costs, and
rating fees). An issue is not a refunding issue for
purposes of this paragraph if the prior issue had a
term of less than three years and was sold in anticipation of permanent financing. However, the aggregate
term of all issues sold in anticipation of the permanent
financing may not exceed three years.
- 3 (ii) An issue is redeemed at the time interest
ceases to accrue on the issue.
(7) Multipurpose issues. (i) For purposes of
this paragraph, the term "multipurpose issue" means an
issue the proceeds of which are used—
(A) To refund two or more prior issues, or
(B) To refund one or more prior issues and also
for other purposes (e.g., to provide additional facilities
or working capital).
(ii) The portion of a multipurpose issue used to
refund each prior issue is treated as a separate refunding
issue for purposes of this paragraph. Any remaining
portion of the multipurpose issue is treated as a
separate issue for purposes of section 103(b).
(8) Effective dates. (i) Except as provided in
paragraph (e)(8)(ii), this paragraph applies to refunding issues issued after 5:00 p.m. EST on November 4, 1977.
(ii) This paragraph does not apply to a refunding
issue issued on or before December 1, 1977, if substantially all of the proceeds of the prior issue were
used to provide residential real property for family
units within the meaning of section 103(b)(4)(A).
(9) Examples. The following examples illustrate
the application of this paragraph:
Example (1). On February 1, 1975, State A issued
$20 million of 20-year revenue bonds. The bond proceeds
were used to construct a sports stadium owned and
operated by X, a nonexempt person, for use by the
general public. The revenues derived from the sports
stadium secured payment of the principal and interest
on the bonds. On January 1, 19 80, State A issues $15
million of 20-year refunding bonds at par. On February 1,
1980, State A uses $14.5 million of proceeds to redeem
the outstanding principal amount of the prior issue.
The remaining $.5 million of proceeds is used solely
to pay call premium and reasonable incidental costs
of the refunding. The sports stadium revenues secure
- 4 payment of the principal and interest on the refunding
issue. Because the prior issue satisfied the trade
or business test of section 103(b)(2)(A), under
paragraph (e)(1) the refunding issue also satisfies
that test. In addition, the refunding issue satisfies
the security interest test. Accordingly, the refunding
obligations are industrial development bonds. Since,
however, substantially all of the proceeds of the
original issue were used to provide an exempt sports
facility within the meaning of section 103(b)(4)(B),
under paragraph (e)(3) the proceeds of the refunding
issue are used to provide an exempt facility. As a
result, section 103(b)(1) does not apply to the refunding issue.
Example (2). The facts are the same as in example
(1), except that the prior issue is not callable until
February 1, 1985. During the period when both the
refunding and prior issues are outstanding, the proceeds
of the refunding issue are invested in United States
Treasury obligations. The interest earned on the
Treasury obligations is used to pay debt service on
the prior issue. Because the prior issue satisfied
the trade or business test of section 103(b)(2)(A),
under paragraph (e)(1) the refunding issue also
satisfies that test. In addition, the refunding issue
satisfies the security interest test of section
103(b)(2)(B), since the revenues from the sports stadium
will be used to pay the debt service on the refunding
issue. Accordingly, the refunding bonds are industrial
development bonds. Since the refunding issue is issued
more than 180 days before the prior issue is redeemed,
the proceeds of the refunding issue are not considered
under paragraph (e)(3) to be used to provide an exempt
facility. As a result, section 103(b)(1) applies to
the refunding issue, and interest on the refunding issue
is included in gross income.
Example (3). The facts are the same as in example
(2), except that interest earned on the Treasury
obligations is used to pay debt service on the refunding
issue until the prior issue is redeemed. The sports
stadium revenues are used to pay debt service on the
refunding issue beginning on February 1, 1985 (the
date of redemption), rather than on January 1, 19 8 0
- 5 (the date of issuance). The refunding issue satisfies
the security interest test because the sports stadium
revenues will be used to pay debt service on the refunding issue after the prior issue is redeemed. Accordingly, the result is the same as in example (2).
Example (4). On January 1, 1965 (before the
effective date of section 103(b)), city B issued $10
million of 30-year revenue bonds. The bond proceeds
were used to construct a manufacturing facility for
corporation Y, a nonexempt person. Lease payments by
Y secured payment of the principal and interest on the
bonds. On January 1, 1978, B issues $7 million of
refunding bonds which mature of January 1, 2005. On
April 1, 1978, the proceeds of the refunding issue
are used to redeem the outstanding principal amount of
the prior issue. The lease payments by Y secure payment of the principal and interest on the refunding
issue. Because the refunding issue matures later than
the prior issue, the special transitional rule of
paragraph (e)(2) does not apply. Moreover, the
refunding issue is treated as an issue of industrial
development bonds under paragraph (e)(1). Since the
proceeds of the prior issue were not used to provide an
exempt facility described in section 103(b)(4) or to
acquire or develop land as the site for an industrial
park described in section 103(b)(5), interest on the
refunding issue is included in gross income.
Example (5). (a) On January 1, 1968, state D
issued $20 million of 20-year revenue bonds to construct
an office building. The office building is leased to
and operated by Y, a nonexempt person. Lease payments
by Y secured the payment of principal and interest on
the bonds. One million dollars in principal amount of
the 1968 issue matures on January 1 of each year 1969
to 1988.
(b) On January 1, 1970, state D issued $15 million
of 20-year revenue bonds to construct a sports stadium.
The sports stadium is owned and operated by Y for use
by the general public. The revenues derived from the
sports stadium secured the payment of principal and
interest on the 1970 issue.
- 6 (c) On February 1, 1978, state D issues a
$20.5 million multipurpose issue at par. The payment
of principal and interest on the multipurpose issue is
secured by lease payments by Y and by revenues derived
from the sports stadium. The 1978 issue matures according to the following schedule:
January
January
January
January
January
January
January
January
January
January
1,
1,
1,
1,
1,
1,
1,
1,
1,
1,
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
$850,000
850,000
850,000
850,000
850,000
850,000
850,000
850,000
850,000
850,000
after January 1, 1988
12,000,000
On March 1, 1978, state D uses $12 million of the
proceeds of the multipurpose issue to redeem the outstanding principal amount of the 1970 issue. State D uses
the remaining $8.5 million of proceeds to pay principal
on the 1967 issue as it comes due.
(d) Under paragraph (e)(7), the multipurpose
issue is treated as two separate issues—one $12 million
refunding issue and one $8.5 million refunding issue.
Under paragraph (e)(2)(iv), state D treats the $8.5
million refunding issue as having the following
maturities:
January
January
January
January
January
January
January
January
January
January
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
$850 ,000
850 ,000
850 ,000
850 ,000
850 ,000
850 ,000
850 ,000
850 ,000
850 ,000
850 ,000
- 7 (e) Under paragraph (e)(1), the $12 million
refunding issue satisfies the trade or business test
since the prior issue satisfied that test. Because
the $12 million refunding issue also satisfies the
security interest test, it is an issue of industrial
development bonds. However, since substantially all
of the proceeds of the 1970 issue was used to provide
an exempt sports facility within the meaning of
section 103(b)(4)(B), under paragraph (e)(3) the proceeds of the $12 million refunding issue are used to
provide an exempt facility.
(f) One tenth of the 1968 issue (disregarding
the portion of the issue retired before February 1, 1978)
matures on January 1 of each year 1979 to 1988. Because
one tenth of the $8.5 million refunding issue also
matures on January 1 of each year 1979 to 1988, the $8.5
million refunding issue satisfies the requirement in
paragraph (e)(2)(ii). Because the requirements in
paragraph (e)(2)(i) are also satisfied, the $8.5 million refunding issue is not treated as an issue of
industrial development bonds.
(g) Section 103(b)(1) does not apply to any
portion of the multipurpose issue.
Example (6). On January 1, 1993, city D issues
$40 million of revenue bonds at par. Of the $40 million
of bond proceeds, $37 million is used to refund a prior
issue (i.e., to pay principal and interest on the prior
issue, call premium, and reasonable incidental costs of
refunding). The remaining $3 million is used to provide
working capital to corporation X, a nonexempt person.
Under paragraph (e)(7), the issue of revenue bonds is
a multipurpose issue and is treated as two separate
issues—a $37 million refunding issue and a $3 million
issue to provide working capital. Assume that the $3
million issue satisfies the security interest test of
section 103(b)(2)(B). Based on these facts, the $3
million issue is treated as an issue of industrial
development bonds and does not satisfy the requirements
of section 103(b)(4), (5), or (6). Accordingly,
section 103(b)(1) applies to the $3 million issue.
- 8Example (7). On January 1, 1967 (before the
effective date of section 103(b)), city E issued
$50 million of 25-year revenue bonds. The proceeds of
the 1967 issue were used to provide a manufacturing
facility for use by corporation Z, a nonexempt person,
and the 1967 issue therefore satisfied the trade or
business test of section 103(b)(2)(A). On January 1,
1978, city E issues $40 million of 14-year revenue bonds
to refund the 1967 issue. Under paragraph (e)(1), the
1978 issue satisfies the trade or business test of
section 103(b)(2)(A). However, the 1978 issue is not
treated as an issue of industrial development bonds.
(See paragraph (e)(2).) On January 1, 1980, city E
issues $38 million of 12-year revenue bonds to refund
the 1978 issue. Under paragraph (e)(1), the 1980
issue satisfies the trade or business test of section
103(b)(2)(A). Assume that the 1980 issue also satisfies
the security interest test of section 103(b)(2)(B).
Based on these facts, the transitional rule in paragraph
(e)(2) does not apply to the 1980 issue because the
1978 issue was issued after the effective date of
section 103(b). Moreover, the proceeds of the 1980
issue are not treated under paragraph (e)(3) or (4)
as used to provide an exempt facility or to acquire or
develop land as the site for an industrial park.
Section 103(b)(1) applies to the 1980 issue, and interest
on the 1980 issue is included in gross income.
FOR IMMEDIATE RELEASE
December 2, 1977
REMARKS BY THE HONORABLE ANTHONY M. SOLOMON
UNDER SECRETARY FOR MONETARY AFFAIRS
U.S. DEPARTMENT OF THE TREASURY
BEFORE THE
UNITED STEELWORKERS OF AMERICA
--
As U.S. steelworkers who have been seriously
affected by the current problems of the domestic steel
industry, you are acutely aware of the seriousness and
urgency of the current steel crisis. As many as 60,000
U.S. steelworkers have been laid off by steel cutbacks
and closings this year alone. Many of your members are
receiving unemployment assistance, and have little prospect of obtaining new jobs for the next several months.
Your communities have been hurt as well, especially the
concentrated steel communities in Ohio, Pennsylvania, and
New York: Youngstown, Lackawanna, Johnstown are a reality
and a human tragedy for many of you.
And the prospect of
more plant closings and cutbacks remains a real possibility
for the future, unless positive action is taken now to
improve the industry's competitive position.
-- My objective in speaking to you today is to
help explain our analysis of what has happened to the U.S.
steel industry in recent years, on the basis of our recent
review of the industry's problems —
R-579
and equally important,
- 2to emphasize the Administration's concern for the future
of the steel industry.
Our primary aim is to help assure
that the industry can be viable and competitive in our
own market.
Our actions should mean more jobs for you,
greater security in the jobs you hold, and an industry
that is strong and growing and which can produce
efficiently for the benefit of all Americans.
What Has Happened to the Steel Industry
The present crisis in the U.S. steel industry
has been developing for a number of years; its problems
date back to the 1950s, but have been heightened by
the recent deep recession in world steel markets.
Indeed, the current steel "crisis" is not
unique to the United States; it is global in nature
and equally affects our major steel trading partners,
Japan and the European Community, which have relied on
steel exports to our market to help maintain employment
and production in their countries.
The present steel situation is marked by high
excess production capacity in all of the major producing
nations, due in large part to slow recovery in global
steel demand from the 1974-75 world economic recession
and to large increases in foreign capacity in recent
years.
The EC's industries are operating at 65 to
70 percent of capacity; Japanese industries at less
than 75 percent; and U.S. industries at approximately
- 381 percent of steel capacity.
has been strong,
Our own economic recovery
but recovery in the other industrialized
countries has been disappointingly slow.
— Even a strong global economic recovery,
however, would not by itself relieve the broader problems of our domestic industry:
(1) A significant erosion in its competitive
position over the past several years,
due in part to low-priced foreign imports,
but also to the increased use of substitute
materials;
(2) Abnormally low earnings in recent years
(the return on sales for the first half
of 1977 was 1.4 percent after taxes);
(3) Heavy investment requirements for modernization, pollution control, and plant maintenance
which the industry cannot meet because of
inadequate cash flow and an inability to
raise the needed capital in private markets.
U.S. domestic demand for steel has been relatively
strong this year, especially for lighter, flat-rolled
products.
Total consumption of steel mill products may
reach 108 to 110 million tons in 1977 -- a level exceeded
4
only twice before, in 1973 and 1974. Many markets, however,
remain depressed, especially those for structurals, plates,
and bar products, which reflect the still depressed demand
for capital goods.
-- The problem is that imports, rather than U.S. production, are satisfying an increasing share of domestic demand
(up from 13 percent of U.S. steel consumption in 1973-1976 to
a 20 percent share in recent months).
At current rates, imports
could total 19 million tons in 1977, a 5 million ton increase
over 1976.
Imports of this magnitude suggest more than a
competitive response to the continued gradual growth of U.S.
steel demand and rising U.S. steel prices.
-- While Japanese exports to the U.S. reached a record
7.9 million tons in 1976, imports from the European Community
have been the major factor behind increasing U.S. imports in
1977.
The pressure of low capacity utilization, large financial
losses, and a stronger U.S. recovery has led EC firms to
attempt to improve their operating results by aggressive pricing
in the U.S. market.
--
The steel industry argues that the recent surge in
imports is largely attributable to unfair trade practices,
principally dumping.
Accordingly, numerous antidumping com-
plaints have been filed since February of this year; indeed
the 19 separate petitions presently before the Treasury Department in various stages of investigation are an unprecedented
number with respect to a single industry in so short a time
frame.
Efforts to assure prompt
5
and adequate relief for the U.S. steel industry from
unfair foreign pricing practices must be a central element
of our response to the current steel crisis.
The Need for Federal Government Involvement
-- The U.S. Government does not normally become involved
in developing policy programs designed to assist a specific
U.S. industry.
We do so in this case because the steel
industry is one of the largest U.S. industries and a substantial
and continuing shrinkage of the U.S. capacity to produce
steel is not in the interest of the U.S. economy; because
its problems already have had a broad and serious impact on
thousands of workers and several communities; and because
resolving its problems requires international cooperation
to avoid unfair trade practices and a concerted approach to
assist the industry in meeting its capital investment
requirements in order for it to maintain a competitive
position in the future.
-- Global nature of steel problems.
The depressed
global steel situation is expected to continue for some
time; a return to even 85 percent of capacity operation
is not even forecast by 1980.
In this environment steel
prices, which fell as much as 50 percent below their peak
1974 levels during 1975 and 1976, are not expected to
recover in the near future.
- 6Aggressive export practices by foreign exporters
also assure that imports will continue to present problems
for the domestic industry.
We are seeking means to provide
a prompt and effective remedy to this problem.
And we
must do so in a manner which is the least disruptive to
international trade, to foreign production, and to relations
with our major trading partners.
Investment needs.
A major obstacle to invest-
ment in U.S. steel facilities (for modernization, plant
maintenance, or pollution control) is the uncertainty in
many areas of government policy.
Continuing changes in
water and air pollution legislation, the uncertainty of
energy legislation affecting coal supplies, the length of
time required and uncertain outcome of dumping complaints
lodged by the industry, all affect the industry's willingness to invest in new facilities.
Inadequate cash flow
also seriously restricts the ability of the industry to
invest in new or improved facilities.
This problem is
complicated by the fact that there is a substantial range
in the efficiency of steel plants, new technologies have not
been easily adapted to the older facilities, and the market
for steel has shifted from the East to the Mideast.
All of these factors argue for a comprehensive
policy approach to the problems of the steel industry and
- 7a positive cooperative effort by industry, labor and
government alike to assure that the U.S. steel industry
can operate in a fair and equitable environment which will
stimulate its health and its efficiency.
Task Force Review of Steel Problems
In preparing its proposed comprehensive steel
policy program for the President, the interagency steel
task force which I chair has been guided by the following
principle objectives:
Promoting a healthy, competitive domestic
steel industry.
Ameliorating the serious economic and social
effects of steel plant closings and cutbacks
on laidoff steelworkers and steel communities; and
relieving the industry from the pressures of
imports below foreign costs without removing
the healthy price discipline provided by fair
import competition.
To meet these objectives, we will need to take
specific policy actions in five major areas:
.
Trade Relief;
Modernizationt
Rationalizing Environmental Policy and
Procedures;
- 8Community and Labor Assistance; and
Other general measures.
The following measures of assistance are presently
under consideration:
A "trigger price system" for steel imports.
The
adoption of a trigger reference price system for steel
imports has been under consideration as a method for
allocating the Treasury resources to expedite antidumping
investigations and accelerate remedial action.
Present
procedures take 13 months after a case is filed and to this
must be added the time needed by petitioners to prepare their
complaints.
The trigger price is intended to compress this
process substantially.
First, steel prices will be constantly
monitored abroad and at ports of entry.
Second, data on
the health of the U.S. industry and the effect of imports
will be constantly collected.
The trigger price mechanism is
intended to provide the facts for the Secretary's selfinitiation of investigations based on this data and to
permit a rapid decision.
The trigger price would be based upon the costs of
production of the most efficient steel producers, and
would be revised quarterly.
alloy steel imports.
It would apply to carbon and
Substantial sales under the trigger price
would result in an expedited investigation and, if warranted,
application of antidumping duties.
The procedure, while
more abbreviated, will not deny anyone concerned
- 9 here or abroad the legal rights under our law to start
cases or to object to Treasury actions taken - - o r not
taken.
But we hope that when it is in place and
operating, there will be no need for continuing most of
the pending cases or filing new ones.
We think this would effectively deter dumping in
the U.S. market.
It would be fully consistent with U.S.
law and U.S. international obligations.
It should permit
the domestic industry to recapture a substantial part of the
market held by imports.
It should also help to generate
a substantial increase in U.S. steel production and in
the steel labor force.
Improvements in Industry Cash Flow.
The steel
industry presently faces large investment requirements
for stepped-up modernization and pollution abatement
control.
There is a clear gap in the available cash
flow of the industry to meet these requirements.
If
steel industry earnings improve through such measures
as the adoption of a trigger price system, some of this
gap could be met through improved access of the industry
to private capital markets.
We are also considering
additional government measures to help alleviate the cash
flow gap and to assist financially depressed small steel
firms.
- 10 -
Environmental Issues.
The steel industry is a
major polluter and faces substantial costs in meeting
environmental regulations, especially as older facilities
are brought into compliance.
We clearly must not relax
our present environmental goals. Yet we can reexamine
current regulations to ensure that they are economically
efficient and that they do not present unnecessary barriers
to modernization.
Our objective would be to look into
alternative ways to achieve present environmental goals
at lower cost.
Aid for Steel Communities.
The recent massive
layoffs of steelworkers have seriously affected some
communities which are heavily dependent upon steel
production and related industries.
The cutbacks or
closings cause both economic damage to the community
and real social problems for those workers who have
been laid off.
To help meet these problems, special
Federal aid for hard-hit communities could help to combat
unemployment and provide alternative job opportunities.
The creation of an interagency task force to
review potential alternative uses for abandoned
steel facilities, to report their findings by June 30, 1978.
Projects involving community or worker takeover of such
- 11 -
abandoned steel facilities which are proven by hardheaded feasibility studies to be economically viable
could be given serious consideration for funding
assistance under current government programs.
Research and Development.
Research and development
is an important area which can help to promote a more
efficient and productive U.S. steel industry.
A review
of the adequacy of current Federal R§D funding in the
steel industry, especially funding of research on
energy conservation and pollution abatement technology,
could be helpful in determining what is need in this
area.
The creation of a task force to review transportation systems serving the steel industry, and to propose
regulatory or other reforms to improve efficiency and
lower the cost of these transport systems is another
measure which could be helpful.
The establishment of a tri-partite committee of
industry, labor, and government representatives would
help to ensure a continuing cooperative approach to
the problems and progress of the steel industry.
In
particular, we hope that labor and industry will
cooperate in seeking to increase their productivity,
- 12 thereby
reducing costs and helping to make the industry
more competitive.
Conclusion
In summing .tip, a combination of some or all of these
measures if adopted, could significantly reduce the serious
problems of the U.S. steel industry.
It would
relieve the industry from the pressure of below-cost imports
without removing the healthy price discipline provided by
fair import competition.
It would help restore jobs in an
industry which has lost 60,000 jobs so far this year.
It
would raise industry earnings and increase capacity utilization
from its current depressed level. Ari additional increase in
the industry's cash flow position could result from proposed
tax measures, and together with increased earnings, should
enable the bulk of the industry to secure sufficient capital
from private markets to undertake necessary investment for
modernization, pollution control, and plant maintenance.
The
industry, in turn, should commit itself to stepping up
modernization to help reduce production costs.
—
The interagency task force has coordinated closely
with industry, labor, Congressional, and consumer representatives in conducting its review of steel problems.
- 13 We hopeto_ offer a program which has the essential support of all
these groups, as well as support in principle from our
major foreign trading partners, the European Community
and Japan.
If successful, this program should provide a
major infusion of new energy in helping to promote a
healthy, competitive domestic steel industry.
0O0
FOR RELEASE UPON DELIVERY
EXPECTED AT 2:00 P.M.
MONDAY, DECEMBER 5, 1977
REMARKS BY
THE HONORABLE ANTHONY M. SOLOMON
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
TO THE
COUNCIL OF AMERICAS
XIII ANNUAL MEMBERSHIP MEETING
HOTEL PIERRE
NEW YORK, NEW YORK
DECEMBER 5, 1977
I am pleased to participate in this thoughtful consideration
of Latin America's role in the world economy and of our country's
relations with our neighbors to the south. This is a good time
to assess the significant changes his is a good time to assess
the significant changes that are occurring. Our hemisphere has
been challenged by a world-wide recession and by the energy
crisis. Politically, the last few years have seen the emergence
of a strong sense of individuality among the Latin nations and
increasing reluctance to continue relationships not characterized
by mutuality of interest and parity of dignity and respect. I
believe our nations are adjusting to these challenges responsibly
and effectively. this improving relationship will contribute
significantly to economic growth in Latin America as well as to
an enhanced political influence by this region on global issues.
Let us take a closer look at what has happened. Most
remarkable, and heartening, has been the rapid economic growth
rate in Latin America. Between 1965 and 1976 the gross domestic
product of the region, excluding Venezuela, expanded at an
average annual rate of 6.2 percent. This compares with an
average growth rate of 5.7 percent for all non-OPEC developing
countries and about 4 percent for the world as a whole. thus,
Latin America has progressively increased its share of world
output.
The sharp increase in the prices of petroleum products since
1973 and the ensuing world recession exerted a profound impact on
the region. Even today, none of the countries has fully adjusted
to that shock. The magnitude of this problem is illustrated by
the fact that petroleum imports rose by 15 percent in volume
between 1970 and 1975, while the value of such imports expanded
by 460 percent from $1.4 billion to $8.1 billion. Combined with
the rapid rise of public sector expenditures in many of the Latin
nations, the rise in oil prices resulted in an acceleration of
external
indebtedness.
borrowing and a concurrent growth in external B-580
-2Whereas the annual level of foreign borrowing averaged only
$1.5 billion in 1965-69 period, it had risen to over $10 billion
last year. In 1965, the public and publicly guaranteed debt of
the region stood at $870 million. By the end of 1975 it had
expanded to $41 billion, and more than half this increase came in
the preceeding three years. Unguaranteed bank credits, also,
have risen sharply from $2.5 billion twelve years ago to $25
billion at the end of 1975. Much of this private financing
represents a recycling of OPEC surplus funds, through banks in
the industrial countries. At the end of 1976, for example, U.S.
banks held over $23 billion in claims on Mexico and Brazil alone.
We have an obvious strong interest in the economic
well-being of the borrowing countries. While Latin American
countries have borrowed unprecedented amounts in private capital
markets, this rapid expansion of debt has been concentrated in
relatively few countries. Mexico and Brazil together account for
nearly two-thirds of the regional debt total, and the inclusion
of Argentina, Chile, Colombia, and Peru would raise the fraction
to nine-tenths.
This large increase in external indebtedness has given rise
to considerable public concern and raised questions about the
possibility of widespread defaults on bank loans. In our
judgment, such fears have been exaggerated. Borrowing has been
concentrated among a few, more advanced developing countries
whose export performance, growth and creditworthiness had gained
them access to private capital markets. The poorer countries
have continued to rely on official sources of financing, often on
concessional terms, so that bank exposure in these countries
remains quite small. For the countries which have borrowed
heavily, servicing their debts has not become a problem. Their
exports have risen fast enough to keep their debt service ratios
nearly stable over the past decade.
As long as the opec surplus continues, the oil importing
countries collectively must continue to bear the corresponding
deficit. And the international system will continue to face
large financing needs. What these circumstances require is not
for deficit countries to stop borrowing, but rather that they
stabilize their economies and ensure that borrowed funds are
invested productively to increase their ultimate debt service
capacity, rather than to maintain consumption at artificially
high levels. Domestic adjustment efforts will be required to
bring borrowing needs down to levels compatible with sustainable
capital flows and in the process, to strengthen creditworthiness
in the eyes of private lenders. An expansion of exports will
also be critical for countries with increased debt service
requirements.
A particularly notable trend in Latin American trade
patterns during recent years has been the decline in the relative
-3importance of trade with the United States. Between 1960 and
1976 Latin America's share of total U.S. imports declined from 20
percent to 14 percent. Perhaps even more significantly, the
United States share of total Latin American imports declined from
46 percent to 33 percent. Most of the latter change was due to
increased European and Japanese penetration into the Latin
markets.
During the first half of 1977, the United States has
experienced a sharp turnaround in its trade account with Latin
America and the Caribbean. What was a $100 million surplus last
year has turned into a $3 billion deficit this year, largely due
to higher coffee prices, increased petroleum imports, and reduced
U.S. exports to Brazil and Mexico. We expect this situation to
improve somewhat as import demand picks up, particularly in the
largest countries. However, we do think that the longer-term
changes in trade shares I noted above are not likely to prove
subject to rapid reversal.
Generally the countries of the region have recovered rapidly
from the world recession, and many have made considerable
progress in stabilizing their economies. As a group, the Latin
countries weathered the oil crisis better than most of the
industrialized countries, which experienced little or no real
growth in 1974 and 1975. Mexico, Peru, Argentina, Uruguay,
Panama, and Jamaica also have undertaken stabilization measures
through agreements with the IMF. Brazilian retrenchment efforts
are beginning to show concrete results even though the economy
probably will grow at a substantial rate of about 6 percent this
year.
The role of foreign investment has changed significantly in
Latin America as you know. Here again, the U.S. stake is a large
one. By the end of 1976 the book value of U.S. direct investment
in the area totalled $23.5 billion — more than 80 percent of all
U.S. direct investments in developing countries and more than
twice the amount of only a decade ago.
Throughout most of their history, to their credit, the
countries of Latin America have welcomed foreign investment.
Recently, however, their attitude has become more cautious and,
frankly, rather ambivalent. In the early 1970's the countries of
the andean common market had a very strict code governing foreign
investment which appeared to be highly negative and defensive.
Since then some countries have loosened their restrictions on
profit remittances to allow annual repatriation of up to 20
percent of registered capital, and they have liberalized other
investment requirements, as well. On the other hand, the trend
in the two major recipients of foreign investment, Brazil and
Mexico, seems to be the opposite direction. It is clear that all
Ltin American countries are now more selective about the types of
foreign investment they are encouraging or even allowing to enter
their country.
-4Reflecting these basic economic trends, our policies toward
Latin America are changing and are becoming more complex.
Economic issues are becoming more pressing and problematic. It
has become critical for the united states and other
industrialized countries to assure sufficient capital flows to
the region and to keep markets open for exports from the region.
Resource increases for the international development institutions
are crucial, as are the multilateral trade negotiations in
geneva. The traditional donor-client relationship is giving way
to healthier arrangements based on mutual benefit and
cooperation.
This Administration is committed to policies that take into
account each Latin nation's diversity and potential. Neither the
former "special relationship," nor a single policy toward the
diverse nations in Latin America makes sense. Our policies will
be based on specific, mutual interests with particular countries,
resulting in varying degrees of closeness in our relationships.
Increasingly,
ourUnited
attention
is recognizes
focused on the
specific
trade,
Trade. The
States
priority
the
commodity and
investment
issues.our neighbors in Latin America,
developing
co untries,
including
place on access to our markets for their exports and our public
and private capital flows. United States policy is to maintain
access to our markets to the maximum extent possible. Despite
protectionist pressures, the administration continues to reject
comprehensive import controls in major industries of direct
interest to Latin America, such as shoes and sugar. Similarly,
the Administration faces additional pressure to restrain further
imports in textiles and steel. The President rejected tightening
of the multi-fiber agreement on textiles and the imposition of
quantitative barriers on steel. Continued access to our markets
by Latin America, in particular, weighed heavily in the
President's decision on textiles.
The high tariffs, import quotas, and export subsidies, often
of considerable magnitude, of certain Latin American nations make
it more difficult to resist protectionist sentiments in the
united states. At times they conflict with our own
countervailing and anti-dumping statutes. We and our Latin
trading partners must work together more closely on both a
bilateral and multilateral basis to assure that the international
trading system remains as open as possible.
Commodities. The United States and Latin American countries
are both important consumers and producers of commodities traded
on the world markets. Recently we worked together toward
successful negotiation of the international sugar agreement. The
United States is prepared to participate in negotiating other
international agreements to stabilize prices when it is in our
mutual interest to do so. There are other areas of mutual
-5interest, such as energy, where we have a shared need for
conservation, development of new sources and moderation in
international oil pricing.
Capital. The United States is by far the world's largest
lender in the international capital markets, while some Latin
states, notably Brazil and Mexico, are among the largest
borrowers in the world. The United States is also the single
largest contributor to the international development institutions
which play so very important a role in the development of Latin
America.
Despite their success in attracting needed private foreign
investment, Latin Americans feel a need to maintain controls over
incoming investors, as do most countries which host
multi-national enterprises. Yet foreign investors must be
assured of fair and consistent treatment if they are to continue
to operate. In contrast to the trade area, there are, as yet,
hardly any international rules to protect the legitimate
interests of all the concerned parties. To maintain the open
international system, here again there may be room for
cooperation looking toward the possibility for new international
action in both the bilateral and multilateral channels.
Human Rights. There is no question that our human rights
policy has caused some strains in our relationship with Latin
America. Yet I believe it has produced positive results in a
number of cases. The American commitment to foster human rights
will not change. But as we gain experience, and if Congress
permits us the necessary flexibility, we can be more effective in
promoting human rights without a confrontational atmosphere.
Panama. Panama perhaps affords the best example of how the
relationships of the past must give way to those of the future.
One of the least advanced of the Latin American countries, Panama
is striving to reach the breakthrough already achieved by Brazil,
Mexico, and Venezuela. It still depends on exports of a small
number of primary products and inflows of investment to provide
needed foreign exchange. In the decade prior to 1974, Panama's
GNP increased at an average annual rate of 7.3 percent. In 1974,
however, economic growth abruptly slowed to 2.6 percent, and last
year there was no growth at all. A major cause was uncertainty
over the future of the canal, which was reflected in a marked
decrease in private investment activity. Private investment
increased only slightly in 1974 and 1975 and fell by 26 percent
by 1976. In addition, the increase in the price of oil, the
sharp decline in sugar prices, and the worldwide recession also
contributed to panama's large current account deficits.
Our policies toward panama must be modified to bring them
into line with prevailing political and economic realities. If
we wish to encourage the development of a stronger economy and
-6greater Panamanian self-reliance, we must be prepared to take
steps which will facilitate this process. The single most
important factor in bringing renewed vigor to the Panamanian
economy will be settlement of the canal issue and the ensuing
restoration of a favorable investment climate in Panama. We
expect that, as a result, foreign and domestic private investment
will rise appreciably, leading to higher employment, reduced
pressure on the Panamanian Government budget, and improvement in
Panama's external accounts.
What's in it for us? The new treaties governing the Panama
Canal support U.S. objectives in several fundamental ways.
First, these treaties protect and advance our national security
interests. Second, they provide for an open, stable, and
efficiently operated canal for this hemisphere and for othier
nations throughout the world. And third, they will -promote
positive and constructive relationships between the United States
and other nations in this hemisphere.
The concept of partnership is central to the new kind of
relationships we are seeking. Throughout the discussions of the
past three years, our objective has been to shape a close and
enduring partnership with Panama in maintaining an open and
efficiently operated canal. The partnership envisioned in the
new treaties has three aspects:
— The United States and Panama will be partners in the
operation of the canal through the end of this century.
During this period, the United States will continue to
exercise the responsibility for managing the canal
enterprise, but it will be preparing the Panamanians to
carry on our tradition of reliability after the year
2,000.
-- the United States and Panama will be partners in
protecting the canal. We will have the primary
responsibility for defense of the waterway for the
duration of the Panama Canal treaty, but Panama will also
contribute forces to canal defense.
— Finally, the United States and Panama will share a
long-term responsibility for maintaining the canal's
neutrality. Our role in assuring neutrality will
continue as long as the canal remains in operation —
even after management responsibility passes to Panama.
Today, more than six decades after its completion, the
Panama Canal remains an engineering marvel, one of our greatest
accomplishments in this century. The United States can also
point with pride to the way we have operated the canal. For 62
years it has been run as a public service for the nations of the
world, rather than as a business. Tolls have been set as low as
-7compatible with meeting costs and providing a modest return, and
world commerce has been a major beneficiary.
But while the canal has been a source of deep pride to the
United States, it has been a troubling and festering presence in
Panama. Under the treaty of 1903, the United States exercises
jurisdiction over the canal zone courts. It has established the
zone's schools, jails and police force. It has set up what the
Panamanians regard as a colonial enclave, splitting their country
in two and using 550 square miles of their territory. And the
Panamanians resent especially that these U.S. actions were
pursuant to a treaty that was not even signed by a Panamanian.
The new Panama Canal treaties must be evaluated in terms of
this history. We must recognize also that this is an issue which
goes beyond our bilateral relations with Panama to affect our
relations with all of Latin America. In the eyes of our Latin
American neighbors, the canal runs — not through the center of
Panama alone — but through the center of the western hemisphere.
All the countries of the hemisphere look upon our position in the
canal zone as the last vestige of a colonial past which evokes
bitter memories. Their attitude toward us will be importantly
influenced by our resolution of the Panama Canal issue. By going
forward with the new treaties, we will be improving our relations
with virtually all of the countries of the hemisphere. We will
be demonstrating our intention of building relationships on the
new concept of partnership rather than the old notion of colonial
power.
We must recognize, too, that our primary interest in the
canal is to assure that it remains secure and open on a neutral,
non-discriminatory basis. The greatest threat to the security of
the canal would be to try to retain an outmoded treaty and its
anachronistic provisions. In the past, these provisions have
triggered hostility and violence, and they could so easily do so
again in the future. Accordingly, the best way to preserve an
open and secure canal is to substitute for the 1903 treaty a new
arrangement which will be mutually fair, which will properly
provide for Panama's just aspirations, and which will take into
full account our own national interests.
Under the new treaties, the United States does not, under
any circumstances, lose the right to assure that the canal
remains open or to protect it in time of peril. The United
States has committed itself to assure indefinitely that the canal
shall remain secure and open to peaceful transit by the vessels
of all nations in times of peace and in times of war. This
applies not only up through the year 2,000, during which period
the treaties remain in force, but after that time as well.
Panama will not receive a financial windfall from the United
States under the terms of the treaties. During the negotiations,
-8v. strongly and successfully resisted inclusion of any new
financial grants to Panama. The payments Panama receives will
reflect more fairly the fact that it is making available its
major national resource — its territory. These payments will
come entirely from canal revenues, and the amounts established
are based on realistic projections of the canal's earning
capacity. This arrangement gives panama a vital stake in
assuring the canal's efficient operation.
It is in our interest that we have a strong partner in
operating the canal. For this reason, we proposed and the
Panamanians accepted a non-concessional assistance package
outside of the treaties. These economic cooperation arrangements
were formulated to help promote stable economic growth in Panama,
which is the single most important way to assure the security and
smooth operation of the canal. The arrangements include
guarantees by OPIC of up to $20 million in borrowing in the U.S.
capital market by the Panamanian development bank; $200 million
in EXIM Bank loans, loan guarantees, and insurance for U.S.
export sales over five-year period; housing investment guarantees
of up to $75 million over a five-year period; and up to $50
million in guarantees under our foreign military sales program
over a ten year period.
These particular arrangements were selected for the benefits
that they are expected to bring to both the United States and
Panama, as well as the reasonable level of risk they present and
their compatibility with the financial assistance programs
involved. All of these offers are subject to the normal
requirements and procedures of the administering agencies.
furthermore, the U.S. government has successfully undertaken
programs of this kind with panama in the past.
I want to dispel any misunderstanding about the financing of
the Panama Canal Commission, which would be an independent U.S.
Government agency to operate the canal over the life of the
treaty. An essential point in negotiating the treaty was that
any new entity must be self-financing. We strongly believe that
the commission must not be financed by the American taxpayer.
The Administration will make every effort to see that the costs
of the canal operation are contained and that revenues are
sufficient to cover liabilities. Any borrowings by the
commission should be used strictly to support its operations, and
the interest rate charged on such loans should be determined by
market forces. Furthermore, all loans must be fully repaid prior
to the expiration date of the treaties.
I believe that the Panama Canal treaties deserve our support
because they are in our interest as well as in the interest of
Panama. For the people and Government of Panama, there is the
knowledge that eventually they will assume full jurisdiction over
their territory. There are significant revenues to be gained
-9from efficient canal operations, and there are substantial
economic benefits to be derived from the guarantees, loans and
credits we have made available on their behalf.
For the United States, there is the assurance that the canal
will be open, neutral, secure and operated efficiently, for our
benefit and that of other nations aroung the world. These
objectives will be accomplished without appropriating any of the
american taxpayer's money, and we stand to gain respect
throughout Latin America and the rest of the world for addressing
this complex issue constructively and equitably.
Ratification of the treaties must be perceived as being
positive and constructive, rather than as a concession on our
part. It must be viewed as a realistic and desirable
accommodation to the increasingly interdependent world in which
we live. It should be taken as a sign of success in our efforts
to promote the economic growth and maturity of the developing
countries. It should be welcomed as a movement away from a
one-way dependence to a partnership of rights and
responsibilities.
The task of conveying this message does not promise to be an
easy one. While the position of developing countries in the
global economy has changed radically, and our own relations with
them have been transformed commensurately, public perceptions and
attitudes have lagged behind. The support of groups like yours
in the weeks and months ahead will be invaluable. We will need
your assistance in explaining the rationale behind the treaty's
provisions, in clearing up any misunderstandings, and in creating
greater public understanding of the far-reaching implications of
the treaties for harmonious and constructive relationships with
our Latin American neighbors.
Through financial links, direct investments, and trading
ties, the economic well being of the United States is
inextricably involved with developments in Latin America. We
have vital and expanding interests there which encompass the full
spectrum of our affairs: economic, political, national security,
and humanitarian. Timely and appropriate policies to advance our
interests in Latin America are fundamental for our own economic
well being and the achievement of our broad foreign policy
objectives. Our efforts to achieve progress in the North/South
Dialogue depend on harmonious and cooperative political
relationships with these countries. Achievement of the goal of a
stable and peaceful world order also hinges critically on the
character and quality of our relations with our Latin American
neighbors, as well as with other developing countries. The trend
for the future is clear: more interdependence, not less. Surely
it is in oyr own self-interest to encourage the trend toward
increasing self-reliance and economic maturity on the part of our
friends in Latin America.
0OO0
Department oltheTREASURY
TELEPHONE 566-2041
WASHINGTON, D.C. 20220
December 5, 1977
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $ 2,203 million of 13-week Treasury bills and for $3,402 million
of 26-week Treasury bills, both series to be issued on December 8, 1977,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
13-week bills
maturing March 9, 1978
Price
High
Low
Average
Discount
Rate
98.475 a/6.033%
6.053%
98.470
6.049%
98.471
26-week bills
maturing
June 8, 1978
Investment
Rate 1/
Price
6.21%
6.23%
6.23%
96.797 6.336%
96.786
6.357%
96.791
6.347%
Discount
Rate
Investment
Rate 1/
6.64%
6.66%
6.65%
a/ Excepting 1 tender of $300,000
Tenders at the low price for the 13-week bills were allotted 31%.
Tenders at the low price for the 26-week bills were allotted 13%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Accepted
Received
$
29,920,000
Boston
3,439,855,000
New York
27,205,000
Philadelphia
59,175,000
Cleveland
31,365,000
Richmond
32,245,000
Atlanta
238,200,000
Chicago
45,155,000
St. Louis
25,450,000
Minneapolis
23,780,000
Kansas City
32,895,000
Dallas
443,520,000
San Francisco
$
20,780,000
1,700,755,000
26,515,000
32,175,000
16,160,000
26,350,000
89,225,000
22,955,000
12,380,000
18,530,000
23,065,000
208,875,000
$
19,670,000
5,914,770,000
27,515,000
47,005,000
33,640,000
24,405,000
312,515,000
42,530,000
31,295,000
17,720,000
6,895,000
641,440,000
$
4,670,000
3,002,815,000
7,015,000
16,655,000
19\640,000
15,045,000
130,515,000
13,140,000
14,295,000
16,720,000
6,895,000
151,090,000
4,795,000
4,795,000
3,255,000
3,255,000
Location
Treasury
TOTALS
Received
$4,433,560,000
$2,202,560,000b/ $7,122,655,000
h/Includes $334,595,000 noncompetitive tenders from the public.
SJIncludes $160,650,000 noncompetitive tenders from the public.
^/Equivalent coupon-issue yield.
B-581
Accepted
$3,401,750,000c/
REMARKS BY
THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
BEFORE THE
SOUTHERN METHODIST UNIVERSITY SCHOOL OF BUSINESS ADMINISTRATION
DALLAS, TEXAS
NOVEMBER 16, 1977
Just a couple of days ago, I stopped in New York to try on
some suits at my tailor, where I have been buying suits for a
long time. I noticed that the boss kept poking his head into the
try-on room, and he finally came in and I shook hands with him
and asked how business was.
He said business was great, Mr. Blumenthal, we are going to
have a record year this year. In fact, we are expanding the
store. Then I asked him how he felt about 1978, and he said they
were really gung-ho and they were going to have another good
year. With the expansion underway, they were going to do very
well. I smiled at him, there was a moment of silence, and he
said, "But the country is in a real mess, isn't it?
I think that is probably the experience which many of us in
Washington at the present time, particularly those working on the
economy, have been noting. We have had a pretty good situation
this year. The country has been growing, inflation has been
slowing down, unemployment has been slowly coming down. But
there has been a lack of confidence. People feel insecure about
the future.
Many of my colleagues in Washington ask me why that is and
what we can do about it. What is the reason for it? I have
expressed by view on that. I think that the reason is partly due
to what happened in the early 1970's when we had a very severe
recession, almost a depression. We had double-digit inflation in
this country and we had rapid changes in signals, as far as the
economy and economic policy was concerned. It left people a
little uncertain about the future.
Then, when they ask me what do they do to build confidence
so that business will invest in the future and make long-term
commitments in plant and equipment, I generally say to them
that's easy, if we follow the right policy. It is not just what
kind of image we present, it is what we really do. And if we do
the right thing, I have no doubt that business confidence will
translate into expenditures for plant and equipment of increases
in productivity to keep up with the growing demand of the
American people. The stock market will turn around and move on
up and signal that the level of confidence is rising.
B-582
-2So, it seems to me the question then is what the right
policies are. Having developed them, we must then explain them
clearly. It is my hope and expectation that President Carter, as
he presents his economic program to the Congress, his budget
message, his State of the Union message, and the economic report,
will indeed do just that.
He will lay out coherent and comprehensive programs to
describe what he has in mind. Let me, just to get the questions
and the discussion started, suggest to you what I think needs to
be done.
I think in 1978 we should seek an emphasis on the economy,
so that we can continue to bring inflation down, so that we can
reduce unemployment, which is still up too high — particularly
in some of the cities of our country and particularly for
minorities and for young people — so that we can continue to
have growth in the Gross National Product at a level which allows
us to do that.
Secondly, I think we should not try to solve all our
problems at the same time. We should pick a few of the critical
areas that need working on and do those well in a way that is
easy to understand, with clear goals around which all of us —
the Congress, the Executive Branch, labor, industry, the average
person — can rally, and give maximum support.
Third, I don't think that the Government should try to
tinker or fine-tune the economy. But rather we should rely on
the market place, free enterprise, on individual businesses
within that free enterprise system to respond to the reality of
economic conditions, and in that way — free to the maximum
possible degree of Government interference — to work within our
system and to create the private jobs that we will need to
provide employment for everyone and keep inflation down. So the
third basic principle is a reliance on the market.
Fourth, it seems to me that we should recognize that one of
the fundamental issues that we must face is the issue of
profitability. Nothing will create confidence more in this
country among businesses, large and small, in the east, central
part of our country, or the west, in the north or in the south,
nothing will create confidence better and more quickly than to
reestablish profitable business — not inflation profits but real
profits.
Nothing will create the growth in investment, of business
investment, more quickly than profitability — for real
investment will follow real profits.
-3We need to accelerate the gains in productivity in this
country. About 10 or 15 years ago, the average rate of
productivity growth in real terms was three percent or more. In
the last five years or so it has been less than two percent. You
can't have an expanding economy and a growing standard of living
and create the additional jobs in private industry that are
required unless we can accelerate the growth of productivity once
again.
It seems to me, therefore, that the tax program, which the
President has said he will send to the Congress within a very few
weeks, provides an excellent opportunity to accomplish some of
these goals.
There are important reforms that are necessary. It is
important to make the tax system as simple and as easy to
understand for the average person as possible. I don't believe
that we need a system where even the average taxpayer can't fill
out his own income tax form anymore, so that he has to rely on an
accountant, a lawyer, or H. R. Block or similar firms to fill out
the forms. The tax system ought to be simple enough so that most
of us can do that on our own.
It ought to be fair enough so that most of us can have a
sense of security that what we are paying is about the same as
what anyone else is paying who has a similar level of income and
that different forms of income are taxed, more or less, in an
equitable manner.
So there are important reforms for equity and for simplicity
and for fairness that need doing. Above all, we need a tax
program that emphasizes profitability, that emphasizes
investment, that emphasizes productivity. And, of course, we
needs a program which compensates for the inflation that we still
have to work on for quite a few years to bring this under
complete control and that automatically pushes all of us into
higher tax brackets.
The 1978 emphasis on economic policy clearly has to revolve
around a tax program which can be passed by the Congress in 1978,
which is simple enough and clear enough so that it is manageable
within a relatively short period of time and which combines
reductions with some of those reforms that I have indicated.
I think it is terribly important for our country and for our
system that we keep the tax bite under control; that we don't let
it exceed the traditional level of the last few years. It is
creeping up, and that is something we need worry about. We must
keep the income tax between 10 to 12 percent, on the average, of
the typical taxpayer's income. It is over 13 percent now and it
has got to come back down.
-4It seems to me, then, that the tax program is clearly a key
to accomplishing some of the things that I have mentioned.
A fifth step that we can take to provide the confidence and
security we need to move forward is to recognize that when we
work on matters of national economics, we must do so responsibly
within the context of our role and position as a leader in the
world economy.
It is self-evident today that our world is shrinking. All
of us must remember that reality as we frame our national policy.
And, we in this country, particularly, must remember that this is
the largest, most productive, and the most dynamic economy in the
world. We must remember that we have, whether we like it or not,
a position of leadership in the world, that other countries look
to us, and that their well-being enhances the chances for a
lasting and continuing peace in the world. The chances for
President Carter to accomplish some of the broad foreign policy
objectives, which he has set for himself as a world leader, can
best be accomplished within a climate of international economic
cooperation.
That means keeping the dollar strong, which again is related
to the basic health of our economy. It means implementing an
energy program which will lead us to become, as quickly as
possible, less dependent on overseas sources of energy, more
reliant on our own, less wasteful in our consumption of energy,
and more sure of our future reserves and resources in the energy
area.
It means that we must help businessmen to export, using all
legitimate, internationally-sanctioned means to do so. The
government must not put impediments in the way of businessmen who
want to get into the export business. Instead, it should provide
assistance through expansion of the operations of the
Export-Import Bank, through promoting as vigorously as possible
our agricultural sales, which are a key element of our balance of
payments, and through similar measures.
Finally, it means that we must concentrate more vigorously
than ever before on dealing with the problem of inflation. We
could be satisfied that we prevented a recurrence of the very
high levels of inflation that seemed to threaten us in the early
months of this year as a result of the very cold weather and the
consequent rise in food and energy prices.
We are back down to "only" six or six and one-half percent
inflation now. I say only in quotation marks because clearly
that is much too high and that does undermine the general
economic health of our country.
-5There is no one culprit, when it comes to inflation. There
is no single cause of inflation. It is popular to point the
finger at somebody else and say if only that particular part of
our economy would behave better, there would be no inflation.
I wish it were that simple. I have learned in the last ten
months that nothing is more complex, more complicated, more
difficult to deal with than really bringing inflation down to the
very much lower levels that we should have again in this country.
I have spent more time thinking about this problem and
trying to figure ways to deal with it than almost any other issue
since I have come to Washington.
Business has to play a part with investment, productivity,
with more production, with responsible price action, and by
remembering the way in which we have built this country, which is
to think of volume as a way of building your market and your
profits.
Labor has to play its part and not use irresponsible action
and monoply powers to drive wages up beyond the level that can be
sustained by the real growth that is being created.
And very importantly, the government, both the Executive and
the Legislative Branches, must play its part. I am now, after
ten months in my job, in a position to draw a long list of things
that government does, both in the Executive Branch and in the
Congress, that are highly inflationary — of rules, regulations,
paperwork, of bureaucracy, of inflation-causing laws which
irresistibly drive the level of prices higher.
I hope that next year, as we pursue a simpler and clearer
program for the economy, the fight against inflation can be
fought vigorously on all of those fronts. I think the chances
are very good that it will be.
And if we do, then I have no doubt, as I said at the outset,
and as I've been saying to my colleagues in Washington, that
confidence will take care of itself, that the stockmarket will
take care of itself, and that growth and investment and a
generally rising standard of living will ensue.
-6We do have within this country all of the resources, all of
the managerial know-how, all of the prerequisites to continue to
make it happen. And it does take, from time to time — when you
get too frustrated and too annoyed with things that are not going
right — getting out of town, but and even taking a trip out of
the country, as I did a couple of weeks ago when I made by first
extended trip abroad to the Middle East and to Europe. Because
when you do, when you do visit these other countries, at various
stages of economic development, some very rich, some not so rich,
some struggling, you realize how much we have going for us. You
realize how much we are still a model and the envy of the world,
how they look to us and to the free enterprise system that we
enjoy in this country, as a bulwark against increasing
bureaucratization of their economy. You realize how much they
depend on us to show the way.
I have every confidence that President Carter and the Carter
Administration will be successful in providing the leadership to
make the way. Thank you very much.
MODERATOR: If we were to take the time to answer all of the
questions that this audience has asked, we would be here for a
very long time indeed. But we have tried to go through and get
as many as we can. Let's have a start and see how far we can go.
The first: Mr. Secretary, the President identified three
objectives: a balanced budget by 1980, inflation down to four
percent, and unemployment down to about four percent.
What in your opinion are the prospects for achieving these
sometimes contradictory goals?
SECRETARY BLUMENTHAL: Well, you make it a little tougher
even, than he made it. He said a balance budget by 1981, you
just shaved another year off it. I think it's frankly going to
be difficult to achieve all of these goals completely, which is
not to say that they are not very significant goals. A great
deal of progress can be made toward their realization.
And I don't really think that it matters all that much
whether a particular goal is or is not fully achieved by a
deadline. I do believe that a consistent set of policies which
emphasizes job creation in the private sector through the
re-establishment of profitability at proper levels and therefore
fosters more investment and more productivity, is an
indispensable prerequisite for the achievement of any of these
goals.
-7I think if we can do that, and I think we can, then the
level of unemployment can cpme down substantially, and it can
come down substantially in a non-inflationary environment, and
that will give us a lot of the revenues that we need to bring the
budget closer to balance.
Whether we can balance it completely or not doesn't really
matter in an economy with the size of $1.7 billion — I guess I
have all the number in there — of GNP. So a few billion either
way won't matter, but we'll come close. It sounds funny doesn't
it? That's really the secret between working for a small company
and working for the government, just add another zero. So, we
can come close. We may not be able to achieve all of them, but
the prerequisites, I think we will.
MODERATOR: Mr. Secretary, you may not be entirely surprised
to know that some have questions regarding Dr. Arthur Burns.
I've tried to compress the questions and they're really in two
parts. Who will replace him? When will it be decided? And do
you think the current dialogue in the press about this matter may
be damaging confidence in the dollar abroad?
SECRETARY BLUMENTHAL: The answers to these three questions
are I don't know, soon, and I hope not.
QUESTION: Will the foreign trade deficit reach $30 billion
this year, and what is your own outlook on the size of the
foreign trade deficit in 1978?
SECRETARY BLUMENTHAL: The trade deficit for this year will
be in the area of $30 billion. That's because we have a $15
billion surplus on trade accounts without counting energy, and we
have a $45 billion oil bill, so that puts us in the hole by $30
billion.
I don't believe that next year the picture will be
substantially different. It depends on a number of variables,
one of which is the volume of our agricultural exports. In
recent weeks there has been increasing evidence that these will
be rising again. They didn't rise this year because of a good
harvest. It now appears that next year they'll be up again.
That will be helpful.
Also, the economies of some of the major countries to whom
we sell products are recovering a little better. That, too, will
help us. But also we'll have some negatives, and when you add it
all together, the number, unfortunately, next year will not be
substantially different.
MODERATOR: The press has reported that your tax proposals
for 1978 will not deal with double taxation of corporate
dividends. If that's true, would you like to comment why?
-8SECRETARY BLUMENTHAL: I don't know what the President's tax
program, the message that he will send to the Congress with his
suggested legislation, will contain. That decision has not
finally been made by the President.
As I indicated in my opening remarks, I think it is
important that what is recommended in the way of tax legislation
can be passed within one year, so that it has a beneficial effect
on the economy and is clearly understood by all Americans.
Next year, being an election year, and knowing, therefore,
that the Congress is unlikely to want to stick around Washington
until Christmas, we have to recognize that there will be only so
much legislative time available. I hope that reform and
reduction can and will be combined in some way. But whether the
legislation can contain all of the ideas that come into play when
you think of reform, including the double taxation of dividends,
I really don't know.
I am sure that the major element of the tax message will be
tax relief for business and for individuals.
MODERATOR: There is another kind of question about Dr.
Arthur Burns and the Federal Reserve that was not incorporated in
the other questions that I asked a moment ago, Mr. Secretary.
This one relates to this: What, in your opinion, are some of the
more important criteria for the selection of whomever may be the
new Federal Reserve Board chairman?
SECRETARY BLUMENTHAL: Well, I must be very careful, because
if I answer that question, I will be accused of implying that
there is going to be a new chairman, and I really don't know.
I think Dr. Burns represents a pretty good model of the kind
of qualities that a Federal Reserve chairman ought to have. He
has to be a man who, like Dr. Burns, has deep knowledge about the
economy, someone who understands the banking system, someone who
understands the interrelationship between the nation's banking
system and the rest of the business system, and who understands
Washington and the political process in which many of the
decisions are made.
And also it should be someone independent, with strength of
character, who is willing to call the shots as he or she sees
them, and who has the courage to do so even when the going gets
rough.
I think Dr. Burns is doing that in admirable fashion, and
will continue to do so if he stays in that job. And I think if
he doesn't, the right kind of successor would be someone who
would have those same qualities.
-9MODERATOR: How much in jeopardy, in your opinion, are the
loans to some of the lesser developing countries made by the
United States banks? Is this an area of concern to you?
SECRETARY BLUMENTHAL: Well, obviously we in the Treasury
plus our colleagues in the Federal Reserve, are always watching
what is happening to the loan portfolios of the major banks of
this country — both their domestic as well as their
international loans.
I think at the moment there is not any great risk in this
area. Indeed, if you look at the results of the last few years,
you'll find that there's been a lot more defaulting in certain
domestic areas than there has been on the international side. I
can really only think of one country in the recent past, in the
last two or three years, where there's been a real problem.
Yet, I know that there are quite a few areas of domestic
lending that have had some difficulties, for example in the loans
in the last few years to the real estate investment trusts, and
certain other areas.
So international loans on the part of the Eurobanking system
really are in pretty good shape. And that environment will
remain solid as long as we in the government work closely in
coordination with other countries to help provide the kind of
environment and discipline through the international financial
institutions, through the IMF, to help the stabilization programs
of countries that find themselves in temporary difficulty; or who
have lived a little bit beyond their means. Then I think the
private sector, the banks in this country and elsewhere, will
continue to do their job, providing, in fact, 80 percent of the
capital required in international finance and commerce.
That doesn't mean that it's not possible at times for an
individual bank that has been a little bit imprudent, or perhaps
a little greedy, to get into difficulty. That will always
happen, regardless of how closely we're watching it. But I think
basically there isn't much risk, and if we all watch it,
international loans should continue to be quite solid.
QUESTION: How strong, Mr. Secretary, is the possibility of
wage and price control if inflation and unemployment should not
moderate?
SECRETARY BLUMENTHAL: I don't know of anyone in any
position of authority within the current Administration who is
advocating controls for wages and prices in any form whatsoever.
I can assure you that I personally would be unalterably opposed
to that approach, under all circumstance except war or extreme
national emergency.
-10And I have that view based on my own experience in business
for the very simple and pragmatic reason that I have found that
they just don't work. We've got to be sure not to have a high
level of inflation again. There are many things that we could
do, but controls would simply make matters worse.
We had that experience the last time. Controls do not
secure anything, and I just don't consider that a realistic
possibility at all.
MODERATOR: Judging from the non-success, relatively, thus
far of the President's energy program, how might that impact the
tax proposals that you will put forth in the near future?
SECRETARY BLUMENTHAL: Well, I don't know how to answer the
question, since I don't fully subscribe to the premise. I would
think that we would first want to await the outcome of the
discussions now going on in the conference committee between the
House and the Senate concerning the energy program, to see
whether or not the President's proposals are going to be accepted
completely, partially or not at all, and, therefore, whether or
not the program and its goals are likely to be very successful,
relatively successful, or not successful. When we know that, and
when we know what tax implications arise from that program —
when we know that, which we will in the next few weeks, then we
obviously can take that into account in the tax program that goes
forward next year. We must also take into account the changes
that are likely to be voted on Social Security taxes. Clearly,
we have to work up to the situation where the tax program, next
year leads to a net reduction in taxes — and not an increase.
MODERATOR: Do you feel that the increasing demands of labor
are responsible for the decreased levels of productivity which
you spoke about in your remarks, and if not, to what would you
attribute such a continuing decline in productivity?
SECRETARY BLUMENTHAL: Certainly sometimes labor is to
blame. I think, as I said, sometimes the government is to blame
and sometimes certain industries are to blame.
I don't think that there is any sector that deserves all the
blame. The decreasing level of productivity in this country has
been due to lack of investment, lack of research and development
at the levels which we require. And that's been due to the
declining level of profitability, and to the lack of general
business confidence coming out of the shocks of the early 1970's.
You can't expect labor unions not to go for all they can get
in a situation of uncertainty where the argument, "let's get it
this year, we don't know what it's going to be like next year,"
has a very powerful appeal.
-11And you can't expect business not to make decisions that may
not be wise in that regard.
So I think that we can do something about profitability, get
investment up, and get productivity up, and that, more than
anything else, will lead to more sensible decision-making.
MODERATOR: Two more question in conclusion, Mr. Secretary.
We've had quite a number about Social Security, this one is
perhaps representative of several questions. How do you foresee
the impact of the tremendous increase in Social Security
withheld, and how might that affect employers and employees?
SECRETARY BLUMENTHAL: Well, I think we have to recognize
that we have a problem on our hands with the Social Security
trust fund, and that what is required is not hand wringing but
sensible analysis of the problem, and some decision.
And you must also realize that whatever decision we make,
it's going to cost money because over the last few years, as a
result of the high level of unemployment, the high level of
inflation, some mistakes that were made by the government in the
past, the Social Security trust funds are in trouble. If we
don't correct that situation, there isn't going to be enough
money for people who've worked all their lives are who are
dependent on Social Security and who expect to get their
payments.
We lost over $40 billion as a result of the bad economic
times over the last few years. That's a fact. This money is
needed and it has to come from somewhere. And it can only come
from four sources. Either it comes from more taxes on employers,
or more taxes on employees, or from the general income tax, or
heaven forbid, from just printing money. That fourth possibility
I don't even want to consider.
We can correct the overcompensation for inflation which has
boosted benefits beyond what was intended and what is reasonable.
And that is in many cases being done. But beyond that somebody's
got to pay and the only sensible thing to do is to distribute the
burden, and to take it into account when you're talking about
income tax changes.
And that's what the discussion and argument in Washington is
about. But I have bad news for you. Regardless of what they
decide, it's not going to be a simple or easy solution, and it's
going to mean that we're all going to have to pay more to
maintain our Social Security system, hopefully with levels of
benefits that are more realistic than what have been built in the
past.
-12MODERATOR: A final question, Mr. Secretary. There are
several in the audience, and I had one variety or another of this
question relating principally to your personal sense of
priorities and strategies, and this last question perhaps
reflects several. What is your personal strategy and set of
priorities to try to have maximum impact on President Carter's
economic decisions?
SECRETARY BLUMENTHAL: Well, you can't be the Secretary of
the Treasury and have the responsibilities which that office
provides, without having close association with the President.
The Secretary of the Treasury is the nation's chief
financial officer. He collects the taxes, has a major impact on
the budget, and is intimately involved with all of the elements
of economic policy, chairs the Economic Policy Group to which all
major decisions that are initiated flow. So just being there
doing my job, doing it reasonably intelligently, obviously means
that I'm intimately involved, that I will continue to be. I
think my own set of priorities is to make sure that all of my
colleagues understand that it is the private sector that we must
rely on to accomplish the goals that we all share within the
Carter Administration of providing jobs for all Americans, doing
so in a non-inflationary environment, and assuring continued
growth. I mean to emphasize the reliance on the private sector,
reliance on the market mechanism, and really working actively to
keep the government out of the complexities of the economy, out
of creating more confusion than already exists, really trying to
simplify — hard as that is — the process of government.; And I
want to use the tax system, over0OO0
which I have direct
responsibility to help in that effort.
FOR IMMEDIATE RELEASE
December 5, 1977
CONTACT:
George Ross
(202) 566-2356
TREASURY ANNOUNCES MODIFICATION OF
EFFECTIVE DATE OF REGULATIONS ON
REFUNDING OF INDUSTRIAL DEVELOPMENT BONDS
The Department of the Treasury announced today that
proposed amendments to the Treasury Regulations governing
refundings of industrial development bonds will not apply
to obligations issued on or before December 15, 1977, to
refund certain housing bonds for low- and moderate-income
housing programs.
A previous announcement had set an effective date
of December 1, 1977, for proposed amendments to the
Treasury Regulations governing these obligations.
The obligations affected by this announcement are
those issued to refund industrial development bonds
substantially all of the proceeds of which were used to
provide residential real property for family units within
the meaning of section 103(b)(4)(A) of the Internal
Revenue Code.
o 0 o
B-583
TRANSMISSION EMBARGOED UNTIL END OF
SOLOMON BRIEFING AT THE WHITE HOUSE EXPECTED BETWEEN 1 PM AND 2 PM E.S.T.
December 6, 1977
PRESIDENT CARTER RELEASES STEEL REPORT
The President today released a 35-page report on the
steel industry from the Interagency Task Force, headed by
Under Secretary of the Treasury Anthony M. Solomon.
The report recommended a "trigger price system" to
initiate immediate investigations of possible steel dumping
with an expected resolution in 60 to 90 days. The present
procedure normally requires more than a year.
The Solomon Task Force also suggested:
* measures to encourage modernization of the steel
industry;
* help for workers, firms and communities in adjusting to necessary changes in the steel industry;
* rationalizing environmental regulations applying
to the steel industry, without any relaxation of basic environmental goals;
* speeding up the Justice Department's anti-trust
evaluations of possible steel industry mergers and joint
ventures, including those for research and development to
improve production technology, with recognition that effects
on competition have to be decided case-by-case;
* consideration of possible reforms to improve efficiency and lower costs in the transportation systems serving the steel industry;
* examination of the adequacy of Federal research and
development funding in the steel industry, and
* establishment of a committee of industry, labor and
government representatives to work cooperatively on the
problems of the industry without interfering in collective
bargaining.
The Task Force report, which also includes analysis
of the nature and causes of the industry's problems, was
forwarded to the President by the Economic Policy Group
Steering Committee, chaired by Secretary of the Treasury
W. Michael Blumenthal.
&r££4
-2Secretary Blumenthal said: "These recommendations
can play a vital role in restoring a healthy, efficient
and competitive American steel industry.
"Our aim is to maintain competition without unfair
trade, to modernize our facilities and increase our productivity.
"The program recommended by the Task Force can be
carried out with a minimal impact on inflation and only
a small effect on the Federal budget. It maintains our
commitment to environmental quality. The program does
not compromise our commitment to enforcement of the antitrust laws. It seeks to avoid direct government involvement in the steel industry while facilitating an environment in which the American steel industry, primarily
through the efforts of its workers and firms, can gain
strength and prosper."
Trigger Price System
The "trigger price" system would facilitate enforcement of the exisiting U.S. Antidumping Act.
"Trigger" prices for product groups of all carbon
and alloy steel imports would be based on estimates from
the best available evidence of full production costs of
the most efficient steel producing industry (currently
Japan). The "trigger" prices would be revised quarterly
and would include transportation and insurance costs from
Japan to each major importing region for each product
group.
The U.S. Customs Service monitoring system would
immediately alert the Treasury when steel was imported
from any source below the "trigger" price. The Customs
Service would also collect, on a continuous basis, information concerning steel prices, costs of producing steel
and the condition of the domestic industry. With this information, the Treasury could, if warranted, promptly initiate a "fast track" investigation of suspected dumping.
In contrast, under current policy, Treasury investigates
dumping only when it receives a petition, which requires
lengthy preparation, from an affected industry. The investigation then normally requires 13 months.
Under Secretary Solomon stated that "Use of the fast
track 'trigger price' mechanism should operate to prevent
dumping and thereby allow the U.S. industry to recapture
the sales lost to imports priced below fair value.
-3The "trigger price" system would not prevent any person,
domestic or foreign, from exercising its rights under the law
to file petitions or contest any decision of the Treasury
Department under the law. Nor is it to be regarded as a
"minimum price"-setting mechanism. Its sole function is to
permit constant review of prices, and, if appropriate, expedited anti-dumping actions. Implementation of the "trigger
price" mechanism should result in a substantial elimination
of the injury the industry industry claims it is suffering due
to imports at less than "fair value." This should, in turn,
eliminate the need for the domestic steel companies to maintain
pending or to file future dumping complaints, the report
states.
The Task Force anticipates that as the world economy
expands, current excess steel production capacity will be eliminated and steel pricing practices in world markets will return
to more normal patterns. Accordingly, the trigger pricing
system will be subject to periodic review and will be ended
when conditions warrant.
Modernization
The Task Force report recognizes that some U.S. steel plants
or parts of plants are older and less efficient and that
declining industry profitability as well as heavy expenses for
pollution control impede the ability of the industry to modernize
as fast as needed.
The reduction of unfair import competition through the
trigger price system and measures which are expected to be
included in the Administration's forthcoming general tax package should increase domestic steel production and industry
earnings and,increase cash flow and investment.
In addition, the Task Force recommends that the Treasury
Department investigate the feasibility of reducing the guideline life depreciation of new steel industry machinery and
equipment from 18 to 15 years. The steel industry intends to
commit any increased cash flow to stepped up modernization
efforts which will result in earlier replacement of older
machinery and equipment.
The Task Force also recommends that additional funds be
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Commerce Department's Economic Development Administration
to those steel firms (1) with serious financial problems and
little or no access to capital markets; (2) that are located
in areas of high and rising unemployment or threatened layoffs;
and (3) that can develop viable plans for modernization, which
will be analyzed case-by-case.
-4Community and Labor Assistance
The Task Force recommends that up to $20 million of the
remaining FY 1978 appropriations for the EDA's Title IX
authority be made available for worthwhile proposals from
communities with actual or threatened unemployment due
to cutbacks in steel production. Title IX funds can be
used for a wide variety of purposes to aid individuals and
businesses and to provide public services.
Also recommended is a Federal review and evaluation
of alternative uses for abandoned steel facilities and consideration by EDA and others of funding requests for
projects involving community or worker takeovers of those
facilities that are shown to be economically viable by hardheaded feasibility studies.
The Task Force also urges that the content of the
new trade adjustment assistance program be determined before
Congress convenes in January 1978.
Environmental Regulation
The Task Force reports that the Administrator of the
Environmental Protection Agency will provide new opportunties for dialogues with the public, including the steel
industry, and will coordinate future air and water pollution standard-setting and enforcement for the steel industry
to ensure the compatability of those efforts. Further,
EPA and the Occupational Safety and Health Administration
will coordinate their regulatory activities to ensure compatibility. EPA will re-examine the regulatory processes
and standards with a view to reducing riqidities and
unnecessary barriers to modernization.^
* * *
Under Secretary Solomon said that the interagency
Task Force "has consulted with industry, labor, Congressional,
importer and consumer representatives PS veil as with our
foreign trading partners, the European Community and Japan
The program would not require specific legislation prior to
implementation.'1
The Task Force stated that it expects that the industry
and labor will take advantage of the opportunity provided by
this program to improve efficiency, reduce costs from
what they otherwise would be and expand the utilization of
productive capacity,thus restoring the steel industry to
sound health.
NOTICE
Transmission of all material in this document embargoed
until after Treasury Under Secretary Anthony Solomon
briefs at the White House which is expected to begin at
1:00 p.m., E.S.T., Tuesday, December 6, 1977.
REPORT TO THE PRESIDENT
A COMPREHENSIVE PROGRAM FOR THE STEEL INDUSTRY
Anthony M. Solomon
Chairman, Task Force
TABLE OF CONTENTS
Introduction
I. Reasons for the Administration's Program 2
Steel is a major industry 3
Employment problems are extensive 3
Steel is basic to U.S. interests 3
The world steel glut 4
Antidumping complaints 4
Obsolescence of U.S. plants 5
Costs and uncertainties surrounding 6
U.S. government policy
II. U.S. Government Objectives 7
III. A Policy Program for the Steel Industry 9
Relief from unfair trade practices 9
Modernization 21
Rationalizing environmental policies 25
and procedures
Community and labor assistance 29
Other general measures and recommenda- 33
tions
Conclusion 35
1
Introduction
The United States steel industry faces a number of
serious problems:
its competitive position has eroded over
time, and its traditional market is being
encroached upon by substitute materials
and by imports of steel;
its competition from imports, often at
dramatically reduced prices, has increased as the world steel industry
has stagnated;
its earnings have dropped sharply and
are considerably below historic levels;
it must invest heavily to modernize and
increase efficiency in order to remain
competitive;
it must make substantial expenditures
to meet environmental regulations; but
it has had difficulty in raising the
necessary capital for these expenditures
under present market conditions.
The industry's financial condition, together with
the other factors enumerated above, have led to several
plant closings or cutbacks during 1977. One mediumsized producer is in bankruptcy, and several other
firms are in financial difficulties. Unemployment
among steel workers is high and is expected to continue
to rise. Several communities -- such as Youngstown
(Ohio) and Johnstown (Pennsylvania) -- which to a
large extent depend on the steel industry for their
economic livelihood,are suffering severe adverse consequences.
The steel industry's problems are not new; they
have been developing since the 1950s. Its current
difficulties are especially severe because of the
deep recession in world steel markets. Steel demand
is highly cyclical and dependent on the general trend
- 2 of the economy. Under current conditions of slow growth
and slack aggregate demand in most industrial countries,
considerable global excess capacity for steel making
has developed. Many exporters have reacted to these
market conditions by sharply reducing their prices on
steel mill products. Since the U.S. is the largest
market open to steel imports, competition from foreign
sources is intense and adds to the domestic industry s
problems.
Currently, the market for steel products reflects
a considerable recovery from the depressed conditions
of 1975. Total consumption of steel mill products may
reach 108 to 110 million tons in 1977, a level exceeded
only twice before -- in 1973 and 1974. Nevertheless,
many individual markets, especially those fueled by
the demand for capital goods, remain depressed.
Much of the expansion of demand, however, has been
satisfied by a rise in imports. The share of the
market supplied by foreign producers is currently
running at 20 percent compared to an average of 13 percent from 1973 through 1976. As a result, U.S. producers'
domestic shipments in 1977 will expand by no more than
four percent, to 92 or 93 million tons, compared to an
overall growth in the market of eight percent. The
industry's utilization of capacity will average only
80 percent for the year.
I. Reasons for the Administration's Program
A variety of factors have contributed to the
current crisis in the steel industry. Perhaps none
of these problems by itself would call for a special
government program, but, when taken together, they
provide a persuasive case for action:
The industry is one of the Nation's largest
and is critical to its economy and security;
The present difficulties have created disruptive
effects upon communities affected by employment
cutbacks and plant closings;
A large reduction in U.S. capacity in this
basic industry threatens future problems
for the economy;
- 3A worldwide glut of steel capacity continues
to exist;
An unprecedented number of antidumping complaints relating to steel threatens international trade relations with, and the
economic policies of, the principal trading
partners of the United States;
Steel plants concentrated in several Eastern
regions face severe competitive problems ;
U.S. policies relating to environmental controls and energy impose particularly
burdensome obligations on the steel
industry, which already faces needs for continuing
modernization and capital replacement.
1. Steel is a major industry. With annual sales
approaching $40 billion, the steel industry is surpassed
in size only by the automobile and petroleum industries.
Therefore, major dislocations of the industry are bound
to have important adverse repercussions on capital markets,
the firms which supply the industry with equipment and
raw materials, as well as the communities in which the
plants are located. Conversely, attempts to smooth
the transition from recession to recovery in this
industry are likely to ease problems in a wide range
of markets and geographical areas.
2. Employment problems are extensive. Economic
dislocations in the steel industry have caused substantial layoffs and serious regional disruptions.
Industry employment has fallen from more than 500,000
hourly workers in 1957 to fewer than 370,000 today.
The plant closings this fall in Youngstown, Lackawanna,
and Johnstown alone reduced steel employment by 12,000
workers. At present, more than 50,000 steelworkers have
been certified as eligible for Trade Adjustment Assistance.
Further reductions in capacity utilization would potentially add to this total.
3. Steel is basic to U.S. interests. While there
is no compelling argument for maintaining a domestic
steel industry which is capable of supplying 100 percent
of peak U.S. needs, there is a legitimate cause for
concern that heavy reliance upon imports from a few
exporting regions of the world could create the risk of
serious economic disruption at some future date.
- 4 4. The world steel glut. The impact of the 197475 recession has been especially severe in the steel
industry in light of the expansion of world capacity.
Present predictions of world steel market conditions do
not forecast a return to even 85 percent of capacity
operation by 1980. Therefore, foreign producers can
be expected to continue their aggressive export
practices, and the depressed export prices are not
likely to recover in the near future.
If the current rise in U.S. steel imports were
simply a reaction to competitive market forces, there
would be less cause for U.S. Government concern. But
the sharp rise in imports suggests that more than competitive market forces may be driving imports.
European producers, in particular, have lowered their
prices to the U.S. market since 1976 in an attempt to
maintain their output and employment after trying but
failing to stabilize their domestic markets through
concerted action.
The 1976 increase in U.S. steel imports from 12 to
14.3 million tons was a predictable response to market
conditions, as the U.S. economy recovered at a faster
pace than most other developed nations. But the sharp
rise from the 1976 level to an annual rate of over 20
million tons in the six months since March 1977 suggests
more than a competitive response to continued gradual
growth of U.S. steel demand and rising U.S. steel prices.
It is this sharp discontinuity in the world steel trade
that has created heightened problems for the U.S. industry.
5. Antidumping complaints. Since January 1, 1975,
19 separate antidumping complaints have been submitted
to the Treasury Department, which relate primarily to
steel imports from Japan and the European Community.
These complaints refer to a wide variety of steel products which are estimated to have been imported in
volumes up to $1.7 billion in calendar year 1976. Informal
indications from the industry suggest further dumping
complaints are being prepared.
- 5Only one of the major dumping investigations
affecting basic steel products has thus far reached
the point at which the Treasury has made a Tentative
Determination of sales at "less than fair value." In
that case, concerning carbon steel plate from Japan,
the Treasury found dumping margins of approximately
32% on imports from Japan's five principal steel
companies. Withholding of Appraisement of such
merchandise pending a Final Determination in this
case has been ordered and importers are obliged to
post a bond on all future imports equal to the margin
of dumping tentatively established. The uncertainty
created by the Tentative Determination and its concurrent bonding requirement on further imports has
sharply reduced new orders to the Japanese producers.
The U.S. complainant in that case, Gilmore Steel
Corporation, has indicated also that during the
period between the Tentative Determination and the
Final Determination its own orders have dropped off
as consumers await the final decision. This uncertainty
creates severe problems for consumers and suppliers
in both the United States and in foreign countries. A
similar period of uncertainty with far more wide ranging
effects is likely to be created if all the antidumping
complaints are pursued to conclusion.
6. Obsolescence of U.S. plants. Any sharp decline
in the demand for an industry s output leads firms to
consider closing their least efficient facilities.
These decisions must be based upon the probability of
a recovery in demand, the costs associated with maintaining production while operating at less than capacity,
the prospects for modernization, and the extent to which
capacity can be expanded more efficiently elsewhere.
In the steel industry, the variance in plant age
and efficiency is sizeable, with many facilities only
approaching a breakeven point even at high operating
rates. Not all of these plants can be modernized economically because of their location and existing facilities.
As a result, several of the plants are candidates for
closure during periods of depressed market conditions.
- 6 The dispersion in plant efficiency in this industry
is not unique, but it is an important factor in the
current policy discussion. The domestic market for
steel has shifted from the East to the Midwest, and
new technologies have not been easily adapted to some
Eastern plants which face problems of crowding, smallscale blast furnaces, out-of-balance finishing
facilities, and environmental constraints. The shift
of production from these facilities to more modern
plants in other sectors of the country would not be
easy under any circumstances.
7. Costs and uncertainties surrounding U.S.
fovernment policy^ A major obstacle to investment
n U.S. steel facilities -- other than insufficient
demand -- is a degree of uncertainty in government
policy. With continuing changes in water arid air
pollution legislation, the industry faces numerous
unknowns in planning new facilities. While some of
this uncertainty is inevitable in the process of
reevaluating environmental goals, its cost to an industry
attempting to cope with several billion dollars in annual
modernization and refurbishing requirements can be
considerable. In addition, the industry will be
sharply impacted by government decisions with respect'
to energy policy, health and safety, and land-use
policy.
- 7II.
U.S. Government Objectives
The Interagency Steel Task Force has established
a number of objectives for a steel program which both
provides reasonable goals for its policies and limits
the extent of Government involvement in industry
affairs.
1. Our primary objective is to assist the steel
industry in a manner which will stimulate efficiency and
enable the industry to compete fairly. A stronger
competitive position is essential if the U.S. steel
industry is to maintain its markets. This requires an
increased pace of investment in modern, efficient
facilities and an assurance that U.S. production will
not be artificially disadvantaged by imports due to
unfair foreign trade practices. A healthy, competitive,
and efficient industry will benefit consumers, assist
our efforts to hold down inflation, provide stable
employment opportunities, and contribute to a strong
domestic economy.
2. A second objective is to help ease the burden
of adjustment to market trends for both industry and
labor. Massive worker layoffs, as we have recently
experienced, represent a serious human tragedy for
many families and can cause severe disruptions for
whole communities. Although some mills in a few areas
may no longer be economically viable, we should be able
to lessen the immediate impact of adjustment through
active development assistance programs for both firms
and communities to provide alternative industry and
employment opportunities, to retrain workers, and to
provide financial support for workers laid off due to
import competition until they can find new jobs.
3. A third objective is to provide meaningful
incentives for plant and equipment modernization through
appropriate tax, investment, and financial assistance.
Continual modernization is required if the industry is
to operate at peak efficiency.
- 84. A fourth objective is to expedite relief
from unfair import competition, but to do so in a
manner which will not preclude healthy competition
in the U.S. market. Any policies affecting imports
must clearly be consistent with our overall objective
of maintaining an open world trading environment based
upon normal trading practices. U.S. enforcement of
domestic statutes designed to prevent unfairly priced
imports should be effective and responsive to the
requirements of suppliers and consumers alike.
In determining a comprehensive policy program
for the steel industry, there are a number of dangers
that the government must also avoid:
— We must avoid any direct government involvement in the industry's decisions. Our role
is not to direct the industry's actions,
but to help create an environment within
which a free industry can operate efficiently.
We must avoid measures which stimulate inflation. Our efforts should not contribute
to unnecessary and disruptive price increases
at the expense of domestic consumers and the'
economy as a whole.
Achievement of our objectives requires a cooperative
effort by the industry, labor, and the Government. The
Government is taking significant steps in developing a
comprehensive program for the steel industry, affected
steelworkers, and the communities in which they work.
It will continue these initiatives by implementing the
program we propose. We expect that the industry and
labor will cooperate by taking advantage of this opportunity to improve their efficiency, reduce their costs,
and expand the utilization of their productive capacity,
thus restoring the steel industry to sound health.
- 9III.
A Policy Program for the Steel Industry
The comprehensive program of recommendations for
the steel industry is based on the objectives outlined
above. It requires no specific legislative measures
and can be implemented quickly. Further, while some
measures are specific to the steel industry, many are
broad-based and will be beneficial to other industries
as well.
The policy recommendations may be divided into
five categories or problem areas:
A. Relief from Unfair Trade Practices;
B. Modernization;
C. Rationalizing Environmental Policies and
Procedures;
D. Community and Labor Assistance; and
E. Other General Measures.
A. Relief from Unfair Trade Practices -- "Trigger Price"
Antidumping System
1. Introduction
The global slump in steel demand and the
substantial excess capacity in the world steel industry
have led to aggressive exporting by foreign steel makers,
in particular, those in Japan and the European Community
(EC) countries. The U.S. market, because of its size,
its relatively higher rate of economic recovery, and
its openness to all suppliers, is a primary market for
sales of foreign steel producers. U.S. steel imports
for the first three quarters of 1977 are 347Q above those
for the same period in 1976, and the share of U.S. steel
consumption accounted for by imports is expected to
rise on an annual basis from 14.1% of domestic consumption in 1976 to 17.9% this year.
- 10 Increases in U.S. steel imports are not unique
to the industry's experience. Foreign steel makers
began to expand their production capacity and to
compete actively in the U.S. market in the late 1950's.
Since that time they have captured a large share of
the growth in U.S. demand, reaching a record relative
level in 1971, when imports accounted for over 187c of U.S.
steel consumption. The same level may be reached in 1977.
Critics of the U.S. steel industry argue that past
and present increases in imports are primarily a reflection of the relative efficiency of foreign steelmakers and the willingness of foreign steel exporters
to price in a more flexible manner. Moreover, they
contend that imports are essential to price competition
in the U.S. market, and thus an important factor in
controlling inflation in this country.
The U.S. steel industry and the labor unions contend that, given the current depressed state of the
domestic industry, immediate trade relief is needed.
The industry's central argument is that the recent
surge in imports is largely attributable to unfair
trade practices, principally dumping. Accordingly,
numerous complaints have been filed under the Antidumping Act of 1921. Indeed, the 19 separate petitions
involving steel products now before the Treasury
Department in various stages of investigation are an
unprecedented number with respect to a single industry
within so short a time frame,.
2. Present Procedures under the Antidumping Act
It has been the policy of the Treasury Department
to initiate antidumping investigations only upon receipt of a complaint setting forth a prima facie case
of "dumping," i.e. sales in the United States below
"fair value" that injure or are likely to injure a
U.S. industry. Fair value is generally established
from the home market prices of the exporter. This
policy has obligated the firms affected by imports to
furnish in some detail available evidence concerning
prices in the home market or the foreign exporter as
well as the exporter's prices offered in the United
States. In addition, a submission concerning the
extent to which such imports have injured or are
likely to injure the domestic industry must be included in the complaint. Pursuant to amendments to
the Antidumping Act adopted as a part of the Trade Act
of 1974, home market prices as a reference for determining the "fair value" of imported merchandise may be
disregarded if substantial sales in the home market
have been made at prices below the cost of production
not permitting the recovery of all costs within a
reasonable period of time. If such home market prices
are disregarded, fair value is, as a rule, to be
established from the "constructed value" of the product,
meaning its cost of fabrication, plus statutorily
mandated minimum additions of 10% for overhead and 8%
for profit. Many of the complaints filed with respect
to steel mill products have included allegations invoking these provisions.
If a complaint is deemed sufficient, an investigation is opened in which the Customs Service examines
the level of home market and U.S. sales prices of the
foreign exporter in the country under consideration.
Moreover, if the case involves an analysis of alleged
sales below the cost of production, the foreign
producers' production costs must also be determined.
Investigation of such facts is complex and time consuming, involving the verification of extensive documentary
evidence in foreign countries and in the United States.
Such investigations have also been impeded by the
objections of the producers to the cost and time involved
in compiling and submitting cost data and to the submission of such sensitive competitive data to a foreign
government, with a potential for its possible - even
inadvertent - release to competitors.
As noted in the introduction, only one of the
major dumping investigations affecting steel mill
products has, as of December 1, 1977, reached the
point at which the Treasury has made a tentative
determination of sales at "less than fair value."
This stage of the proceedings is usually reached six
months after the formal initiation of the investigation. The tentative determination announces the margin
- 12 of dumping, (i.e., the percentage of the U.S. weighted
average prices by which such prices are less than the
"fair value" of the merchandise) found during the
period of investigation (usually the six month period
surrounding the date on which the complaint was initially
filed with the Treasury). Withholding of the appraisement of imports of the type covered by the investigation
then begins. Thereafter, all imports of the affected
merchandise can only be made if covered by a bond equal
in value to the estimated antidumping duties that may
become due. As a rule, the bond is fixed at a percentage of the value of the imports equal to the margin
of dumping announced in the tentative determination.
Following publication of the tentative determination,
all interested parties are afforded an opportunity to
present briefs and oral arguments to the Treasury Department before it announces its final determination.
If the final determination is affirmative (which must
be announced within three months of the tentative determination) , the case is referred to the U.S. International Trade Commission for its investigation of
whether the sales at less than fair value have caused
or are likely to cause injury to a domestic industry.
If the ITC finding is in the affirmative, a dumping
finding is then published and antidumping duties can
be assessed on all merchandise as to which appraisement
was withheld and on all further imports sold at dumping
margins. In most cases, the entire procedure, from the
date of initial filing of a complaint through the
publication of the dumping finding takes approximately
13 months. However, this period must be added to the
time it takes the affected industry to prepare a suitable
complaint.
3. Criticism of the Present System
The steel industry has suggested that the
traditional procedure is too cumbersome to provide
relief quickly from sudden surges of imports that may
cause injury to an American industry. On the other
hand, once the investigation is concluded and a dumping
finding has been issued, its effect may be to staunch
all imports of the product concerned. In the case of
carbon steel plate from Japan, which is the only steel
- 13 mill product that has, to date, been the subject of even
a tentative determination of sales at less than fair
value, it has been reported that the high margins of
dumping found (with the concurrent requirement for an
equivalent bond on future entries) have resulted in a
virtual halt in orders for that product from the
foreign suppliers.
The steel industry has also criticized existing
antidumping remedies because of the specific product
orientation of individual investigations and findings.
Cases relate only to specific types of products and it
is only such specific types that are subjected to the
investigative analysis and withholding/bonding aspects
of antidumping proceedings. Industry sources contend
that in the event that a proceeding is initiated with
respect to one product, foreign suppliers can readily
shift to another product outside the scope of the
first investigation. It has only been in the most
recent months that steel companies have attempted to
file a series of antidumping complaints, covering a
broad spectrum of steel products so as to overcome
such attempted shifts in supply strategies.
The Task Force has attempted to take all of these
concerns into account and at the same time comply with
the objective set out in Part II of this report in
developing a technique for providing the industry with
relief from unfair trade practices. Accordingly:
We recommend that the Department of the Treasury,
in administering the Antidumping Act, set up a system
of trigger prices, based on the full costs of production
including appropriate capital charges of steel milT
products by'the most efficient foreign steel producers
(currently the Japanese steel industry), whicn would
be used as a basis for monitoring imports of steel into
the United States and for initiating accelerated antidumping investigations with respect to imports priced
below the trigger prices.
- 14 The trigger price mechanism is intended to provide
the Secretary of the Treasury with a basis for initiating antidumping investigations without any prior
industry complaint. Such authority exists under the
Antidumping Act although it has not been used in recent
years. As such it does not detract from any of the
legal rights that foreign producers or the domestic
industry presently enjoy under the Act. The trigger
price is also a device for applying the resources of the
Treasury Department to a constant monitoring of imports
affecting a particularly sensitive industry viewed as
a whole, instead of focusing on the investigation of
individual complaints with respect to specified products and then taking expedited action under the law. It
thus meets the principal criticisms of present practices
under the Act.
1. Determining the Trigger Price
The trigger price will be determined by
the Treasury as follows:
The unit cost of producing carbon and alloy
steel in the most efficient exporting country --currently Japan — will be estimated at current
prices and exchange rates from the best evidence
available. Such evidence will consist of financial
statements routinely prepared by the largest
producers of carbon steel in Japan, data on the
cost of labor, materials, and capital equipment
used in the production of Japanese steel, as
well as cost data which the companies have
agreed to make available in aggregate form to the
Treasury. The "costs of production" as calculated
are intended to cover the traditional costs of
labor, materials and directly related overhead,
as well as general administrative expenses and a
capital charge.
Discrete product groups will be established
pursuant to internationally recognized classifications for steel mill products. For each product,
a trigger price will be determined either directly
from the financial statements and cost of production
- 15 information supplied by the steel companies, or
will be derived through procedures based upon
the best available information on Japanese input
costs and production experience.
It is contemplated that trigger prices will
be adjusted quarterly to reflect intervening
changes in costs of production components and
in currency values.
-- At the time of each quarterly adjustment,
the trigger price for each product will be set
within five percent of that product's full cost
of production. The flexibility in either direction
will permit smoothing out sharp fluctuations of
the components of the cost of production that may
only be temporary. Taking immediate account of
all such fluctuations would be unnecessarily
disruptive to both domestic and international
patterns of trade.
The trigger price will be identical for
all imports regardless of source and constructed
on a "CIF" basis. Transportation from Japan
to each major importing region of the country
and insurance costs for each product class will
be added to the production cost to arrive at
the higher price.
Stainless steel will be excluded from the
trigger price system because a quota system
is in effect with respect to such products.
On the other hand, alloy products will be
included.
Only steel mill products as conventionally
defined in the United States will be included
in the system.
2. Operation of Trigger Price Mechanism
The Customs Service will organize a special
task force to administer the trigger price system.
Regulations will be published shortly for public
comment which would obligate importers to present at
- 16 entry of all steel imports a new "Special Customs Steel
Invoice," and to certify on the invoice or otherwise
that no rebates, drawbacks or unrelated incentives have
been or will be paid or granted in connection with
the transaction reflected in the invoice. The Special
Customs Steel Invoice would be modeled upon the Special
Customs Invoice presently in use and would provide
space for the recording of product definitions, the
base price and significant extras used in calculating
the transaction price for the imported product. The
total price shown on the Special Customs Steel Invoice
would be compared to the trigger price data at the port
of entry. Imports priced below the trigger price would
be promptly identified and the information immediately
forwarded to the Treasury in Washington for further
investigation. If warranted, a formal antidumping
investigation could be initiated within a matter of
weeks.
Once the trigger price mechanism has been set in
place, it is contemplated that information will be
currently obtained both in the United States and abroad
concerning steel prices and costs of steel production
and the condition of the domestic industry. Therefore,
if a formal antidumping investigation should appear
warranted, it could not only be opened quickly but it
could be concluded within a time period substantially
shorter than is presently the case. In general, except
where a case is unusually complex, we expect that action
could be taken under this procedure within 60 to 90
days, as opposed to the 13 months-plus period required
under the normal procedures, although in more intricate
cases it may take longer. In the event the investigation
indicates such action is warranted, existing statutory
powers to impose a retroactive withholding of appraisement could be ordered at the time the tentative determination is published. Following completion of the
Treasury's "fast track" investigation, the case would be
referred to the U.S. International Trade Commission for
the required injury determination, which could similarly
be expedited.
- 17 As noted, the implementation of the trigger price
mechanism will require the publication of a form of
Special Customs Steel Invoice and draft regulations
prescribing its use. Public comments on the form and
regulations will be solicited, as well as on the
proposed procedures for applying the mechanism. As
presently conceived, all contracts concluded before
the announcement date of the trigger prices, and with
goods loaded on board ship prior to the effective
date of the proposed system, would not be subject
to the trigger price mechanism. It would seem difficult
to subject existing contracts to ex-post-facto
application of the system. All contracts concluded
prior to the announcement of the trigger prices but
shipped after their effective date would be subject
to scrutiny, and substantial under-pricing could
warrant immediate initiation of an antidumping investigation. Contracts and shipping concluded after the
publication of the trigger prices would be subject to
the mechanism as though such contracts had been made
and the shipments completed following the effective
date of the system. The trigger prices will be
published promptly after their calculation to provide as much advance notice to the trade as possible.
The trigger price mechanism and its associated
procedures can be instituted within approximately 60
days, including a period of 30 days for public comments
on the proposed regulations and the form of the Special
Customs Steel Invoice. The trigger price mechanism is
intended only to provide the Secretary with a basis
for self-initiating antidumping investigations; they
are not a "minimum price" system. Thus, none of its
terms are keyed to statutory definitions of, for
example "foreign market value" or "constructed value."
But they are fully consistent with existing statutory
law and with the international obligations of the
United States under the General Agreement on Tariffs
and Trade and the International Antidumping Code.
- 18 Implementation of the trigger price mechanism
should result in a substantial elimination of the
injury the steel industry claims it is presently
suffering due to sales of imported steel below its
"fair value." This should, in turn, eliminate the
need for the domestic steel companies to
file new antidumping complaints and encourage
them to consider the prompt withdrawal of the
petitions now under investigation. The internal
resources of the Treasury Department required to
operate the proposed trigger price system would make
it difficult simultaneously to carry on numerous full
scale dumping investigations. The system is intended
to provide all concerned with constant, current information on price trends and, thus, to permit prompt
investigations of violations.
The implementation of the trigger price mechanism
may hot prevent less efficient producers from selling
steel products at less than "fair value" within the
meaning of the Antidumping Act. Such high-cost producers may be selling in both the home market and for
export at prices below their costs of production.
However, to the extent that the more efficient producers
also retain excess capacity to compete in the U.S.
market, it may not be possible for the domestic
industry to prove injury as a consequence of the sales
at less than fair value from the less efficient producers. Furthermore, the anticipated increase in the
share of the market supplied by the domestic industry
should make injury allegations harder to prove. Nevertheless, it would be open to the affected U.S. industry
to pursue the traditional remedies under the Antidumping
Act if that appeared appropriate.
3. Effect of the Trigger Price
Data from which the trigger prices will be
fixed have not yet been finally analyzed. But preliminary review suggests it is reasonable to assume
that the trigger price mechanism will lead to a rapid
amelioration of the problems the U.S. industry has
endured from unfairly priced imports. The industry
should recapture a substantial share of the U.S. market
- 19 that it has lost to imports on this account. The
precise level of import reduction will, however,
depend upon the price behavior of the domestic
steel companies. The more sharply the domestic
firms raise prices, the smaller will be their
recapture of the market. The expected expansion
in shipments for U.S. firms should result in a
much greater level of steel employment and an increase in capacity utilization with its associated
benefits in lowering costs of production.
4. Potential Problems
Implementation of the trigger price approach,
particularly the monitoring of imports of thousands
of different products, poses substantial problems.
However, these problems are qualitatively no different
than those that would be required in the effective
monitoring of a quantitative restraint approach or
in full-scale administration of the Antidumping Act.
Initial efforts to implement the trigger price approach
will undoubtedly not be perfect, but experience in
working under it should teach us how to cure its
inadequacies. There are nevertheless two problems which
may not be fully met by the proposed system:
The system extends only to steel mill products;
hence, there is some risk that steel fabrications
will substitute for the more basic steel products
in U.S. imports, as occurred during the quantitative import restrictions on steel mill products
imposed in the late 1960s..
Exporters may attempt to shift their mix of
products to the highest valued items in each
product category and, thus, "skim the cream" of
the trade while leaving lower-valued, less
profitable items to the domestic industry.
The Customs Service Task Force implementing the
system will be alerted to these problems. Should sales
of fabrications or top-of-the-line items provide
significant opportunities for evasion of the intended
relief of the system, appropriate action will be taken.
- 20 5.
Duration of the "Trigger-Price" System
This system of resolving issues of unfair
trade practices on an accelerated basis is designed
to address the specific problems which now exist with
respect to steel imports. An expansion of the world
economy in future years will gradually eliminate the
"overhang" of excess steel production capacity. As a
result, pricing practices in world markets will return
to more normal patterns and the need for a special program for dealing with import prices will recede.
This program will be reviewed from time to time
to insure its consistency with the original concerns.
The strength of the world steel markets, domestic
capacity utilization, profitability, employment
conditions, and the behavior of domestic and international prices and costs will be examined. When conditions warrant, the system will be terminated and the
more traditional procedures restored.
In the recent past and for the foreseeable future
the United States has carried and will continue to carry
on with the EC, Japan and other countries a frank and.
extensive dialogue both on the nature of the problems
of the world's steel industry and the implications of
alternative measures for dealing with them. The
proposals made here have benefitted from understandings
gained through these consultations. These consultations
should continue on both a bilateral and multilateral
basis.
- 21 B.
Modernization
The steel industry is currently facing another serious
problem -- the industry needs to modernize to compete
effectively.
The U.S. steel industry's capital expenditures totalled
$21 billion over the last ten years (1967-1976). Despite
this level of spending there remains a significant need
for modernization of plant and equipment. This is due
in large part to the pattern of spending by the industry.
Faced with scarce funds and a physical plant that was
largely fixed in terms of location, the industry concentrated its spending on its newer existing plants
in growing markets, largely ignoring the older plants
in traditional and in some cases declining markets.
The result is that while the industry does have modern
up-to-date facilities in some areas, selected plants or
parts of plants are unquestionably obsolete, and badly
in need of medernization.
There is also some question of whether the industry
was too slow to adopt newer technologies. Recent research by the FTC indicates the U.S. industry has not
been remiss in adopting new techniques.
Nevertheless, the U.S. steel industry acknowledges
that there is a need for further modernization, and is
willing to commit funds to this purpose. However, it
contends that it does not have the funds to engage in
modernization programs.
The industry estimates that it must spend between
$2.0-$2.5 billion to maintain and refurbish its existing
plant and equipment. These expenditures include some
modernization through replacement. Capital expenditures
necessary to comply with environmental regulations are
also substantial and are rising. Recent studies on the
industry's capital requirements for pollution control
reveal that the industry will have to spend a minimum
of $6 billion from 1977 to 1983 to comply with environmental standards. Moreover, a large portion of these
expenditures will have to be made in earlier years to
- 22 bring older plants, which require expensive retrofitting,
into compliance.
With the exception of the boom years 1973 and 1974,
the steel industry's profitability over the last decade
has been substantially below the average for all
manufacturing industries. Since 1974 the industry's
earnings declined sharply from a 6.47o return on sales
in 1974, to 3.6% in 1976, and a record low of 1.4%
in the first half of 1977.
The decline in earnings has reduced the industry's
cash flow (net income plus allowances for capital consumption) by 23% from $3.8 billion in 1974 to $3.0
billion in 1976. Recent forecasts indicate it will
decline further to between $2.0 and $2.2 billion in
1977. The result is the industry's ability to finance
near term replacement and modernization through internal
funding is seriously diminished.
This reduction in internal funds is further exacerbated by the industry's inability to acquire funds through
external financing. The decline in the fortunes of
domestic steel companies, damaging reports from Wall
Street and the increase in steel imports have combined
to make debt and equity markets increasingly inaccessible
to steel companies.
The trigger price antidumping system should deter
unfair import competition, and thus result in an increase in domestic steel production and industry
earnings. The steel industry will also benefit from
passage of the Administration's general tax package
which we are now considering. The general tax package
will probably include a number of measures which, on
balance, will stimulate investment and increase cash
flow in the steel industry as well as other industries.
Assuming that the industry spends $2.5 billion per
year on maintenance and replacement, $1 billion on
pollution control equipment, and $0.5 on additional
modernization projects, its annual capital requirements
should average $4.0 billion (in 1977 dollars) oyer the
next several years. Given that 1977 cash flow is likely
- 23 to be no higher than $2.2 billion, there is a $1.8
billion gap between industry cash flow and investment
requirements. The combination of the trigger-price antidumping system and general tax reform will not
completely close this gap but it should narrow it
appreciably. With increases in volume, improvements
in cash flow, and widening profit margins, the industry
should be in a position to finance the remainder through
the capital market.
In addition to these general tax package measures,
the Task Force recommends that the Treasury Department
investigate the feasibility of reducing the guideline
life for depreciation of new steel industry machinery
and equipment from 18 years to 15 years. Under the
asset depreciation range (ADR) system, and with an
18 year guideline life, the industry can depreciate
its machinery and equipment over a period of 14.5
years (20% less than the guideline life). The 18
year guideline life for steel is among the highest
for manufacturing industries because steel equipment
has tended to be longer-lived than equipment in most
other industries.
Under the ADR system, if the guideline life were'
reduced to 15 years, the industry could depreciate equipment over 12 years. A decrease in the guideline life
from 18 years to 15 years would produce additional tax
benefits averaging nearly $60 million over the next
four years.
This reduction of the guideline life to 15 years
may be justified on the basis of more rapid modernization of basic facilities. The U.S. steel industry has
agreed to commit the increase in cash flow from the
comprehensive Task Force program to stepped-up modernization for their steel plant and equipment.
The Task Force investigation has revealed that
there are a number of smaller integrated and nonintegrated
steel companies which are extremely depressed financially
and which would benefit only marginally from the tax measures.
- 24 These firms are located in areas where most of the recent
steel plant closings and cutbacks occurred. There is the
very real prospect that if these firms are not provided
additional assistance they will either curtail production
at some mills or even close them. Such closings or
cutbacks by these firms would exacerbate the already
depressed economic conditions in these areas, and remove a substantial source of capacity and competition
from the U.S. steel market. The Task Force estimates
that these firms currently employ approximately 83,000
workers and account for 167o of the U.S. steel industry's
raw steel production.
In an effort to prevent the closing of facilities
that could prove viable and the substantial economic
dislocation these closings would cause, the Task Force
recommends that additional funds be made"availabTe
for the current and future budget of the Economic
Development Administration of the Department of
Commerce for industrial loan guarantees and continue
to provide further appropriations for this loan
guarantee fund in the next few years"!
The Task Force suggests that steel firms meeting
all of the following criteria be considered eligible
for loan guarantees and be given priority:
firms with serious financial problems, with
little or no access to capital markets;
firms seeking funds for modernization of
plants located in areas of high and rising
unemployment or threatened massive layoffs; and
firms with viable plans for modernization.
The Task Force has examined the available alternative
means for providing funds to smaller depressed steelmakers
for projects that are economically justified. We feel
the use of EDA loan guarantees is the simplest and most
direct way to assure that viable modernization projects
of these firms actually receive the funds necessary for
their completion. These funds may be complemented to
some degree by those now available in other government
programs that relate to communities with steel making
facilities that require, and can justify on an economic
basis, modernization projects in steelmaking.
- 25 C.
Rationalizing Environmental Policies and Procedures
The steel industry is one of the largest contributors
to air and water pollution in the nation. Steel plants
emit into the air vast quantities of particulates,
sulfur oxides, and hydrocarbons. In 1975, 20 percent
of all U.S. man-made particulate pollution came from
the steel industry.
Steel plants also discharge solids, acids, heavy
metals, arsenic, cyanide, phenols, ammonia, oil, grease,
and heat into the water. The water pollutants, like
the air pollutants, are dangerous to health. Unless
controlled at the source, they must be removed by
expensive treatment facilities to protect the drinking water of downstream communities.
Regardless of the industry's economic situation,
it is imperative that expenditures for pollution control in the steel industry be spent, to the extent
possible, in a way that results in the most clean-up
possible per dollar. Controlling this pollution imposes particularly significant costs on the industry
at a time when it is operating at low levels of
profitability. In 1977 the U.S. steel industry expects
to spend $600 million on pollution abatement investment.
Estimates of the total capital costs of pollution control for the industry in the years up to 1983 range from
$6.8 billion (EPA) to $14 billion (American Iron and
Steel Institute) in 1975 dollars.
The current costs of meeting environmental standards
represent a significant but not a major portion of the
costs of steel production. Estimates made by EPA,
COWPSi/, and the industry indicate that under present
legislation and regulations these costs will rise to
between 5% and 10% of the price of steel in the future.
Newer, more modern mills and processes are generally
cleaner. Any given level of control is less costly
to
attain
in new
plants
than
to retrofit
"
" The
Council
on Wage
and
Price
Stabilityolder plants.
- 26 Indeed, some emission control techniques, such as dry
quenching (and recycling) of steel gases are only
feasible in a completely new or substantially modernized
plant.
However, as the COWPS study indicates, replacement
of existing plants by efficient, new greenfield operations is simply not economic at today's capital costs.
The most economic path for the industry is to replace
parts of existing mills or to round out existing
facilities. The result is that pollution control
costs will be high, particularly in the near term, as
the industry retrofits older plants to bring them into
compliance.
The current financial plight of the industry should
not deter us in seeking a cleaner environment. We do
not recommend a relaxation of our basis environmental
goals. We also recommend against differential or more
lenient treatment in the regulation or enforcement for
the steel industry.
However, we do believe it may be possible to
achieve our goal of a cleaner environment at a reduced
economic cost if there were certain changes in the
regulatory process. The EPA agrees and is willing to
investigate certain areas to see if this is possible and
appropriate.
Openness and access: Consistent with the spirit
of the President's recent Executive Order designed to
improve the regulatory process, the EPA affirms its
policies of openness and access to the Agency. The
Administrator of EPA will make new opportunities for
dialogues available to the public, including the U.S.
steel industry and other industries which are regulated
by it. These opportunities will be expanded and increased in the future.
EPA will also address the following specific points in
its regulatory review:
Coordination of standard-setting and enforcement
for EPA programs": EPA will coordinate all future air
and water pollution standard-setting and enforcement
efforts for the steel industry, as well as future
- 27 environmental requirements under the toxic substances
and solid waste statutes, to ensure that they are
compatible.
Coordinating EPA and OSHA regulations : EPA and OSHA^
will coordinate their regulatory efforts to insure that
regulations for steel mills are compatible. EPA will
continue to consider the combined effects of the costs
of EPA and OSHA requirements in assessing the appropriate
levels of control in future EPA regulations.
Banking of emission offsets: EPA is reviewing
its current policy for location of new polluting
facilities in areas which violate air quality standards.
EPA policy requires that before a new polluting facility
can be constructed in an area violating air quality
standards, at least as great an offsetting reduction
of pollution from existing sources of pollution must be
accomplished. The current policy does not generally
allow emission reduction occurring at one time to
be "banked" or "saved" to offset future emission increases,
but EPA will review its policy to determine if this
banking of offsets is desirable.
EPA will also examine the following additional
issues to determine whether they are practicable and
appropriate:
-- Whether air pollution permits for new
industrial facilities should be issued
to new facilities on a plant-wide basis
rather than on a process-by-process basis.
This approach of specifying the total
amount of emissions of each given pollutant
allowable for an entire plant would provide
a firm the flexibility to control emission
from whichever part of the plant can be
controlled Safety
at lowest
~ The Occupational
and cost.
Health Administration
of the Labor Department
- 28 How possible disincentives to modernization
should be considered in setting future New
Source Performance Standards.
— Whether EPA's policy on location of new
polluting facilities in areas not meeting
the health standards should be modified
or extended.
Considering the impact of state regulations
which require new operating permits for reopened facilities.
In general, the EPA review of its regulatory
processes and standards should reduce rigidities and
unnecessary barriers to modernization.
-29 D. Community and Labor Assistance
In recent months there have been numerous plant
cutbacks or shutdowns. These cutbacks and shutdowns
resulted in the permanent loss of around 20,000 jobs,
and an additional 1,100 workers are scheduled to be
dismissed by the end of the year. The loss of jobs,
while tragic, is only one element of the impact of these
plant closings or cutbacks. The impact on the community
and region in which the plant is located is also substantial. Steel plants generate substantial indirect
income and employment through their purchases from
supplying firms and peripheral businesses. Steel firms
also pay substantial amounts of state and local taxes.
The impact of a plant closing on a community is much
broader than the direct job and income loss and is
particularly severe when the bulk of the smaller businesses
in a community are heavily dependent on the plant.
Unfortunately, this is the case for several of the
communities where recent cutbacks or shutdowns have
occurred.
The impact is further aggravated because the recent
plant cutbacks or shutdowns tend to be concentrated
regionally. Eight of the 16 plant closings and cutbacks
and 78% of the resulting job losses occurred in a region
which includes parts of the states of Ohio, Pennsylvania
and New York.
These affected steel communities have vital interests
in retaining, or in some cases recovering, their economic
viability. This interest -- which includes workers and
their families, small businesses, and often the main portion of the community's overall economic base -- needs
to be considered in the design of any comprehensive plan
of assistance for the steel industry. The direct human
impact of massive layoffs and shutdowns can be seen
wherever major steel plants have been closed. They call
for the highest priority in the search for all reasonable
and appropriate actions that can lead to rebuilding
these local economies.
There are two broad approaches for providing assistance to these affected steel communities. The first is
to revitalize steel plants that were cut back or shut down,
- 30 where the revitalization is economically viable. The
loan guarantee fund described in Part III.B above
focuses on this goal. The criteria for loans are geared
toward providing assistance to firms located in areas of
high unemployment or areas threatened with massive layoffs. Thus they are also strongly oriented toward
community assistance. The second approach is to provide
transitional and longer-term assistance to communities
and affected workers where plants have been shut down or
cut back and cannot be revitalized, and there is thus a
need to seek out other alternatives.
A flexibile and effective source of support for this
second approach to community recovery and future health
is the funding available under the economic adjustment
authority of Commerce's economic development and adjustment aid to assist states and local areas to meet needs
arising from actual or threatened severe unemployment.
EDA has funded several Title IX projects related to
steel industry problems. These include a wide range of
projects in the Mahoning Valley; Gary, Indiana; and
Lackawanna, New York.
In Gary, Indiana, recent cutbacks in steel led to
the need for drastic action to revitalize the city,
diversify its economic base, and enable the city to regain
a sound economic base. Following development of an adjust
ment strategy, a Title IX grant of $6.6 million was made
to the city.
Title IX funds can be used for one or more of the
following purposes: (1) public facilities; (2) business
development; (3) planning; (4) research; (5) technical
assistance; (6) public services; (7) rent supplements;
(8) mortgage payment assistance; (9) relocation of
individuals; (10) training; (11) unemployment compensation if the eligible recipient is a state; and (12) other
appropriate assistance.
Since this flexible source of Federal support is
effective in allowing communities to carry out local
authority
bethat
madecould
available
forviable
worthwhile
proposals
from
initiatives
lead to
community
economic
communities
withwe
actual
or threatened
unemployment
recovery
plans,
recommend
that up to
$20 milliondue
of
to
steel
thecutbacks
remaininginFY
1978production"
appropriations for EPA's Title IX
- 31 -
Funds are also available under two other EDA
authorities: Title I -- Regular Public Works and Title
III - Technical Assistance. Eligible steel communities
may qualify for funds under each of these programs.
However, a large portion of the total funds appropriated
this year for each has either already been committed for
approved projects or has been earmarked for projects
already well advanced. To the extent that steel communities qualify under the standard criteria used to allocate
these funds, this assistance is being made available.
An additional and potentially significant source
of aid that could be provided by the USG is to make
affected communities aware of the possible economically
viable uses for abandoned steel facilities. It may not
be economically possible to continue steelmaking in some
areas. The market may have shifted to another area of
the country and plant location and other factors may
prohibit production at competitive costs.
There are several alternative uses for abandoned
steel facilities. For example, the Department of Energy
and the EPA are currently reviewing one alternative of
a gasification process which uses abandoned blast furnaces
to produce industrial fuel gases that may be sold to the
steel industry and utilities.
We recommend the Administration prepare a study
reviewing and evaluating alternative uses for abandoned
steel facilities and report their findings"!
~~
Within the context of community self-help and potential alternative uses for abandoned steel facilities,
there are currently several groups from areas with substantial layoffs who are developing feasibility studies with
the objective of community and/or worker takeover. While
there is some precedent for this endeavor, it is impossible
at the present time to judge whether these efforts will
be successful. We believe, however, that in selective
cases and under certain conditions community and/or worker
takeover may prove to be realistic and economically viable
if it can be accompanied by sufficient modernization.
However, the judgment as to its viability must be made
on a case-by-case basis and can only be made after a
hard-headed feasibility study.
- 32 We recommend that the EDA, and other relevant
agencies, give consideration in their analyses of
funding requests to economically viable projects
involving community or worker takeovers of abandoned
steel facilities.
The Task Force also believes that action on the
proposed Trade Adjustment Assistance program would offer
substantial help to the affected steel communities and
their unemployed labor force. It would also provide
the Congress with guidance in any legislation that they
might propose. The Task Force recommends, therefore,
resumes
in January,
onbe
the
exact
content
the Trade
that a final
decision
made,
before
theot
Congress
Adjustment Assistance package.
- 33 E
-
Other General Measures and Recommendations
The Task Force investigation has exposed several
areas where small but significant changes in existing
policies or practices or their clarification could lead
to an increase in the efficiency of steel firms — in
particular the weaker firms — thus promoting competition and employment in the industry. These areas include
joint ventures and mergers, funding of research and
development, and transportation systems.
Joint ventures and mergers. Some recent studies
suggest that certain kinds of joint ventures in the steel
industry (e.g., furnace melt capacity, coke ovens,
research and development) could reduce costs, lower
energy consumption and make it easier to meet environmental standards. In addition, it is possible that
mergers of small firms could lead to increased efficiency
as a result of scale economies. On the other hand, both
joint ventures and mergers between actual or potential
competitors can reduce competition, increase prices, and
lower incentives for individual firm innovation.
There is some interest in the industry in both joint
ventures and mergers, but the application of the antitrust laws to such activity must be considered in the
light of the specific facts and circumstances of each
proposal. While the Department of Justice cannot limit
or completely clarify the scope of the antitrust laws,
it does have a procedure for stating in advance its
enforcement intentions for proposed business conduct,
including joint ventures and mergers.
The Task Force recommends that the Department
of Justice expedite its evaluation of requests
by steel companies for the Department's enforcement intentions as to specific joint ventures
or mergers.
Research and Development. The steel industry is
the second largest energy consumer among U.S. industries
and is a major polluter. The development of new technology which saves energy and reduces the costs of pollution
control would lower the industry's costs. However, the
industry's total R&D spending as a percentage of sales is
the lowest of all U.S. industries except for food and
- 34 textiles. This is due in part to the depressed earnings
in the industry. Policies that permit sharing of costs
could reduce the burden of individual firms and could
spur spending on R&D.
Federal contributions to industry R&D are currently
heavily imbalanced in favor of a few industries. Despite
the fact that steel is an important basic industry,
Federal contributions to the steel industry's R&D expenditures are low, representing only 3% of the industry's
R&D spending — compared with 9% for the chemical industry,
14% for the machinery industry, 47% for the electrical
equipment industry, and 78% for the aircraft industry.
The Task Force recommends that in addition to
your request for expedited evaluation by the
Justice Department of steel industry R&D joint
venture proposals, the President direct that an
examination be conducted of the adequacy of
Federal R&D funding in the steel industry with
special reference to funding of research on
energy conservation and pollution abatement
technology.
Transportation. Transportation costs are relatively
important for steel and other basic industries, particularly those located at inland sites. The Task Force has
evidence indicating that rail service is currently more
expensive than truck service for bulk commodities in
some areas of the country because of regulations and
other characteristics of the transportation system. For
example, iron ore is transported to Youngstown by truck
rather than rail because of the differences in rates and
time required for delivery. An alternative now under
investigation that would lower costs is the concept of
unit ore trains.
A vigorous pursuit of opportunities to increase the
efficiency of transportation systems and reduce their
costs is also compatible with the Administration's
announced objectives on regulatory reform and the public
interest.
We therefore recommend that the Administration
review transportation systems serving the
steel industry and report to you on what
- 35 regulatory and other reforms could be made to
improve the efficiency and to lower the costs
of these systems.
Conclusion
This program will provide the industry with an
opportunity to regain a strong competitive position in
the domestic economy. Specific proposals are developed
to respond to each of the major areas where government
policies impact upon the industry. Other problems
critical to successful recovery must be dealt with by
the companies and the workers. The success of individual
business firms cannot and should not be guaranteed by the
Government. At the same time, the Government does have
an obligation to maintain competition based on normal
concepts of fairness, and to avoid undue government
impingement on the operations of any individual firm or
industry.
In order to ensure that the specific measures of
this program are enacted in an effective fashion we
believe that a continuing dialogue with the industry and
labor will be useful. The problems of the steel industry
cannot be resolved by the Government or the industry
alone. Without intruding into the domain of collective
bargaining, a tripartite committee of labor, business,
and the Government can help promote greater efficiency
and provide for a continued exchange of views.
We recommend the establishment of a tripartite
committee of industry, labor and government
representatives as a mechanism to ensure a continuing cooperative approach to the problems
and progress of the steel industry.
FOR IMMEDIATE RELEASE
DECEMBER 6, 1977
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE ESUSZ
BRIEFING BY
ANTHONY M. SOLOMON
UNDER SECRETARY OF TEE TREASURY
FOR MONETARY AFFAIRS
THE BRIEFING ROOM
t
1:05 P.M. EST
MR. GRANUM: As you know. Treasury under Secretary
Solomon will brief now on the Steel Report.
I would re-exnphasize the embargo on the materials and
on Secretary Solomon's briefing until completion of the
briefing.
We will follow with the general, hopefully,
brief session which will not be for broadcast after
Secretary Solomon's presentation.
Q At the completion of your briefing?
MR. GRANUM: That is correct.
MR*. SOLOMON: I gather you all have the report?
Q Sir, was your 90-minute briefing at
Treasury — is that embargoed also?
MR. SOLOM3N: Yes.
Q Until what?
MR. SOLOMON: Until after this.
You all have had a chance to read the report,
so why don't we go right into questions.
Q What is the overall economic impact of this
program both in terms of inflation and overall employment?
MR. SOLOMON: Well, we cannot give accurate
estimates, but clearly the effect of preventing or quickly
catching up with imports that come in below fair value as
defined by the trade law will result in a major recapture,
a very substantial recapture of the import sales that were
lost on that account. Therefore, there should be a very
substantial increase in employment as well as volume of
production and there is no way of calculating an inflationary,
or attributing an inflationary impact to this except
to the extent that a deep cut price discounting, namely,
dumping, is eliminated. Then presumably there would be an
MORE
- 2 -
impact on the average price. But there is nothing in the
system which should increase the general list prices, as such.
In fact, the Council of Economic Advisers and the Council on
Wage and Price Stability agreed with me that this was the
least inflationary of either continuing with the existing
situation, namely, the massive anti-dumping suits that are
being brought now which are disrupting imports on the one
hand or on the other hand moving to an import restriction,
a quantitative import restriction.
Q But there almost has to be some inflationary
impact by virtue of the fact you are driving up costs to
at least whatever American producers or American manufacterers
are buying the lower cost steel.
MR. SOLOMON: You are talking about the extent
to which importers are buying the steel that is presently
being dumped?
Q Yes.
MR. SOLOMON: Right. There is no way of estimating
that in terms of an average percentage; no way.
Q Mr. Secretary, about six, eight weeks ago,
the Council on Wage and Price Stability concluded that
the problem of imports was not a major one as far as what
ailed the American steel industry. How much of an effect
do you believe that the imports are having, and if the
Council is right, then this wouldn't do that much good,
would it?
MR. SOLOMON: I think that you are oversimplifying
what the Council on Wage and Price Stability said. They said
that the problems were both on the import side and on the
domestic side, in terms of the inability of certain elements
of our industry to compete with imports. But the Council did
point out that the cost of production of the most efficient
producers when landed in the United States and sold in the
U. S. market, were on the average only about 5 percent below
American selling prices; so that you have got to look at
the whole complex of factors here.
Certainly we are clear in our minds that since
this system does nothing but deter dumping, and if it will
result in the major recapture of the imports that are lost
because of dumping, that clearly the import problem in
this narrower context is a very serious problem.
We have had at least 19 cases filed with the
Treasury Department and based on some preliminary
indications in analyzing those studies as well as studies
done by the Council for Wage and Price Stability and other
groups as a result of their own analysis, we have come to
that conclusion that if dumping can be effectively deterred
or prevented through a quick track reaction, that we can
have a substantial impact on the health of the industry.
MORE
- 3Q Mr
' Secretary, this morning after the briefing
tnat you gave for Members of Congress, you got mixed reviews,
to say the least. Metzenbaum said it was a step forward.
Heinz said gutless. And Schweiker said seldom has government
labored so long on so much and produced so little; that it is
the worst example of bureaucracy he has ever seen. What do
you say to that type of criticism?
MR. SOLOMON: Everybody is entitled to their own
opinion. I think that the fact that my consultations with
the industry, with the labqj: union leadership have indicated
support in principle for the concept, the fact that the
European Community and the Government of Japan have indicated,
also, support for the concept in principle and are prepared
to cooperate — the Japanese team is arriving tomorrow with
cost of production information to help us establish the
reference price, the trigger price levels. All those are
quite encouraging.
Now, I think you need a certain amount of time
to see how the system works. I think it is a fairly technical
concept. I am not quite sure that everyone understands it.
Q Are you suggesting they don't understand it?
Q Don't they understand it?
MR. SOLOMON: I am sorry. I am getting too many
questions at once.
Q Let me follow up, then. As Ann said, don't
they understand it, Heinz and Schweiker? Pennsylvania is
surely one of the most affected States in the country. They
could understand what you are trying to say.
MR. SOLOMON: I think they understand the concept.
I think that they are disappointed by the fact that they
don't know yet what the trigger levels would be. So they
have indicated to me, and obviously we are in the middle
of that process. It will be some time during the course of
this month that we will complete our analysis as to what
those levels will be.
I think it is quite clear that whenever you work
on a new system, you cannot give exact quantification as to
what the results will be. But if the system works as we
expect it to, I think the legitimate complaints of the industry
will have been met. I think that is the view in the industry
itself.
Obviously, there may be some Members of Congress
who would like protection for the industry. We feel strongly
that we have certain national policies that must be consistent
with our recommendations. And we believe that these are
consistent with our general anti-inflationary policies and our
general normal foreign trade policies. This is not an attempt
to put a quantitative limitation on. We want to maintain price
discipline, discipline of price competition at all levels
above those which represent unfair trade practices.
MORE
4 Q
I have two questions. How much faith can you
place in the cost of production figures which the Japanese
will give you in view of their vested interest in the matter?
MR. SOLOMON: The law requires the Treasury to
make its own best estimates of cost of production. We will
be using both Japanese cost of production information and
cost of production information available to us from other
studies and from other sources. It will ultimately be our
judgment.
Q My second question is, since the steel companies
are now talking about price increases in the near future, is
this not likely to defeat the objective of this scheme in
that it will widen the gap between whatever the trigger price
is and their prices, thereby making foreign steel still a
bargain?
MR. SOLOMON: Remember, the objectives of this
scheme are many-fold. They are to stop dumping, in effect.
They are also to maintain the healthy discipline of price
competition. And there obviously is a trade-off between the
extent to which the domestic industry raises prices and the
extent to which we recapture a larger share of the import
market. That is exactly what we feel is the strength of
this game.
Q How would you characterize the European
reaction to this plan?
MR. SOLOMON: Supportive in principle.
Q There is a question, sir, on that very subject.
Q Couldn't the Europeans still in effect dump
their products hereAfter all, their costs of production
are higher than the Japanese. If they sell only at the
trigger level based on the Japanese level, then in effect
they could engage in dumping still?
MR. SOLOMON: Right. The point is this: The
law requires that there both be dumping and injury- We
believe that if the system works, it will remedy the injury
situation and therefore the remedy of the injury situation
will be clearer from a very substantial increase of production
and a recapture of imports. If this works as a whole, then
we believe that we are within the intent of the law in
meeting the injury problem.
Now, there are various specific reasons why it is
impossible to have a separate reference price system or trigger
price system for every single country exporting steel to the
United States. The logical rationale of the system is that
you base your trigger price on the industry that has the
most efficient cost of production. This happens to be currently
the Japanese. The reason for that is that you can make a safe
presumption that if sales come in, imports come in at prices
below the cost of production of the most efficient overseas
industry, then there is a presumption of dumping.
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- 5 Now we still leave the foreign exporter the
right to come in and prove that his costs of production
are below that of the most efficient overseas industry.
But that is highly unlikely, that will occur only in a minor
operational case.
So therefore, to have an administrative mechanism
which really gets to the heart of the dumping problem
quickly enough to remedy the injury caused by it, we had to
make a different administrative arrangement of our resources.
The way it works now is that individual antidumping petitions brought by companies first require
considerable preparation and time on their part. Then
there is a process which involves us to 13 months of
investigation and pending finding and permanent finding
by the Treasury, and since you have a shifting scene of
imports coming into different regions at different times and
deep-cut pricing and different products, this delay, when
you have this widespread a pattern of dumping, this delay
means that you are not effectively dealing with the problem.
Now we feel that if we can set up this alternative
administrative arrangement of our resources in such a way
that we can catch up with any violations of the trigger
price, and then expedite our normal processes, still giving
everybody the same legal rights they have under the present
law, that this will probably remedy the injury situation more
satisfactorily•
Q When will the remedy start? When does it
take hold?
MR. SOLOMON: We expect to announce the reference
prices sometime during this month. Then ve will publish
the new customs steel invoice that will be required to
help implement the system and there will be 30 days of comment
on that from variov.s parties, interested parties. We would
expect the system *-o be fully in place and being administered
within 50 days, roughly.
However, there will be an immediate impact as
soon as the reference price system is published. In fact,
there have been newspaper reports to the effect that since
everybody is aware that this system is evolving that there
has been an irradiate impact already on new import
orders, but the system, the adninistrative mechanism for
full administration will be in place within about 60 days.
Q Mr. Solcnon, let me ask you a factual question
and then another question, if I may. This is just something
that confuses me. On pace 8 of the report it says that the
share of U. S. steel consumption accounted for by
imports in exp-s-rtad to rise on an annual basis frcm 14.1
percent of dome-, J tic consumption in 1376 to 17.2 percent this
year.
MORE
- 6 MR. S'.LOMON,
^7hat are you reading, sir?
Q I am reading from the report to the President,
as given to us.
MR. SOLOKON: I am sorry. I have the wrong section.
Go ahead.
Q Page 9. I am merely concerned
figure 17.9 percent this year, at
because on page 2 it says, in the
of the market supplied by foreign
running at 20 percent?
with that
the bottom of page 9
third paragraph, the share
producers is currently
MR. SOLOMON: Right. Those two are consistent.
The last two months it has been running about 20 percent.
But for the year as a whole, we project it will be about
17.9.
Q My second question is this: For the nonspecialists in the group here, including myself, can you
describe briefly to us what happens in an anti-dumping
proceeding, that is, what the importer is required to do
if there is a finding — or during the time when the antidumping proceeding is going on?
MR. SOLOMON: Are you talking about the present
procedure or under the new system?
Q What I am asking is a brief description of
the present procedure and will it be the same except
accelerated under the trigger pricing mechanism?
MR. SOLOMON: Why don't I ask the General Counsel,
Mr. Mundhein, who handles that, to speak up at this point.
MR. MUNDEEIM: When a petition is filed, we then
have 30 days to decide whether to initiate an investigation.
Once we do that, make that determination, we have another
six months to make a tentative determination of sales at
less than fair value. If we make such a determination, we
then withhold appraisement, which really means at that time
dumping duties become — somebody becomes potentially liable
for dumping duties. That is the importer's responsibility.
Q In other words, the buyer in this country?
MR. MUNDHEIM: That is right. We then have
three additional months to make a final determination, that
is, of sales at less than fair value. After that, if
we make a final determination that there are such sales,
then there is a reference to the ITC for a determination
of injury. That is the end of the case at that point.
In other words, they find injury and then you have got
the whole dumping procedure in place. And from that point
forward duties will be assessed, going back to the entries
after the tentative determination has been made.
MORE
- 7 Q
Are they assessed on all future imports —
I am referring to the language on page 5 — all future
imports equal to the margin of dumping tentatively established?
MR. MUNDHEIM: That is correct.
Q What is meant by that?
MR. MUNDHEIM: For example, in the Gilmore case
we made a tentative determination that there were sales of
less .than fair value and that the margin was 32 percent,
in other words, that the cost of production in that case
compared to the import price; that then becomes the measure
of the bond which must be posted with respect to all future
imports until we make new findings of margins.
For example, we are now a month away from making
the final determination in the Gilmore case, we may come out
with smaller margins or bigger margins. That would then have
an impact on what bond is required to be posted.
Q My final question is, will the same procedure
operate under the fast trigger mechanism, except on an
accelerated basis?
MR. MUNDHEIM: It will be basically the same thing
with one possible difference from procedures that now exist.
That is that now we withhold appraisement and have those
possible duties take place from the time that we make tentative
determination. The report warns that we may exercise our power
under the statute to withhold appraisement retroactively.
In other words, to make the date of a buy on which duties are
assessable go back earlier than the withholding of appraisement date. That is a risk, then, that the importer has to take
into account.
Q On earlier sales?
MR. MUNDHEIM: That is on sales that have entered
the United States, have come here but haven't been liquidated,
prior to the tentative determination date, that is correct.
That is an option we are indicating we may utilize in an
appropriate case.
Q Mr. Secretary, you said earlier if the program
is effective, that the domestic industry might recapture
imports that were lost in effective dumping, increase
production and employment. Do you have any rough estimate
vis-a-vis Japan as to by how much Japanese exports here might
be reduced on a percentage basis if this system works the
way it is expected to?
MR. SOLOMON: We have no way of making an estimate
because it depends on the pricing behavior of the pricing
industry. The more the domestic industry sharply raises
prices —
Q
Let's assume they don't raise prices.
MORE
- 8 MR. SOLOMON: It is very hard for me to make a
judgment. It is a very wide range. Some people have
estimated at the outer end of the range, that you could have
as much recapture of half the imports. Other people have
indicated significantly lower than that. There are so
many factors involved in trying to come up with an
estimate that we abandoned the idea of making an estimate.
Q Is it your judgment they stand the best
chance of recapturing most of the market if they maintain
prices where they are domestically?
MR. SOLOMON: What do you mean by most of the
market?
Q Some people said there might be recaptured
as much as a half, and you said these figures would vary
depending on what they do to the prices. Will they do
best in terms of recapturing the market under this system
if they don't raise prices?
MR. SOLOMON: They certainly will do better if
they don't raise prices, in fact, they would do even better
if they lower prices.
Q Did President Carter make any changes in the
plan that you submitted and if so, what were they?
MR. SOLOMON: The President did not make any.
But in the final review by the agencies with White House
staff involvement, the OMB wanted to keep its options open
as to whether the recommendation on loan guarantees under
certain selective criteria that would be given by the
Economic Development Administration of the Department of
Commerce, whether those funds would come either from a
revolving fund which is now in the fiscal '79 budget, or would
come from appropriations* The reason for that is simply that
the OMB has in general a policy concern about revolving funds
that go on indefinitely.
Therefore, that change was made in order to leave
both options open. That decision will be made later.
Q In terms of the 60,000 jobs or so that have
been lost in the last year in the industry, either through
the money that you propose to give in direct aid to those
communities or any other parts of those programs, how many
of those jobs can be reclaimed?
MR. SOLOMON: Again it depends on what assumptions
you mate about the volume of production increase, the recapture
of the substantial share of the import market. The figures
have ranged from as low as 18,000 jobs up to 30,000, 35,000
jobs. But those are very rough estimates. Again, it depends
on pricing behavior and competition.
All you are doing, remember, gentlemen, with this
system is you are effectively deterring, we believe, imports
at unfair value, less than fair trade value, as defined"
by the trace law.
MORE
- 9 The crude word for it is dumping. That is all
you are doing with the system. You are not giving quantitative
protection. You are still maintaining price competition and
the system should not be exaggerated for what it attempts
to do. It happens that in this particular industry that
particular problem of unfair trade practices and dumping
has been so widespread, we believe, that this may have a
major impact on the industry.
For other industries that, for example, would
like protection but don»t have a dumping problem, this
system would have absolutely no value whatsoever. This is
not a protection system. It does not set a minimum import
price. All it does is set a trigger price. But any foreigner
who has a lower cost of production can prove that and can
continue to sell at whatever his cost of production is in this
country.
The rights that people have under the law are
still preserved both on the foreign side and on the domestic
side.
MORE
10 Q
Will there be additional help for the industry
in the tax package the President will propose next year? And,
if so, in what form will it be?
MR. SOLOMON: Not specialized for the steel industry
as such. But, as you know, the President is preparing to
send up a general tax stimulation package. Even though he
hasn't made his final decision on that, we are sufficiently
clear on what the options were, the most likely options,
that we were able to make some rough assessments on,
estimates as to what the cash flow impact on the steel
industry would be. But there is no special treatment for
the steel industry as such envisioned in the program that
the President will be sending up.
Q What cash flow benefits would there be?
What assumptions or options have you presented to the President?
IIR. SOLOMON: We believe that the general, taking
an average, an annual average over the next four years — for
example, we have made a rough estimate that it would be in
the neighborhood of $150 million net impact on the steel
industry. Then, as you noticed in the report —
Q A year?
MR. SOLOMON: Annually — we are recommending
that the Office of the Industrial Economics and the Treasury
investigate and review whether the average depreciable life
for the steel industry — this is an administrative decision,
not a legislative one — whether that is not justifiable
to reduce that in view of the fact that the enhanced earnings,
the enhanced cash flow will lead to stepped up modernization
which automatically means quicker retiremvit of older equipment
and therefore if a shorter average appreciable life is not
justifying for the industry.
Q In addition to the industries which have already
received some kind of help, the shoe industry, TV, et cetera,
there are others which are in trouble — textiles principally.
Do you see this as a pattern for helping out other industries
which have the same complaints as the steel industry?
MR. SOLOMON: No, because remember this isn't going
to help anybody who doesn't have a widespread dumping problem
to confront. Much of the import competition that other
industries suffer from is simply that they can't compete
with cost of production abroad. But this is based, remember,
gentlemen, on the trigger price being based on full cost of
production including a charge for overhead and a charge
for profits as well. Therefore, unless another industry has
this type of dumping problem where foreign exporters are
selling into this market at significantly below cost over a
period of time, this system will not help them.
MORE
- 11 The only reason why this situation prevails in
the steel industry is, as you all know, the steel industry
is heavily cyclical. At the moment, there is a huge global
excess capacity hanging over the world and particularly pushing
into this market. Because of that, we have recommended this
unusual administrative arrangement to catch up with such a
widespread pattern. When those conditions no longer obtain,
the cyclical conditions eliminate the overhang of global
excess steel capacity, we would assume and recommend that
there would be no need for continuing this system.
Q Mr. Secretary, recently the head of the French
Industrialists Association met with Blumenthal and said that
Blumenthal confirmed with him that it was still the Treasury's
policy to allow the dollar to continue to fall. What I am
wondering is, does that appear to you to be an ally on
what you are trying to do for the steel industry?
MR. SOLOMON: It has got no relationship. I even
challenge the basic assumption.
Q Which assumption? Are you saying it is not
Treasury's policy?
MR. SOLOMON: You are misrepresenting what Blumenthal
said. Let's keep this to steel for the moment. Any other
questions?
Q Mr. Solomon, doesn't reference pricing give
the Administration a significant new lever in terms of
trying to keep the domestic steel prices down, and does
the Administration plan on using it that way, i.e., threaten
to drop the trigger price if, for example, Mr. Roderick
does what he says he is going to do, which is raise the price
of U.S. steel?
MR. SOLOMON: We intend to do exactly what we said
we were going to do, which is base this on Japanese total
cost of production, the most efficient overseas industry.
Q You say that everyone's rights are preserved
under this program, but on page 18 of your report you say
in effect that the steel companies may as well abandon their
individual dumping petitions. Isn't that correct?
MR. SOLOMON: What we are saying is this: That if
this faster administrative arrangement works to remedy
injury much more successfully than the individual cases
brought under the normal arrangements, then obviously if
the injury is remedied then we would assume — and I think
the industry would assume as well — that there would be no
point in bringing the regular anti-dumping suits in the
normal way. That is all that means.
Q But you are encouraging,according to your own
words,prompt withdrawal of present petitions.
MORE
- 12 MR. SOLOMON: Exactly, because if it worked — when
you say prompt withdrawal, we have not asked for withdrawal.
We have said that we assume that after people see how this
system works, if it remedies injury, that there would b e n o
point in continuing either to bring new cases or in failing
to withdraw existing cases. It seems to me that is fairly
obvious because you can't continue on both tracks at the
same time. I mean, maybe that is only apparent to us people
who work in these areas. But there is no way of continuing
both tracks at the same time.
Q But yesterday, Mr. Secretary, Armco Steel,
which I presumed got a pretty good idea of what was in the
task force report, filed anti-dumping suits against the British
steel manufacturers. Is that sheer bloody-raindedness —
(Laughter) — or does it represent a lack of confidence
in the task force report, or what?
MR. SOLOMON: I think if you check with Armco,
you will find that this case was in the hopper beforehand
and that they are not intending to bring any new cases until
they see how this system works. Any other questions?
Q How large will the load guarantees be? On
page 24, some 83,000 workers are affected by — are involved
in very weak companies. You then go on to mention possible
loan schemes for those. Do you have a rough idea or estimate
for the sort of scale of those loans?
MR. SOLOMON: We have some rough ideas as to what
the possible size of the petitions might be in one or two
cases. But we don't have a clear idea. We certainly have
no idea how many petitions would be able to demonstrate that
with a loan guarantee they could achieve a viable modern
competitive plant. So it has got to be a case-by-case
decision. There is no way of judging that ahead of time.
All we feel is that if a company can meet those three criteria —
and remember the facilities have to be located in communities
with high unemployment or threatened high unemployment —
and if it can present that kind of a viable modernization
plan then case-by-case the Economic Development Administration
of the Department of Commerce would work out what would be
an appropriate loan guarantee for whatever part of that
modernization plan seemed appropriate to them.
Remember, this is something that EDA has done on
a small scale as part of its regular procedures and it has
been a program which has been in effect since 19 65. What
we basically are recommending is that the program be expanded.
It still would not be just for steel companies. It would
be for any companies that are in areas of high unemployment
and where this kind of an assistance would bring about a
development, healthy economic development in the impacted
community.
MORE
- 13 Q
Could I have one question?
Mr. Solomon, Lloyd IIcBride, the head of the Steel
Workers Union, estimated the other day that this program
would prevent 25,000 more jobs from being lost but that very
few if any of the 60,000 jobs which have been lost would be
restored under this program. You have mentioned a moment
ago that 18,000 to 35,000 jobs, if I understood you, might
be restored, which seems like a good deal more optimistic
projection than his. Have I understood you correctly?
MR. SOLOMON: If you are reflecting Mr. McBride's
position correctly — but it seems to me a little strange —
I am not sure that you haven't made an error. Think about it.
If there is a substantial increase in the volume of production
by the domestic industry, it needs labor to produce it. If
there is a substantial reduction in the volume of imports due
to stopping the dumping, then you are going to have an automatic
increase in the volume of production. If you have an automatic
increase in the volume of production, you can see, based
on the ratios of manpower to ton of steel, it is hard to
conceive of that taking place without an increase in the
number of steel workers employed at current levels.
Q His position was that there were a number
of facilities that were about to go under and would go under
with a loss of 25,000 jobs if they did not have the kind of
help that this offers.
MR. SOLOMON: Let me put it this way: My estimate,
when I was asked what the possible impact on jobs would be, has
to be namely that as we economists say ceteris paribus
—
in other words, what the job impact would be to this and
all other conditions being the same.
If you are introducing other conditions of facilities
being closed anyway, then I have no way of judging at this
point what the total absolute job impact would be. All I
can say is that given the probable range of recapture of
imports which have been coming in at below fair trade value
and given the probable increase in volume of production,
there should be a much larger number of jobs in the steel
industry than there otherwise would be.
Q Thank you.
Q Can we go back to the question of what Treasury
is going to do with the'existing anti-dumping or dumping
petitions? You can say there is no way we can continue on
both tracks at the same time. You also said if the scheme
works as you envision it working, the injury ought to be
eliminated implying that the Treasury can comply with the
law even if the Europeans were coming in at less than fair
market prices.
Does the Treasury envision dismissing the existing
anti-dumping complaints once you have this scheme in effect?
MORE
- 14 MR. SOLOiiON:
answer that.
I better have my general counsel
MR. MUNDHEIM: I don't think that any determination
on that has been made. Obviously, we have got to look and
see how things go and then make an appropriate determination
at the appropriate time.
Q Let me just follow that up. If the U.S.
companies don't drop their complaints, in effect, if they
take your reference price system or trigger price system and
say loss will continue without formal complaints, and you
don't dismiss them, what happens? What are the foreign
implications of that?
MR. SOLOMON: You are posing a situation which is really
untenable, in the sense it can't coexist. There would be
no point — if the industry felt that their injury situation
was not being, on balance, better remedied by this system
than by pursuing these individual petitions and cases, clearly
they have the right to make that judgment and therefore
there would be no point in continuing this kind of administrative, new administrative arrangement. It is only if on balance
this system with its short time frame will work to redress
the injury problem better than the normal system — it
doesn't make sense. Therefore, it is only in those terms
I can answer it.
MORE
- 15 Q
What you are 3aying in effect is you expect
the U. S. industry to withdraw its complaints —
MR. SOLOMON: If they feel the system is working
better on balance.
Q If they don't —
MR. SOLOMON: If they don't, presumably they
will follow the path they have been following the last few
months, in which case this system would not be operative.
we would not put the vast resources required into
both systems, having to individually analyze, send Customs
people all around the world to analyze every one of these
massive anti-dumping cases and at the same time also run
a system like this. It would make no sense.
Q Could you say how much you would expect this
to reduce the level of steel imports in the United States?
MR. SOLOMON: No, I have already given as much
indication as I can on that. It is not a question of being
coy. There are too many different assumptions, depending
upon pricing behavior, both by the domestic industry and by
foreign industry, there is no way of — all one can say is
that the direction clearly will be towards a reduction
in imports, a very substantial reduction in imports, unless
for some reason the sharp price increasing — there should
be sharp enough price increases in the domestic industry that
it completely offsets that. But that would be highly
unlikely.
Q Is it realistic to accept the Treasury
claims that this would add only 80 people to the Federal
payroll?
MR. SOLOMON: That is a Customs analysis. It
seems to me they would have no reason — their actual
number was 83 man years' work, involved in monitoring. I
am talking about the Customs people. I am not talking about
the work that goes on in Mr. Mundheim's Office of Tariff
Reports, ariff and cade, whatever it is called. But there
we will be saving manpower if we don't have to individually
analyze all these individual cases that have been brought.
So we feel that as far as the increased load in Customs
goes, based on Customs' own analysis and projections, it would
be roughly 83 man years.
Q Could you give us a little more detail on
how communities that are suffering pronounced lay-offs in
steel could make use of this $20 million fund that you set
up for in this plan to get special assistance, how would they
go about that, make special application to EDA, any particular
type projects envisioned? Any details?
MR. SOLOMON: This is a pretty broad frame of reference.
They make application to EDA. They present plans which
MORE
- 16 they want support on for developing the community.
As I understand it, there really is no type framework.
They have a broad frame of reference established by the law,
by administrative behavior. EDA is free to look at almost
any kind of proposal that will help the community.
Q Clarification on his previous question:
Would you scrap the whole system or just the trigger
price system if the companies aren't satisfied?
MR. SOLOMON: The normal anti-dumping procedure —
Q I mean the loans, the revolving fund, that kind
of thing.
MR. SOLOMON: I see. You are talking about the
rest of the package.
Q Yes.
MR. SOLOMON: Remember, most of the cash flow will
be part of the general tax program. It is not special for
the steel industry. The determination as to whether
average depreciable life can be reduced will be a function
of the amount of modernization investment. Frankly, it
would seem to me that there would be difficulty in justifying,
unless there is an improvement in the cash flow of the
industry, and therefore a stepped-up modernization rate,
there would be difficulty in justifying reduction and average
depreciable life. It would seem to me we would not scrapno one thing depends upon anything else as far as the overall
program of recommendations go. But quite clearly, the
centerpiece of the package is the trigger price fast track
mechanism. That is the one that will have the major impact
on industry earnings, volume production, employment and
the cash flow, and therefore the ability to step up modernization.
The other elements are quantitatively much less
significant.
THE PRESS: Thank you.
END
(AT 1:46 P.M.
EST)
EMBARGOED FOR RELEASE
&FTER THE BRIEFING
DECEMBER 6, 19 77
Office of the White House Press Secretary
THE WHITE HOUSE
The President has received and approved the recommendations of the Interagency Task Force Report on Steel
prepared by the Under Secretary of the Treasury, Anthony
Solomon.
The President indicated that the recommendations in
the Task Force Report will help revitalize the health of the
domestic steel industry, will encourage its modernization,
and will assist workers, firms and communities that have been
disadvantaged by its current problems.
The President stressed that these purposes would be
achieved:
—with maintenance of existing environmental goals;
—within the framework.of existing anti-trust laws;
—with a minimum of inflationary impact;;
—with modest federal budget expenditures;
— i n a way which encourages greater productivity and
modernization in the steel industry;
—consistent with competitive market forces.
The President noted the rapidity with which the Administration had responded to the problems of the steel industry
and applauded the expeditious work by the Task Force and
particularly by Under Secretary Solomon.
#
#
#
THE SECRETARY OF THE TREASURY
WASHINGTON 20220
December 7, 1977
I am deeply saddened by the death of Larry Woodworth.
His passing is a shock and a source of great sorrow to all
of us who were closely associated with him.
Dr. Woodworth generated in all who worked with him a
deep respect for his dedication to principle and devotion
to duty. The sharpness and depth of his mind and the
warmth and generosity of his spirit was an inspiration to
all who came in contact with him* Dr. Woodworth will be
missed for a long time.
FOR RELEASE AT 4:00 P.M.
December 6, 1977
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by tnis public notice,
invites tenders for two series of Treasury bills totaling
approximately $5,700 million, to be issued December 15, 1977.
Tnis offering will provide $200
million of new casn for tne
Treasury as the maturing bills are outstanding in the amount of
$5,516 million. The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,300
million, representing an additional amount of bills dated
September 15, 1977, and to mature March 16, 1978
(CUSIP No.
912793 P3 4), originally issued in the amount of $3,377 million,
tne additional and original bills to be freely intercnangeable.
182-day Dills for approximately $3,400 million to be dated
December 15, 1977, and to mature June 15, 1978
(CUSIP No.
912793 Q8 2).
Botn series of bills will be issued for casn and in
excnange for Treasury bills maturing December 15, 1977.
Federal Reserve BanKs, for themselves and as agents of foreign
and international monetary authorities, presently hold $2,855
million of the maturing bills. These accounts may exchange
Dills tney nold tor tne Dills now being offered at tne weighted
average prices of accepted competitive tenders.
Tne bills will be issued on a discount basis under
competitive ana noncompetitive Didding, and at maturity
their par amount will oe payable without interest. Except for
definitive bills in the $100,000 denomination, which will be
available only to investors who are aole to show that they are
required Dy law or regulation to hold securities in physical
form, Doth series of Dills will be issued entirely in
booK-entry form in a minimum amount of $10,000 and in any
higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Brancnes, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks ana
Brancnes and at tne Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time,
Monday, December 12, 1977.
Form PD 4632-2 (for 26-weeK
series) or Form PD 4632-3 (for 13-weejc series) should be used
to submit tenders for bills to be maintained on the book-entry
records of the Department of tne Treasury.
B-586
-2Each 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 • i
99.925. Fractions may not be used.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
Dorrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on December 15, 1977, in cash or
other immediately available funds or in Treasury bills maturing
December 15, 1977.
Cash adjustments will be made for
differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in nis
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
**> in
b VO
ID CNJ
g" vo
ieaerai iinancing JoariK
in
sa
o
>0)CNJ
Q_
WASHINGTON, D.C. 20220
Mtmmananmm
December 6, 1977
FOR IMMEDIATE RELEASE
SUMMARY OF FEDERAL FINANCING BANK HOLDINGS
November 1-November 30, 1977
Federal Financing Bank activity for
November, 1977, was announced as follows
Secretary:
The FFB purchased the following notes
Loan Marketing Association guaranteed by
Health, Education and Welfare:
Date
11/1
11/8
11/15
11/22
11/29
Amount
$30,000,000
40,000,000
50,000,000
50,000,000
30,000,000
Note #
116
117
118
119
120
the month of
by Roland H. Cook,
from the Student
the Department of
Maturity
1/31/78
2/7/78
2/14/78
2/21/78
2/28/78
Interest
Rate
6.593%
6.498%
6.399%
6.389%
6.361%
The U.S. Railway Association made the following borrowings
against Note #8 guaranteed by the Department of Transportation:
Date
Amount
Maturity
Interest
Rate
4/30/79
$2,433,700
11/2
322%
4/30/79
584,500
11/9
282%
4/30/79
362,125
11/14
273%
4/30/79
2,472,100
11/15
150%
4/30/79
1,182,900
11/22
171%
On November 4, the Bank advanced $1,409,038 to the
Missouri, Kansas, Texas Railroad (KATY) at an interest rate
of 7.853% on a quarterly basis. The note under which the
advance was made matures on November 15, 1997, and is guaranteed
by the Department of Transportation.
On November 4, the Bank advanced $935,059 to the Trustee
of Chicago, Rock Island and Pacific Railroad at a rate of
6.895%. The Trustee's certificate under which the advance
was made is guaranteed by the Department of Transportation
and will mature on June 21, 1991.
B-587
- 2The National Rail Passenger Service (Amtrak) drew the
following amounts under Note #13 guaranteed by the Department
of Transportation:
Interest
Date
Amount
Maturity
Rate
$10,000,000
5,000,000
4,000,000
6,000,000
7,000,000
5,000,000
5,000,000
5,000,000
5,000,000
3,500,000
11/1
11/3
11/4
11/7
11/10
11/15
11/16
11/21
11/23
11/30
1/30/78
1/30/78
1/30/78
1/30/78
1/30/78
1/30/78
1/30/78
1/30/78
1/30/78
1/30/78
6.532%
6.469%
6.458%
6.454%
6.438%
6.359%
6.376%
6.340%
6.374%
6.354%
The FFB purchased participation certificates from the
General Services Administration in the following amounts:
Date
Series
11/9
11/14
M
Amount
$5,106,964.24
3,058,090.93
Maturity
Interest
Rate
7/31/03
11/15/04
7.992%
L
7.964%
The Tennessee Valley Authority sold notes to the FFB in
the following amounts:
Interest
Date
Amount
Note #
Maturity
Rate
$ 50,000,000
2/28/78
6.614%
11/14
66
280,000,000
2/28/78
6.375%
11/30
67
On November 20, the Western Union Space Communications
drew $9.4 million at a rate of 7.812% on an annual basis. The
drawdown is guaranteed by the National Aeronautics and Space
Administration and will mature on October 1, 1989.
On November 23, the FFB purchased $5.9 million of debentures
from Small Business Investment Companies guaranteed by the
Small Business Administration:
Interest
Amount
Maturity
Rate
$ 350,000
11/23/85
7.655%
5,550,000
11/23/88
7.755%
- 3 The FFB made advances to foreign governments under loans
guaranteed by the Department of Defense:
Date of
Promissory
Note
Date of
Advance
Argentina
6/30/76
6/30/76
6/27/75
6/30/76
6/30/76
11/2
11/22
11/28
11/28
11/29
Ecuador
7/28/76
7/28/76
9/15/77
11/1
11/3
11/30
Israel
6/24/77
11/9
Jordan
5/26/76
5/26/76
5/26/76
5/26/76
11/1
11/7
11/14
11/22
Ko^ea
9/6/77
11/16
Letjanon
9/19/77
9/19/77
Malaysia
Maturity
Interest
Rate
$ 84,521.21
184,285.39
1,590.51
29,332.00
522,521.00
6/30/83
6/30/83
4/30/83
6/30/83
6/30/83
7.522%
7.386%
7.378%
7.391%
7.397%
46,444.24
559,866.39
1,600,000.00
6/30/83
6/30/83
8/25/84
7.522%
7.547%
7.459%
35,699,051.02
5/12/07
7.980%
430,000.00
566,332.70'
223,761.02
1,063,704.85
11/26/85
11/26/85
11/26/85
11/26/85
7.615%
7.598%
7.521%
7.486%
1,270,126.45
12/31/84
.7.450'
11/4
11/16
23,693,559.61
1,306,440.39
10/15/84
10/15/84
7.614%
7.452%
8/23/76
11/14
3,135,820.00
12/31/82
7.412%
Morocco
9/28/77
11/29
2,315,295.41
9/10/85
7.488%
Panama
9/30/77
11/3
1,669,588.79
3/31/83
7.547%
Paraguay
6/30/76
11/10
17,111.03
6/30/81
7.342%
Philippines 8/12/76
9/29/77
11/9
11/14
97,327.44
143,799.83
6/30/82
9/12/83
7.422%
7.443%
Thailand
9/29/76
9/29/77
11/1
11/11
159,362.58
11,300,000.00
6/30/83
9/20/86
7.522%
7.558%
Turkey
9/22/77
11/16
5,499,810.21
10/1/87
7.557%
Borrower
Amount
- 4 The Federal Financing Bai k purchased Rural Electrification
Administration guaranteed note s in the following amounts from
utility companies:
Date Borrower
Amount
Maturity
Interest
Rate
11/1 United Power Association
11/1 Oglethorpe Elect. Membership Coop.
$17,000,000.00
12/31/11
7.904%
4,120,000.00
12/31/11
7.904%
809,000.00
12/31/11
7.936%
11/7 Allied Tele. Co. of Arkansas 3,000,000.00
12/31/11
7.967%
11/2 Arkansas Electric Coop.
11/9 Colorado-Ute Electric
2,708,000.00
11/9/79
7.279%
11/10 Tri-State Gen. $ Trans.
2,758,000.00
12/31/11
7.927%
11/14 Tri-State Gen. § Trans.
11/14 Central Iowa Power Coop.
300,000.00
1,512,000.00
12/31/11
12/31/11
7.924%
7.924%
11/15 United Power Association
11/15 Arizona Elect. Pwr. Coop.
5,000,000.00
9,400,000.00
12/31/11
12/31/11
7.882%
7.882%
11/16 Northwest Telephone Co.
1,971,000.00
12/31/11
7.892%
11/18 Big River Elect. Corp.
4,068,000.00
12/31/11
7.885%
11/21 South Mississippi Elect.
145,000.00
11/21/79
7.220%
11/23 Big River Electric Corp.
1,311,000.00
12/31/11
7.885%
116,000.00
12/31/11
7.870%
11/28 Golden Valley Electric Pwr. 3,426,000.00
5,037,000.00
11/28 East Kentucky Power Coop.
1,751,000.00
11/28 Basin Electric Power Coop.
11/28/79
12/31/11
11/28/79
7.275%
7.874%
7.275%
11/29 Arkansas Elect. Coop. Corp. 1,509,000.00
12/31/11
7.871%
11/30 Southern Illinois Pwr. Coop.3,415,000.00
141,000.00
11/30 Big River Electric Corp.
600,000.00
11/30 East Ascension Tele. Co.
11/30/79
12/31/11
12/31/11
7.220%
7.880%
7.880%
11/25 Allied Tele. Co. of Oklahoma
Interest payments on the
quarterly basis.
above REA
Federal Financing Bank h<
totalled $37.1 billion.
ldings on November 30, 1977,
# 0 #
loans are made on a
CONTACT:
FOR IMMEDIATE RELEASE
A. M. Hattal
202/566-8381
December 6, 1977
TREASURY ANNOUNCES PRELIMINARY
COUNTERVAILING DUTY DETERMINATION ON
HANDBAG IMPORTS FROM URUGUAY
The Treasury Department announced today its preliminary
determination that the Government of Uruguay subsidizes
exports of handbags to the United States. This action, taken
under the Countervailing Duty Law, was coupled with
Treasury's announcement that it plans to waive countervailing
duties on imports of handbags, non-rubber footwear and
leather wearing apparel from Uruguay.
Under the Countervailing Duty Law the Treasury Secretary
is required to assess an additional customs duty that is
equal to a "bounty" or "grant" that has been found to be paid
on imported merchandise. In the case of Uruguayan handbags,
shoes and leather wearing apparel, it was determined that
the Government of Uruguay provides export certificates,
known as reintegros, that directly subsidize the exported
merchandise. In addition, Treasury's investigation revealed
that special incentives are provided to exporters that reduce
income taxes as well as preferential terms provided by the
Government for short-term financing.
It is the Treasury's preliminary determination that it
will waive countervailing duties for a temporary period not
to extend beyond January 4, 1979. The waiver will be subject
to the following conditions:
(1) that the Government of Uruguay phase out all
reintegro certificate payments to all leather goods exports
with a 50 percent reduction of the reintegro to commence
January 1, 1978. Fifty percent of the remaining reintegro
rebate must be dropped on or before July 1, 1978, and the
remaining subsidy to be eliminated by January 1, 1979.
(2) that the Government of Uruguay commence a
phase-out of all reintegro rebates for all exported products,
to be concluded by January 1, 19 83.
B-588
-2Interested parties will be given a period of 15 days
in which to submit written views on Treasury's preliminary
action on handbags and its intention to waive countervailing duties on shoes, leather wearing apparel, and handbag
imports from Uruguay.
This action will be published in the Federal Register
of December 7, 19 77. Imports of handbags from Uruguay
in 1976 were approximately $1.5 million. Leather wearing
apparel imports from that country during 19 76 were
$21 million. Non-rubber footwear imports during 1976 were
approximately $12 million.
*
*
*
FOR IMMEDIATE RELEASE
December 7, 1977
RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $3,506 million of 52-week Treasury bills to be dated
December 13, 1977, and to mature December 12, 1978, were accepted at the
Federal Reserve Banks and Treasury today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS: (Excepting 2 tenders totaling $5,930,000)
Investment Rate
Price
High
Low
Average -
93.398
93.378
93.382
Discount Rate
(Equivalent Coupon-Issue Yield)
6.529%
6.549%
6.545%
6.97%
6.99%
6.98%
Tenders at the low price were allotted 24%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$ 58,965,000
4,610,395,000
1,935,000
61,140,000
26,265,000
17,745,000
434,065,000
30,705,000
27,780,000
25,415,000
12,025,000
514,295,000
Treasury
1,075,000
TOTAL
$5,821,805,000
Accepted
$ 39,445,000
2,919,775,000
1,935,000
43,540,000
6,110,000
6,745,000
196,365,000
6,295,000
17,780,000
13,135,000
3,025,000
250,475,000
1.075T000
$3,505,700,000
The $3,506 million of accepted tenders includes $ 62 million of
noncompetitive tenders from the public and $1,162 million of tenders from
Federal Reserve Banks for themselves and as agents of foreign and
international monetary authorities accepted at the average price.
An additional $328 million of the bills will be issued to Federal
Reserve Banks as agents of foreign and international monetary authorities
for new cash.
B-5S9
FOR RELEASE AT NOON
THURSDAY, DECEMBER 8, 1977
REMARKS BY THE HONORABLE C. FRED BERGSTEN
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE
AMERICAN CHAMBERS OF COMMERCE
SAO PAULO, BRAZIL
BRAZIL AND THE UNITED STATES IN THE WORLD ECONOMY
The economic relationship between Brazil and the
United States has undergone substantial change in recent
years. Today Brazil is clearly one of the most important
participants in the international economic system. We fully
recognize that position. We welcome it, as the basis for
strengthened cooperation between our countries in a wide range
of policy areas.
In the past, economic discussions between the United States
and Brazil have tended to focus on bilateral problems between
our two countries. Today, I am pleased to report that there
are no major bilateral economic problems between us. This
is doubly fortunate, because our economic relationship should now
in any event, focus increasingly on the global roles of the
United States and Brazil — and on our potential contributions
to the future strength of the world economy, for our own
B-590
-2-.
benefit as well as that of other nations.
This transformation in our relations derives primarily
from the increasingly central role which Brazil has come to
play in world economic affairs:
—
Brazil is the world's tenth largest economy.
—
Brazil is one of the few countries which
maintained an impressive rate of economic growth
through the world recession of 1974-1975, helping
buoy the world economy in the process.
—
Its international monetary reserves are eleventh
highest in the world.
—
It is the world's thirteenth largest importer
and fifteenth largest exporter.
—
Brazil ranks second only to the United States
as an exporter of food products.
—
Brazil is seventh among all countries as a host
to direct investment by American firms, and has
ranked as high as third in recent years in terms
of annual increases in such investment.
—
It is the largest single borrower from the
World Bank and the Inter-American Development Bank,
and is one of the largest borrowers from the
international capital markets as well.
Brazil is clearly moving into the front ranks of
the world's economic powers.
It should thus participate fully
in the management of the international economic system.
The
key issue for the United States and Brazil, as well as for
-3the world's other major economies, is how to work together
to translate this change in Brazil's position into more effective
Brazilian participation in the affairs of the world economy.
At the outset, let me state unequivocally that there
is room for Brazil — and other nations which can qualify —
in the world of industrialized major economies. Brazil's
capacity to so participate is a result of its dramatic
economic success, which the United States has strongly
supported. We now support the enhanced role which Brazil is
currently equipped to play on a whole range of international
economic issues. As we welcomed the transition of Japan
in the late 1950s and early 1960s, we welcome the transition
af Brazil in the late 1970s and early 1980s.
As Brazil increasingly assumes the position dictated by
its growing role in the world economy, it must of course
also assume enhanced responsibilities for the
functioning of that economy. The economic relationship between
the United States and Brazil — indeed, much of our political
relationship as well — is likely to focus increasingly
on ways in which these responsibilities can be exercised most
effectively.
In presenting this basic American view of Brazil's new
role in the world economy, I fully recognize that Brazil
remains in many respects a developing country. Its per capita
income is still only $1350 — far above the average per capita
income of most developing countries, but still well below
that of the mature industrial states. Some areas of the
-4country, such as the Northeast which I visited yesterday,
remain desperately poor.
Inflation is much higher than in
the more mature industrial countries.
balance bears close watching.
The external
Brazil's progress was
severely affected by the multiplication of oil prices and
subsequent world recession.
Yet Brazil has moved far beyond the traditional concept
of a "less developed country".
Large parts of its modern
manufacturing sector compete effectively in world markets.
Its economy has diversified smoothly.
Its export growth,
in both manufactured goods and a growing array of primary
products, is deeply impressive.
developing rapidly.
Its resource base is
Its economic management is admired
throughout the world.
It is rapidly developing its own
multinational companies. At a minimum, Brazil is a charter
member of the new "international middle class" — which,
in many senses, is much farther removed from the poorest
countries of the Fourth World than from today!s mature
industrialized powers.
This new economic situation raises fundamental, and
profound, questions concerning the world role of Brazil:
— What should be its relationship with the United States,
with the other industrial countries, and with the
developing world?
—
Does Brazil lie closer to the countries which still
receive large amounts of outside assistance or to
-5those which extend such assistance? Should it
be somewhere in the middle, neither giving
nor receiving?
Should it continue to receive in
some areas, and give in others?
—
How should the monetary, trading and investment
rules apply to Brazil:
as they do to the industrial
powers, or as they apply to the poorer countries?
Or are new rules needed for Brazil and others in
a more intermediate position?
— Would it be easier for Brazil to play such an
intermediate role alone, or in the company of
other members of a new "international middle
class"?
—
How are Brazil's own vital interests affected by
the impact on others of its answers to these
questions —
in terms, for example, of the
willingness of the United States and other
industrial countries to maintain policies which
help foster further economic growth in Brazil?
We in the United States have no clear answers to these
questions.
Indeed, it would be highly presumptuous for us
to suggest answers even if we thought we had them.
We feel, however, that it is essential to raise the
questions —
because the answers to them which emerge over
-6the next few years will go far to determine the economic
future of Brazil, the United States, and perhaps the world
economy as a whole.
In these remarks today, I would like
to discuss three key areas of economic interaction between
the United States and Brazil —
and illustrate, in each,
how Brazil's new world role suggests policy approaches in both
our countries which may differ from those of the recent past.
Trade
As we in the United States view the economic needs
of Brazil, we recognize the high priority which you place
on access to our markets ~
access for your exports of manufactured
goods and primary products, access to our private capital.
The other more advanced developing countries have similar
interests.
Our policy is to provide such access to our markets
to the maximum extent possible.
We are fully aware of concern, in Brazil and elsewhere,
that —
to the contrary —
the United States is on the
verge of going protectionist.
I believe that concern to
be totally unjustified.
Soon after President Carter took office last January,
he had to make decisions on a number of recommendations
from our International Trade Commission for comprehensive
controls on imports of several major products.
At least
two of these, shoes and sugar, were of major importance to
Brazil.
Domestically, the President risked Congressional
override if he rejected the Commission's proposals.
-7But the President did reject them. He viewed the
institution of such controls as harmful to our own economy,
because they would intensify inflationary pressures and
insulate us from the beneficial effects of international
competition. But he also rejected import quotas because
of the injurious impact on other countries, notably the
developing countries. And the impact on Brazil was a specific
consideration of considerable weight in both those decisions.
The Congress has subsequently forced an increase in the
U.S. sugar tariff, but even that action will be superseded
next year by the International Sugar Agreement — which was
recently negotiated in large part due to the efforts of the
United States and Brazil, and will help sugar exporters such
as Brazil to raise prices from extremely low levels which
obtain at present.
The President currently faces strong pressure to
further restrain imports in the textile and steel sectors,
both of which are also of great interest to Brazil- However,
he has rejected any amendment of the Multi-Fiber Agreement on
textiles, which would make it more restrictive, and any quantitati
import barriers on steel. Again, his concern for the developing
countries has been an important factor in the ultimate decision.
In addition, there have been a multitude of proposals
to remove specific products — many of interest to Brazil —
from eligibility under the system of generalized tariff
preferences which we extend to exports from the developing
countries. In some cases, Brazilian products have been
-8removed from GSP eligibility because of the requirement in
our trade law that exports of specific products from individual
countries must be disqualified from preferences once that
country becomes internationally competitive in those
articles.
Beyond these, however, very few products have
been withdrawn —
despite hostility to the whole system of
preferences from some key elements of the American public.
Finally, the United States has taken the lead in infusing
new life into the Multilateral Trade Negotiations in Geneva.
We are seeking further liberalization of world trade, by steep
cuts in tariffs and meaningful reductions of non-tariff
barriers.
We are encouraged by the response from the other
major trading countries; we hope and expect that the negotiations
will bring major success in 1978.
The record is thus clear.
Throughout its first year
the Carter Administration has rejected comprehensive new
import restrictions —
liberalization.
and, indeed, has sought renewed trade
In part to provide growing markets for
world trade, we have taken steps to assure continued rapid
growth of our own economy and urged the other stronger countries
around the world —
same.
notably Japan and Germany —
to do the
Our concern to maintain market access for Brazil and
other developing countries has been central to our response
to pressures for trade restraints.
Our success can be
measured by the fact that Brazil has now returned to running a bilateral
trade surplus with the United States, accounting for about $1 billion of the
-9adverse swing in the U.S. trade balance in 1977.
Trade, however, reveals the intimate interaction of
national policies. We do face serious pressures to
restrict imports coming into the United States, as
do the Europeans and Canadians. And we are now seeing clearly
how policies and economic performance in one major country,
Japan, can jeopardize the openness of the entire trading system
via the reactions which it triggers in other major countries.
It is not too soon to ask whether Brazilian policies might
have somewhat similar effects in the future.
Brazil maintains extremely high tariffs. In recent
years, it has instituted and tightened quantitative import
restrictions on a wide array of products. It extends
export incentives, often of considerable magnitude, to
many of its exports of manufactured products — some of
which can run directly afoul of countervailing duty statutes
in the United States and elsewhere. Through the
"performance requirements" which it levies on incoming
multinational enterprises, such as minimum export quotas
and value-added requirements, Brazil's policies also impinge
upon the ability of other countries to market their products
on a fair and competitive basis.
We fully recognize that Brazil has adopted many of these
-10measures in recent years under extreme balance of
payments pressures, and in response to a marked
slowdown in world economic growth (and thus export
markets) . We recognize that many of them are intended
to offset distortions elsewhere in the economy, and
to accelerate the diversification of Brazil's economy.
We recognize that some are intended to counter what
is perceived as the excessive strength of firms
based outside Brazil. We know that current practices
cannot be eliminated overnight.
We do not believe
that the situation has reached a crisis point.
Yet we are deeply concerned that prolonged continuation
of such policies will help bring about the very responses
which Brazil is so right to fear, and which would be so
injurious to its own vital interests.
Brazil has already
taken the lead on several trade issues within the Multilateral Trade Negotiations in Geneva.
Perhaps the time may
soon come for more steps in this direction.
Might it be sensible for Brazil, as soon as possible, to
embark on a deliberate and announced course of winding down
— and eventually out —
its import restraints?
its export subsidies and liberalizing
In response, we would surely be pre-
pared to respond constructively in our use of countervailing
duties.
-11-
Might it be sensible for Brazil —
in terms of its own
economic interests, and to get a better deal for its exports
—
to offer concessions of its own in the Multilateral'Trade
Negotiations in Geneva, rather than concentrating its negotiating efforts on perpetuating preferential treatment for
less developed countries through such measures as the binding
of margins of preference?
In response, we and other indus-
trialized countries would surely be able to grant
greater concessions on products of interest to Brazil.
It seems to us that the United States and Brazil should
work closely together on all these issues, sharing as we do
the perspective of great exporters of both industrial and
primary products. None of the steps mentioned are easy to
undertake. All confront economic and political pitfalls.
Yet a failure to face them would be a dereliction of duty on
the part of countries, like ours, whose own vital interests
would be deeply affected by a relapse into trade restrictions
around the world.
Commodities
Such collarboration has already marked much interaction
between the United States and Brazil in the area of commodity
-12-
policy, where both of us are both major producers and consumers.
We recently worked closely together toward the successful
negotiation of the International Sugar Agreement.
We should
be able to work together on cocoa, where Brazil's role as a
producer is growing rapidly and the United States is willing
to participate in negotiating a new international agreement.
Our countries have adopted similar views on the need to
maintain the maximum play of market forces for such key raw
materials as bauxite and iron ore.
The similarity of our interests is perhaps most apparent
regarding the most important commodity of all —
oil. Every
one percent increase in the price of oil adds over $4 00
million to the annual import bill of the United States, and
about $40 million to the annual import bill of Brazil. Our
mutual interests in conservation, the development of new
energy sources, and moderation in international oil pricing
are thus clear. This is yet another area where our policies
should run in parallel.
I must add, however, that there is one commodity
coffee —
—
for which Brazilian policy has led to deep concern
in the United States in recent months.
The United States and
other importing countries cannot be expected to cooperate to
-13-
protect producer prices from falling below agreed levels, as
we have agreed to do in successive International Coffee
Agreements, if Brazil and other exporting countries seek to
hold prices artificially high by the exercise of "market
discipline" and national export .levies.
Such, an approach,
or even appearances thereof, adversely affect our ability to
cooperate across the whole range of commodity, and indeed
trade, issues —
not just on the specific product involved.
It is simply not an appropriate posture for one of the world's
major economic powers.
International Capital
The international capital markets are a third area where
intense cooperation is needed between our two countries.
The
United States offers the world's largest and most flexible-capital
market. Brazil is one- of the world' s largest borrowers." We are the largest
contributor to the international lending institutions, of
which Brazil is the largest client.
Despite its own continuing needs to import large amounts of
capital, Brazil has already adopted a number of extremely
-14cooperative policies in this area.
It has stopped borrowing
foreign exchange from the concessional windows of the development banks. It has made part of its contributions to the
Inter-American Development Bank in convertible currency. It
has contributed to the African Development Fund. It has
begun to extend bilateral aid to poorer countries.
Even here, however, more could be done as Brazil advances
along the continuum from recipient to donor country. Thought
might be given to a contribution to the next replenishment of
the International Development Association, the concessional
window of the World Bank. Brazil could help the IDB use its
cruzeiro holdings throughout the hemisphere. And Brazil might
extend technical assistance to other countries in managing
their external debt, a problem which Brazil has mastered with
great skill and success, both bilaterally and through efforts
in responsible multilateral forums such as the IMF/World Bank
Development Committee.
For our part, the Carter Administration has taken a
number of steps to improve Brazil's access to U.S. capital.
We have declared our support for an expansion of the lending
capacity of the World Bank. We would hope to support
expansion of the lending capacity of the Inter-American Development Bank. We are sharply increasing the activity of our own
Export-Import Bank, from which Brazil is also a major borrower.
We have repeatedly indicated our confidence in the stability
of private international capital flows, and have supported steps
-15strengthen the official backstopping of such flows by expanding the financial capability of the International Monetary
Fund and through other measures. Over one half of Brazil's
external bank borrowing comes from American banks, including
overseas branches.
In the area of private direct investment, Brazil has
also demonstrated an impressive ability to attract needed
capital —
skills.
joined in this case by technology and marketing
The United States has thus decided to cut back on
its program of insuring U.S. investors against non-commercial risks
in Brazil except for minerals- development and for projects of
exceptionally high developmental benefit.
Despite its success in this area, however, we fully
recognize that Brazil —
like most countries which host
multinational enterprises —
feels a need to maintain effec-
tive control over incoming investors. At the same time, the
investors must be assured of fair and consistent treatment.
And, as I have already noted in discussing trade, we are
concerned that some Brazilian policies may adversely affect
U.S. economic interests by artificially diverting production,
and therefore jobs and exports, across national boundaries.
For example, a 100 percent value-added requirement on automobile
production is equivalent to a zero import quota on
components.
As in trade, there is a risk that, over time, our own
open approach to foreign investment will be eroded by
-16certain types of policies in key host countries.
Yet, in the
investment area, unlike in trade and international monetary
affairs, there are virtually no international rules by which
home and host countries alike can assure protection of their
legitimate national interests — including the legitimate
interests of the private firms. This is surely an issue on
which the United States and Brazil, from their complementary
vantage points should be looking toward the possibility for
new international action via both multilateral and bilateral
channels.
Conclusion
Economic relations between the United States and Brazil
have clearly entered a new era. The donor-client relationship of the past is dead, and properly so. Its legacy remains
only in isolated areas, such as generalized tariff preferences
and limited extensions of investment insurance.
The task for the future is to find a new mode of relations
which rest on the new world role of Brazil, along with the
traditional world role of the United States. It would seem
that the new relationship should rest fundamentally on a
common effort — sometimes in explicit collaboration, sometimes
simply in parallel — to deal with the complete spectrum of
international economic problems which we both face, from our
different perspectives but with underlying national interests
which are very similar.
-17There are instances in which such efforts have already
been undertaken. I have referred to several in my remarks
today, and there are others — as in international monetary
affairs, and the negotiations for a Law of the Sea treaty.
But there are also many instances where we have not seized
opportunities to work together — indeed, I have suggested an
extensive agenda ranging across trade, commodity and investment issues where we could do so. And there are a few issues,
to which I have also referred, where we have failed to
collaborate and hence weakened both our efforts.
I am deeply honored to be in Brazil this week, at the
invitation of your Minister of Finance and within the framework of close economic consultation and cooperation between
our countries. As I said at the outset, there are now no
major bilateral economic problems between our countries. We
thus have the opportunity to find improved means to work
together on a wide range of global economic issues. In
sharing these thoughts with you today, my objective is to
help provide a basis for such further, deeper partnership
between Brazil and the United States. I and my colleagues in
the United States look forward to receiving your ideas on
these issues, and to even closer collaboration between us in
the future.
oOo
Department of theTREASURY
HINGTON, D.C. 20220
|
TELEPHONE 566-2041
Contact:
Jack Plum
566-2615
December 9, 1977
FOR IMMEDIATE RELEASE
NEW REGULATIONS PROPOSED ON TAX AND LOAN ACCOUNTS
The Department of the Treasury today announced proposed
regulations to implement new legislation authorizing the
Treasury to invest tax and loan account funds.
Written comments on the proposed regulations should
be received no later than January 19, 1978, addressed to
the Fiscal Assistant Secretary, Department of the Treasury,
Washington, D. C., 20220. A public hearing on the regulations is scheduled at 9:00 a.m., Thursday, January 12, 1978,
in Treasury Department's Cash Room. Treasury Department
plans to issue final rules to become effective during the
second quarter of 1978.
Under the new legislation, financial institutions will
be paid on a fee basis for handling Federal tax deposits
and administering Treasury tax and loan accounts. A fee
schedule is also established for issuance and redemption of
U.S. Savings Bonds.
Tax and loan accounts have been maintained in some 14,000
commercial banks interest-free as compensation for services
rendered to the Treasury Department. The new law extends
eligibility for these accounts to savings and loan associations and to credit unions. The proposed fees to be paid by
Treasury Department are based upon a survey by Treasury of
a sampling of depositaries.
The proposed regulations, implementing Public Law 95-147,
are published today in the Federal Register.
##
B-591
DEPARTMENT OF THE TREASURY
TREASURY DEPARTMENT ORDER NO. 255
By virtue of the authority vested in me as
Secretary of the Treasury, Donald C. Lubick is
designated Acting Assistant Secretary (Tax Policy)
effective immediately and continuing until an
Assistant Secretary (Tax Policy) is appointed and
takes office. As such, he is authorized to exercise
all authority delegated to the Assistant Secretary
(Tax Policy).
to ttvW^L^-ffe^
W. Michael Blumenthal
Secretary of the Treasury
Date: December 12, 1977
DepartmentoftheTREASURY
, D.C. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
December 12, 1977
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,307 million of 13-week Treasury bills and for $3,402 million
of 26-week Treasury bills, both series to be issued on December 15, 1977,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
13-week bills
maturing March 16, 1978
26-week bills
maturing June 15, 1978
Discount
Rate
Discount
Rate
Price
High
Low
Average
98.469 a/
98.464
98.465
6.057%
6.076%
6.073%
Investment
Rate 1/
6.
6.
6.25%
Price
Investment
Rate 1/
96.785b/ 6.359% 6.66%
6.68%
96.775
6.379%
96.779
6.371%
6.67%
a/Excepting 1 tender of $500,000
b/Excepting 1 tender of $30,000
Tenders at the low price for the 13-week bills were allotted 67%.
Tenders at the low price for the 26-week bills were allotted 79%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Accepted
Received
Accepted
$
20,800,000
Boston
4,094,795,000
New York
54,660,000
Philadelphia
62,425,000
Cleveland
25,520,000
Richmond
28,530,000
Atlanta
355,415,000
Chicago
48,570,000
St. Louis
19,100,000
Minneapolis
41,860,000
Kansas City
20,815,000
Dallas
242,470,000
San Francisco
$
19,810,000
1,849,320,000
36, 410,000
30, 325,000
17, 190,000
27, 200,000
169, 270,000
27, 070,000
13, 780,000
37, 440,000
13, 815,000
59, 170,000
$
27,820,000
4,940,945,000
25,975,000
72,100,000
25,455,000
16,575,000
259,550,000
46,765,000
29,735,000
23,170,000
16,765,000
438,430,000
$
17,820,000
2,895,565,000
5,975,000
55,000,000
1$,455,000
16,035,000
92,400,000
27,610,000
24,735,000
23,170,000
8,765,00,0
213,020,000
6,665,000
6,665,000
2,255,000
Location
Treasury
TOTALS
Received
$5,021,625,000
$2,307,465,000 ck $5,925,540,000
c/Includes $342,580,000 noncompetitive tenders from the public.
d/lncludes $154,550,000 noncompetitive tenders from the public.
1/Equivalent coupon-issue yield.
B-592
2,255,000*
$3,401,805,000*/
FOR RELEASE ON DELIVERY
EXPECTED AT 10:00 A.M.
DECEMBER 14, 1977
STATEMENT OF THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
BEFORE THE
SENATE COMMITTEE ON BANKING, HOUSING
AND URBAN AFFAIRS
Mr. Chairman and Members of the Committee:
I am pleased to have the opportunity to appear before you
to report on New York City's fiscal condition. My testimony
will cover three basic topics. Initially, I will
review City budget and financing trends since the 1975 enactment of the Seasonal Financing Act. In particular, my remarks
will address New York's recent unsuccessful effort to reenter the public note market. Next, I will describe the
City's current fiscal status. My testimony will conclude
by addressing the City's uncertain financing outlook and
those steps which must be taken to improve it.
To begin, let me observe that many in Washington and
elsewhere have the impression that the New York City fiscal
situation has not changed at all since the 1975 near
bankruptcy. That impression is not correct. Much fiscal
progress has been made during the past two and a half
years. I would like to summarize that progress, at the
outset, to provide a better perspective for my later
discussion of the current situation and future outlook.
Review of the 1975-1977 Period
First, I think it is instructive to recall the
circumstances prevailing when Congress enacted the 1975
legislation to authorize federal seasonal financing for
the City.
B-593
2
New York then was incurring a deficit of $968 million
annually in its operating budget. Moreover, another $800
million in operating expenses was carried in its capital
budget. The real deficit in fiscal 1976, therefore,
approximated $1.8 billion. In addition, the City's
accounting and financial record keeping systems were in
disarray.
Faced with the spectre of bankruptcy, New York began
to take large and painful steps to reduce expenses. It
also initiated serious efforts to modernize its accounting
and financial information systems. Let me mention a few
of these difficult, but important steps.
-- The City reduced its work force substantially.
The current level of City employment involves
60,000 fewer jobs than the early 1975 level.
Overall employment there, today, is 300,000.
-- It also negotiated a two and a half year wage
freeze, ending during the March-June period next
year.
-- The nearly $1 billion deficit in its operating
budget has been eliminated. During this fiscal
year, that operating budget is balanced as
defined under existing State law.
-- More than $4 billion of short-term notes, which
were outstanding in mid-1975, has been converted
into long term MAC bonds.
-- For the first time, tuition payments have been
initiated at City college, covering all students.
-- The City has implemented a $16 million management
information and expense control system (IFMS). It
provides sharply improved financial controls which
combine, in a common data base, the major budgeting
and accounting functions.
Mr. Chairman, these steps illustrate that New York has
made major progress to improve its fiscal condition. Indee
every step that it pledged to take, in discussions before
Congress in 1975, has been taken.
3
The Seasonal Loan Program
Let me turn now to a review of the Seasonal loan
program itself. The City has complied with all provisions
of the legislation.
During City fiscal 1976, $1.26 billion was borrowed
and repaid with interest, on time or ahead of schedule.
In fiscal 1977, the City borrowed $2.1 billion and repaid
it with interest, again on time or ahead of schedule.
Last spring, the City presented us with a 1978 Financial
Plan which included a $14 billion budget and $2 billion
in seasonal borrowing. I said before this Committee in
May that Treasury would only begin this final year of
the loan program if we were convinced that the City's
budget was balanced (as defined under State law) and that,
relative to the first loan request, there was "a reasonable
prospect of repayment."
During June, we evaluated that budget and the related
cash flow outlook, with the help of our consultants -Arthur Andersen & Co. I assure you that it was a careful
evaluation. We concluded that the proposed budget would
result in balance and that seasonal loans made in July
could be repaid. Accordingly, on July 5, we provided a
$300 million loan, the first during this current City
fiscal year.
In recent months, Treasury has extended an additional
$1,325 billion in seasonal loans after determining, in
each case, that a reasonable prospect of repayment
existed. All loans mature during April, May and
June of 1978 and are fully collateralized by State aid
payments to the City. We continue to believe that all of
these loans will be repaid on time or ahead of schedule.
The City has borrowed or expects to borrow an additional
$400 million this month, on the same basis. This will represent
the final loan this year, barring unforeseen circumstances.
Such borrowing will raise total loans to the City during
this fiscal year to $2.03 billion.
4
Let me highlight one aspect of this year's program
which differs from its first two years. This year, our
Credit Agreement requires the City to make every effort
to borrow in the public markets before submitting a loan
request to Treasury. Specifically, Section 6.11 of that
Agreement requires that the City "certify" in writing to
us exactly what steps it took to borrow from conventional
sources. As I also said to you in May, we have taken
this "certification" requirement literally all year. We
have scrutinized each proposed loan request to satisfy
ourselves that the City actually could not borrow elsewhere. The steps the City has taken to fulfill this
requirement have satisfied us, in each instance, that a
"best effort" was made.
Since its inception the New York City loan program
has not cost the U.S. taxpayer anything. Under the law,
Treasury is required to charge the City one percent more
than the rate on outstanding government obligations of
comparable maturity. As a result, the program will yield
a net surplus of approximately $12 million this year. As you
know, this amount will be returned to Treasury's general fund.
Recently Aborted Public Note Offering
I would like to discuss now, Mr. Chairman, the
specific circumstances surrounding the City's recent
effort to re-enter the short-term market"! A minute ago,
I described our Credit Agreement requirement that New York
make every effort to borrow on its own this year. In
keeping with that requirement, we have been insisting all
year long that the City remove all obstacles, within its
control, to re-enter this market. Accordingly, City
officials worked diligently for several months to prepare
for a public offering of short-term notes.
It is worthwhile to review here what that effort
entailed.
-- Virtually, all of the $1.8 billion of so-called
"moratorium notes", held both by the public and
financial institutions, have been retired. These were
short-term notes, on which principal payments
had been unilaterally deferred by the City.
5
Retirement of this enormous amount of notes,
through both cash payments of principal and
exchanges of MAC bonds, removed a key obstacle
to re-entering the markets. Had these notes not
been retired, those financial institutions holding
these "defaulted" notes would have been understandably reluctant to buy new ones from the same
issuer.
-- This accomplished, the City turned to structuring
the note itself in a way which, under the circumstances, would offer appropriate collateral to
investors. As this Committee knows, State legislation was necessary to allow the City to segregate
revenues to appropriately secure these new notes.
The Governor cooperated and called a special
session of the State legislature, which quickly
enacted the necessary legislation.
-- The City engaged Merrill Lynch and First Boston,
two of the nation's leading investment banking
firms, to serve as managing underwriters for
the offering. Their legal counsel worked with
the City's counsel to prepare the massive
disclosure document (prospectus) necessary
for this first offering since 1975.
These efforts consumed the July through October
period, and the City completed its preparation for
this offering during the first week in November. The
underwriters' intention was to sell $200-450 million of
notes. The only remaining step was to obtain a sufficient
credit rating from Moody's Investors Service, Inc., a
recognized rating agency for municipal securities.
Unfortunately, as you know, Moody's surprised and
disappointed City officials and the financial community
by assigning its lowest rating -- MIG-4 -- to the proposed
notes. In light of the strong collateral arrangements,
the managing underwriters and the overall financial community
had expected a higher rating. When the MIG-4 rating was
received, they concluded that an underwriting was not possible.
One day later, a group of underwriters offered to
try selling some City notes on an unorthodox basis involving
no underwriting commitment. In their view, however,
there was no certainty that any meaningful amount
could be sold. The City Comptroller concluded that
6
this approach involved a high risk of complete
failure -- in a way which would delay even further
the City's eventual return to the short-term market.
We checked carefully with various municipal bond
experts, who concurred in his judgment. Accordingly, we
did not try to influence the City to accept this approach.
Naturally, Mr. Chairman, we were disappointed by the
failure of this effort to re-enter the short-term market.
My staff worked extensively with the City officials to make
an offering possible and to clear the obstacles encountered
along the way. But the outcome demonstrates conclusively
that there is no market, at the moment, for City notes. Yet,
New York came very close to a modest re-entry and that is
cause for some encouragement. As I will discuss later, we
think that prospects are reasonably good for achieving such
re-entry during fiscal 1978.
The Recent SEC Staff Report
As you requested, let me also mention the recent SEC
staff report on the City's security transactions during the
October 1974 - March 1975 period.
We have reviewed the report, but have not undertaken our
own investigation of these events. We have neither the staff
nor the Congressional mandate to do so. I am not prepared,
therefore, to comment on any of the specific allegations in
the report.
I will say, however, that this report covers events of
nearly three years ago and should be viewed in that context.
No one, least of all Treasury, would argue that the City's
financial and accounting practices were acceptable then.
It is fair to say, however, that these practices have improved
significantly during the intervening years. In addition,
this SEC report is not a major factor preventing the City
from regaining access to the credit markets today.
7
New York City's Current Fiscal Condition
I would like to discuss now the City's current budget
and cash flow condition. This year's operating budget is
balanced, as defined by the emergency State legislation "o*f
1975. Operating revenues have materialized as expected
and operating expenditures have been consistent with the
City's projections.
Despite achieving this "defined balance", however,
New York City's budget outlook remains uncertain. The City's
projections for next year, fiscal 1979, indicate'a
"potential gap" in the operating budget of $249 million.
Moreover, this estimate does not include any increases
in salaries for City employees, whose contracts will be
negotiated this spring. These projections concern us, and,
I'm sure, concern this Committee.
The City faced a similar "gap" this year, and closed
it through legitimate budget measures. City officials again
assert that next year's potential gap also will be closed;
indeed, it must be closed under State law. The unfortunate
problem is that city revenues are growing more slowly than
its expenditures so that there will be a potential gap of
similar proportions in each of the next several fiscal years.
Closing this $249 million "potential gap" in next
year's operating budget will not be easy. Nevertheless, as I
will describe later, it must be done. The overall budget
balancing task is, moreover, much larger than this potential
gap. The latter, after all, assumes a phase-out of the
$600 million of operating expenses in the capital budget
over an unduly long eight year period. That phase-out
period must be shortened.
Turning to the present financing situation,
Mr. Chairman, it is even more uncertain. Currently, New
York borrows $3 billion annually -- $2 billion on a seasonal
basis and approximatley $1 billion on a long-term basis.
Yet, the City's two sources of borrowing are each
scheduled to terminate next June 30. The Seasonal Financing
Act has provided the short-term financing, of course, but
it will expire then. Moreover, the City retirement systems,
which have supplied long-term loans since 1975, will have
completed their commitment to finance the capital budget by
8
that same date. In addition, beyond June 30, their taxexempt status could be endangered by increasing their total
loans to New York -- although reinvestments of maturing
principal should be considered.
The likelihood that New York will return to the public
markets, beginning July 1, for the full amount of its
short and long term needs, is poor. There simply is no
market for the public sale of either type of security today,
as evidenced by the recent failure to sell a modest amount of
short-term notes. This is particularly unfortunate because
the City has done everything it originally pledged to do.
Let me say, however, that this delay in New York's
full return to the credit markets is not without parallel
in modern finance. An analysis of the years immediately
following near-bankruptcy by large corporate
enterprises, for example, indicates that they generally
could not return to the public markets for a number of
years. Despite selling or closing large numbers of
facilities, which New York obviously cannot duplicate,
these enterprises generally needed several years to rebuild the confidence of public lenders in their creditworthiness .
Steps Which Must Be Taken
Let me conclude today. Mr. Chairman, by discussing
a series of steps which we think that the City and State
must take in order to improve this financing outlook. I
met recently with Governor Carey, Mayor Beame, Mayor-Elect
Koch and Comptroller Goldin to discuss this matter, and asked
that comprehensive budget and financing plans covering
the next three years or four years be developed immediately.
I advised them that these plans must include a series
of major actions to remove the continuing obstacles
to returning New York to fully independent borrowing status.
9
I would like to discuss our views as to the required
elements of each plan. First, the budget plan's objective
must be to achieve a condition of truly recurring budget *
balance. Essentially, this means that the operating expenses
must be phased out of the capital budget over the plan period.
In addition, the City must close the "potential gap"
of $249 million or more which underlies its current
operating budget.
This budget plan should specify those actions
which the City will take, and which the State will take,
to finally eliminate this overall deficit. The plan
may assume continuation of certain federal fiscal assistance
but the principal actions must be local ones.
Second, all of us here also need a plan for financing
the City over this interim period -- one which will "lead"
it back fully into the markets at the end of the period. The
City already has asked Congress to extend federal lending,
and I realize that their plan, whatever form it finally takes,
will involve a role for Treasury. Nevertheless, most of
New York's overall borrowing needs should be satisfied
locally, and the plan must be convincing in that respect.
It seems to me that one objective of this financing
plan should be to reduce the total borrowing need itself.
The current need -- $3 billion annually -- may be too large
for markets to absorb from a single city, even a more
solid one. We think that there may be methods of reducing
both the seasonal and the long term borrowing needs, and
we await the City's proposal.
We further believe, Mr. Chairman, that the
municipal unions and the local financial community,^primarily
the clearinghouse banks, should be integral elements in both
plans. These plans only can work if these private parties
provide strong support.
Regarding the unions, they have already made substantial
sacritices to maintain JNew York's solvency during the past
two and a half years. They have both participated in a
wage freeze and have financed the capital budget. Their
role has been remarkable. Nevertheless, the City cannot regain
fiscal stability unless they continue their exemplary
record of wage restraint.
10
Concerning the banks, they also have bolstered the
City's finances since mid-1975. They have facilitated
several refinancings of City and MAC debt, and have helped
underwrite new issues of MAC bonds. Their continued, and
perhaps intensified, support also is needed if these plans
are to work. We hope that they will begin to again
participate in sales of the City's own securities.
One key element in these plans, Mr. Chairman,
must be the continuation of a strong and independent
budget review mechanism. Such a board is necessary
to assure that City budgets remain in balance during
the plan period. More importantly, however, it is
needed to rebuild the confidence of long-term lenders
that budgets will be balanced over many years. It
is incumbent on City and State officials, therefore, to
reach agreement on a mechanism which will succeed the
expiring Emergency Financial Control Board. Determining
this successor mechanism could involve, of course,
simply extending this present Board. We hope they will
reach agreement soon, however, because any proposed
legislation to extend federal lending must address
this issue.
We want to emphasize once again, Mr. Chairman, that
New York City should remain primarily the responsibility of
New York State"! While the Federal government has supported
the City in many crucial ways during this difficult period,
we should not allow the City to become a ward of the
Federal government. President Carter has stated on many
occasions that cities, first and foremost, are political
subdivisions of states. We thus encourage Governor Carey ana
the New York State Legislature to review the State's capacity
to provide additional direct financial assistance to the City.
In addition, we suggest that the State carefully examine ways
to borrow an increased portion of the City's annual short-term
financing requirements. Only through the combined commitment
and support of the State and City can a workable budget and
financing plan be developed.
Let me close by stating that the Administration is
studying the City fiscal situation very closely. The
President is firmly committed to maintaining New York's
solvency. The recommendations on legislation which we
make to this Committee early next year, Mr. Chairman, will
reflect both that specific pledge and our overall commitment
to restoring an economically healthier and financially
independent New York.
FOR IMMEDIATE RELEASE
December 12, 1977
STELLA B. HACKEL IS SWORN IN
AS DIRECTOR OF THE BUREAU OF THE MINT
Stella B. Hackel was sworn in todav as director of the
Bureau of the Mint by Secretary of the Treasury W. Michael
Blumenthal. Mrs. Hackel v;as nominated for the position by
President Carter on October 26, 19 77, and confirmed by the
Senate on November 4.
From April, 1977 until her appointment, Mrs. Hackel was
city attorney of Rutland, Vermont. Before that, she held many
high-level positions in her native state of Vermont. She was
elected state treasurer and served from 1975 to 1977 and was
the Democratic candidate for governor in 19 76.
Mrs. Hackel was elected city grand juror (city prosecutor)
of Rutland in 1956 and was reelected every year through 19 63.
From 196 3 to 19 7 3 she was commissioner of the Vermont Department
of Employment Security and chairman of the Employment Security
Board", having been appointed by both Democratic and Republican .
governors.
In 1971 she was elected president of the National Interstate
Conference of Employment Security Agencies and served in 1971-72
as ex-officio member of the National Unemployment Insurance
Advisory Committee and the National Employment Service Advisory
Committee.
From 1973 to 1975 Mrs. Hackel was in private law practice
as a member of the law firm of Ryan, Smith & Carbine Ltd.
Mrs. Hackel was born in Burlington, Vermont. She received
a J.D. cum laude from Boston University School of Law in 1948.
She is a member of the Vermont Bar Association and the Rutland
County Bar Association and was its president in 1973.
o 0 o
B-594
FOR RELEASE AT 4:00 P.M.
December 13, 1977
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $5,500 million, to be issued December 22, 1977.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,508 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,200
million, representing an additional amount of bills dated
September 22, 1977, and to mature March 23, 1978
(CUSIP No.
912793 P4 2), originally issued in the amount of $3,502 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,300 million to be dated
December 22, 1977, and to mature June 22, 1978
(CUSIP No.
912793 Q9 0) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing December 22, 1977.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,026
million of the maturing bills. These accounts may exchange bills
they hold for the bills now being offered at the weighted average
prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Except for definitive bills in the
$100,000 denomination, which will be available only to investors
who are able to show that they are required by law or regulation
to hold securities in physical form, both series of bills will be
issued entirely in book-entry form in a minimum amount of $10,000
and in any higher $5,000 multiple, on the records either of the
Federal Reserve Banks and Branches, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time, Monday,
December 19, 1977.
Form PD 4632-2 (for 26-week
series) or Form PD 4632-3 (for 13-week series) should be used
to submit tenders for bills to be maintained on the book-entry
records of the Department of the Treasury.
B-595
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
borrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
h i?r!!' ln Wt ?° le ° r i n p a r t ' a n d t h e Secretary's action
snail be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on December 22, 1977, i n cash or
n ^ H i r ^ 1 3 ^ ^ a v a J l a " e , f u n d s ^ in Treasury bills maturing
differences
accepted
December m
22,exchange
between
1977. the
and
Cash
par
the
adjustments
value
issueof
price
the
will
maturing
ofbe
the
made
new
bills
for
bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
FOR IMMEDIATE RELEASE
DECEMBER 12, 1977
Office of the White House Press Secretary
THE WHITE HOUSE
The White House today announced a Cabinet-level interagency study of nonfuel minerals policy. The study, to be
chaired by Interior Secretary Cecil D. Andrus, will consider
international and domestic minerals supply and demand and the
economic health of the minerals industry. It will focus on
the most critical minerals.
The Cabinet-level coordinating committee will submit
policy options and recommendations to the President within
15 months. The study was initiated by the President in response
to Congressional and public concerns.
Members of the coordinating committee will be the secretaries of the Interior, State, the Treasury, Commerce, and
Energy; the administrators of EPA and GSA; the director of
the National Science Foundation; the assistant to the President
for national security affairs; the chairman of the Council of
Economic Advisers; the special representative for trade negotiations; the chairman of the Council on Environmental Quality;
the director of OMB; and the director of the Office of Science
and Technology Policy.
Some of the concerns to be addressed by the study are
whether the trends toward international interdependence and
the politicization of certain minerals markets are increasing
U.S. vulnerability to foreign supply curtailments and price
manipulations; whether U.S. reserves, production capacities,
and inventories are adequate to deal with possible supply/price
interruptions., or with the economic and social consequences of
such disruptions;" whether the economic health of the domestic
minerals industry is adequate; and whether land use decisions
are based on adequate minerals information and analysis.
The study will be the first to use the Domestic Policy
Review system, a process designed to insure high-level interagency consideration of important issues.
# # #
(For further information, contact Ed Essertier at Interior343-3171.)
FOR RELEASE AT 4:00 P.M.
December 13, 1977
TREASURY TO AUCTION $3,000 MILLION OF 2-YEAR NOTES
The Department of the Treasury will auction $3,000 million
of 2-year notes to refund $2,428 million of notes held by the
public maturing December 31, 1977, and to raise $572 million
new' cash. Additional amounts of these notes may be issued
at the average price of accepted tenders to Government accounts
and to Federal Reserve Banks for their own account in exchange
for $337 million maturing notes held by them, and to Federal
Reserve Banks as agents of foreign and international monetary
authorities for new cash only.
Details about the new security are given in the attached
highlights of the offering and in the official offering
circular.
oOo
Attachment
B-596
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 2-YEAR NOTES
TO BE ISSUED JANUARY 3, 1978
December 13, 1977
Amount Offered:
To the public
Description of Security:
Term and type of security
Series and CUSIP designation
$3,000 million
2-year notes
Series X-1979
(CUSIP No. 912827 HH 8)
Maturity date December 31, 1979
Call date
Interest coupon rate
No provision
To be determined based on
the average of accepted bids
Investment yield To be determined at auction
Premium or discount
To be determined after auction
Interest payment dates
June 30 and December 31
Minimum denomination available...... $5,000
Terms of Sale:
Method of sale
Accrued interest payable by
investor
Preferred allotment
Deposit requirement 5% of face amount
Deposit guarantee by designated
institutions
Key Dates:
Deadline for receipt of tenders
Yield auction
None
Noncompetitive bid for
$1,000,000 or less
Acceptable
Wednesday, December 21, 1977,
by 1:30 p.m., EST
Settlement date (final payment due)
a) cash or Federal funds
Tuesday, January 3, 1978
b) check drawn on bank
within FRB district where
submitted
Wednesday, December 28, 1977
c) check drawn on bank outside
FRB district where
submitted
Tuesday, December 27, 1977
Delivery date for coupon securities. Friday, January 6, 1978
ADVANCE FOR RELEASE
8:00 PM E.S.T.
REMARKS OF
THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
TO THE
CITIZEN EXCHANGE CORPS
NEW YORK, NEW YORK
DECEMBER 13, 1977
I am pleased and honored to be with you tonight and to have
the opportunity to speak to this distinguished group, which has
done so much for increased international understanding.
It is a particular pleasure that I am able to join with you
in*honoring-Governor Harriman for his many contributions to
understanding between the United States and the Soviet Union."
His accomplishments in this field are pre-eminent, unequaled
by any other person of whom I have knowledge.
Averell Harriman was negotiating with Soviet officials on
economic matters over fifty years ago, when some of us here were
not yet in kindergarten. His involvement, through both good
times and ba'd', has been continuous ever since, to the advantage
of both countries.
His first direct contact with the Soviet Union was in the
1920's, when he'negotiated with Leon Trotsky and other Soviet
leaders for aimanganese mining concession in the Caucasus.
Later, in 1941, he returned to Moscow as head of a mission
to discuss delivery of U.S. supplies to help the Soviets
withstand the Nazi onslaught. Hitler had announced the final
drive on Moscow. The sound of German artillery was in the ears
of the; -negotiators as they arranged for the supplies which in
future" years would help turn the tide of victory.
In 1943, he returned to Moscow as American Ambassador, where
he served until 1946. During these critical years, he showed
himself a firm defender of American interests, yet one who
enjoyed the confidence and respect of Soviet leaders.
A hard bargainer, he was recognized for his probity. The
esteem he enjoyed with Soviet leaders is illustrated by a remark
B-597
-2by Anastas Mikoyan after difficult negotiations on wartime
supplies. "We have," he said, " complete confidence in your good
intentions because you have been so careful in your promises."
Governor Harriman has continued to serve as intermediary
between U.S. and Soviet leaders — in the negotiations with
former Chairman Khrushchev for the nuclear test ban signed at
Moscow in 1963, in dealings with Premier Kosygin and others
concerning the war in Vietnam in the mid-sixties, and in contacts
with Chairman Brezhnev and other Soviet leaders on a wide range
of difficult and contentious issues.
As an adviser to Presidents and Secretaries-of State, he has
always been firm and realistic. Yet he has never wavered in his
belief that closer economic ties between the U.S. and the Soviet
Union can benefit us all. For he has always seen U.S. - Soviet
relations in historical perspective, as a long-term exercise in
"competitive coexistence" — his own description — in which
economic relationships can play an important and constructive
role.
History
Recalling the history of our trade relations with Russia,
which go back to the early days of our nation, provides a useful
framework for a review of present day issues. That,history,
indeed, goes back to the earliest years of the Republic and has
frequently been of considerable import.
In 1811, Russia was taking about one-tenth of U.S. exports,
and the United States depended heavily on imports of Russian
naval stores.
By the eve of the October Revolution, Russia had become an
important customer for U.S. industrial and agricultural
equipment.
Moreover, in the wake of the turbulent events following
1917, American help to the Soviet Union added another chapter to
U.S. - Soviet economic relations. Herbert Hoover's American
Relief Administration spent some $20 million of.» U.S. Government
funds, primarily in the distribution of American grain to
famine-stricken Russian peasants.
In the 1920's, under Lenin's New Economic Policy, American
investors participated in concessions granted by the Soviet
Government to foreign capitalists. Armand Hammer, who is also
with us here tonight, established an asbestos mine and a
successful pencil-manufacturing operation in the U.S.S.R., and
once more, Averell Harriman's manganese negotiations of 1926 mark
him as another of these early pioneers.
-3When Stalin came to power in the late 1920's, Lenin's New
Economic Policy was abandoned. Nevertheless, the American
contribution to the Soviet economy increased markedly. American'
engineering services and technical know-how were essential to the
success of Stalin's First Five-Year Plan, commencing in 1929.
American firms rendered key assistance in the construction of
fertilizer factories and in the planning for the Soviet
electric-power industry. American engineers won acclaim in the
Soviet Union for their services in railroad construction,
mechanized farming, and dam building.
Henry Ford took a leading part. By 1927, Ford enterprises
had produced 85 percent of all tractors in use in the U.S.S.R.
Ford engineers laid the foundations for the Soviet automotive
industry during the First Five-Year Plan. The word "fordization"
entered into the Russian language as a synonym for modernization.
^ ^During"'-'the Depression, when the American economy was going
through theworst economic crisis in its history, sales to the
Soviet Union sharply increased. By 1931, the Soviet market was
absorbing nearly two-thirds of all U.S. exports of agricultural
equipment and power-driven metal-working machinery.
When the United States Government recognized the Soviet
Government in 1933, the interest of American businessmen in
Soviet trade increased. Few may remember that, the following
year, the Export-Import Bank was established for the express
purpose of financing trade with the Soviet Union.
The first Soviet-American trade agreement was signed in
1935. It granted most-favored-nation treatment to the U^S.S.R.
in"exchange for a Soviet commitment to buy a fixed amount of U.S^
products each year. The agreement was renewed annually for five
successive years and served as the basis for U.S. - Soviet
commerce until the signing of the Lend-Lease Agreement in 1942.
At this point, American exports to the Soviet Union amounted to
nearly $2.5 billion a year and made a substantial contribution to
the"Soviet war effort and to postwar reconstruction.
, _The onset of the Cold War quickly had a negative effect on
trade. Controls on exports to the Soviet Union and other
Communist countries were established in 1947. More comprehensive
controls were imposed by the Export Control Act of 1949. In
1950, the United States joined with most of its NATO allies and
Japan^in forming COCOM, a coordinating committee for controlling
strategic exports to Communist countries. In 1951, the Trade
Agreements Extension Act revoked most-favored-nation status for
Communist countries. In the same year, Congress passed the
Battle Act, designed to control more closely exports to "nations
threatening the national security of the U.S." The Soviet Union
wa£ specifically singled out in this context. This was the nadir
of our relations.
-4The first step toward a renewed expansion of U.S. - Soviet
trade came in 1956, when President Eisenhower authorized the
decontrol of some 700 items for export to the Soviet Union and
Eastern Europe. Once again, the two countries began, tentatively
and slowly, to expand their economic relationships. Further
initiatives were taken in 1959 during the Eisenhower - Khrushchev
meeting at Camp David. These actions brought forth a prompt
increase in American exports of manufactured goods.
During the Kennedy Administration, the climate for U.S. Soviet trade continued to improve. There was an emerging
consensus that American exporters should not be subject to
controls more restrictive than those imposed by other Western
countries. In October 1966, the Johnson Administration removed a
large number of nonstrategic items from the U.S. control list.
In the first Nixon Administration, the American business
community spoke out in favor of liberalization with increased
conviction. In 1969, the Export Administration Act was enacted,
with the stated purpose of favoring expansion of peaceful trade
with the Soviet Union and Eastern European countries.
On the Soviet side, the 1960's were characterized by
significant changes away from autarky and toward greater
participation in commercial relations with the non-Communist
world. The directives of the 23rd Congress of the Communist
Party in 1965 clearly stated the need for increasing
substantially the volume of purchases in capitalist countries.
In short, by the early 1970's, Russians and Americans alike
had come to recognize that there were tangible advantages to
expanding commercial exchanges, despite differences in political
philosophy.
The 1972 Summit in Moscow: Turning Point in Commercial Relations
The turning point in commercial relations occurred in Moscow
in May, 1972, at the Summit Meeting, when agreement was reached ..
on "Basic Principles of Relations" between the United States and
the Soviet Union. These stated that "the United States and the
Soviet Union regard commercial and economic ties as an important
and necessary element in the strengthening of their bilateral
relations and thus will actively promote the growth of such
ties."
Agreement was also reached to establish a joint commercial
commission, charged with negotiating a comprehensive trade
agreement and laying the groundwork for future commercial
exchanges.
technological cooperation
-5In October 1972, agreement was reached on settlement of
lend-lease debts. The Soviets agreed to pay $722 million, of
which $674 million would be payable after the U.S. accorded
most-favored-nation treatment to the Soviet Union. A trade
agreement was also negotiated, to enter into force after
Congressional action to accord most-favored-nation status.
With official encouragement, Soviet-American trade increased
rapidly, from $221 million in 1971 to $957 million in 1974 — a
fourfold increase. Many U.S. firms entered into industrial
cooperation agreements with their Soviet counterparts. The
non-governmental U.S. - U.S.S.R. Trade and Economic Council was
established in 1973, with a membership which has grown to include
hundreds of leading American enterprises and major Soviet
organization.
Problems
However, the trade agreement has not entered into force.
The Trade Act of 1974 contained provisions which linked freedom
of emigration with extension of most-favored-nation status and of
official credits by U.S. Government agencies. As a result,
neither the MFN nor credit problems have as yet been resolved
between us.
Yet Soviet - American trade has continued to grow. It
totaled $2.1 billion in 1975 and $2.5 billion in 1976. This was
mainly because of large shipments of U.S. agricultural products,
which accounted for 62 percent of U.S. exports to the Soviet
Union in 1975 and 64 percent in 1976. However, exports of
manufactured goods also increased to $670 million in 1975 and
$794 in 1976.
The picture has not been as good in 1977, which saw a
downturn in Soviet - American trade. Total trade amounted to
only $1.5 billion during the first ten months of 1977, compared
with $2.2 billion during the comparable period of 1976. In large
part this reflected reduced shipments of U.S. grain, after the
bumper harvest in the Soviet Union last year. Soviet grain
purchases are on the rise again, after the poor harvest this
year. However, there has also been a sharp drop in U.S. exports
of manufactured goods to the Soviet Union, amounting to only $459
million in the first ten months of 1977, about one third less
than the comparable period of 1976.
There are indications of a downturn in Soviet purchases from
other Western countries also. This is probably due in part to
Soviet efforts to reduce their trade deficit with the West and to
restrain the increase in their hard-currency debt.
For Soviet exports to the United States have not kept pace
with the growth of U.S. exports to the Soviet Union. Since 1969
-6there has been a persistent imbalance in trade between the U.S.
and the U.S.S.R. By 1973, the excess of U.S. exports over
imports rose to almost $1 billion. The U.S. export surplus fell
to $258 million in 1974 but soared to over $1.5 billion in 1975
and to over $2 billion in 1976.
The Soviets have been concerned about this imbalance in
trade and have sought to reduce it by developing markets in the
United States for Soviet products. They have, for instance,
marketed Soviet agricultural tractors in the United States, and
Americans now quaff Stolichnaya vodka.
Opportunities and Prospects
I do not believe that a continuation of the downward trend
in our trade relations is desirable or inevitable. Indeed, there
is now considerable hope -- and some effort -- to reverse it and,
once again, to make progress toward expansion of mutually
beneficial trade and economic relations between us.
I believe that there are important markets which can be
developed in the United States for Soviet products. We have
welcomed the opportunity to collaborate in marketing seminars and
to explore means of developing markets for Soviet products in the
United States and for American products in the Soviet Union.
The commercial agreement negotiated in 1972 provided that
both governments would promote cooperation in projects for the
development of natural resources and in manufacturing. The
United States is a latecomer in this field, compared with other
major Western nations, which have encouraged their enterprises to
enter into such arrangements with the Soviet Union. These have
involved, for example, Western exports of gas-field equipment and
large-diameter pipe, to be paid for with exports of Soviet
natural gas. Other projects have involved forestry equipment and
pulp plants, to be paid for with wood products; and aluminum
refineries, to be paid for with aluminum.
An outstanding example of American-Soviet cooperation is the
fertilizer project entered into by the Occidental Petroleum
Company under the leadership of Dr. Armand Hammer. It is
expected to generate billions of dollars in Soviet exports to the
United States of ammonia and other products over the years, and
exports of U.S. phosphate fertilizers to the Soviet Union. Dr.
Hammer tells me that this project is well advanced.
Naturally, there have been problems in working our
cooperative arrangements between Americans and Soviet
organizations, which form part of widely differing economy
systems. On the U.S. side, we prefer to rely on private
initiative and are committed to an open trading system. We
recognize that government intervention may be necessary in some
circumstances, but we prefer to limit it to what is required in
the national interest.
-7In many cases, the cooperative projects are so huge that
only the largest consortiums of Western firms are able to handle
them. The agreements are often for long terms — as much as 20
years in some cases — so that it is often difficult for the
parties to agree upon the basis for pricing products to be
delivered far in the future. Often the amounts of product to be
marketed in the West are so large that there are problems of
assuring stable marketing conditions. National interests may be
affected to a degree that makes the Western partner desire
assurances of support from its government.
U.S. firms, in entering into such cooperative projects,
frequently would prefer to have an equity interest — "a piece of
the action." This has not been possible in the Soviet Union.
Questions also arise as to the degree of management
responsibility and quality control to be exercised by the U.S.
partner.
Experience shows that such problems can be worked out, with
good will on both sides, although the process is often a long
one.
The most important reason for optimism about the future lies
in the determination of both governments to find ways to remove
obstacles to increased trade.
The United States Government favors expansion of economic
relations with the Soviet Union, while recognizing that the
decision by private American enterprises to participate rests
with these enterprises.
President Carter has stated that his administration firmly
supports expanded bilateral trade as an important factor in
pormoting world peace and goodwill. Last month I joined Soviet
Foreign Trade Minister Patolichev in a meeting with President
Carter. The President expressed his hope for expanded economic
relations with the U.S.S.R. and looked forward to the time when
these relations would be fully normalized.
I am happy to note that there are signs of progress toward
the normalization of economic relations, including normalization
of trading and credit relations which are now subject to
restrictions. There has been an improvement in the tone of the
political relations between the United States and the Soviet
Union. There has also been an increase in the number of persons
emigrating from the Soviet Union. In working toward
normalization, factors like these affect Soviet - American
economic relations and can help to maintain trade momentum and
improve the structure we have built.
I believe that these favorable developments are being noted
by the American people and the Congress, as well as by the
H^HS? --^-?1- wai-r
The development of economic relations is an important
component of the total relationship between the United States and
the Soviet Union. Soviet trade and economic cooperation with the
United States and other advanced industrial nations can be a
stabilizing factor in Soviet policy toward the world. Mutually
advantageous economic arrangements give each side an interest in
maintaining good relations.
There are areas in which Soviet and U.S. economic policies
interrelate and can have a critical impact' on the rest of the
world. Foremost among these are international grain trade and
energy problems. The cooperation of the Soviet Union will be
increasingly important in the orderly allocation and handling of
food reserves, as well as the supply of oil.
Questions have been raised about the risks and benefits to
the United States. A period of national discussion and
consultations with the Congress lies before us as we seek to
clarify such issues as the extension of most-favored-nation
status to the Soviet Union, to what extent we should participate
in energy-related projects and other resource development, and
what criteria should govern the transfer of technology. We also
have to address the question of how to achieve the necessary
degree of coordination between the U.S. Government and the
private sector and between the United States and its allies.
We must recognize frankly that Soviet - American relations
involve elements of both competition and cooperation:
Competition, because the two countries have quite different views
of the world and have conflicting long-term aims; Cooperation,
because, as inhabitants of the same world, we have many
overlapping.interests.
As Governor Harriman has said, "We are the only two
countries that have the capacity to destroy each other and,
incidentally, the better part of the world as well, in the doing.
This gives both of us an incalculably heavy responsibility to
find a way to get along on this small planet in spite of our
differences."
Common sense dictates that we should, while advancinq our
own interests energetically, seek to regulate the competitive
aspects of our relationship with the Soviet Union to reduce the
danger of war and at the same time to enlarge the area of
cooperation where our interests are not in conflict.
Strengthening our economic relations and promoting peaceful
trade can be important areas of cooperation serving our mutual
interest. Moreover, expanded trade is very much a people-to-
-9people activity. As American and Soviet engineers, technicians
and business executives work together on projects, they will get
to know each other better and develop a better understanding of
our two ways of life. As these small, personal efforts take
place, they can add up to a much larger basis for a full range of
improved relations.
In our efforts to strengthen Soviet - American cooperation,
activities such as those of the Citizen Exchange Corps contribute
significantly by fostering better understanding between the two
nations. In turn, we all can play an important role in
strengthening the structure of world peace, which we all desire.
Thank you.
0OO0
FOR RELEASE UPON DELIVERY
Expected at 7:00 p.m.
December 14, 1977
REMARKS BY
THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
TO THE
NEW DETROIT TENTH ANNIVERSARY DINNER
DETROIT, MICHIGAN
DECEMBER 14, 1977
It's good to see so many familiar faces and to share with
you this 10th Anniversary of our organization.
I still consider myself a member, although I formally
resigned before leaving for Washington. And I remember my years
of involvement as challenging and deeply rewarding.
Certainly the best reward is to see this organization remain
strong and effective, and to see the City of Detroit making solid
progress toward revitalization.
Nearly three years ago, over one out of five Detroit workers
was jobless. Now, unemployment is down below nine percent —
still much too high — but a dramatic improvement, nonetheless.
Two years ago, the city budget was about $100 million in the
red — and was forced to carry out deep job cuts. Now, the
budget is in balance, with those lost jobs restored.
Add to that the recent progress in educational funding,
public transit, housing, crime prevention — and you have a great
city making a broad comeback.
From where we are tonight, we can see the Renaissance Center
— a monument to this revitalization. And I have the feeling
that this is just the beginning.
As a member of New Detroit, I learned what it takes to find
solutions to urban problems.
I also learned a good deal when serving as chairman of the
Michigan Economic Action Council, which was concerned with urban
problems as well as the statewide economy. Many of you served
with me on the council when we made our recommendations for
long-term economic development in the state. Of course, New
Detroit was instrumental in getting many of the recommendations
adopted.
B-59S -
-2Through this effort, it became clear that many solutions
could be found only at the national level. On others, it was
clear that state and local efforts were needed. We addressed
those problems with recommendations for a budget stabilization
fund, to counter the fiscal impact of economic downturns; reform
of the single-business tax, now being considered by the
Legislature; and a state council of economic advisors and an
economic research institute for Michigan.
Perhaps the most important result, however, was to show what
can be done when you bring together business, labor and
government to work on our common problems.
As Treasury Secretary, I have been trying to put into action
at the national level what I learned here. While I am not the
Administration's chief spokesman for the cities, I am a member of
the Urban and Regional Policy Group — and, within that, an
advocate of the successful public-private strategies that are
working here.
From what I can see from Washington, our nation's cities are
still in deep trouble.
Unemployment in the nation's 48 largest cities in 1976 was
9.4 percent, nearly two points above the national rate. Many of
those with jobs are making wages too low to support their
families.
Poverty persists as a city problem. Typically, two-thirds
of a metropolitan area's poverty population live in the central
city. With businesses continuing to leave cities for the suburbs
or other regions, city governments find it increasingly difficult
to meet the needs of their citizens without raising taxes and
further discouraging business from cities.
Equally serious are problems of an aging population,
abandoned and dilapidated housing, inadequate schools and
teaching staffs, and seriously high crime rates.
Anyone need only to walk through any of America's cities to
learn about the seriousness of these problems.
Clearly, the problems of our cities are a massive, difficult
national challenge. And while the descriptive term, "urban
crisis," has been used for years, it still remains accurate.
But as 1977 draws to a close, there is a difference — we
have a President and an Administration in Washington committed to
finding workable, long-term solutions to our urban crisis.
I am happy to bring with me a message of congratulations
from President Carter to New Detroit, for this 10th anniversary
-3observance. And I also want to assure you of his strong personal
belief that the Federal government must have a strong role in
ensuring a bright future for our cities.
As President Carter said over a year ago, "Our goal must be
to develop a coherent national urban policy that is consistent,
compassionate, realistic, and that reflects the decency and good
sense of the American people."
The Federal Government can and must work together with State
governments — local governments — and the private sector to
make our cities better places to live and work. Cooperation is
an absolute necessity, since none of us alone can be effective.
That's an obvious fact of life when you look at the complex
causes of urban decline.
To some extent, past Federal programs have at times actually
aggravated our problems. Federal highway programs, various tax
policies, environmental protection requirements, and the location
of Federal facilities have contributed to the decline in
America's urban centers. We must and will pay more attention to
such factors in the future.
But most causes involved in this decline are beyond Federal
control. Technological changes — lifestyle choices — regional,
national, and international economic trends — and resource
shortages and costs are the more basic causes.
I am especially concerned about the effect on cities as we
stimulate our economic expansion to reduce unemployment.
Detroit, more than most cities, is all too familiar with the
effects of ups and downs in the nation's economy.
Obviously, we cannot expect real improvement in urban
problems like unemployment until our general economy has fully
recovered.
But we also know that, while fiscal and monetary policies
can improve the overall economy, they are not enough to reverse
urban decline — especially the aspect of structural and
hard-core unemployment.
Our most recent figures show while overall unemployment has
dropped over one percentage point this year — unemployment is
still 7.1 percent for women, 13.8 percent for blacks, and 17.1
percent for teenagers. The rate for black unemployment has
actually increased in the past year. The rate of black
teenagers, moreover, is close to two out of five.
And it is frustrating to find that seemingly every new
attempt to solve structural unemployment uncovers a new dimension
-4of the problem. For years, for example, we provided job training
and remedial education. But when the training is over, there are
often simply no jobs in the area where the trainees live. An
auto plant outside Detroit may be hiring workers, but it does not
help someone who lives in the city without transportation to the
plant.
In providing CETA funds to hire the hard-core unemployed in
cities, for another example, the Federal government found that
city governments needed the money to rehire regular city
employees laid off by budget cuts.
This illustrates the ultimate futility of depending on
Federal aid to solve this very deep problem. We can help
temporarily, but the only real alternative is to encourage the
private sector to expand job opportunities in cities where the
jobless are. This also makes good economic sense. Cities have
underutilized capacity and idle workers. Overall costs can be
lower when a firm remains or expands in a depressed urban area,
rather than relocating where new roads, water supplies or sewers
will be required.
Private expansion, in turn, can reduce welfare and
unemployment costs and strengthen local government finances. And
the ultimate beneficiary is the city dweller with a permanent,
rewarding private-sector job.
I emphasize private jobs and private investment in cities
simply because they provide the principal source of income for
the central city — and provide the opportunities for economic
and social advancement that are essential to eliminating the
despair of the urban poor.
Because of my personal interest, members of my staff at
Treasury have met over the past few months with city officials,
businessmen, academic experts, and public interest groups to
discuss the Federal role. As a result of this work, we are
considering new financing incentives to improve private economic
development in distressed cities.
One idea has been a financing facility that could provide
incentives to the private sector in distressed areas. These
incentives would help businesses and lenders who plan
job-intensive projects, but might otherwise locate them away from
cities which need them. Among the suggested incentives have been
direct or capital investment grants, an expanded limit on
industrial revenue bonds, and creating a secondary market for
long-term loans to small and medium-size businesses.
The Treasury Department has devoted considerable effort to
studying means of expanding the capital available for private
expansion in the cities. I believe that we need to fill the
-5current gap in our urban strategy, which up to now has not
sufficiently emphasized private-sector solutions. And we need to
concentrate more on urban programs targeted at specific problems,
such as private job creation in cities, but which add up to a
systematic effort to improve the economic condition of our
cities.
Obviously, our financing proposal would not solve the whole
problem — nor would it yield results right away, so we would
continue such programs as public service jobs and direct fiscal
aid to city budgets.
That continuing need is a necessity we knew when we took
office and made major changes to the 1978 budget already sent to
Congress. The proposal then before Congress contained a 10
percent reduction, for example, in requested appropriations for
the Department of Housing and Urban Development. Other parts, as
well, would have had an adverse impact on cities.
Within six weeks, we'restored those cuts. We increased
funding for assisted housing, community development, housing
rehabilitation loans, public housing subsidies, and other
important aid to cities.
I might add that, as a result of early Administration
initiatives, Detroit in its 1977 fiscal year received $42 million
more Federal aid than it would have, for a total of $283 million
— and for fiscal year 1978, $50-53 million more expected, for a
total of $295 million.
But we also wanted to find more permanent comprehensive
solutions, as well. With this in mind, President Carter in March
organized the Urban and Regional Policy Group, an interagency
task force to coordinate the efforts of every agency with an
impact on cities, and to find ways to help cities.
So our Treasury proposal represents part of a broad effort
throughout the Administration for new ideas and better use of
existing programs. We know that there is much more that we could
be doing to help cities — and we will be coming through with
that help.
I must also remind you that there are limits to what the
Federal government can do. In the first place, our budget is
already running huge deficits, as a result of high unemployment.
So money for new programs will be extremely scarce.
But even with a better budget situation, Federal aid alone
cannot provide the permanent solutions to our urban problems. We
do not want our nation's cities to become wards of a distant
Federal bureaucracy. That's why the future of our cities depends
on finding the right balance between Federal aid, help from State
governments, from city leaders, from the business community, and
from the people themselves.
-6One model for this has taken place here, in connection with
the Federal grant of $600 million for an improved public
transportation system. When the Detroit business community
organized plans for private development along the proposed
transportation corridor, that made the difference for approval of
the grant.
It helps illustrate what it takes to turn a city around.
And that is, quite simply, a coalition — just like New Detroit
— which can bring together all segments of a city, unified by
your common interests. In the final analysis, that is the
critical element — the spirit of community and hope of the
people of a city.
We've begun to succeed here. We can succeed in other
cities. And I and the rest of the Carter Administration will do
all we can to make this happen — however long it may take.
In closing, I recall the words of the oath taken by the
citizens of Athens more than 2,000 years agor
"We will ever strive for the ideals and sacred things of the
city;
"We will unceasingly seek to quicken the sense of public
duty;
"We will revere and obey the city's laws;
"We will transmit this city not less, but greater, better,
and more beautiful than it was transmitted to us."
Thank you.
oOOo
FOR RELEASE AT 4:00 P.M.
December 16, 1977
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $5,400 million, to be issued December 29, 1977.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,403 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,100
million, representing an additional amount of bills dated
September 29, 1977, and to mature March 30, 1978
(CUSIP No.
912793 P5 9 ) f originally issued in the amount of $3,302 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,300 million to be dated
December 29, 1977, and to mature Junet29, 1978
(CUSIP No.
912793 R2 4) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing December 29, 1977.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $2,692
million of the maturing bills. These accounts may exchange bills
they hold for the bills now being offered at the weighted average
prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Except for definitive bills in the
$100,000 denomination, which will be available only to investors
who are able to show that they are required by law or regulation
to hold securities in physical form, both series of bills will be
issued entirely in book-entry form in a minimum amount of $10,000
and in any higher $5,000 multiple, on the records either of the
Federal Reserve Banks and Branches, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time,
Friday, December 23, 1977.
Form PD 4632-2 (for 26-week
series) or Form PD 4632-3 (for 13-week series) should be used
to submit tenders for bills to be maintained on the book-entry
records
B-599 of the Department of the Treasury.
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
borrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on December 29, 1977, i n c a s n o r
other immediately available funds or in Treasury bills maturing
December 29, 1977.
Cash adjustments will be made for
differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
DepartmentoftheTREASURY
(ASHINGTON, D.C. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
December 19, 1977
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,201 million of 13-week Treasury bills and for $3,300 million
of 26-week Treasury bills, both series to be issued on December 22, 'l977,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
13-week bills
maturing March 23, 1978
Price
High
Low
Average
Discount
Rate
98.493 a/
98.484
98.487
Investment
Rate 1/
5.962%
5.997%
5.985%
6.14%
6.17%
6.16%
26-week bills
maturing June 22, 1978
Discount Investment
Price
Rate
Rate 1/
96.803b/
96.792
96.796
6.324%
6.345%
6.338%
6.62%
6.65%
6.64%
a/ Excepting 1 tender of $50,000
h/ Excepting 2 tenders totaling $950,000
Tenders at the low price f<jr the 13-week bills were allotted 59%.
Tenders at the low price for the 26-week bills were allotted 100%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
Boston
$
23,485,000
New York
3,646,350,000
Philadelphia
21,560,000
Cleveland
59,385,000
Richmond
24,880,000
Atlanta
25,410,000
Chicago
241,945,000
St. Louis
47,785,000
Minneapolis
26,175,000
Kansas City
31,985,000
Dallas
18,145,000
San Francisco
295,675,000
4,575,000
Treasury
TOTALS
$4,467,355,000
Accepted
Received
Accepted
$
18,485,000
1,823,475,000
21,56.0,000
44,385,000
22,470,000
25,410,000
50,535,000
28,375,000
22,485,000
31,165,000
16,735,000
90,870,000
$
30,730,000
4,804,575,000
33,760,000
31,780,000
20,755,000
14,420,000
179,865,000
57,805,000
38,710,000
22,185,000
8,935,000
522,210,000
$
20,730,000
2,900,575,000
13,760,000
16,780,000
15,255,000
14,420,000
47,865,000
22,805,000
24,710,000
22,185,/"0
6,935/jOO
192,210', 000
4,575,000
1,600,000
$2,200,525,000 c/
$5,767,330,000
c/ Includes $ 318 >615,000 noncompetitive tenders from the public.
d/Includes $149,460,000 noncompetitive tenders from the public.
1/Equivalent coupon-issue yield.
B-600,
1,600,000
$3,299,830,000d/
FOR RELEASE AT 4:00 P.M.
December 19, 1977
TREASURY TO AUCTION $1,500 MILLION OF 15-YEAR 1-MONTH BONDS
Tne Department of the Treasury will auction $1,500 million
of 15-year 1-month bonds to raise new cash. Additional amounts
of the bonds may be issued to Federal Reserve Banks as agents
of foreign and international monetary authorities at the
average price of accepted tenders.
Details about the new security are given in the attached
highlignts of the offering and in the official offering
circular.
Attacnment
B-601
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 15-YEAR 1-MONTH BONDS
TO BE ISSUED JANUARY 6, 1978
December 19, 1977
Amount Offered:
To the public
Description of Security:
Term and type of security
- Series and CUSIP designation
$1,500 million
15-year 1-month bonds
Bonds of 1993
(CUSIP No. 912B1U CA 4)
Maturity date February 15, 1993
Call date
Interest coupon rate
No provision
To be determined based on
the average of accepted bids
Investment yield To be determined at auction
Premium or discount
To be determined after auction
Interest payment dates
August 15 and February 15
(first payment on August 15, 1978)
Minimum denomination available
$1,000
Terms of Sale:
Method of sale . ,
Yield auction
Accrued interest payable by
investor
None
Preferred allotment
Noncompetitive bid for
$1,000,000 or less
Deposit requirement 5% of face amount
Deposit guarantee by designated
institutions
Acceptable
Key Dates:
Deadline tor receipt of tenders
Settlement date (final payment due)
a) casn or Federal funds
b) check drawn on bank
witnin FRB district where
submitted
c) cneck drawn on bank outside
FRB district where
submitted
Delivery date for coupon securities.
Tuesday, December 27, 1977,
by 1:30 p.m., EST.
Friday, January 6, 1978
Wednesday, January 4, 1978
Tuesday, January 3, 1978
Thursday, January 12, 1978
Contact:
Alvin M. Hattal
c c £ _ Q O Q "I
FOR IMMEDIATE RELEASE
December 21, 1977
TREASURY ANNOUNCES INITIATION OF
ANTIDUMPING INVESTIGATION ON STEEL WIRE ROD
FROM THE UNITED KINGDOM
The Treasury Department announced today that it will
begin an antidumping investigation on "low carbon industrial
quality wire rod" from the United Kingdom.
The Treasury Department's announcement followed a summary
investigation conducted by the U.S. Customs Service after
receipt of a petition filed on behalf of Georgetown Steel
Corporation and Georgetown Texas Steel Corporation, alleging
that this merchandise is being dumped in the United States.
Information contained in the petition indicates that the
prices in the United States of steel wire rod imported from
the United Kingdom are less than the prices of the same
merchandise in the home market. The petition also includes
information that the U.S. industry is being injured by the
alleged "less than fair value" imports.
If sales at less than fair value are determined by
Treasury, the U.S. International Trade Commission will decide
the injury question. Both "sales at less than fair value"
and "injury" must be determined before a dumping finding is
reached.
Notice of the above action will appear in the Federal
Register of December 22, 1977.
Imports of low carbon industrial quality wire rod from
the United Kingdom during the first half of 19 77 were valued
at roughly $4 million.
# # #
B-602
EMBARGOED FOR TTSR
after the briefing
December 21, 1977
Office of the White House Press Secretary
STATEMENT BY THE PRESIDENT
The United States balance of trade and payments has shifted
this year to a large deficit position. The two main causes
appear to be: large oil imports by the United States and
relatively slow economic growth in Japan, Germany and other
nations.
These deficits have contributed to some disorder in the
exchange markets and rapid movements in exchange rates.
Heightened uncertainty and increased exchange market pressure in
recent weeks have coincided with the delay in Congressional
action on our energy legislation. A mistaken belief that the
United States is not prepared to adopt an effective energy
program has been partly responsible for recent unsettled
conditions in the exchange markets. We have a responsibility to
protect the integrity of the dollar. Prompt action is needed in
energy and other fields to reduce our deficits.
Last April I submitted to the Congress a comprehensive
conservation and conversion program to reduce our dependence on
foreign oil. I am confident that the Congress will not allow
this situation to continue to deteriorate through inaction. I am
equally confident that the American people will fully support
this critically important program. When enacted, the measures
now under consideration will have increasingly beneficial effect
in coming years and exert their main impact by 1985.
The United States is currently importing petroleum at a cost
of about $45 billion a year. In 1978, taking account of planned
production of Alaskan oil, our oil imports will be stable despite
substantial purchases for our Strategic Petroleum Reserve.
Nevertheless, it is essential that we take further steps to
curtail these imports, in order to reduce both our excessive
dependence on imported oil and the burden on our balance of
payments. The energy measures I am now proposing are designed to
serve these ends.
I have instructed the Department of Energy to pursue efforts
to:
— expand production of oil at the Elk Hills Naval Petroleum
Reserve;
— encourage an expansion of production at Prudhoe Bay above
the 1.2 million barrels a day planned for early 1978;
-2—
maintain production of California crude at a high level;
— work with appropriate governmental and private interests
in expediting provision of adequate pipeline capacity for
transport of Alaskan and Californian oil east of the Rocky
Mountains.
Combined with conservation measures, these efforts offer
good promise.
The new measures will take effect in the period immediately
ahead and serve as a bridge until the implementation of the more
comprehensive legislative program begins to exert fundamental
changes in our energy balance in the years ahead.
I have also instituted measures to expand U.S. exports:
— We have doubled Commodity Credit Corporation credits to
support agricultural exports.
— In 1978, we will increase sharply lending activity by the
Export-Import Bank, to support exports generally.
We will not engage in unfair competition for export markets; we
will fully respect our understandings with other Governments
regarding export credit terms. But within these understandings
there is room for a more active effort to expand our exports.
Through such an effort, I believe we can achieve substantial
increases in exports in 1978, as well as in subsequent years.
With these measures, the prospects for an improvement in our
trade position will be good. Some of these measures will begin
to take effect in 1978. When fully implemented, these measures,
energy and non-energy, should produce an annual improvement in
our trade position of several billion dollars, and will improve
the U.S. balance of payments.
There has been a great deal of public discussion in recent
weeks about the large U.S. trade and payments deficits, and the
movement of rates in the exchange markets, mainly between the
dollar and the German mark and Japanese yen. The American
economy and the dollar are fundamentally sound; U.S. products on
the whole are competitive. While some exchange rate adjustment
has been understandable in light of economic developments in
Germany, Japan, and the United States, recent exchange market
disorders are not justified.
The new energy measures strike directly at a key part of the
balance of trade problem. The export measures will enable us to
respond effectively to expanding export opportunities. Together,
the energy and export measures represent action to strengthen our
balance of payments and deal with our trade deficit in a
substantive way, by improving the underlying conditions upon
which the value of the dollar fundamentally depends.
-3Furthermore, next month I shall be presenting to the
Congress a comprehensive economic program, designed to insure a
healthy and growing economy, to increase business capital
investment, to expand industrial capacity and productivity, and
to maintain prudent budgetary policies, while counteracting
inflationary pressures. These and related measures will promote
economic progress and underscore our commitment to a strong and
sound U.S. economy.
close
In the discharge of our responsibilities, we will, in cl<
consultation
lultation with our friends abroad, intervene to the ext
extent
necessary to counter disorderly conditions in the exchange
markets. The measures I have enumerated will deal with the root
causes of these market disturbances in a more direct and
fundamental way.
FOR IMMEDIATE RELEASE
December 21, 1977
RESULTS OF AUCTION OF 2-YEAR NOTES
The Department of the Treasury has accepted $3,000 million of
$4,213 million of tenders received from the public for the 2-year notes,
Series X-1979, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 7.16% 1/
Highest yield
Average yield
7.23%
7.20%
The interest rate on the notes will be 7-1/8%. At the 7-1/8% rate,
the above yields result in the following prices:
Low-yield price 99.936
High-yield price
99.808
Average-yield price 99.863
The $ 3,000 million of accepted tenders includes $457 million of
noncompetitive tenders and $ 2,468 million of competitive tenders
(including 72% of the amount of notes bid for at the high yield) from
private investors. It also includes $ 75 million of tenders at the
average price from Federal Reserve Banks as agents for foreign and
international monetary authorities in exchange for maturing securities.
In addition, $888 million of tenders were accepted at the average
price from Government accounts and Federal Reserve Banks for their own
account in exchange for securities maturing December 31, 1977,
($ 328 million) and from Federal Reserve Banks as agents for foreign and
international monetary authorities for new cash ($ 560 million).
1/ Excepting 3 tenders totaling $1,065,000
B 603
FOR IMMEDIATE RELEASE
December 22, 1977
WILLIAM T. ARCHEY APPOINTED DEPUTY ASSISTANT SECRETARY
FOR OPERATIONS IN THE OFFICE OF CHIEF DEPUTY
TO THE TREASURY UNDER SECRETARY
William T. Archey, a career Federal employee with
management and policy development experience at the Law
Enforcement Assistance Administration of the Department of
Justice, has been appointed by Secretary of Treasury
W. Michael Blumenthal as Deputy Assistant Secretary for
Operations in the Office of the Chief Deputy for Enforcement
and Operations to the Under Secretary. Mr. Archey, who is 34
years old, replaces John H. Harper, who resigned.
Mr. Archey received a Bachelor's Degree in Economics at
Providence College, Providence, Rhode Island, in 1964. He
received a Master's Degree in Organization Theory and Behavior
at Northeastern University, Boston, Massachusetts, and a Ph. D.
in the same discipline at Boston University.
In 1974, Mr. Archey became Director of the Policy Analysis
Division, Office of Planning and Management, in the Law Enforcement Administration. He was responsible for developing ^the program for LEAA to deliver high quality law enforcement technical
assistance to state and local governments and,to criminal justice
operating agencies. In addition to carrying out program review
and program development within LEAA, Mr. Archey chaired the
Community Anti-Crime Task Force and served as Executive Director
of LEAA's National Advisory Committee on Criminal Justice
Standards and Goals.
Before joining the Law Enforcement Assistance Administration,
Mr. Archey was a Consultant and Research Assistant at the Boston
University Center for Applied Social Science and was a free-lance
consultant on community drug abuse programs. From May, 1972 until
January, 1973 he was a consultant on leave of absence from Boston
University to the Special Action Office for Drug Abuse Prevention
in the Executive Office of the President.
Mr. Archey's writings include Managing the Worker (with
A. Walker, J. Zif), 1970, and Sales Strategy and Management (with
W. Orbach, I. Ayal), 1971 and The Social Seminar-Community at the
Crossroads, 1971.
Mr. Archey lives in Arlington,
Va. He is the son of Henry L.
oOo
Archey of Pittsfield, Massachusetts.
£-604
^artmentol theTREASURY
WASH INGTON, D.C. 20220
TELEPHONE 566-2041
December 23, 1977
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $ 2,100 million of 13-week Treasury bills and for $3,301 million
of 26-week Treasury bills, both series to be issued on December 29, 1977,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
13-week bills
maturing March 30, 1978
Price
Discount
Rate
Investment
Rate 1/
6.30%
6.120%
98.453 a/
High
6.35%
6.167%
98.441
Low
6.34%
6.152%
98.445
Average
a/ Excepting 2 tenders totaling $2,190,000
hi Excepting 1 tender of $1,170,000
26-week Bills
maturing June 29, 1978
Discount Investment
Price
Rate
Rate 1/
96.741b/ 6.446% 6.76%
96.729
6.470%
6.78%
96.734
6.460%
6.77%
Tenders at the low price for the 13-week bills were allotted 65%.
Tenders at the low price for the 26-week bills were allotted 2%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
$
18,605,000
Boston
3,695,555,000
New York
56,070,000
Philadelphia
26,705,000
Cleveland
19,300,000
Richmond
24,720,000
Atlanta
231,305,000
Chicago
50,225,000
St. Louis
22,175,000
Minneapolis
35,150,000
Kansas City
13,190,000
Dallas
175,070,000
San Francisco
Accepted
$
17,605,000
1,742,805,000
29,610,000
26,705,000
19,300,000
24,720,000
84,805,000
28,825,000
10,175,000
35,150,000
11,190,000
64,820,000
Received
Accepted
$
16,985,000
6,176,850,000
7,075,000
102,335,000
29,875,000
12,980,000
420,240,000
46,790,000
27,180,000
20,070,000
8,510,000
236,225,000
$
11,985,000
2,908,505,000
6,585,000
14,835,000
- 7,935,000
11,340,000
208,660,000
13,79.0,000
8,220,000
17,790,000
7,510,000
81,525,000
2,380,000
2,380,000
Treasury
4,700,000
4,700,000
TOTALS
$4,372,770,000
$2,100,410,000^/ $7,107,495,000
c_/Includes $ 312,315,000 noncompetitive tenders from the public.
d/Includes $142,745,000 noncompetitive tenders from the public.
1/Equivalent coupon-issue yield.
vtro?
$3,301,060,000d/
FOR RELEASE AT 12:00 NOON
December 23, 1977
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $ 5,600 million, to be issued January 5, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,609 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,200
million, representing an additional amount of bills dated
October 6, 1977,
and to mature April 6, 1978
(CUSIP No.
912793 P6 7), originally issued in the amount of $3,506 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,400 million to be dated
January 5, 1978,
and to mature July 6, 1978
(CUSIP No.
912793 R9 9) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing January 5, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $2,819
million of the maturing bills. These accounts may exchange bills
they hold for the bills now being offered at the weighted average
prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Except for definitive bills in the
$100,000 denomination, which will be available only to investors
who are able to show that they are required by law or regulation
to hold securities in physical form, both series of bills will be
issued entirely in book-entry form in a minimum amount of $10,000
and in any higher $5,000 multiple, on the records either of the
Federal Reserve Banks and Branches, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time,
Friday, December 30, 1977.
Form PD 4632-2 (for 26-week
series) or Form PD 4632-3 (for 13-week series) should be used
to submit tenders for bills to be maintained on the book-entry
records of the Department of the Treasury.
B-606
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
borrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on January 5, 1978,
in c a S h o r
other immediately available funds or in Treasury bills maturing
January
Cash
adjustments
will
be
made
for
differences
accepted 5,in1978.
exchange
between the
and par
the
value
issueof
price
the
of
maturing
the
new
bills
bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
Contact:
George G. Ross
(202) 566-2356
FOR IMMEDIATE RELEASE
December 23, 1977
UNITED STATES AND FRANCE DISCUSS AMENDMENTS
TO INCOME TAX TREATY
The Treasury Department today announced that representatives of the United States and France have reached tentative
agreement on a protocol to the present income tax convention
between the two countries. The protocol must be signed by
the two governments and instruments of ratification exchanged
before its provisions take effect.
The protocol deals primarily with the taxation of American
residents of France. It also eliminates the need for registration by shipping and airline companies, covers the excise tax
on insurance premiums, and brings up to date certain definitions.
With respect to taxation of American residents of France,
the protocol generally provides that France will exempt from
tax United States source business income. Investment income
will be subject to French tax, with a credit allowed for the
amount of tax that the United States could impose if the
recipient were not an American citizen.
The United States, in turn, will allow a credit for French
tax on such income by treating a portion of the investment
income as if it came from sources within the country of residence.
The protocol further provides that pensions will be exempt
from French tax to the extent that they are attributable to
service during periods in which an American's principal place
of employment was the United States.
Prior to the period when the protocol becomes effective,
the Explanatory Note issued jointly by the United States and
France in November 1976 remains in force.
*
B-607
Contact:
Robert E. N i \>\»
566-5328
December 27, 1977
FOR IMMEDIATE RELEASE
ECONOMIC DISCUSSIONS BETWEEN THE U.S. AND PERU
The Treasury Department today announced that Dr. C. Fred
Bergsten, U.S. Assistant Secretary for International Affairs,
and Richard Alcantara, Vice-Minister of Finance for Peru, met
at the Treasury on Wednesday, December 14, for an informal
exchange of views about the Peruvian economy and the role the
U.S. is playing and might play in the future in assisting Peru.
The Treasury Department officials are encouraged by the
recent agreement between the Peruvian Government and the IMF
on a reform package designed to stabilize the economy.
Vice-Minister Alcantara assured the U.S. that while the
stabilization measures are difficult, the Peruvian Government
intends to meet all its goals and objectives. In that context, Alcantara informed Bergsten that the Government of Peru
attaches high priority to meeting its international payments
on external debt. Contrary to early reports, the Peruvian
Government representative made no request to the Treasury
Department for $100 million in short-term financial support.
Although the question of short-term financing was discussed,
there appears to be no need for such support from the U.S.
Treasury at this time. Any such request would of course have
to be considered in light of established U.S. requirements.
The U.S. Government continues to contribute to Peru's
development through our AID and food assistance programs.
Recently, the U.S. Government extended $57 million to Peru in
CCC lines of credit and has authorized negotiation of a $5
million program under PL-480 Title I. The U.S. is currently
reviewing its aid programs and will shortly be considering
further U.S. assistance to Peru.
#
B-608
HINGTON,D,C. 20220
FOR IMMEDIATE
TELEPHONE 566-2041
December 2 7 , 1977
RELEASE
RESULTS OF AUCTION OF 15-YLrwR 1-MONTH TREASURY
BONDS
The Department of the Treasury has accepted SI,500 m i l l i o n of
S2,9bb m i l l i o n of tenders received from the public for the 15-year 1-month
bonds auctioned today.
The range of accepted competitive bids was as follows;
Lowest yield 7.92:, 1/
Highest yield
Average yield
7.96:".7.95«
The interest rate on the bonds will be 7-7/8%. At the 7-7/8;" rate,
the above yields result in the following p r i c e s .
Low-yield price 99.575
High-yield price
Average-yield price
99.228
99.315
The Si.500 million of accepted tenders includes $ 78 million of
n o n c o m p e t i t i v e tenders and Si.423 m i l l i o n of competitive tenders
^inciucinu 67;". ci the amount oi bonds bid for at the high y i e l d ) .
Excepting 5 tenders totaling
B - 6 09
S63,000
DepartmentoftheJREASURY
WASHINGTON, D.C. 20220
TELEPHONE 566-2041
December 28, 1977
FOR IMMEDIATE RELEASE
AMENDED RESULTS OF TREASURY f S 26-WEEK BILL AUCTION
The announcement of December 23 of the results of the
26-week Treasury bill auction for the bills to be issued
December 29 is corrected below to reflect an increase in
the total tenders received and accepted. This adjustment
was due to an error in recording competitive bids during
the auction process. This error did not affect the average
price as reported in the December 23 announcement.
Accepted
Received
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
$
16,985,000
6,176,850,000
7,075,000
102,335,000
29,875,000
12,980,000
420,240,000
46,790,000
27,180,000
20,070,000
8,510,000
316,225,000
2,380,000
$7,187,495,000
$
11,985,000
2,908,505,000
6,585,000
14,835,000
7,935,000
11,340,000
208,660,000
13,790,000
8,220,000
17,790,000
7,510,000
161,525,000
2,380,000
$3,381,060,000
All other particulars in the announcement remain the
same.
R-61Q
"7^-^
Contact:
FOR IMMEDIATE RELEASE
Robert Nipp
566-5328
December 28, 1977
PROPOSED REGULATIONS ON TRIGGER PRICES RELEASED
The Treasury Department today released proposed Customs
regulations to implement the trigger price mechanism proposed
by the Interagency Task Force on Steel chaired by Treasury
Under Secretary Anthony M. Solomon.
The proposed regulations will be published in the Federal
Register on Friday, December 30 and will be open for public
comment through January 27, 1978.
B-611
^
DEPARTMENT OF THE TREASURY
UNITED STATES CUSTOMS SERVICE
(19 CFR Part 141)
ENTRY OF MERCHANDISE
PROPOSED AMENDMENTS TO THE CUSTOMS REGULATIONS RELATING TO THE DOCUMENTS
AND INFORMATION REQUIRED TO BE FILED AT THE TIME OF IMPORTATION OF
CERTAIN ARTICLES OF STEEL
AGENCY: United States Customs Service, Department of the Treasury.
ACTION: Notice of proposed rulemaking,
SUMMARY: It is proposed to amend the Customs Regulations to require
that a special invoice be presented to Customs for each shipment of
certain articles of steel having an aggregate purchase price over
$2,500. The additional information provided by the special invoice
would be used in the administration and enforcement of the Antidumping
Act, 1921, as amended.
DATES: Comments must be received on or before January 27, 1978.
ADDRESS: Comments should be addressed to the Commissioner of Customs,
Attention: Regulations and Legal Publications Division, U.S. Customs
Service, 1301 Constitution Avenue, N.W., Washington, D.C. 20229.
FOR FURTHER INFORMATION CONTACT:
With respect to the trigger price mechanism (described under
"SUPPLEMENTARY INFORMATION," below)# Peter D. Ehrenhaft, Deputy
Assistant Secretary and Special Counsel (Tariff Affairs),
Department of the Treasury, Washington, D.C. 20220 (262-566-2806).
With respect to other aspects of the proposal, Ben L. Irvin, Duty
2
Assessment Division. U.S. Customs Service. 1301 Constitution
Avenue. N.W.. Washington. D. C. 20229 (202-566-8121).
SUPPLEMENTARY INFORMATION:
BACKGROUND
Acting under the authority of section 201(a) of the Antidumping
Act of 1921. as amended (19 U.S.C. 160(a)). and section 153.25 of the
Customs Regulations, the Secretary of the Treasury will implement a
"trigger price mechanism" as recommended to, and approved by, the President
on December 6. 1977. The trigger price mechanism ("TPM") will consist of
four parts: (1) the establishment of trigger prices for steel mill products
imported into the United States; (2) adoption of a new Special Summary Steel
Invoice ("SSSI") applicable to imports of all steel mill products; (3)
the continuous collection and analysis of data concerning (a) the cost of
production and prices of steel mill products in the countries that are the
principal exporters of such products to the United States, and (b) the
condition of the domestic steel industry; and (4) where appropriate, the
expedited initiation and disposition of proceedings under the Antidumping
Act of 1921 with respect to imports below the trigger prices.
(1) Establishment of Trigger Prices
The Secretary of the Treasury intends to publish shortly "trigger prices
for the steel mill products so identified by the American Iron and Steel
Institute (AISI) that are imported in significant quantities. Each such
"trigger price" will be calculated from the best evidence available concerning
cost of production of that product by the industry considered to be the world1
most efficient. At this time, this has been determined to be the Japanese
s*?el Industry. Initial trigger prices are new bMng developed from
3
information collected from the six largest and some non-integrated
smaller producers, and made available to the Treasury Department^ the
Japanese Ministry of International Trade and Industry. Such data has
been adjusted to reflect yields of production and capacity utilization
over the average business cycles of three years. The establishment of a
trigger price for any particular steel mill product is not intended to
suggest that the cost of production of such product may not be higher or
lower in the case of any particular exporting company.
The Secretary will also publish a complete set of trigger prices for
the "extras" usual in the steel trade, applicable to the steel mill products
for which base prices are fixed. (Trigger prices for alloy and wire products will
be announced shortly.)
For the purposes of the trigger price mechanism, stainless steel
products, presently subject to import restraints, will be excluded from the
TPM. as will other specialty steel products which have not entered the
United States In significant quantities in the recent past, even 1f
categorized as "steel mill products." Similarly, fabricated articles and
other items not presently included as "steel mill products" by the AISI
will be excluded. However, consideration will be given to including additional products should circumstances warrant following the Initiation of
the program.
The trigger base prices and extras will be reviewed quarterly as more
current cost information becomes available. Trigger prices will be published
sometime in advance of the calendar quarter to which they will apply. The
unit invoice prices of all frnportSg whenever entered, will be compared
with the trigger prices in effect *s of the date the shipment was loaded for
export to tolled States ports. The initial trigger prices will be
,
"":'t '
"* -""pments between the i M *
f t^fr publication through
4
*
the second quarter of 1978. The application of the trigger prices to
contracts concluded before the announcement of the trigger prices will
be addressed in a subsequent notice.
For purposes of determining whether or not to initiate an investigation,
the total unit Invoice price of each import will be compared with the
aggregate trigger base price plus all extras for that product. Such unit
invoice price, as well as the base price plus extras, are to be shown on the
SSSI. The fact that any particular item reflected on the SSSI is not at or
above the trigger prices established by the Secretary will not, by itself,
result in any action by the Department.
(2) Use of the SSSI
•
I
I
I
!
I
•
•
This notice sets forth proposed regulations prescribing the use
of the SSSI in connection with Imports of all steel mill products subject
to the TPM. This form is modeled on the present Special Customs Invoice
(Customs Form SS1S), and is intended to permit the identification of base
prices and all extras. The proposed regulations would require that an
SSSI be presented for each shipment haying an aggregate purchase price over
$2,500 and containing any of the steel mill products subject to the TPM.
A duplicate copy of the SSSI will be forwarded immediately upon receipt
by the Customs Service to the Special Customs Steel Task Force in Washington
for analysis. Forms reflecting substantial or repeated shipments below
trigger prices may result in prompt informal inquiries or such other action
as the Secretary deems appropriate, as more fully described in (4) below.
It is essential to the operation of the monitoring system that exporters
forward cocunercial invoices pr.<\ the SSSIfs iumetfintely upon the export of
s
the products, so that they may arrive prior to the shipment to which they
a
PPly»
In any case, SSSIfs will be required as a condition of entry. For
shipments which are released from Customs custody under immediate delivery
procedures, importers should be aware that if they are unable to produce the
SSSI, entry may not be made and redelivery of the merchandise would be
required.
(3) Collection and Analysis of Data
Throughout the duration of the TPM, the Special Customs Steel
Task Force will collect information concerning the costs of production
and prices in the home markets (or quoted for export to third countries)
by producers in the principal steel exporting countries of the world.
Such data will be used in the periodic review of trigger prices and in the
evaluation of cases in which SSSI's reflect sales below trigger prices.
In addition, information will be collected on a continuous basis
concerning the condition of the United States industry. Data with respect
to capacity utilization, employment, profitability, shipments, shares of
the market, and other indicia of the economic condition of the industry
will be monitored to determine whether imports of steel mill products are
causing or threatening to cause injury to the United States industry.
(4)
Initiation and Disposition of Proceedings Under the Antidumping
Act
All SSSIfs reflecting imports below the trigger prices applicable to
the quarter in which the shipment was made will be evaluated by the Special
Customs Steel Task Force. Informal inquiry may then — but need not — be
pfPARTMENT OP TH£ TfteASlMV
ONITCO »1ATC* CUSTOM!I UftVIC»T
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(Prepare In Dupllnte) .
I
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wade of the importer to determine the basis for the entry below the
trigger price. Unless the Secretary is promptly satisfied, on the basis
of such informal Inquiry, that no reasonable possibility of sales at less t
fair value of such merchandise may be found, the Secretary will promptly
publish an Antidumping Proceeding Notice pursuant to section 1S3.31(a) of t
Customs Regulations. It is the intention of the Department of the Treasury
to expedite a full scale antidumping investigation of such possible sales
at less than fair value, so that a Tentative Determination as to the belief
or suspicion of the existence of such sales at less than fair value can be
made within a period substantially shorter than the six nonths provided
in section 153.32 of the Customs regulations. In appropriate cases, the
Secretary may also issue a "Withholding of Appraisement Notice" providing
for the retroactive withholding of appraisement pursuant to section 153.35£
of the Customs Regulations. In all other respects, foreign exporters,
importers and the affected United States industry will retain any and all
rights otherwise available under the Antidumping Act and its implementing
regulations.
SPECIAL SUMMARY STEEL INVOICE
A sample of the proposed new form, to be titled the "Special
Summary Steel Invoice" (SSSI), follows:
7a
INSTRUCTIONS FOR PREPARATION OF SPECIAL SUMMARY STEEL INVOICE
(on reverse side of form)
(Required for all shipments/?ron or steel valued over $2,500)
Note: Where this summary Invoice covers several types of merchandise
priced in different ways, each should be shown separately. Prepare in duplicate.
Section 1-7, 9, 10, 12, 13, 15, 16, and 19-26 may be completed in the same
manner as the equivalent sections on Special Customs Invoice, Customs Form 5515.
Section 8A. Data Price Terms Agreed: Show here the date on which the
final sales price for this shipment was agreed.
Section 8B. Date of Exportation: Show here the date on which the
merchandise left the last port In the country of exportation.
Section 11. Codes for extras: This section refers to the additional price
charged for extras other than width and length. The code(s)
for the extras shown should be reflected in section 18c, and
the amount, total for combinations of extras, should be shown
in 18d. The extras listed are expressed in terms as now
understood In the U.S. market. K-N of section 11 should be
completed for extras not itemized.
Section 14. AISI Category: This column should be completed with the
appropriate category number from the list below.
Section 17. Base Price: Show here for each steel category the base price
on which the total sales price was based.
Section 18. Extras: Show here the charge for each category of any extra
added to the base price. Use appropriate codes from section
11 where appropriate.
Category No.* Products Category No. Products
I
II
III
IV
V
VI
VII
VIII
IX
x
XI
711
XIII
XXV
XV
XVI
XVII
Ingots, blooms, billets, slabs, etc. "XVIII
Vire rods
XIX
H
Structural shapes — Plain 3 6 over XX
XXI
Sheet piling
XXII
Plates
XXIII
Rail and tract accessories
XXIV
Wheels and axles
XXV
Concrete reinforcing bars
XXVI
Bar shapes under 3"
XXVII
Bars — Hot roiled — Carbon
Bars — Hot rolled — Alloy
XXVIII
Bars ~ Cold fi,.\shed
Hollo > «5rill tttfil
XXIX
Velde-3 pipe ana lubing
XXX
Oth'ir pipe and tubing
>>XI
Round Mid shaped wire
X/XII
Flrtt vJie
Bale ties
Calvanized wire fencing
Vire nails
Barbed wire
Black plate
Tin plate
Terne plate
Sheets - Hot rolled
Sheets - Cold rolled
Sheets - Coated (incl.
galvanised)
Sheets - Coated - Alloy
Strip - Hot rolled
Strip - Cold rolled
Strip - Hot o Cold rolled -f?:y
Sheets other - Electric coated
s
AUTHORITY
The authority for the proposed amendments is R.S. 251, as amended
(19 U.S.C. 66), section 407, 42 Stat. 18 (19 U.S.C. 173), sections 481
484, 624, 46 Stat. 719, 722, as amended, 759 (19 U.S.C. 1481, 1484,
1624), 77A Stat. 14, Tariff Schedules of the United States (19 U.S.C.
1202, General Headnote 11).
COMMENTS
The Customs Service invites written comments from all interested
parties on the proposed amendments. Comments submitted will be available for public inspection in accordance with section 103.8(b) of the
Customs Regulations (19 CFR 103.8(b)) during regular business hours at
the Regulations and Legal Publications Division, Headquarters, U.S.
Customs Service, 1301 Constitution Avenue, N.K., Washington, D.C.
DRAFTING INFORMATION
The principal authors of this document were Edward T. Posse and
Paul G. Kegland, Regulations and Legal Publications Division, U.S.
Customs Service. However, other personnel in the Customs Service and
Department of the Treasury assisted in its development*
PROPOSED AMENDMENTS
PART 141 - ENTRY OF MERCHANDISE
It is proposed to amend the first sentence of section 141.81 of
the Customs Regulations (19 CFR 141.81) to read as follows:
141.81
Invoice for each shipment.
A special Customs invoice, • special summary invoice, or a
commercial invoice shall be presented for each shipment of
9
merchandise at the time of entry, subject to the conditions
set forth in these regulations. •
•
•
It Is proposed to add a new paragraph (c) to section 141.82 of
the Customs Regulations (19 CFR 141.82(e)) to read as follows:
141.82
Invoice for installment shipments arriving within a
period of 10 days.
•
*
*
•
*
(e) Special summary invoice. The provisions of this section
shall not apply if a special summary invoice is required by section
141.83(b).
It is proposed to redesignate present paragraphs (b) and (c) of
section 141.83 of the Customs Regulations (19 CFR 141.83(b), (c)) as
paragraphs (c) and (d), respectively, of that section, and to add a new
paragraph (b) to section 141.83 to read as follows:
141.83 Type of invoice required.
•
•
•
•
a
(b) Special summary invoice; A special summary invoice
shall be presented for each shipment of merchandise described in
section 141.89(b). The district may waive production of
a special Customs invoice (Customs Form S51S) if a special summary
invoice is required.
#
#'
•
•
•
10
It is proposed to amend section 141.89 of the Customs Regulations
(19 CFR 141.89) by designating the present provisions of that section
as paragraph (a) and adding a new paragraph (b) to that section to
read as follows:
141.89 Additional information for certain classes of merchandise.
*
*
*
•
«
(b) Special summary steel invoice.
(1) A Special Summary Steel Invoice (Customs Form
) shall be presented in duplicate for each shipment which
is determined by the district director to have an aggregate
purchase price over $2,500, including all expenses incident to
placing the merchandise in condition packed ready for shipment
to the United States, and which contains any of the articles of
steel listed in paragraph (b)(2) of this section. In addition
to the information required by section 141.86, the Special
Summary Steel Invoice shall set forth the following:
(A) The date price terms were agreed upon
(the date of agreement on the final sales price for the shipment).
(B) Description and cost of extras (a
description of, and the additional price charged for, extras,
other than width and length, with the extras described in terms
understood in the United^ States market).
(C) American Iron and Steel Institute (AISI)
category.
11
(D) Base price (the base price for each steel
category on which the total sales price was based).
(2) The following articles of steel are subject to the
special invoice requirements of section 141.89(b)(1):
(A)
Ingots, blooms, billets, slabs, etc.
(B) Wire rods.
(C) Structural shapes - plain 3 inches and over.
(D) Sheet piling.
(E) Plates.
(F) Rail and track accessories.
(G) Khcels and axles.
(10
Concrete reinforcing bars.
(I) Car shapes under 3 inches.
(J) Bars - hot rolled - carbon.
(K) Bars - hot rolled - alloy.
(L) Bars - cold finished.
(M) Hollow drill steel.
(N) tfelded pipe and tubing.
(0) Other pipe and tubing.
(P) Round and shaped wire.
(Q) Flat wire.
(R) Bale ties.
(S) Galvanized wire fencing.
(T) W r e nails.
12
(U) Barbed wire.
(V) Black plate.
(W) Tin plate.
(X) T e m e plate.
(Y) Sheets - hot rolled.
(Z) Sheets - cold rolled.
(AA) Sheets - coated incl. galvanized.
(BB) Sheets - coated - alloy.
(CC) Strip - hot rolled.
(DD) Strip - cold rolled.
(EE) Strip - hot and cold rolled - alloy.
(FF) Sheets other- Electric coated
It is proposed to amend the introductory clause of section 141.9
of the Customs Regulations (19 CFR 141.91) to read as follows:
141.91 Entry without required invoice.
«
If a required invoice, other than a special summary invoice
is not available in proper form at the time of entry and a waive
in accordance with section 141.92 is not granted, the entry shal
be accepted only under the following conditions: •
•
•
•
#
•
•
•
It is proposed to amend the introductory clause of section 141.91
of the Customs Regulations (19 CFR 141.92(a)) to read as follows:
13
141.92 Kaiver of invoice requirements.
(a) iflicn waiver may be granted. The district director may
waive production of a required invoice, except a special summary
invoice required by section 141.83(b), when he is satisfied that
cither: * • *
Commissioner of Customs
Approved:
DEC 2 8 1977
Acting Secretary of the Treasury
CERTIFIED COPY
CERTIFIED TO BE A TRUE COPY OF THE ORIGINAL
FOR IMMEDIATE RELEASE
December 29, 1977
TREASURY ANNOUNCES START OF
ANTIDUMPING INVESTIGATION ON PNEUMATIC MARINE FENDERS
FROM JAPAN
The Treasury Department announced today that it will
begin an antidumping investigation on pneumatic marine
fenders from Japan.
Treasury's announcement followed a summary investigation conducted by the U.S. Customs Service after receipt
of a petition filed on behalf of Seaward International/ Inc.,
of Falls Church, Virginia, and Samson Ocean Systems, Inc.,
of Boston, Massachusetts. The petition alleges that
pneumatic marine fenders, imported from Japan, are being
dumped in the United States.
Information contained in the petition indicates that
the prices of Japanese pneumatic fenders in the United States
are less than the prices of the same merchandise in the home
market. The petition also includes information that the
U.S. industry is being injured by the alleged "less than
fair value" imports. If sales at less than fair value are
determined by Treasury, the U.S. International Trade Commission will subsequently decide the injury question. Both
"sales at less than fair value" and "injury" must be determined before a dumping finding is reached.
For purposes of this investigation, the term "pneumatic marine fenders" mean* pneumatic marine fenders used
on vessels, docks and quays to absorb impact, and are
provided for under item 790.39 of the Tariff Schedules of
the United States.
Notice of the start of this antidumping investigation
appeared in the Federal Register of December 28, 1977.
The value of imports of pneumatic marine fenders from
Japan appears to amount to $3-4 million per year.
o 0 o
B-612
Contact:
FOR IMMEDIATE RELEASE
Alvin Hattal
202/566-8381
December 29, 1977
TREASURY DEPARTMENT FINDS
ICE HOCKEY STICKS FROM FINLAND ARE SOLD HERE
AT LESS THAN FAIR VALUE
The Treasury Department announced today that it has
determined, within the meaning of the Antidumping Act of
1921, that ice hockey sticks from Finland are being sold
in the United States at "less than fair value."
The case has been referred to the U. S. International
Trade Commission, which must decide within 90 days of this
determination whether a U. S. industry is being, or is
likely to be, injured by these "less than fa,ir value" imports .
Sales at less than fair value generally occur when the
prices of the merchandise sold for export to the United
States are less than the prices of the same or comparable
merchandise sold in the home market. Interested persons
were offered the opportunity to present oral and written
views prior to this determination.
Dumping results only when both sales at less than fair
value and injury have been determined.
If the Commission finds injury, a "Finding of Dumping"
will be issued and dumping duties will be assessed on an
entry-by-entry basis.
Notice of this action will appear in the Federal
Register of December 30, 1977.
Imports of ice hockey sticks from Finland during
calendar year 1976 were valued at roughly $2 million.
o
B-613
0
o
Contacts Alvin Hattal
. ,.aQa/566-8381
December 29, 1977
FOR IMMEDIATE RELEASE
TREASURY UNNOUHCBd OTMtt OF
ANTIDUMPING INVESTIGATIOHf ^W
CERTAIN STEEL WIRE NAILS FROM CANADA
The Treasury Department announced today that it will
begin an antidumping investigation on imports of certain
steel wire nails from Canada.
Treasury's announcement followed a summary investigation conducted by the U. S. Customs Service after receipt
of a petition filed on behalf of eight U. S. steel companies
alleging that these nails are being dumped in the United
States.
Information contained in the petition indicates that
the prices of the merchandise sold in the United States
are less than the prices of the same merchandise in the
home market.
The petition also includes information that a U. S.
industry is being injured by these alleged "less than fair
value" sales. If sales at less thafc fair value are determined by Treasury, then the case will be forwarded to
the U. S. International Trade Commission for an investigation to determine whether a domestic industry is being
injured by the "less than fair value" sales. Both "sales
at less than' fair value" and "injury" must be determined
before a dumping finding is reached.
Petitioners in this proceeding are: Armco Steel
Corporation, CF & I Steel Corporation, Davis WalJter
Corporation, Keystone Steel and Wire, Northwest Steel
and Wire, and Pen-Dixie Steel Corporation.
Notice of the start of this investigation will
appear in the Federal Register of December 30, 1977.
Imports of steel wire from Canada during the first
nine months of 1977 were valued at roughly $26 million.
o
B-614
0
o
TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
$ 3,071 million, or thereabouts, of 364-day Treasury bills to be dated
January 10, 1978,
and to mature
January 9, 1979
(CUSIP No. 912793 V3 7).
The bills, with a limited exception, will be available in book-entry form only,
and will be issued for cash and in exchange for Treasury bills maturing
January 10, 1978.
This issue will not provide new money for the Treasury as the maturing
issue is outstanding in the amount of $3,071 million, of which $1,594 million is
held by the public and $1,477 million is held by Government accounts and the
Federal Reserve Banks for themselves and as agents of foreign and international
monetary authorities.
Additional amounts of the bills may be issued to Federal
Reserve Banks as agents of foreign and international monetary authorities.
Tenders
from Government accounts and the Federal Reserve Banks for themselves and as
agents of foreign and international monetary authorities will be accepted at the
average price of accepted tenders.
The bills will be issued on a discount basis under competitive and noncompetitive bidding, and at maturity their par amount will be payable without interest.
Except for definitive bills in the $100,000 denomination, which will be available
only to investors who are able to show that they are required by law or regulation
to hold securities in physical form, this series of bills will be issued entirely
in book-entry form on the records either of the Federal Reserve Banks and Branches,
or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and Branches and at the
Bureau of the Public Debt, Washington, D. C. 20226, up to 1:30 p.m., Eastern
Standard time, Wednesday, January 4, 1978.
Form PD 4632-1 should be used to
submit tenders for bills to be maintained on the book-entry records of the
Department of the TreasuryEach tender must be for a minimum of $10,000.
be in multiples of $5,000.
Tenders over $10,000 must
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.
^ ' ^ (OVER)
Fractions may not be used.
-2Banking institutions and dealers who make primary markets in Government
securities and report daily to the Federal Reserve Bank of New York their positions
with respect to Government securities and borrowings thereon may submit tenders
for account of customers, provided the names of the customers are set forth in
such tenders.
Others will not be permitted to submit tenders except for their
own account.
Payment for the full par amount of the bills applied for must accompany all
tenders submitted for bills to be maintained on the book-entry records of the
Department of the Treasury.
A cash adjustment will be made for the difference
between the par payment submitted and the actual issue price as determined in
the auction.
No deposit need accompany tenders from incorporated banks and trust companies
and from responsible and recognized dealers in investment securities, for bills
to be maintained on the book-entry records of Federal Reserve Banks and Branches,
or for definitive bills, where authorized.
A deposit of 2 percent of the par
amount of the bills applied for must accompany tenders for such bills from others,
unless an express guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the Treasury of the
amount and price range of accepted bids.
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 $500,000 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 for bills to be maintained on the records
ot Federal Reserve Banks and Branches must be made or completed at the Federal
Reserve Bank or Branch on January 10, 1978,
in cash or other immediately avail-
able funds or in Treasury bills maturing January 10, 1978.
Cash adjustments
will he 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 bills (other than life insurance companies) issued hereunder must
-3include in his Federal income tax return, as ordinary gain or loss, the
difference between the price paid for the bills, whether on original issue or
on a subsequent purchase, and the amount actually received either upon sale or
redemption at maturity during the taxable year for which the return is made.
Department of the Treasury Circulars, Public Debt Series - Nos. 26-76 and
27-76, and this notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue.
Copies of the circulars and tender forms may be
obtained from any Federal Reserve Bank or Branch, or from the Bureau of the
Public Debt.
Contact:
Alvin Hattal
202/566-8381
December 30, 1977
FOR IMMEDIATE RELEASE
TREASURY DEPARTMENT FINDS
IMPRESSION FABRIC OF MAN-MADE FIBER
FROM JAPAN SOLD HERE AT LESS THAN FAIR VALUE
The Treasury Department announced today that it has
determined that impression fabric of man-made fiber from Japan
is being sold in the United States at "less than fair value,"
as defined by the Antidumping Act.
The case is being referred to the U.S. International
Trade Commission, which must decide, within 90 days, whether
a U.S. industry is being, or is likely to be, injured by these
sales. If the ITC's decision is affirmative, dumping duties
will be collected on all but two Japanese producers.
Sales at less than fair value generally occur when the
prices of the merchandise sold for export to the United States
are less than the prices of the same merchandise sold in the
home market. Interested persons were offered the opportunity
to present oral and written views prior to this determination.
With respect to the two companies excepted from this
determination, Asahi Chemical Industry Co., Ltd. is being
excluded on the basis of de_ minimis, or insignificant margins,
and Shirasaki Tape Co., Ltd. is being given a discontinuance
based upon minimal margins and assurances that all future
sales will not be at less than fair value.
Notice of this action appears in the Federal Register
of December 30, 1977.
Imports of impression fabric of man-made fiber from Japan
were valued at approximately $2.2 million during the period
October 1976 through March 1977.
#
B-616
MEMORANDUM TO THE PRESS:
December 30, 1977
Treasury officials will hold a news briefing at
3 p.m. Tuesday, January 3, 1978 in Room 4121 to announce
the steel price trigger program. Press only. Contact
Robert Nipp, Treasury Public Affairs, 566-5328.
B-617
Contact:
Alvin Hattal
(202) 566-8381
December 30, 1977
FOR IMMEDIATE RELEASE
TREASURY DEPARTMENT ANNOUNCES
THREE FINAL DECISIONS UNDER
THE COUNTERVAILING DUTY LAW
The Treasury Department today announced final actions
under the Countervailing Duty Law concerning imports of
footwear, handbags, and leather wearing apparel from Uruguay,
butter cookies from Denmark, and leather wearing apparel from
Taiwan.
In the cases affecting Denmark and Uruguay, Treasury
found that these governments subsidize the referenced exports
but is waiving countervailing duties on these items.
A final negative decision was made in the case of leather
apparel imports from Taiwan.
Under the Countervailing Duty Law, the Treasury Secretary
is required to assess an additional customs duty equal to the
amount of a "bounty" or "grant" (subsidy) paid on imported
merchandise. The law permits the Secretary to temporarily waive
countervailing duties when the following criteria are met:
(1) Adequate steps have been taken to eliminate or
substantially reduce the adverse effects of the
subsidies;
(2) Negotiations are proceeding internationally to
eliminate barriers to trade;
(3) To countervail would seriously jeopardize those
negotiations.
In the butter cookie case, Treasury found that Danish
butter cookie exports are subsidized by export "restitution"
payments made on the ingredients of the product or from reduced
prices on butter from European Community intervention stocks.
These programs fall under the Common Agricultural Policy of
B-618
-2the European Community. The Treasury decided to waive countervailing duties because the Danish butter cookie exporters
have made commitments not to accept future increases in the
subsidies mentioned above, to avoid "aggressive marketing"
of their butter cookies in the United States, and not to reduce
the CIF wholesale price for these cookies below the amount
shown on December 9, 1977. In view of the small volume of
trade ($6.7 million in 1976) and the relatively high price of
Danish butter cookies, Treasury determined that these steps
satisfied the first criterion of the waiver. Treasury's decision
also took account of the recent progress achieved in the trade
negotiations and the possible adverse effect a countervail could
have against a program under the Common Agricultural Policy of
the European Community.
Notice of this actibn will appear in the Federal Register
of January 5, '1976; ••i"fY*--l'9'76, trade volume was $6.7 million.
In the Uruguayan cases, "bounties" were found in the form
of direct export subsidies, preferential income tax treatment
on export earnings, and preferential financing. A waiver is
being granted based on actions by the Uruguayan Government to
eliminate completely the effective export subsidy on all leather
products exports within the next year, with a 50-percent reduction to occur' January-:l,r'-1978. The Government of Uruguay is
also committed to remove export subsidies for all products by
January 1, 1983. The waiver provision expires by law on
January 4, 1979^^""J-~ JNotices of the Uruguayan actions will appear shortly in
the Federal Register. During 1976, handbag imports were $1.5
million, leather apparel imports amounted to $21 million, and
footwear imports were approximately $12 million.
In the Taiwan leather apparel case, Treasury found that
leather goods exporters benefit from several programs. However, their aggregate benefit is considered to be de minimis,
or too inconsequential to have any impact on the value of the
imports. On this basis there are no "bounties" or "grants"
paid on Taiwan leather apparel imports.
Leather
Taiwan
were $28.6 million.
Notice
of theapparel
Taiwanimports
action from
appears
in in
the1976
Federal
Register of December 30, 1977.
-
• v.'"
i . ' . ' 1/
^
. ".' ,"
'»•
» <
-\ J: .-•»
#
Department of theTREASURY
WASHINGTON, D.C. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
December 30, 1977
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,202 million of 13-week Treasury bills and for $3,401 million
of 26-week Treasury bills, both series to be issued on January 5, 1978,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE-BIDS:
13-week bills
maturin
April 6, 1978
Price
Discount
Rate
98.450 a/
98.446
98.447
High
Low
Average
6.132%
6.148%
6.144%
26-week bills
maturing J u l v 6>
Investment
Rate 1/
1978
Discount Investment
Price
Rate
Rate 1/
6.31%
6.33%
6.33%
96.758
96.750
96.753
6.413%
6.429%
6.423%
6.72%
6.74%
6.73%
a/ Excepting 1 tend<er of $10,000
Tenders at the low price for the 13-week bills were allotted 100%.
Tenders at the low price for the 26-week bills were allotted 43%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTSAND TREASURY:
Location
Received
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$
Treasury
TOTALS
20,480,000
3,,633,990,000
25,370,000
45,530,000
26,400,000
29,805,000
223,645,000
41,045,000
22,485,000
24,385,000
13,660,000
260,345,000
5,985,000
$4,,373,125,000
Ac cepted
$
: Received
33,980,000
19,180,000 j• $
1,808,260,000 :: 5,041,595,000
25,370,000 ::
54,020,000
30,530,000 : :
54,440,000
22,400,000 : :
23,685,000
27,805,000 : :
13,780,000
470,025,000
114,545,000 : :
29,455,000
15,445,000 : :
15,850,000
22,485,000 ; :
24,540,000
21,680,000 :
15,295,000
13,660,000 :
530,735,000
75,145,000 :
5,985,000
:
3,145,000
$2, 202,490,000 hi S6.3in.54s.nnn
b/Includes $321,725,000 noncompetitive tenders from the public.
£/Includes $151,205,000 noncompetitive tenders from the public.
_1/Equivalent coupon-issue yield.
B-frf?
Accepted
$
18,980,000
3,229,080,000
9,320,000
9,040,000
* 7,685,000
12,780,000
30,025,000
10,255,000
9,850,000
21,540,000
14,295,000
24,915,000
3,145,000
<!VAnn.Qin nan «
Embargoed for release
untr."r after the
•briefing
January 3, 19 78
DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
NOTICE
''Trigger Prices'' for
Imported Steel Mill Products
On December 28, 1977, the Treasury Department announced
proposed rulemaking procedures with respect to regulations
applicable to the information required to be filed at the
time of importation of certain articles of steel (
Reg. 65214).
42 Fed.
As was there indicated, the Secretary intends
to implement a "trigger price mechanism" as recommended to,
and approved by, the President.
For that purpose, "trigger
prices" for steel mill products are to be published as the
basis upon which imported steel products will be monitored
for the purpose of determining whether investigations under
the Antidumping Act of 1921, as amended, 19 U.S.C. §160 et
seq., would be appropriate.
L am hereby announcing the base prices to be
used in the trigger price mechanism (TPM) for certain imported
steel mill products.
These prices are based upon
evidence made available to the Treasury Department by the
Japanese Ministry of International Trade and Industry
(MITI) concerning the current cost of producing steel in
Japan, recognized as the most efficient exporting country
today, as well as other information available to the
3-620
- 2 Department.
The data supplied by MITI were compiled by the six
major, integrated steel companies in Japan, as well as by a
number of smaller, electric-furnace steel makers.
The methodology employed in arriving at a cost of
production estimate is similar to that utilized in the
Council on Wage and Price Stability (CWPS) Report to the
President on Prices and Costs in the United States Steel
Industry, released in October 1977, but the product coverage
is different.
The individual components of the cost of producing
raw steel are totaled and then divided by the appropriate yield
factor to obtain the cost of finished steel products.
To that
figure, appropriate coefficients, expressing the average
experience of the Japanese firms in producing individual types
of steel mill products, are used to derive the costs of
those products.
The conclusions published in the CWPS" Retort
concerning costs of producing steel in Japan were based on
average data for the Japanese steel industry as a
whole, as reflected in published sources.
The figures for
the estimated costs of production being published today are
for items produced principally by the large, integrated
companies and, therefore, are based on information from
these
firms.
As a result, they differ from the estimates
published in the CWPS Report.
The data being submitted by
- 3the smaller, nonintegrated companies through MITI will be
utilized to construct the costs of production for such items
as alloy products, wire, and small structural shapes.
These cost estimates will be published shortly.
The total Japanese costs of production for the major
firms are found to be:
TABLE 1
ESTIMATED JAPANESE COST OF PRODUCTION
($ per net ton of finished product)
Raw Materials
65..19
Labor
68..56
Other Expenses
19..39
Depreciation
16,.79
Interest Plus Profit
33.83
Less Scrap Credit
-5.96
Total
1.
$297.80
The Construction of "Trigger Prices" for "Steel
Mill Products."
"Steel mill products" include a wide variety
of commodities, produced in a multitude of grades and sizes.
For each major steel mill product (excluding stainless
steel) imported into the U.S. in significant quantities,
a set of "base prices" is being or will be announced, based
upon the estimated Japanese costs of production of all steel
products.
Most of these base prices are being announced
with this Notice; others -- including alloy products, wire,
- 4 tubular and the remaining bar products -- will be announced
shortly, as soon as the necessary information is obtained
and analyzed.
Some products which are not imported in
significant quantities, or for which cost data are difficult
to obtain, may not be assigned a base trigger price.
The
Treasury Department will continually review the coverage of
the trigger price mechanism at a later date to determine the
appropriateness of the coverage of product categories.
Most imported steel mill products are sold to specifications
for width, thickness, chemistry, or surface
preparation that differ from the base product.
To establish
"trigger prices" for most of these combinations, "extra"
charges must be added to the base price.
A complete set
of charges for extras is being supplied by MITI as a
reflection of the Japanese differentials between the various
combinations.
In many cases, these "extras" charges are
similar to those charged for extras by the U.S. industry;
in others they diverge.
The Treasury Department will
publish the extras charges it will use for the trigger
price mechanism as soon as possible.
2.
Cost of Production for Basic Carbon Steel Products.
The estimated cost of production for the base products
comprising the most significant imports, as produced by
the six integrated Japanese firms, are listed in Table 2.
The Treasury estimates are based on an addition of raw
material inputs, labor expenses, overhead and a profit
margin, as well as all other capital charges for all
- 5 TABLE 2
ESTIMATED COST OF PBODUCTION INCLUDING ALL CAPITAL
(F.O.B., JAPAN)
latsgory
tober
n
Products
Scecification
CITAPGES
Dimension
— EASE ITEMS
Cost of Production
(S/Net Ton)
Wire Feds
GmmpTTrial. Quality
Welding Quality
High Carbon
Cnlri Ha^rHng Qnal-rty
in
AISI 1008
JIS G3503
SRWYLL equivalent
AISI 1065 (specific)
AISI 1038 (specific)
5.5m/m
5.5ra/m
240
241
5.5m/m
U.lm/m
280
289
Wide Flange Beams
ASTM A36
Sheet Pilings
AS331-A-372
V
Steel Plates
ASIM A36
X
Ebt-rolled Carbon Bars
AISI 1045
40 ran round x 4 meters
308
Black Plata
ASIM A-625-76
0.0083" x 34" x Coil
338
75L x 34" x C
433
17
XXII
XIII
Electrolytic Tin Plats
SR-25/25
12" x 12"
ARCH WE3 PDA-27
1/2" x 80" x 240"
235
265
241
XXV and Hsr-Polled Steel
XIX
Sheets in Coil
ASIM A569
0.121" x 48" x C
210
XVI and Cold-Polled Steel
XX
Sheets in Coil
ASIM A366
l.Om/m x 48" x C
269
M-45
0.012" x 33" x C
0.018" x 36" x C
907
488
EGC-lOg/M2
l.flrn/m x 48" x C
311
0.8m/m x 48" x C
313
75L x 34" x C
375
XVI
Electrical Steel Sheets
Grain-Oriented M-4
Non-Oriented
XVII
Electro-<^lvanized
Iron Sheets in Coil
xvn
Galvanized Iron ASTM
Sheets in Coil
SOI
A525G90
Tin Free Steel Sheets SR
in Coil
-6 steel, multiplied by an appropriate coefficient based on
the experience of the reporting firms.
3.
Importation Charges.
To the estimated cost of
production for each steel mill product consisting of its
base price and "extras," there must be added importation
costs (excluding duty) from Japan.
The resulting total.
constitutes the Treasury trigger price^
The importation
costs include Japanese inland freight, loading, ocean
freight, insurance, interest, and wharfage charges.
These
have been calculated for each broad product category on
the basis of existing data on average freight rates and
wharfage charges for each of four regions of the country -East, West, Gulf, and Great Lakes.
Insurance and interest
costs have been estimated, based on reported transactions.
The resulting importation costs for each major product
category appear in Table 3.
Importers' sales commissions
are excluded, since the "trigger price" is based upon the
cost to the importer, assuming the importer is dealing
on an arms' length basis.
To the extent the importer
is related to the producer exporting the steel mill product and the transfer price does not reflect an arms' length
transaction, the first resale price by the related importer
to an unrelated U.S. buyer will be used as the comparison
with the trigger price.
- 7-
TABLE 3
IMPORTATION CHARGES ON
JAPANESE STEEL PRODUCTS
($/net ton)
PPQDUCT
II Wire Pods
Cnrrmercial Quality
East
Lakes
Gulf
Pacific
High Carbon
East
Lakes
Gulf
Pacific
IH Wide Flange Beams
East
Lakes
Gulf
Pacific
FREIGHT
INSURANCE
INTEREST
HANDLING
TOTAL
28.13
40.83
23.59
22.69
2.69
2.82
2.65
2.64
6.73
8.66
6.62
5.10
3.63
3.63
4.54
2.72
41.18
55.94
37.40
33.15
28.13
40.83
23.59
22.69
3.13
3.25
3.08
3.07
7.87
10.06
7.76
5.98
3.63
3.63
4.54
2.72
42.76
57.77
38.97
34.46
30.85
42.65
27.22
24.50
2.66
2.78
2.62
2.60
6.57
8.44
6.48
4.97
3.63
3.63
4.54
2.72
43.71
57.50
40.86
34.79
30.85
42.65
27.22
24.50
2.96
3.08
2.92
2.90
7.31
9.35
6.56
5.53
3.63
3.63
4.54
2.72
44.75
58.71
41.24
35.65
East
Lakes
Gulf
Pacific
28.13
36.30
22.69
22.69
2.69
2.77
2.64
2.64
7.04
8.91
6.91
5.35
3.63
3.63
4.54
2.72
41.49
51.61
36.78
33.40
X BDt Polled Carbon Bars
East
Lakes
Gulf
Pacific
28.13
40.83
23.59
22.69
3.36
3.49
3.32
3.31
3.77
11.18
8.66
6.68
3.63
3.63
4.54
2.72
43.39
59.13
40.11
35.40
XXII Black Plate
East
Lakes
Gulf
Pacific
24.50
31.76
20.87
20.87
3.62
3.70
3.59
3.59
9.55
11.97
9.46
7.32
3.63
3.63
4.54
2.72
41.30
51.06
38.46
34.50
IV Sheet Piling
East
lakes
Gulf
Pacific
V Plates
- 8 TABLE 3
(continued)
PRODUCT
FREIGHT
INSURANCE
TNTTrRF.ST
HANDLING
TOTAL
xm
Electrolytic Tin Plate
East
Lakes
Gulf
Pacific
30.85
33.58
24.50
23.59
4.64
4.67
4.58
4.57
11.77
14.57
11.62
8.97
3.63
3.63
4.54
2.72
50.89
56.45
45.24
39.85
xxn
Tin Free Steel
East
Lakes
Gulf
Pacific
30.85
33.58
24.50
23.59
4.06
4.09
4.00
3.99
10.33
13.40
10.67
8.24
3.63
3.63
4.54
2.72
49.37
54.70
43.71
38.54
24.50
31.76
• 20.87
20.87
2.34
2.42
2.31
2.31
6.14
7.77
6.05
4.68
3.63
3.63
4.54
2.72
36.61
45.58
33.77
30.58
24.50
31.76
20.87
20.87
2.94
3.01
2.90
2.90
7.73
9.73
7.64
5.91
3.63
3.63
4.54
2.72
38.80
48.13
35.95
32.40
Galvanized Sheets and
Electro Galvanized
East
Lakes
Gulf
Pacific
24.50
32.67
20.87
21.78
3.36
3.45
3.33
3.34
3.91
11.21
8.82
6.84
3.63
3.63
4.54
2.72
40.40
50.96
37.56
34.68
Electrical Sheets
East
Takes
Gulf
Pacific
29.95
33.58
24.50
23.59
7.27
7.31
7.22
7.21
19.55
24.16
19.41
15.00
3.63
3.63
4.54
2.72
60.40
68.63
55.67
43.52
XXV
xxrx
Hot Rolled Sheets
East
Takps
Gulf
Pacific
XXVI
XXX Cbld Rolled Sheets
East
lakes
Gulf
Pacific
XVH
sn
- 94.
Assumptions Utilized in Estimating Japanese
Cost of Production.
a.
Exchange Rate.
All calculations have been based
upon an exchange rate of 240 yen to the U.S. dollar applied
to the most recent data made available on raw material,
labor, capital, and other costs incurred by the Japanese
steel industry.
b.
Capacity Utilization.
All calculations have
been based upon a "standard" utilization ratio of 85 percent of capacity.
While the Japanese industry is currently
operating at only 70 percent of capacity, it has averaged
more than 85 percent utilization through its business cycles
since 1956.
Therefore, a standard volume, equal to 85 percent
of capacity, is considered the appropriate basis for calculating
Japanese production costs.
c.
Labor Productivity.
All calculations have been
derived from an estimated labor usage of 7 manhours per
metric ton of raw steel produced.
At present, the entire
Japanese steel industry is utilizing nearly 10 manhours per
metric ton of raw steel, but this includes the labor-intensive
speciality steel finns.
Moreover, the Japanese industry has
reduced its employment levels by less than 1.5 percent since
1973, while it has reduced output by more than 10 percent.
During this period, the industry has made continued technological
-io progress.
Therefore, it can expand output to 85 percent of
capacity with little or no additional employment.
At this
higher level of utilization, the average manhours per
metric ton of crude steel for the entire industry would be
approximately 8.2.
Excluding specialty steel production and
eliminating labor not applied to steel-making operations,
the average manhours required at an 85 percent capacity
utilization in integrated carbon steel production has been
determined to be about 7 manhours per metric ton.
d.
Yield.
The Japanese steel industry yield
from raw steel to finished products is placed at 80% in
calculating production cost.
In the CWPS Report, the
Japanese yield was estimated to be 77.8 percent in 1976
on a U.S. product-mix basis.
The evidence obtained from
the MITI and other sources indicates that this estimate
was too low.
A study to be released next year by the International
Iron and Steel Institute, based in 3russels, demonstrates
that the Japanese steel industry obtains a yield of more
than 93 percent from raw steel to such semifinished products
asbillets, blooms, and slabs.
By contrast, the IISI study
shows that the U.S. industry obtains only an 86 percent
yield from raw steel to these semifinished products.
This
difference of more than 7 percent is attributable to more
continuous casting in Japan and Japanese experience in both
continuous casting and the rolling of ingots.
- 11 From the semifinished stage to the final product, the
Japanese industry as a whole also enjoys a considerable advantage because of computer control of rolling mills, more
precise control over the thickness of the final product,
cold scarfing techniques, longer runs, and larger coils. The
United States industry realizes an 83 percent yield from
semifinished to finished products.
A conservative
estimate of Japanese yields from semi finished products, is
86 percent.
Therefore, the Japanese yield to finished products
has been calculated as:
0.86 x 0.93 = 0.80.
This 80 percent
yield factor is used in the cost calculation in Table 1.
e. Capital costs.
Total depreciation charges per
net ton of finished products are approximately $17 for the
six largest firms.
add
Net interest expenses and a profit margin
another $34 per net finished ton.
The total before-tax
payments to capital are therefore $50.62 per net ton, or
more than 13 percent of total assets related to steel production.
This compares most favorably with the better years for the
U.S. industry in the past decade.
In the boom year of 1974,
U.S. producers realized 20 percent on assets before taxes,
but this was the only year in the past decade in which these
gross returns were greater than 15 percent.
In calculating
total charges against capital, interest charges were adjusted
to avoid double counting for the highly-leveraged Japanese
steel firms.
Total interest payments, depreciation and other
fixed charges represent overhead expenses of considerably r.cre
than 10 percent of direct costs.
- 12 f.
Scrap netback.
In calculating production costs
based upon Japanese raw materials and labor costs, it is
necessary to credit the Japanese firms for scrap or
secondary product generated.
the Japanese industry
Yield factors reported by
were not used in the calculation
of trigger prices in the belief that some of the products
considered "finished" would be regarded by U.S. standards
as low quality, perhaps not much above scrap.
However, this
low quality product must receive a cost credit based, at
the minimum, on the current market price of high quality
scrap.
So doing yields a value of $5.96 per net ton of
finished steel.
5.
Implementation of the trigger price mechanism
a.
Publication.
The trigger prices hereby established
and to be published for additional products in the near future
will be applicable to all shipments loaded for export through
the second calendar quarter of 1978.
Cost of production data
will be collected and reviewed on a continuous basis and trigger
prices will be revised on a quarterly basis to reflect changes
in costs and in exchange rates. It is the present intention
of the Treasury Department to announce trigger prices 60 to
90 days before they become applicable.
Therefore, trigger
prices applicable to shipments loaded during the third calendar
quarter in 1978 will be published during April 1978. Revised
trigger prices will be established within 5 percent above or
below any revised cost of production data where necessary to
minimize fluctuations.
- 13 -
b.
Imports below trigger prices.
Following the
date as of which the Special Steel Summary Invoice (SSSI)
is to be used for steel imports, currently estimated to be
February 15, 1978, all imports of steel mill products loaded
for export to the United States after the publication of the
relevant trigger prices will be examined by the Customs Service.
Forms reflecting substantial or repeated imports at prices
below applicable trigger prices will be investigated by the
Special Customs Steel Task Force.
If the accompanying
documentation demonstrates to the satisfaction of the Secretary
that the prices for any particular shipment were fixed before
the publication of the applicable trigger price and could
not be varied in accordance with the terms of the parties f
contract, no immediate formal investigation will be initiated
in the absence of other information indicating that such
shipments are at less than fair value, as defined in the Antidumping Act.
In all other cases in which a shipment is found
to be at prices below applicable trigger prices, the Customs
Service may initiate immediate, informal inquiries of the
importer to determine whether such sale is less than fair
value within the meaning
of the Antidumping Act.
Unless
the Secretary is satisfied within the time to be allotted
therefor, that no reasonable possibility of sales at less
than fair value may be found, an Antidumping Proceeding Notice
will promptly be published with respect to that shipment and
other shipments of such or similar merchandise from the same
exporter or from the same country of exportation as he deems
an-orooriate.
- 14 -
c.
Rights of interested parties preserved.
Imple-
mentation of the trigger price mechanism is not intended to
deny to any party interested in the importation of steel mill
products any rights it may have under the Antidumping Act or
other applicable law.
It is intended and will be used solely
to enable the Secretary to determine on an expedited basis
whether or not to initiate antidumping proceedings pursuant
to Section 153.30(a) of the Customs Regulations and to reach
the stage of making a Tentative Determination with respect
to sales at less than fair value within a period substantially
shorter than the six months provided in Section 153.32 of the
Customs Regulations.
6.
Public Comment
Comments from the public should be addressed to:
Peter D. Ehrenhaft
Deputy Assistant Secretary and Special Counsel
(Tariff Affairs)
Room 3424, Main Treasury
Washington, D. C. 20220
Anthony M. Solomon
Acting Secretary of
the Treasury
December 30, 1977
EMBARGOED FOR RELEASE
UNTIL AFTER BRIEFING
January 3, 1978
Robert Nipp
566-5328
STEEL TRIGGER PRICES ANNOUNCED
The Treasury Department today announced "trigger prices" for
imported steel mill products representing approximately 75
percent by value of U. S. steel imports during 1977.
Additional trigger prices will be announced within about two
weeks for other types of steel mill products and for the "extras"
applicable to particular steel imports.
The trigger prices consist of the Japanese cost of
production, including overhead and a profit margin, plus
shipping, insurance and handling costs to each of four U. S.
regions. Normal U. S. Customs duties and importers1 markups must
be added to the trigger prices to provide a basis for comparison
with the prices of U. S. steel products.
When imports include "extras," the trigger prices for the
relevant extras will be added to the trigger price for the basic
product.
The trigger prices were calculated based on information
supplied by the Japanese Ministry of International Trade and
Industry obtained from the six major integrated steel companies
in Japan as well as a number of smaller, electric furnace steel
makers. Comparisons with studies by the International Iron and
Steel Institute in Brussels, published Japanese industry data,
and information on the American steel industry indicate that the
figures provide a reliable basis for computing the costs of
production.
In computing the costs of production the total cost for all
raw or unfinished Japanese steel products was determined and that
sum divided by a factor reflecting the yield of finished steel
products from raw steel production.
The costs of different steel products were then determined
by applying coefficients expressing the average relationship of
the cost of producing those types of steel to production costs
for all steel.
3-621
-2Assumptions used in the calculations included the following:
1. Costs have been translated into dollars at the rate of
240 Yen to the U. S. dollar. In future quarterly revisions of
the trigger prices, a moving average of the exchange rate will be
used.
2. The calculation of costs is based on an assumed
operating ratio of 85 percent of capacity in the Japanese steel
industry. Although the industry is actually using only 70
percent of its capacity at present, it has averaged more than 85
percent capacity utilization over normal business cycles since
1956.
3. High Japanese yield factors were not used to calculate
trigger prices because some of the products considered as
finished by the Japanese would be regarded by U. S. standards as
not much above scrap. However, account was taken of this lower
quality production in a credit for scrap of $5.96 per ton of
finished steel.
The cost of raw materials was calculated as $165.19 per
finished ton, labor costs at $68.56, and other costs, chiefly
overhead, at $64.05, resulting in a total cost of production of
$297.80 per finished ton for all steel products made by the six
major integrated Japanese producers.
Depreciation charges per net ton of finished steel are
approximately $17. Net interest expenses and profit equal $34
per net finished ton. The total before-tax payments to capital
are therefore $50.62 per net ton, or more than 13 percent of
total assets. This return to capital compares favorably with the
better years for the U. S. industry in the past decade.
The attached table shows the cost of production, and the
estimated average costs for freight to the East Coast, insurance
and handling, which are added to produce the trigger prices for
17 types of steel products. Customs duties and normal importers'
markups must be added to the trigger prices in the table to
obtain delivered prices in the United States.
The weighted average of total trigger prices plus estimated
duty, using weights based on the amounts of different types of
steel imported into the United States for the first nine months
of 1977 totals $330 for steel products landed on the East Coast.
This cost, which excludes importers1 markups, is $20 or 5.7
percent below the weighted average list price of the comparable
U. S. steel products in the Eastern region of the United States.
-3The trigger prices of some of the more significant imported
products, landed on the East Coast, plus estimated Customs" duties
in comparison with current U. S. list prices are:
Trigger price plus Current U. S.
estimated Customs duties,
Eastern United States
Cold-rolled sheet $329 $333
Hot-rolled sheet
$262
Plate
$301
Tin plate
$500
Hot-rolled bars
$373
list price, Eastern
United States
$288
$324
$481
$359
When imports include "extras," the trigger prices for the
basic product will be increased by the amount of the trigger
prices for those extras.
While the impact of the trigger prices will vary from
product to product and among different markets, the calculated
costs of importation should allow domestic manufacturers to
recapture a substantial share of the market lost to imports. The
final outcome will depend in part on the pricing practices of the
American firms.
The establishment of a trigger price mechanism is a
principal component of the comprehensive program for the U. S.
steel industry recommended by a task force chaired by Under
Secretary of the Treasury Anthony M. Solomon and approved by the
President on"December 6, 1977.
Under the trigger price mechanism, all importers will be
required to submit on entry of any steel mill product a new
Special Steel Summary Invoice describing and valuing the import
in terms of a base price and relevant extras. (The regulation
implementing the use of this invoice was published in the Federal
Register on December 30, 1977.)
Invoices reflecting shipments below applicable trigger
prices will be immediately investigated by the Customs Service.
Unless the Secretary is satisfied that the revelant shipment is
not at prices below "fair value," as that term is defined in the
Antidumping Act, he may immediately initiate an antidumping
investigation. "Fair value" is generally defined by the prices
at which the same products are sold in the home market of the
exporter, provided such prices are above the cost of production
in that country. If prices in the home market are below cost of
production, the Treasury uses a "constructed value" to determine
"fair value," based on actual costs plus a minimum profit margin
of 8 percent.
-4The establishment of the trigger prices is not intended to
deny to any interested party — whether foreign exporter or
domestic producer — any rights under the Antidumping Act or
other applicable law. Therefore, foreign exporters selling at
prices below the trigger prices will be entitled to claim such
sales are not below fair value. The U. S. industry, on the other
hand, will be able to contend that sales above the trigger prices
are nevertheless at less than fair value. However, it is assumed
that sales at or above the trigger prices will not be injurious
to the domestic industry.
Dumping is defined in the 'law as the injurious sale of goods
below their fair value. Before dumping duties may be applied,
both sales at less than fair value and injury or threat of injury
to a domestic industry as a result of those sales must be found.
TABLE
Product
Cost of Production
$/Net Ton
+
Total Import Charge =
to East Coast
Total Trigger
Price
S/Net Ton
Wire Rods
Commercial Quality
240
41.18
.18
41,
281.18
Welding Quality
241
41.18
41,
,18
282.18
High Carbon
280
42.76
42,
.76
322.76
Cold Heading Quality
289
42.76
42,.76
331.76
Wide Flange Beams
235
43.71
43,.71
278.71
Sheet Pilings
265
44,.75
44.75
309.75
Steel Plates
241
41.49
41,
.49
282.49
Hot Rolled Carbon Bars
308
43.89
43,.89
351.89
Black Plates
338
41,
41.30
.30
379.30
Electrolytic Tin Plate
433
50.89
50,.89
483.89
Hot-Rolled Steel
210
36.61
36,.61
246.61
269
33.80
307.80
311
40.40
351.40
313
40.40
353.40
Grain-Oriented
907
60.40
967.40
Iron-Oriented
488
60.40
548.40
375
49.37
424.37
Sheets in Coil
Cold-Rolled Steel
Sheets in Coil
Electro-Galvanized
Iron Sheets in Coil
Galvanized Iron Sheets
in Coil
Electrical Steel Sheets
Tin Free Steel Sheets
In Coil
FOR RELEASE AT 4:00 P.M.
January 3, 1978
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $5,700 million, to be issued January 12, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,711 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,300
million, representing an additional amount of bills dated
October 13, 1977,
and to mature April 13, 1978
(CUSIP No.
912793 P7 5 ) , originally issued in the amount of $3,406 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,400 million to be dated
January 12, 1978,
and to mature July 13, 1978
(CUSIP No.
912793 S2 3 ).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing January 12, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $2,903
million of the maturing bills. These accounts may exchange bills
they hold for the bills now being offered at the weighted average
prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Except for definitive bills in the
$100,000 denomination, which will be available only to investors
who are able to show that they are required by law or regulation
to hold securities in physical form, both series of bills will be
issued entirely in book-entry form in a minimum amount of $10,000
and in any higher $5,000 multiple, on the records either of the
Federal Reserve Banks and Branches, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time,
Monday, January 9, 1978.
Form PD 4632-2 (for 26-week
series) or Form PD 4632-3 (for 13-week series) should be used
to submit tenders for bills to be maintained on the book-entry
records of the Department of the Treasury.
E-622
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
oorrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on January 12, 1978,
i n cash or
other immediately available funds or in Treasury bills maturing
January 12, 1978.
Cash adjustments will be made for
differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
FOR IMMEDIATE RELEASE
THURSDAY, JANUARY 5, 1978
CONTACT: Robert Childers (202) 634-5248
OFFICE OF REVENUE SHARING
RELEASES AUDIT GUIDE
The Treasury Department's Office of Revenue Sharing
has released its new Audit Guide for State and local governments who receive funds from both the Antirecession Fiscal
Assistance and General Revenue Sharing Programs. The new
guide reflects the requirements of both programs.
In an effort to streamline its operation and to make
the audit requirements simpler for recipient governments,
the audit and accounting requirements of both programs have
been made identical to the maximum extent possible.
The General Revenue Sharing Program provides funds to
eligible State and local governments using a formula based
on such factors as per capita income, population, local taxes
and intergovernmental transfers of funds.
B-623
-2-
The Antirecession Fiscal Assistance Program provides
funds to State and local governments on a quarterly basis.
Allocations are based on unemployment rates and general
revenue sharing amounts for the eligible recipient governments.
Copies of the Audit Guide are available from the Office
of Revenue Sharing, 2401 E Street, N.W., Washington, D.C.
20226.
- 30 -
FOR IMMEDIATE RELEASE
January 4, 1978
The United States Treasury and the Federal Reserve
Board today issued the following announcement at 1:15 EST:
The Exchange Stabilization Fund of the United
States Treasury will henceforth be utilized actively
together with the $20 billion swap network operated
by the Federal Reserve System. A swap agreement
has just been reached by the Treasury with the
Deutsche Bundesbank and is already in force. Joint
intervention by the Treasury, the Federal Reserve
and foreign central banks is designed to check
speculation and re-establish order in the foreign
exchange markets.
B-624
FOR IMMEDIATE RELEASE
January 4, 1978
RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $3,072 million of 52-week Treasury bills to be dated
January 10, 1978, and to mature January 9, 1979, were accepted at the
Federal Reserve Banks and Treasury today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Investment Rate
Price
Discount Rate
High - 93.384 6.543% 6.98%
Low
93.368
Average 93.375
(Equivalent Coupon-Issue Yield)
6.559%
6.552%
7.00%
6.99%
Tenders at the low price were allotted 37%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Received
Accepted
$
22,145,000
4,263,765,000
56,250,000
73,380,000
14,915,000
21,125,000
423,890,000
41,700,000
23,105,000
46,170,000
9,525,000
434,295,000
$
2,145,000
2,553,845,000
31,250,000
17,355,000
7,265,000
9,655,000
244,740,000
7,200,000
5,105,000
40,850,000
4,525,000
146,455,000
Treasury
1,335,000
1,335,000
TOTAL
55,431,600,000
S3,071,725,000
MlrmA^prvlls
Kansas City
Dallas
San Francisco
The $3,072 million of accepted tenders includes $121 million of
noncompetitive tenders from the public and $1,165 million of tenders from
Federal Reserve Banks for themselves and as agents of foreign and
international monetary authorities accepted at the average price.
An additional $ 84 million of the bills will be issued to Federal
Reserve Banks as agents of foreign and international monetary authorities
for new cash.
B-625
Contact: Alvin M. Hattal
202/566-8381
January 4, 1978
FOR IMMEDIATE RELEASE
TREASURY AUTHORIZES PERSONS IN THE UNITED STATES TO
SEND FUNDS TO THEIR CLOSE RELATIVES IN CUBA AND VIET-NAM
The Treasury Department today authorized residents of
the United States to send funds to close relatives in Cuba
and Viet-Nam.
In amendments to the Cuban Assets Control and Foreign
Assets Control Regulations, the Treasury authorized persons
in the United States to make remittances totaling $500
quarterly to their close relatives in Cuba, and'$300 quarterly
to their close relatives in Viet-Nam.
An additional remittance of $500 to any one close relative
is authorized on a one-time basis to assist the recipient in
emigrating from Cuba. An additional remittance of $750 to any
one close relative is authorized on a one-time basis to assist
the recipient in emigrating from Viet-Nam. The amendments do
not authorize any remittances to be made from blocked accounts.
Persons wishing to make such remittances should seek advice
as to method and current exchange rates from the foreign departments of their local banks. At the present time, remittances to
persons in Cuba are being handled through facilities of major
banks in Canada; remittances to persons in Viet-Nam are being
handled through facilities of major banks in Paris and Hong Kong.
o 0 o
B-626
DEPARTI5FTTT OF THE TREASURY
PRESS CONFERENCE
3
by
4
ROBERT T7. CRANDALL
Acting Deputy nirector of the
Council on Wacre and Pri^e Stabilitv
3
and
7
PE^ER D. EHRENnAFT
Deputy Assistant Secretary (Tariff Affairs)
3
9
10
Room 4121
Treasury Department
15th £ Pennsylvania Ave., N.TT
Washington, D. C.
11
12
tt
3:05 p.m.
January 3, in 7-
14
15
16
17
18
19
2C
21 I
;
22
23
24
25
B-U"
ti
1
. !?. 2 ?. 5 r: 2 ?\ rl r:. ?.
p
2 MR. MUITSEY: A.re there questions for
3 Mr, Ehrenhaft and Mr. Crandall?
4 QUESTIOUr Mr. Orandall, would you tell us
5 if the list nrices that vou are usina here are
I
6 *! what say the current price is, the ^ebruarv or March
nrice?
3i
M R . CRAMD^.LL*
The current price.
9 QUESTION: Would vou compare this nrice to
10 : these products with what the prices will be in ^ebruarv?
11 MR# CRANDALL• I have not done that, no.
12 I
| don't have a full list. For each one of the basic
13 products, the price will be in February.
14 t
QUESTION:
It is known that the
price
lo
increases which have been announced are 5 to 7 percent.
16
In terns of these major products, does it
17
make it in the interest o^ American firms that use
13 ! steel to import or to use domestic steel?
19 !
oroducts and compare the individual triqeer prices
20
21 i
22
Si
i
25
with the U. S. prices you see that you cannot generalise
In some cases, for instance, just the selected products
23 |
24
MR. CRANDALL: I think as vou look at these
we have on page 3 of the press release, there is quite
a bit of- difference in the difference between the
current n. S. price plus the importe-1 total trigger
3
price, including duties, but excluding importers'
markup, sav as little as S/t.no 'for co.V-roIlod sheet
to as much as £?.fi.on for hot-rolled sheet.
Tt depends upon the product I suspect.
QUESTION: *7hat are the importers' markups
usually?
MR,
CRAMHALL-
As I understand it, this var
defending upon, the source of the nroduct and the
type of product. Thev range in the 3 to A percent
range.
QUESTION: Could you explain the rationale,
referring to page 2, paragraph Mo. °, naragraoh
numbered ?, for using an assumed °r> percent operating
ratio when the actual is only 7n?
MR. CRA1TPALL: The idea is to calculate the
total cost of production for the Japanese over an
entire business cycle, not for simply the current
moment where the capacity utilization is atynicaily 1
QUESTION: You might be at a noint far
removed, from the average business cvcie -for a lonq
time. noesn't that tend to distort the real price
picture**
MR. CRANDALL* I don't know why we should
assume necessarily tfe Japanese will over the next
business cycle, subsequent business cycles, operate
A
either at a higher average capacity utilisation or
lov/er. Ta^, only thing we can b.e guided by is the
past, and over the last 2 0 years, thev have averaged
°>5 percent.
QUFSTION: Isn't the problem of import and
price cutting by foreign shippers, isn't it mdst acute
when their utilization rates are low?
MR. CRANnALL: I would think that is when
the problem is the greatest. That doesn't suarrest,
however, that in order to establish trigger prices
for Customs to administer the trade law that you would
set those on the basis of the worst case when operating
at the lowest capacity utilization.
MR. ENRETNTART' I think, as Bob indicated,
the Antidumping Act itself, which this is really
a part of, requires one to look at costs over what is
described in the law as a reasonable time, and we
have interpreted that to mean over a business cycle.
The concept o^ sellinrr below cost is a concent
that requires one to look at average costs over a
reasonable business cycle. That is what the law
presently requires us to do when we administer the
statute, and this trigger price system which is built
on that as that same concept.
QUESTION: The release save that these trigger
prices should allow domestic manufacturers to recapture
a substantial share of the market lost imports.
What is the substantial share'
MR. E7IRENIIAFT: I don't think that we would
care to or could quanitv that, although *cr. Crandall
is our numbers expert. I don't know if he has a number.
MR. CRAMRALL- !,7e certainlv don't have an
opinion as to nreciselv what the import share \70uld be,
and that depends a crreat deal uoon what happens to
domestic prices.
QUESTION.: There is no forcast of the
anticipated effect on imports?
M*. C^ANHALL: No.
QUES^IO??: Nov/ do prices, trigger trices,
compare with the prices now being charrre- bv exporters
to the United States?
MR. CRANPAT.L: Those numbers — the exchange
rate has been changing. It is rather har-1 .
r7
e have
not done a reappraisal calculation on that. I think
this is the latest numbers available, right back to
September, and the prices have been turning upward
from Japan because of the chancre in the exchange rate.
QUESTION: You don't know what adjustment
upward there will be bv the people for inporte'1 steel?
MR.
C^ANDALL:
No, we don't know that
f?
precisely.
We haven't look at all the products.
I
Am
warn you about one thing. This does not represent
tlie total of trigger prices. This represents those
products for which the six major Japanese producers
are the dominant exporters from Japan and, therefore,
6
the numbers came from them first.
7
There will be subsequent trigger' prices
G
announced for wire, alloy products, cold finished bars
9
and the like, and tubular products very shortly.
10 \\
MR. EHRET-niAFT: I would just like to make
1!
one other comment about the question of imnorters1
12
prices. I think it is important to underscore that
13
these oarticular trigger nrices were based uoon
14
information submittal concerning the cost of production
in Japan. That is all that they are, and that is what,
16
j all that we took into account in building. There was
i
no relationship between what these figures orovided and
18 |
what, actual quotations.
i!
19-
QUESTION:
20
I
21
II
22 »
people that the Japanese and the Europeans are selling
below cost, and now we have gotten production costs
plus profit margins.
<*z
24i
We had allegations ^rom the price
I want to know whether this will mean an
J increase in imnort nrices or whether thev will be the
IS ||
same ,
7
MR. EIIRENIIAFT: It was precisely because of
that that I answerer! as I did, y/hich was to say that
these trigger prices are base-"', on our calculations
based upon information submitted by the Japanese firms
concerning their cost of production, and. these were
not based upon any information that we have or might
have received with regard to the prices that would be
being charged.
QUESTION: How can you say that domestic
manufacturers are going to recapture a substantial share
of the market if they don't know how prices relate
to the prices being charged?
•*R. EHRE?T!IA^T: The concept that this was
really built upon was the assurances that we received
from the domestic industry that in the event that the
foreign exporters sold at or above the cost of production
that they would have no difficulty in competing, and
we are in essence taking them at their face value.
QT7ESTI0N: Have the American manufacturers
seen these trigger prices so far and do they buy them
more or less as being prices they can comnete with?
MR. ENRENIIART: No, they have not seen the
actual calculations. This was the concept that they
expressed and on which these prices were built, on
which the trigger price system as a whole is really
premised.
QUESTION: In layman \s terms, can you talk
as to a hypothetical example showing us how the mechanism
itself works? I don't mean a figure, but generally
the concept line?
MP.. CRANDALL: Mechanism? Are vou talking
about-QUESTION: Trigger price mechanism, for a
general audience.
MR. EHRENIIAFT: We published in the "Federal
Register" at the end of last week a new form, a special
Customs invoice that importers of steel are going to
be required to file when bringing a shipment of steel in,
and that new special invoice will identify the base
trigger price and the extras trigger prices an-1 the
cost of transportation of the particular shipment beinq
imported.
The special invoice will be examined by the
Customs personnel at the pier when the shipment arrives,
and they will compare that with the trigger prices
that we have established.
In the event that the invoice reveals that
the shipment prices are higher than the trigqer prices,
nothing further will be done at that time.
In the event that the invoice shows that the
1
sale price is below our trigger price, then a quick
2
investigation will be started and informal incuiries
3
will be made of the importer as to the reasons why
4
this particiilar shipment is below the trigger prices.
5
If an adequate explanation is provided,
nothing further will happen. In the event it appears
7
that there are significant sales, repeated sales
8
below the trigger price, then it is contemplated that
we will initiate an anti-dumoing proceeding under the
10
Act very rapidly, and that we will hopefully conclude
11
that investigation in a matter of 6^ to 9 0 days. We
12
will be collecting data all the time that will enable
13
us to do such investigation in a period shorter than
14
it now takes us, which is usually six months.
15
16
17
18
QUESTION:
If there is a finding of dumping,
then?
MR. EHRENITAFT:
If there is a findinrr of —
wh*t we do, we determine whether there are salea t
less than fair value, which is a term of art in the
Act that is described in the press release meaning that
it is sales in the United States below either the
home market price or below the cost of production, and
those are the tests that we would apply in an actual
investigation.
25
We would not be applying the trigger prices as
10
such., and if we were to determine that there are sales
at less than fair value, we can withhold the appraisement
on future imports of that product from that company,
or from that country as a whole, and we would then
have a further period of time in which to determine
finally whether those sales less than fair value exist,
ind if wc find that they do- we then refer it to
the International Trade Commission for its determination
of whether injury to a U. S. industry exists or is
threatened, and at the end of that, we then issue a
dumping finding if the I7C does find, injury.
QUESTION: In this connection, why is the
price- the estimated Custom price, below the current
American price level? I don't understand that. Can
you explain that to me?
MR. CRANDALL: Why on some occasions does it
come out below the U. S. price? Because our cost,
estimated cost of production for Japan plus what we
know of the, plus the total estimated freight, insurance,
interest, handling and duty charges from Japan to the
United States to that particular part of the country,
which, summarized in the press release, is the East Coast,
is less than the current list price in the United States.
QUESTION: Rob, could you just run over the
items that are still to come? You mentioned them very
11
rapidly.
MR. CRANEALL: Let me go over this. First
of all, we estimate the cost of production for Japan.
On your press release, the back table, it is total
import charges exclusive of Customs duties. Included
in those import charges are freight, insurance,
interest while in transit and handling at the n. s.
docks.
The duty can range from as little as $^.00
per ton specific duty to as much as 10 percent ad valore
2 percent specific duty on an item such as wide flange
beams, 10 percent on electrical sheets, in the examples
listed, and by the way, those items are those chosen
as fairly large items in terms of their relative
importance in imports.
On page 3 of yoxir press release, to that
numbers on the table, we have added an estimated
Customs duty. We have nowhere added the importers'
markup. These are based upon the sale from the exporter
to the importer. The importer normally charges some
markup, some commission for handling the goods and
selling them to the U. S. customer. That is to be
added, too, in making any valid comparison.
QUESTION: Over the whole range of these
.imports, considering also the West Coast problem, would
12
you expect that many items, most items, will have
lower trigger points than the current domestic steel
prices for comparable products?
MR. CRANEALL: As you go to the West Coast,
you will get lower trigger prices because they are
based upon transportation charges from Japan. However,
as you go to the Great Lakes, they will be somewhat
higher and in the notice you can see the difference,
on page 7 of the notice which was distributed today,
also you see the components broken down bv East Coast,
Great Lakes, Gulf or Pacific Coast, and you will notice
that there the prices would be the highest in the inland
ports in the Great Lakes.
As tothe remainder o^ the products that are
not listed today, I can't speculate, cf course.
QUESTION: Could you just list those
products again?
MR. CRANDALL: The main ones still are,
for which we have to announce something, are wire, wire
products, the tubular products, the cold finished bars,
and the allow products.
MR. EHRENIIAFT: One additional point to
be made about something still to come, the normal way
in which steel is sold, as all of us who have recently
been educated in the subject are learning, is that it
13
is sold with a base price plus extras. The extras are
separate charges for dimensions- for finishing the goods,
for treating the ends, this kind of thing, sizing, and
4
the trigger price mechanism is also constructed in
that same way. What you are getting today are the base
6 Iprice trigger prices, but we will be publishing in a
7
couple of weeks a complete extras book along the lines
S
that is usual in the steel industry, both here and
9
I abroad, which will have additional prices for the
10 dimensions of the particular steel product, how long
11 and how short, how thick, how thin, the finishing on
12 it, the ends, the sizing and that kind of thing.
13 QUESTI0?T: What bureaucracy in terms of size,
14
both imports and often down the line, all the things
15
you have been talking about, is it going to take to
16
run this thing?
17
MR. EHRENILAFT: The Custom Service estimated
13
they will be able to operate this system with
IS
approximately 30 to 35 additional people.
20
QUESTION: How about the people in Treasury
21
and in other agencies which are goinq to be involved
22
presumably on a continuing basis making the necessary
23
adjustment for the value of the yen and so on? Won't
24
that involve a lot of people as well?
25
MR. EHRENHAFT: The orincipal resoonsibilitv
l't
for the operation of this trigger price system is in
the Customs Service, and there will be a special
Customs Steel Task Force. It will have that resnonsibility, and the figure fl5 that I have given you is the
personnel in the Custom Service who will have the
6responsibility of the administration of this system.
7I think that otherwise there will be the
Speople normally at Treasury that have this job of
csupervising the Antidumping Act that, will continue
j
icI to work on it. No extra people are contemplated just
ni
for this in that connection.
12
QUESTION: Would either of you describe
:
; what the mood of the Japanese was in terms of providing
13
this information and cooperating with you?
l-c
MR. CRANDALL: I don't know that I can
15
16
characterize their mood. I can say they were most
| cooperative.
17
I
QUESTION: Did they challenge the figures or
18
19
raise any questions about what you established to be
their costs?
21
MR. CRANDALL: They have not had the opportunity
21
to do that because they haven't seen them. They came
23
here with a large delegation to aive us information
24 jj about production costs in Japan, and since that time,
25- 11 we have made our calculations.
IS
1
QUESTION: Did you find their figures turned
2
out to be the same as your own?
3
4
5
6
7
8
MR. CRANDALL: They just gave us components.
I don't know if they were trying to estimate the same
thing we were.
QUESTION: Can we go into the possibility of
steps as outlined because it indicated a process that
could run for quite a few months, 2 or 3 months just
9
to find out about fair value, beyond that, damage and
•0
so on? At what point in that process, in what way
11
would this new system create relief that the domestic
12
industry would feel? Where would that impinge?
MR. EHRENHAFT: In a few situations: first
14
of all, it has been the practice of the Treasury
15 | Department not to initiate anti-dumping proceedings
16
unless a complaint was filed, and as we indicated, in
17
order for a complaint to be filed, it has to allege
IS that there were sales below fair value, and that means
«9 the domestic company has to itself try and find out
about foreign market sales. It has to try and make
2.1estimates of foreign costs of production and put
22 J together a complaint.
23 This new system will avoid the need for the^
24
25
domestic industry to prepare complaints because we are
going to be monitoring all imports and presumably we w
Ii
1*
also be continuously collecting information about
2 ! foreign sales and foreign costs' cf production so that
3
we will be able much more rapidly than in the past to
4
initiate a formal investigation if there is evidence o
sales at less than fair value in this country.
i
Secondly, because we vn.kk be collecting the
J data on an on-going stream, we hope to be able to
3 complete our investigations in a much shorter timeframe
9 than now exists. At the present time, we almost never
10 are able to complete that investigation in less than
»
six months, and we are shooting for less than half
l<C«
j that period.
U
At the enc\ of that investigative period comes
14 t what really is the teeth of the Antidumping Act, which
15 is the withholding of the appraisement? that is the
1b point at which we say no further imports will be
17 permitted unless the imnorter posts a bond equal to the
18 margin of dumping that we have found, and that creates
13 some uncertainty in the import trade, and it requires
20 the importer to post this bend, and that is the remedy
21 that really is the most effective part of the Act.
22 You have to remember that the Act really is
22 remedial in its effect. It is intended to equalize the
24 price to this fair value.
i QUESTION: You said no further imports will be
17
1 allowed. What about the importation, the shipment,
2 that causes the process to start? Is Appraisement
3 withheld on it, or is it cleared?
4 MR. EIIRENHAFT: The merchandise that has
5 entered before usually tends to be cleared before the
6 | withholding of appraisement is announced.
However, under the lav; and under our
regulations, we do have the authority to withhold
c ap-oriasement retroactively to uncleared merchandise,
10 and if there were situations that warranted it, if
11 there were a very substantial underselling in a
particular
situation, we would utilize that authority
11".
!
13 to withhold retroactively.
Hoes that decision tentatively
1* QUESTION:
»
15 have to be made at the time the goods are coming
16 through Customs? Do you have to make a spot decision,
17 give notice?
1& .MR. EIIRENHAFT: No. That decision is made
!< !I at the conclusion^"
First, we tentatively determine
20
that there are sales of less than fair value before
21
any withholding can be ordered.
22
QUESTION: The Treasury reserves the right
23 J impose additional duties retroactively and without
prior notice?
24
25
tl
MR. EHRENHAFT: It wouldn't be without prior
to
18
notice because that retroactive withholding would
occur only after the anti-dumoing investigation had
been underway.
QUESTION: I meant without notice at the
time of importation.
MR. EIIRENHAFT : Yes .
QUESTION: Just to clarify, did you attempt
to verify the accuracy of the cost of production figures
provided by the Japanese?
MR. CRANDALL: Well, yes, certainly we
verified against other sources of information, which
would include a variety of published statistics on the
Japanese, certain checks such as the metal balance, the
balance of scrap and iron ore used in Japanese steel
production. There are published data on labor
utilization, published data on yields. We used
studies. We mentioned one in the notice, from the
International Iron and Steel Institute. We used what
we know about American costs .of production differentials
and so forth.
QUESTION: Congressman Vanik suggested these
prices are weighted and. they are not really accurate.
MR. CRANDALL: Congressman Vanifc suggested
wha-t?
QUESTION: These prices are weighted and the
10
cost nroduction figures are not reallv accurate.
MR. CRAND\LL: 1 have no response. I don't
3
know what it means to say they are weighted.
i
i
QUESTION: Could you tell us of the original
5
list of 32 products which you put out, how many will
there not be published a reference price for?
MR. EIIRENHAFT: I think there are a very
£
small group of those, primarily those that there is
very little likelihood that significant imports of
10 t
those products are coming in, and I think that tractor
accessories and wheels and axles, for example, might
ia i
1C
r
be those for which no reference prices are fixed,
oerhaos one or two others, but that is about all.
At the sametime, as you will see from today's
notice, we have broken down further some of the 3?
IC
categories that were published in the prior notice, and
\i
we have trigger prices established for a number of
V\
S subdivisions of those 3?. categories.
I
IS u
MR. CRANDALL: There will not be 3? base
20
21
prices as such. There are probably 32 base prices in
tubular products alone, which are one of your categories.
QUESTION: What percentage of imports will
*>*
not be covered by reference price?
\
MR.
CRANDALL: A very small percentage.
QUESTION: Less than five?
w
20
1
MR.
CRANDALL: I don't have a number, but
2
that
would be a good guess, yes*.
QUESTION: Do you have an overall weighted
4
trigger
price? .
MR. CRANDALL: We don't, couldn't because we
6
don't
have all the trigger prices vet. We gave you a
7
weighted
average, what we have done thus far based upon
77 import weights, but we don't have an overall yet
because we haven't yet published them for wire and
10
cold
finished bars.
11
QUESTION: How do the base prices compare
12 jj with the base orices charged bv domestic producers?
13 MR. CRANDALL: We gave you some of those
14 Ij charges, and we gave you a wide comparison.
QUESTION: Are these domestic producers in
the
right-hand column?
(O
MR.
CRANDALL: Yes.
M
QUESTION:
What happens, as I would imagine,
18
19
would
be theoretically the possibility that steel
products come in above the trigger price that are still
being dumped.
21
MR. EIIRENHAFT: dumping is a two-pronged word.
22
Dumping is the injurious sale below fair value. It
is not simply a sale below a certain price. In order
to find dumping, you have to find the sale of the
21
product is below the fair value, which I indicated
was either the home market price of the cost of
*
production, and secondly, that injury hss been caused
or threatened to a domestic industry.
The whole concept of these trigger prices is
that if imports are coming in at above these costs of
production, and the American industry ought not to be
injured and, therefore, even if in a particular case of
a particular company the sale were below its. home
market price or below its cost of production, the idea
is that there would be no injury and, therefore, there
would be no dumping.
QUESTION: Can you tell us how much of these
base trigger prices are above the base prices charged
by the foreign steel makers in the past? Does this
represent a sizable, significant increase in the costs,
in their price?
MR. EKRENIIAFT: I think that is, as
Mr. Crandall has indicated, we did not utilize past
prices by the foreign companies in coming up with these
figures, and therefore I don't really think that we
have an answer.
MR. CRANDALL: Let me go a little bit further.
One of the reasons you don't do that with the
publishings today are the basic commodities within each
22
one of these categories, the specifications listed in
the notice, these are the lower end of the value
spectrum to which extras are added, but there are no
trade statistics on these base products. There are
trade statistics on two categories which we collected,
hot and cold rolled steel. You have to know something
about what the average mix of extras is.
QUESTION: In general you can't say these
are higher than what they have been charging before?
You haven't borne out the domestic industry's complaint
that these products were being dumped?
MR. CRANDALL: No. This is not a determination
on dumping. It is an attempt to measure what the cost
of production currently is.
QUESTION: Is the l? 3*3 0.0 0 figure comparable
to the $360.00 figure that Mr. Roder gave?
MR. CRANDALL: No, it is not. The $350.0 0
figure which is utilized is the average price before
the price increases go into effect, is for all c?rbon
steel products, as I understand it.
I have never seen a precise breakdown of that
number. This is for a select subsample of lower value
products within each one of these categories.
QUESTION: You think of it as the weighted
average, total trigger prices?
23
MR. CRANDALL: They are what we are announcing
today, which are 13 prices which you have before you,
all of which are relatively basic commodities within
their own categories.
QUESTION: How much flexibility will you have
in this? Say someone shows 32o instead of 329?
MR. EHRE?THAFT: We don't intend to apply a
rigorous mechanical test to each import. I don't
think that is the intent of the lav/ or an appropriate
allocation of our resources. We are going to be looking
at this on a regular, serious basis, and to the extent
that we see any patterns emerging, constantly, would
be tested at 32R one day and the next day is 327 and
they are coming down to 326 and so on, obviously we
are going to begin to take action.
We intend to look at everything that is
mechanically below the trigger price. What formal
actions we are going to take will depend on a number of
factors that will be impossible to enumerate at this
moment.
QUESTION: How long do you expect this system
to operate, the -whole of 197fl?
MR. EIIRENHAFT: I would think it is going to
be at least all of 1973. How much longer depends on
the, a whole variety of factors. It would be impossible
2/t
to speak about now.
QUESTION: Is there an average figure for
extras for the group of products for which you
calculated the $330.00?
MR. CRANDALL: That number is not available
anywhere, to my knowledge.
QUESTION: What is the analogous figure to
the $360.00 figure?
MR. CRANDALL: You mean as far as the weighted
averages? It doesn't exist because we haven't set the
trigger prices on the remaining products, and we would
have to calculate an average mix of extras.
QUESTION: If cost of production is one test
of dumping, why isn't the trigger price a good first
approximation of a dumping value, or is it?
MR. EHRENHAFT: Well, I think to some extent
it is. The cost of production is one of the standards
that we determine whether sales are at less than fair
value.
QUESTION: Doesn't that create a prina facie
case that sales below the trigger price more likely
than not fall within the meaning of dumping?
MR. EIIRENHAFT: Could be, but you see, each
company is enabled to determine, to prove for itself
that it is not engaged in sales of less than fair value.
25
This is the cost of production of the average of the
Japanese industry as a whole during a particular
historical slice of time. Could well be there is a
company in Canada or even in Japan or Europe anywhere
that it can demonstrate that as far as its costs are
concerned, it has a lower ccst of production and, therefore
its sales, even though significantly below the trigger
prices, are not below the cost of production.
QUESTION: What will be the impact of these
trigger prices on the dumping cases already filed?
MR. EIIRENHAFT: Well, we are not applying
it mechanically one way or the other. We are going to
have to review those existing cases to determine
whether the sales that are alleged in those cases
are below fair value, and this information will be
helpful in that regard, and similarly, we are going
to have to determine, the ITC will have to determine
whether the American industry is injured or threatened
with injury in the event that sales are
»»*••
fa^^&^A'
QUESTION:
How long is it likely to take
American producers to follow a dumping case all the
way through the ITC and to the end?
MR. EHRENILAFT: The average time today is
13 months following the filing of the complaint, but
26
if you add to that the time that it takes to prepare
the complaints, probably it takes 16, 17 months.
This is intended to compress that significantly.
QUESTION: You say significantly?
MR. EIIRENHAFT: It should knock off at least
months I would say, and perhaps more.
QUESTION: You mentioned an average business
cycle in determining this R5 percent capacity. How
long is that? Five years, twenty years?
MR. CRANDALL: Business cycles vary in
length. The reason we are saying S5, we look at the
capacity utilization in Japan dver 20 years, which is
several business cycles. They have managed to maintain
the H5 percent.
QUESTION: Seven cycles, is that about three
years per cycle?
MR. CRANDALL: You can use any number you
want. The cycles vary in length.
QUESTION: How long before you get your
triggers on extras out?
MR. CRANDALL: Two weeks maybe, three weeks.
QUESTION: Will it not be impossible for the
industry to really judge the effectiveness of this in
terms of providing relief until you complete your work?
It seems to me if you can't provide an
27
analogous figure to that $360.00 fiqure which they
name, it is impossible for the-industry to determine
what kind of relief this is giving them.
MR. CRANDALL: I don't think they have to
have every last product. They can weight the thing up
and know whether it comes out to 358 or 350 or 360, but
rather they would like to see where we are coming out
on the major items, and obviously the steel plates,
rod and bar items we have in here contain a very large
percentage of imports.
QUESTION: Cold-rolled, the hot-rolled and
the plate constitutes what percentage of imports would
you say, the first three items?
MR. CRANDALL: So far this year, their total
weight in tonnage is about 60 percent.
QUESTION: What is the effective date for
this?
MR. EIIRENHAFT: Well, the effective date
as far as the trigger prices is today when we announce
it.
As far as the entire system, the trigger pric
mechanism I was describing earlier, which includes the
submission of the form at the ports and so on, that
depends on when we can get that regulation in effect.
We published the proposed form last Friday, and we
20
gave the public until January 27 to comment on that
form and on the utilization of.the form- since as always
we never get the comments until the 30th day, probably
it will take us a while to digest all the comments that
we receive, but we do hope that new form will be in
place February 15, and that will be then the rlate the
whole system is in effect.
MR. CRANDALL: Let me amend one thing I said
earlier. I said that the three items--plates, hot and
cold-rolled steel, was 60 percent of total imports. It
is 60 percent of what we are announcing today. It is
about 4 5 percent of the total imports.
QUESTION: In the past, the Council has been
responsible for reviewing regulations for inflationary
impact, and on this case, you have been drawn in from
the beginning.
I am wondering first whether you have developed.
inflation impact; second, whether you plan to, and
third, whether.you-feel the Council has been compromised
in its inflation watchdog position by participating'
in the drafting of the regulation?
MR. CRANDALL: We are participating in this
only providing technical assistance on a short-term
basis to Treasury because we have some experience with •
trying to understand the economics of the steel business.
29
«
1
This is a mechanism by which Treasury carries
out its responsibilities under .the Trade Act. This
in no way suggests that the ultimate outcome would be
4
all that much different when finally reached.
5
What we hope to do in this case is to get
6
a speedier resolution of complaints of dumping, and
7
finally, I don't feel that this is in any sense a
3
compromise of the usual functions of the Council.
QUESTION: Will you be commeiting on the
10
i
•
inflationary
impact?
11
MR. CRANDALL: No, I -Ionf t think we will be
12
commenting specifically. If in fact it is possible
13
to measure how much something like this has contributed
14
to inflation, we might do that. That would be a very
difficult task indeed.
\a
will happen
> QUESTION: What
QUESTION:
What if
wiithe U. S.
itsindustry
existingdoes not wi
domestic
17 / thdraw
18
19
anti-dumping complaints?
I
MR. EHRENHAFT: Well, if it does not withdraw,
20
we have a number of options available. First, of course,
21
is to continue to proceed with these cases to the
22
conclusion as provided by the law, and if we were to
23
find that in the historic period of investigation there
24
were sales at less than fair value, we might issue a
25
finding of that to that effect and refer the case to
30
the International Trade Commission and allow it to
determine whether there was injury that was caused by
these sales or threatened in the future.
QUESTION: Would you have the trigger price
system, or would that be the alternative to the price
system?
MR. EIIRENHAFT: Excuse me. You were asking
about the existing cases, and I think that is a bit
different than future cases that would be filed.
I think Mr. Solomon when he first made the,
presented his plan, he indicated that it would not
make sense for Treasury to both have a trigger price
system in effect and simultaneously to pursue numerous
dumping complaints, and this was intended to be an
alternative way of coping with the problem of dumping,
and I think that that is certainly a position to which
we are continuing to adhere.
With regard to the existing cases, however,
it may be slightly different, and we may pursue them
to completion and then refer them to the ITC. We may
consider discontinuing them under regulations that now
exist for the discontinuation of cases, depending
upon developing circumstances, so I don't think that
it is possible at this' juncture to say what is goina to
happen with the existing cases.
31
QUESTION: In other words, you are telling
me that I think the implication was that the industry
did have a choice. It could keep the trigger price
system and drop the existing cases. That was the
implication you left, and I think under questioning,
or pursue the existing case. You are saying that that
choce is not clear-cut, that even if the industry
decides to pursue the existing cases, which.would
cover a large percentage of imports, they may still
benefit from the trigger price system.
What you are saying is that they cannot
have the trigger price system and file new cases.
MR. EIIRENHAFT: Well, I think that the latter
part is correct, a most correct summarv of what
Mr. Solomon indicated, namely, that it would not make
sense to have the trigger price svstem and to process
numerous new cases.
With regard to the past cases, I think that
this point about, quote, pursuing cases may be a little
bit misleading because the way that the Antidumping Act
works really it isn't up to the domestic comnanv to
pursue the case or not. Once it files the complaint, "the
case is really for the Treasury Department to investigate
and the Treasury Department carries the ball thereafter.
Are we going to continue the investigation? Are we going
32
to stop the investigation? Are we going to come un
with a finding? Are we going t;o come up with a
discontinuance? It is not really up to the domestics
to pursue it or not, or for the foreigners.
QUESTION: Could you discontinue—
QUESTION: The Treasury decides whether or
not you want to implement the trigger price system if
domestic companies could withdraw their existing cases,
and again that is the implication that he left, that
you can't have both. They couldn't have both.
You are saying that they, mavbe they can have
both?
MR. EHRENIIAFT: I don't necessarily agree with
that characterization of what happens if thev did not
withdraw their case because, as I indicated, we could
discontinue whether they withdrew or not.
MR. MUNSEY: Is there a final question?
QUESTION: Did you discontinue the Gilmore
case or is that an example of one so far along you
wouldn1t?
MR. EIIRENHAFT: I am rather dubious we are
going to do that in Gilmore because we have to come up
with our final determination this Friday.
QUESTION: You mentioned trigger prices, the
same for European exporters.
33
1
MR. EIIRENHAFT: Yes.
2
QUESTION: Did you get any reaction from
3
Europe?
4
MR. EIIRENHAFT: No, we have not disclosed
5
them to anyone.
QUESTION: If the prices of, the steel prices
0
are going up in the United States, will that reflect
S
the trigger price? That means will the trigger price go
9
up?
10
MR. CRANDALL: No-. They are based upon the
11
Japanese cost of production. They are not based upon
12
U. S. domestic prices.
MR. MUNSEY: Thank you very much.
14
(Whereupon, at 3:^5 p.m., the press
15
IB
17
13
19
20
21
22
23
24
25
j conference was concluded.)
FOR IMMEDIATE RELEASE
MONDAY, JANUARY 9, 1978
CONTACT: PRISCILLA CRANE (202) 634-5248
GENERAL REVENUE SHARING AND ANTIRECESSION FISCAL
ASSISTANCE FUNDS PAID TO STATES AND LOCAL GOVERNMENTS
Approximately $2.1 billion in Federal funds is being
paid to more than 36,000 States, counties, cities, towns,
townships, Alaskan native villages, Indian tribes and American
territories by the Department of the Treasury's Office of
Revenue Sharing today.
The Office of Revenue Sharing is issuing payments totaling
$1.7 billion to 36,583 units of State and local general government in the first quarterly payment of funds for the ninth
entitlement period of the General Revenue Sharing Program.
The ninth entitlement period is equivalent to Federal fiscal
year 1978, but payments are required by law to be issued at
the end of each quarter: in January, April, July and October.
The remaining $408 million being issued by the Office of
Revenue Sharing today is being paid to 15,234 States and local
governments that qualify to receive funds for the calendar
quarter beginning January 1978 under the Antirecession Fiscal
Assistance Program (also known as countercyclical aid).
Antirecession money is allocated according to a formula which
B-628
-2-
uses quarterly unemployment data and other factors to determine amounts available to be distributed each quarter. Nearly
$9 million of the antirecession money being paid today was
drawn from excess reserve funds which had been withheld
previously to make payment adjustments.
The Office of Revenue Sharing presently is authorized
to provide general revenue sharing money to States and local
governments on a regular basis through the end of Federal
fiscal year 1980, at a current annual level of approximately
$6.82 billion.
The Antirecession Fiscal Assistance Program is authorized
through September 30, 197 8. Although funding levels for the
Antirecession program vary each calendar quarter as applicable
unemployment rates vary, the Office of Revenue Sharing estimates
the current annual payout rate to be about $1.6 billion.
- 30 -
MISSING
Treas. Press Release B-629
1-6-78
Blumenthal hears record report from U.S.
Industrial Payroll Savings Committee
Immediate Release
Monday, Jan. 9, 1978
Contact:
Jack Plum
566-2615
TREASURY DEPARTMENT ANNOUNCES FINAL DETERMINATION OF
SALES AT LESS THAN FAIR VALUE OF JAPANESE CARBON PLATE STEEL
The Treasury Department today announced a final
determination that five Japanese steel companies have been
selling carbon steel plate in the United States at prices,
compared to weighted average sales in the home market, of 5.4 to
18.5 percent less than fair value.
The case, initiated on the petition of the Gilmore Steel
Co., will now be referred to the U.S. International Trade
Commission for its determination of whether such sales have
caused or threaten injury to the U.S. industry.
Using home market prices which are above the cost of
production as the standard for "fair value", weighted average
dumping margins were found as follows:
Nippon Steel
9,,1 percent
7.,3
18..5
5,.4
13,.9
Nippon Kokan
Sumitomo
Kawasaki
Kobe
In October, the Treasury Department had tentatively
determined that sales at less than fair value had occurred. At
that time, the available information indicated that there were
insufficient sales in the home market above the cost of
production to provide a basis for comparison with export prices.
Therefore, "fair value" was based on the constructed value of
Japanese costs of production, including a mandatory 8 percent
minimum profit. When compared with this constructed value,
weighted average margins of 32 percent by all five of the large
Japanese mills were found.
Since its tentative determination, an extensive study of
Japanese steel costs has been made in connection with the
establishment of the steel trigger price mechanism.
This study, conducted by the staff of the Council on Wage
and Price Stability, was based on aggregated data obtained from
the six largest Japanese steel mills, which were checked against
other available information from U.S. and foreign sources.
B-630
-2These data are considered by the Treasury Department now to
be the "best available information" concerning Japanese costs of
production. With adjustments for differences in exchange rates,
inflation, raw material costs and capacity utilization for the
period relevant to this case, October 1976 to March 1977, they
provide the best basis for determining costs of production
applicable to this case.
Enough sales in the home market above the calculated cost of
production occurred during the period of investigation to permit
the use of home market prices as the bases for determining "fair
value."
The Treasury Department's findings are based on a single
"cost of production" figure for all carbon steel plate for all
companies and the weighted average of all home market sales
prices above that figure for each company. Home market sales
below cost of production were excluded from the calculations.
The individual import sales of each company were then
compared against these averages to obtain the dumping margins.
The margins found will be used to fix the amount of the bonds
that must be posted henceforth on imports from all Japanese
producers.
Actual dumping duties will be assessed only if the ITC
determines that injury was caused or threatened by these sales
and a final dumping finding is issued. The ITC must make its
decision within three months, after which dumping findings are
usually published within 30 days.
The amount of actual duties that importers will be required
to pay will not be based on average margins. Duties are based on
precise comparisons of sales of carbon plate of approximately the
same type (including extras) made at home and in the U.S. market
at approximately the same time. Actual dumping duties on any
particular entry may, therefore, be lower or higher than the
weighted average margins announced today.
Carbon steel plate, as covered by this finding, means
hot-rolled carbon steel plate, .1875 inches or more in thickness,
over 8 inches in width, not in coils, not pickled, not coated or
plated with metal, not clad, and not cut, pressed, or stamped to
non-rectangular shape. In calendar 1976 imports of this product
were valued at $174 million.
The text of the notice to be published in the Federal
.###.
Register is attached.
DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
CARBON STEEL PLATE FROM JAPAN
DETERMINATION OF SALES AT LESS THAN FAIR VALUE
AGENCY: U.S. Treasury Department
ACTION: Determination of Sales at Less Than Fair Value
SUMMARY:
This notice is to advise the public that an antidumping
investigation has resulted in a determination that carbon
steel plate from Japan is being sold at less than fair value.
(Sales at less than fair value generally occur when the
price of merchandise sold for exportation to the United States
is less than the price of such or similar merchandise sold in
the home market or to third countries or the constructed
value of the merchandise). This case is being referred to
the United States International Trade Commission for a determination concerning possible injury to an industry in the
United States.
EFFECTIVE DATE:
(Date of publication in the Federal Register).
FOR FURTHER INFORMATION CONTACT:
Ms. Mary S. Clapp or Mr. Stephen Nyschot, Operations
Officers, U.S. Customs Service, Office of Operations, Duty
Assessment Division, Technical Branch, 1301 Constitution
Avenue, NW., Washington, D.C. 20229, telephone (202-566-5492).
2
SUPPLEMENTARY INFORMATION:
On March 8, 1977, information was received in proper
form pursuant to section 153.26 and 153.27, Customs Regulations (19 CFR 153.26, 153.27), from counsel acting on
behalf of Oregon Steel Mills, Division of Gilmore Steel
Corporation, indicating a possibility that carbon steel plate
from Japan is being, or is likely to be, sold at less than
fair value within the meaning of the Antidumping Act, 1921,
as amended (19 U.S.C. 160 et seq.) (referred to in this
notice as "the Act"). An "Antidumping Proceeding Notice"
was published in the Federal Register of March 30, 1977
(42 FR 16883), indicating that there was evidence on record
concerning injury to or likelihood of injury to, or prevention of establishment of, an industry in the United
States. A "Withholding of Appraisement Notice" was published
in the Federal Register of October 6, 1977 (42 FR 54489).
For purposes of this notice, the term "carbon steel
plate" means hot-rolled carbon steel plate, 0.1875 (3/16)
inches or more in thickness, over 8 inches in width, not in
coils, not pickled, not coated or plated with metal, not
clad, and not cut, pressed or stamped to non-rectangular
shape.
FINAL DETERMINATION OF SALES AT LESS THAN FAIR VALUE
On the basis of the information developed in the Customs
Service investigation and for the reasons noted below,
3
carbon steel plate from Japan, is being or is likely to be
sold at less than fair value within the meaning of section
201(a) of the Act (19 U.S.C. 160(a)).
STATEMENT OF REASONS ON WHICH THIS DETERMINATION IS BASED
The reasons and bases for the above determination are
as follows:
a. Scope of the Investigation. It appears
that during the period of investigation covering
October 1, 1976 to March 31, 1977, over 70 percent
of the imports of the subject merchandise from
Japan were manufactured by Nippon Steel Corporation
(Nippon Steel), Nippon Kokan K.K. (NKK), Sumitomo
Metal Industries, Ltd. (Sumitomo), Kawasaki Steel
Corporation (Kawasaki), and Kobe Steel, Ltd. (Kobe).
Therefore, the investigation was limited to these
five manufacturers.
b. Basis of Comparison. For the purpose of
considering whether the merchandise in question is
being, or is likely to be, sold at less than fair
value, within the meaning of the Act, the proper
basis of comparison appears to be between purchase
price and home market price of such or similar
merchandise on all sales by Nippon Steel, NKK, and
Kobe, and on most sales by Sumitomo and Kawasaki.
Purchase price, as defined in section 203 of the
Act (19 U.S.C. 162), was used for most sales since
those export sales were made to unrelated Japanese
trading companies. On the remaining sales by
Sumitomo and Kawasaki, the proper basis of comparison appears to be between exporter's sales price,
as defined in section 204 of the Act (19 U.S.C. 163),
and home market price, since those sales in the United
States are made by importers who are related to
those manufacturers. Home market price, as defined
in section 153.2, Customs Regulations (19 CFR 153.2),
was used since such or similar merchandise was sold
in the home market in sufficient quantities at not
less than the cost of production to provide a
basis of comparison for fair value purposes.
4
In accordance with section 153.31(b), Customs
Regulations (19 CFR 153.31(b)), home market pricing
information was obtained for the period October 1,
1976, through March 31, 1977. Since the question
of sales prices below cost was raised, cost information was requested with respect particularly
to the period April 1, 1976, through March 31, 1977.
c. Purchase Price. For the purpose of this
tentative determination of sales at less than fair
value, purchase price has been calculated on the
basis of the f.o.b. or f.a.s. price to the unrelated
trading company for export to the United States. A
deduction has been made for inland transportation
costs included in the price.
d. Exporter's Sales Price. For the purpose of
this tentative determination of sales at less than
fair value, exporter's sales price has been calculated
on the basis of the price to the first unrelated
purchaser in the United States. Deductions have
been made for ocean freight and insurance, brokerage
charges, import duties, and for expenses incurred in
selling the merchandise in the United States.
e. Home Market Price. For the purpose of this
determination of sales at less than fair value, the
home market price has been calculated on the basis
of the delivered, net, packed price. Adjustments
have been made for interest costs, freight, reimbursements to customers for defective merchandise,
and packing cost differentials, as appropriate, in
accordance with section 153.10, Customs Regulations
(19 CFR 153.10). Adjustments for interest costs
relate to extended payment terms granted to customers
in the home market.
Additional adjustments were claimed by counsel
for differences in circumstances of sale in accordance
with section 153.10, Customs Regulations (19 CFR
153.10), for warehousing costs for inventory purposes,
salesmen's salaries and office expenses, higher
computer costs involved in following orders in the
home market, bad debts, and technical services.
These expenses do not bear a direct relationship to
5
the sales under consideration and no adjustment has
been allowed for these expenses.
Where exporter's sales price was used as the
basis of comparison, selling expenses incurred in
the home market were deducted from the home market
price, up to the amount incurred in the United
States, in accordance with section 153.10, Customs
Regulations (19 CFR 153.10).
Counsel for petitioner has claimed that sales of this
merchandise for home consumption or to third countries have
been made in substantial quantities over an extended period
of time at prices which are less than the cost of production
within the meaning of section 205(b) of the Act and which
do not permit recovery of all costs within a reasonable
period of time in the normal course of trade. Because some
evidence was received indicating that such claims may have
been well founded, it was determined that an investigation
of respondents' costs of production was warranted.
Respondents sought a hearing to contest the substantiality of the petitioner's claims and to raise alleged
conflicts between section 205(b) of the Act and the
General Agreement on Tariffs and Trade and the International
Anti-Dumping Code. No hearing was deemed necessary, however,
since (1) the evidence of possible sales below cost of
production was considered sufficiently reliable to warrant
a further inquiry which would permit the respondents to provide
6
such facts —
as they were by far in the best position to
do — to demonstrate their actual costs of production, and
(2) the mere inquiry into whether sales in the home market
or to thirdcountriesfen within the provisions of section
205(b) of the Act gave rise to no conflict with applicable
provisions of the GATT or the International Anti-Dumping
Code. There is no question that responding to requests for
information concerning costs of production may be timeconsuming and costly and that its delivery creates a possible risk of its release to competitors or other parties.
However, neither of these factors can be an acceptable
basis to the Secretary for declining to investigate allegations based upon a prima facie showing as made by the
complainant in this case. In that connection, it is
imperative to underscore, first, that the mere investigation
of the facts does not in any way suggest that the outcome of
the inquiry has been predetermined; on the contrary, an
effort is made to obtain the most complete factual picture
necessary to reach the required decisions within the time
constraints of the law. Second, the respondents are generally best able to provide the type of information
requested. However, their refusal to provide it cannot
prevent the Secretary from applying the Act on the basis
of whatever evidence he has available, including that
7
furnished solely by the complainant. And, third, serious
effort is made by the Department to assure to all parties
submitting information that may properly be considered
confidential that its confidentiality is preserved.
The respondents in this case nevertheless declined to
provide any information concerning their costs of production prior to the publication of the Tentative Determination.
Under those circumstances, relying on section 153.31(a) of
the Customs Regulations, the best evidence of costs of production was utilized in an effort to determine whether
§205(b) of the Act was applicable. Using the information
described in that Determination, including the financial
statements filed by the respondents with the Japanese
Ministry of Finance, it was tentatively determined that
virtually all sales in the home market during the period
of investigation were below what appeared to be the cost of
producing carbon steel plate. Accordingly, those sales
were disregarded in establishing "fair value." No evidence
of third country sales having been submitted, weighted
average margins of 32 percent were then found between
the constructed value of the merchandise and the applicable
purchase or exporter's sale prices of the five respondents.
Following publication of the Tentative Determination,
the respondents decided that they would furnish some
8
information regarding their costs of production.
Claiming
the effort would be complex and time-consuming, they requested an extension of the date by which a Final Determination in this case would be made.
The suggestion was
made that, analogizing to §201(b)(2) of the Act, dealing
with investigations preceding the publication of a Tentative Determination, a three-month extension should also
be possible in the making of the Final Determination.
However, the applicable section 201(b)(3) is mandatory in
fixing three months as the maximum time within which a
Final Determination must be made following publication of
a Tentative Determination.
Accordingly, the request for
an extension was denied.
The information furnished by the respondents
concerning their costs of production was not identical in
some
each case. Some have provided/data concerning costs of
raw materials, labor and similar elements of costs of
production, claimed to be drawn from the books and
records of the companies that are maintained in the
ordinary course of their business.
However, due to the
shortness of time between the submission of this data and
the date by which a Final Determination was due, it has
not been possible for Customs Service personnel to "verify"
that data pursuant to standards and procedures normally
9
followed and developed over many years of experience both
under the Antidumping Act and other customs laws.
Such
verification normally includes a comparison of the submissions made to the Customs Service with the actual books
and records of the companies, a comparison of such books
and records with underlying source documents (such as
suppliers' invoices, payroll checks and delivery receipts),
and a review of the accounting practices used to keep the
company books for conformity with generally accepted
accounting principles. However, it has not been the past
practice of the Customs Service —
nor, indeed, would it
be possible in view of the time restrictions imposed by
the law and the resources available for investigating
antidumping complaints —
to conduct what an accountant would
regard as an "audit" of respondents' operations. And the
Antidumping Act imposes no such obligation on the Treasury
Department in implementing the law.
However,.it was not
possible to follow even the normal procedures for verification
in this case.
The complainant has urged that because of their
belated submission and the lack of opportunity for normal
verification, all of the respondents* submissions be
totally disregarded.
As the Treasury Department has no
authority to require respondents to furnish information
10
and to submit to verification, the Secretary has generally
declined to consider incomplete or unverified information,
since to do otherwise may discourage cooperation in the submission and verification of data considered essential in
administering the law.
However, it would be patently self-
denying to disregard information not verified by the
methods normally used by the Customs Service if other relevant
evidence available to the Secretary tends to corroborate a
respondent's submission.
There are, in fact, instances in
which the best "verification" of cost information may be
available from sources external to the books and records
of a particular respondent.
Therefore, the complainant's
suggestion has not been followed.
A further problem is presented by other data submitted
which was even further removed from the facts, based on the
books and records of the companies, normally used to calculate
cost of production.
This data was derived by using as a
starting point a company's published financial statements,
apparently audited by independent certified public
accountants and submitted under local law to the Japanese
Ministry of Finance, and applying a series of allocations to
the aggregate cost data there reflected to arrive at a
cost of production of the merchandise relevant to these
proceedings.
The use of this technique can, of course,
lend itself to manipulation and abuse.
11
Most fundamentally, if a company, as a whole, is profitable
as a result of the sale of all products and services, and
cost allocations are based solely on sales revenues, then
no single product will be shown as having been sold at a
loss.
A company deriving significant income from wholly
unrelated activities, for example, the sale of securities
held in portfolios, could thereby purport to demonstrate
that no losses were experienced in steel plate operations
even if more traditional cost accounting practices would
clearly demonstrate a contrary result.
Nevertheless, as with "unverified" cost data submitted,
the Secretary is not required to disregard information
submitted in this form, if it can be corroborated from
other sources.
And, indeed, it would be anomolous to
disregard it entirely and, at the same time, use the same
financial statements submitted to the Ministry of Finance
as the "best available evidence" of costs —
as was done at
the time of the Tentative Determination.
The present case is unique in that at the very time
it has been under consideration, the Treasury Department
has been establishing a "trigger price mechanism" (TPM) to
monitor the prices of imported steel mill products. As
reflected in Federal Register notices published on December 30,
1977 (42 Fed. Reg. 65214) and January 9, 1978 (43 Fed.
Reg.
), this mechanism is based upon determinations of the
costs of producing steel in Japan, including the carbon
12
plate that is the subject of these proceedings.
The cost
of production has been calculated on the basis of submissions made by the six largest steel companies in Japan,
including the five respondents in this case, to the
Japanese Ministry of International Trade and Industry and
transmitted, in aggregate form, to the U.S. Treasury Department.
These cost figures were analyzed and corroborated by
the staff of the Council on Wage and Price Stability.
It has been concluded that the information developed
in the context of establishing the "trigger prices"
for the TPM, appropriately adjusted for the time period
under investigation in this case, constitutes the "best
available evidence" of the cost of producing the subject
merchandise by respondents.
Information submitted by re-
spondents has been examined and has also been taken into
consideration to the extent it is not inconsistent with
the information from which the "trigger prices" were
calculated.
The company data was used primarily in deter-
mining the appropriate relationship between the cost of
producing finished steel products and the cost of producing
the merchandise subject to this investigation by all the firms
in the aggregate.
The cost of production thus established has been compared with the home market prices of each of the five companies under investigation.
Any sale made at a price less
than such cost of production has been disregarded and the
remaining sales, made at not less than the cost of production,
12-B
have been utilized in determining the appropriate home
market price for each company.
In each instance, the
remaining, above-cost sales representing at least 10>f
of all sales during the period, were deemed adequate for
the purpose of establishing a foreign market value for
that respondent.
Counsel for petitioner has claimed that possible additional dumping margins may have been created by sales below
13
the cost of acquisition by trading companies which export
carbon steel plate from Japan and also sell this merchandise
to ultimate users and other home market purchasers.
Information relevant to this claim was collected from
trading companies accounting for more than 60 percent of
the subject merchandise exported to the United States by
the respondent manufacturers. Examination of this information indicated that in virtually all instances sales to
unrelated United States buyers were made at prices equal
to or greater than the cost of acquisition plus the relevant
selling, shipping and other related expenses. It has therefore been determined that no basis exists to deviate from the
normal practice of examining pricing behavior at the primary
level of trade. Therefore for purposes of this determination, prices of the five respondent manufacturers in the
home market and for export to the U.S. have been utilized
for fair value comparison purposes.
f. Result of Fair Value Comparisons. Using
the above criteria, purchase price or exporter's
sales price was found to be lower than the home
market price of such merchandise. Comparisons were
made on a significant portion of the subject merchandise sold to the United States during the
investigative period. Weighted average margins
over the total sales compared for each firm
were approximately 9.1 percent for Nippon Steel,
7.3 percent for NKK,i8.5 percent for Sumitomo,
5.4 percent for Kawasaki, and 13.9 percent for
Kobe.
14
The Secretary has provided an opportunity to known
interested persons to present written and oral views
pursuant to section 153.40, Customs Regulations (19 CFR 153.40).
The U.S. International Trade Commission is being
advised of this determination.
This determination is being published pursuant to
section 201(d) of the Act (19 U.S.C. 160(d)).
Immediate Release
Monday, Jan. 9, 1978
Contact:
Jack Plum
566-2615
TREASURY ANNOUNCES TENTATIVE FINDING OF SALES
AT LESS THAN FAIR VALUE OF STAINLESS STEEL PIPE AND
TUBING FROM JAPAN
The Treasury Department today
that four Japanese steel companies
stainless steel pipe and tubing in
compared to weighted average sales
percent below fair value.
Two other Japanese companies were
below fair value.
announced a tentative finding
have been selling welded
the United States at prices,
in the home market, of 1 to 12
found not to have sales
Stainless steel products are not included in the
Administration's recently announced trigger price system since
imports of these products are partially subject to quotas.
Appraisement for the purpose of determining customs duties
on imports from all Japanese companies, except one, has been
suspended for six months. Importers must immediately post bonds
to cover any dumping duties that may result from a final
determination of dumping.
The Treasury Department must make a final determination of
sales at less than fair value within 90 days. If sales at less
than fair value are finally determined, the International Trade
Commission has 90 days to determine whether the imports cause or
threaten injury to a domestic industry.
If a final determination of sales at less than fair value
and a finding of injury are made, dumping duties generally equal
to the difference between the price of the merchandise in the
home market and an unrelated importers' purchase price, will be
imposed for each shipment after the tentative finding.
The finding resulted from a complaint filed with the ITC by
nine American companies which prompted a reopening by the
Treasury Department of a previously discontinued anti-dumping
investigation.
The Treasury Department's investigation found dumping
margins ranging from .5 to 20 percent, with a sales weighted
average of about 4 percent, for Yamato Industries Co., Ltd.;
margins from .4 to 17 percent, with a sales weighted average of
1 percent for Nisshin Steel Co., Ltd.; margins of .4 to 12
percent, with a sales weighted average of 1 percent for Stainless
Pipe Industries, Ltd., and margins of .9 to 42 percent, with a
sales weighted average of 12 percent, for Tokyo Nishimura Kogyo
Co., Ltd•
B-611
-2Since no margins were found on sales by Toa Seiki Co., it
was excluded from the withholding of appraisement. In addition,
no margins were found on sales by Brasiment Industries Corp.
However,the company did not supply sufficient information about
home market sales and sales in the United States to qualify for
exclusion at this stage.
The six companies account for 85 percent of the stainless
steel pipe and tubing exported from Japan to the U r \ l t e d ^ f ^ * . ft
The tentative finding of sales at less than fair value applies to
all Japanese producers unless they are specifically excluded.
The Treasury Department found that five of the six companies
have sufficient sales in the Japanese market at prices at or
above their cost of production for comparison with their export
prices. Because of significant home market sales by Yamato
Industries Co., Ltd. at prices below cost, Treasury u t l ^ " J f.
"constructed value" in measuring whether that company was selling
steel in the United States at less than fair value.
The American companies bringing the complaint were Acme Tube
Inc., Allegheny Ludlum Steel Corp., Armco Steel Corp., Bristol
Medals, inc., Carpenter Technology Corp., Colt Industries, Inc.,
Consolidated Metals Corp., and Sharon Steel Corp.
In calendar 1976, imports of welded stainless steel pipe and
tubing from Japan were valued at $10.7 million. The text of the
notice to be published in the Federal Register is attached.
-I-
DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
WELDED STAINLESS STEEL PIPE AND TUBING FROM JAPAN
ANTIDUMPING
WITHHOLDING OF APPRAISEMENT NOTICE
AND EXCLUSION FROM ANTIDUMPING INVESTIGATION
AGENCY: U.S. Treasury Department
ACTION: Withholding of Appraisement
SUMMARY:
This notice is to advise the public that an
antidumping investigation has resulted in a tentative
determination that welded stainless steel pipe and tubing
from Japan are being sold at less than fair value under
the Antidumping Act, 1921, as amended. Sales at less than
fair value generally occur when the prices of merchandise
sold for exportation to the United States are less than
the prices in the home market. Appraisement for the
purpose of determining the proper duties applicable to
entries of this merchandise, with the exception of one
manufacturer, will be suspended for 6 months. Interested
persons are invited to comment on this action.
EFFECTIVE DATE:
(Date of publication in the Federal Register)
-2FOR FURTHER INFORMATION CONTACT:
Richard Rimlinger, Operations Officer, Duty
Assessment Division, U.S. Customs Service, 1301 Constitution
Avenue, N.W., Washington, D.C. 20229, (202-566-5492).
SUPPLEMENTARY INFORMATION:
On March 2, 1977, the U.S. International Trade
Commission ("Commission") notified the Secretary of the
Treasury that pursuant to sections 334 and 337(b)(3), of
the Tariff Act of 1930, as amended (19 U.S.C. 1334 and
1337(b) (3)), a complaint had been filed with the Commission
on November 15, 1976, which might involve matters coming
under the purview of the Antidumping Act, 1921, as amended
(19 U.S.C. 160, et seq.) (referred to in this notice as
"the Act"). This complaint, which formed the basis of an
investigation instituted by the Commission under section
337 on February 1, 1977, concerned stainless steel pipe
and tubing entering the U.S. under item 610.3720 of the
Tariff Schedules of the United States Annotated. It was
filed by counsel acting on behalf of Acme Tube Incorporated,
Somerset, New Jersey; Allegheny Ludlum Steel Corporation,
Pittsburgh, Pennsylvania; Armco Steel Corporation, Advanced
Material Division, Baltimore, Maryland; Bristol Metals, Inc.,
Bristol, Tennessee; Carpenter Technology Corporation, Tube
-3Division, Union, New Jersey; Colt Industries, Inc.,
Trent Tube Division, East Troy, Wisconsin; Consolidated
Metals Corporation, Dover, New Jersey; and Sharon Steel
Corporation, Damascus Tubular Products Division, Greenville,
Pennsylvania.
A previous antidumping investigation concerning
welded stainless steel pipe and tubing from Japan had
resulted in a "Notice of Discontinuance of Antidumping
Investigation" which was published in the Federal Register
of November 22, 1972 (37 FR 24838). On the basis of the
information supplied by the Commission, a "Notice of
Reopening of Discontinued Investigation" was published in
the Federal Register of March 30, 1977 (42 FR 16883), and
an investigation has been conducted to enable the Secretary
of the Treasury to determine whether there are reasonable
grounds to believe or suspect that there are, or are likely
to be, sales to the United States at less than fair value,
as required by section 153.33(g) of the Customs Regulations
(19 CFR 153.33(g)).
The Secretary concluded that a Tentative Determination
could not reasonably be made within the usual six-month
period and the investigatory period in this case was
therefore extended to no more than nine months pursuant to
a "Notice of Extension of Investigatory Period" published
-4in the Federal Register on October 6, 1977 (42 FR 54491) .
TENTATIVE DETERMINATION OF SALES AT LESS THAN FAIR VALUE
On the basis of the information developed in
Customs investigation and for the reasons noted below,
pursuant to section 201(b) of the Act (19 U.S.C. 160(b)),
I hereby determine that there are reasonable grounds to
believe or suspect that the purchase price or the exporter's
sales price of welded stainless steel pipe and tubing from
Japan, other than that produced by Toa Seiki Co., Ltd.,
for export to the United States, is less, or is likely to
be less, than the fair value, and thereby the foreign
market value, of such or similar merchandise, or the
constructed value of such imported merchandise.
STATEMENT OF REASONS ON WHICH THIS DETERMINATION IS BASED
a. Scope of the Investigation. It appears that
85 percent of imports of the subject merchandise
from Japan was manufactured by: Stainless Pipe
Industries Ltd., Toa Seiki Co., Ltd., Yama-to Industries
Co., Ltd., Brasimet Industries Corp.,. Ltd., Tokyo
Nishimura Kogyo Co., Ltd., and Nisshin Steel Co.,
Ltd. Therefore, the investigation was limited to
these six manufacturers.
b. Basis of Comparison. For the purpose of
considering whether the merchandise in question is
being, or is likely to be sold at less than fair
value within the meaning of the Act, the proper
basis of comparison appears to be between purchase
price and the home market price of such or similar
merchandise on sales by Stainless Pipe Industries
Ltd., Toa Seiki Co., Ltd., Brasimet Industries
Corp., Ltd., Tokyo Nishimura Kogyo Co., Ltd., and
-5Nisshin Steel Co., Ltd., and between purchase
price or exporter's sales price and the constructed
value of the imported merchandise on sales by Yamato
Industries Co., Ltd. Purchase price, as defined
in section 203 of the Act (19 U.S.C. 162), was used
for five manufacturers since all export sales by
those five companies appear to be made to non-related
customers in the United States. Purchase price
was also used for certain sales by Yamato Industries
Co., Ltd., where the merchandise was purchased by
a non-related Japanese trading firm for export to
the United States. Exporter's sales price as
defined in section 204 of the Act (19 U.S.C. 163)
was used for those sales in which a related importer
acted as the seller of the merchandise.
Prices, in the country of exportation as
defined in section 153.2, Customs Regulations
(19 CFR 153.2), were used for fair value purposes
with respect to Stainless Pipe Industries, Ltd.,
Toa Seiki Company, Ltd., Brasimet Industries
Corporation, Ltd., Tokyo Nishimura Kogyo Company,
Ltd., and Nisshin Steel Company, Ltd., since such
or similar merchandise appears to be sold in the
home market in sufficient quantities at prices
equal to or above the cost of production to provide
an adequate basis of comparison. With regard to
Yamato Industries Company, Ltd., information
indicates that a significant number of sales in the
home market are made a prices below the cost of
production and that remaining sales, made at
prices above the cost of production, provide an
inadequate basis for fair value comparisons. Since
there do not appear to be sales to third countries
of such or similar merchandise, the fair value was
based on constructed value as defined in section
206 of the Act (19 U.S.C. 165).
In accordance with section 153.31(b), Customs
Regulations (19 CFR 153.31(b)), pricing and cost
of production information was obtained concerning
export and appropriate home market sales of welded
stainless steel pipe and tubing from Japan during
the period October 1, 1976, through March 31, 1977.
-6c. Purchase Price. For purposes of this
tentative determination, purchase price has been
calculated on the basis of the f.o.b. port, f.a.s.
port, or ex-g°-down, packed price to the United
States, or to the unrelated trading company as
appropriate, with deductions for inland freight,
insurance, and shipping charges as appropriate.
d. Exporter's Sales Price. For purposes of
this Tentative Determination, exporter's sales
price has been calculated on the basis of the c.i.f.,
duty paid, ex-dock, packed price to the unrelated
United States customers, with deductions for Japanese
shipping charges, ocean freight, insurance, brokerage,
wharfage, United States import duties and selling
expenses.
e. Home Market Price. For purposes of this
Tentative Determination, home market price has been
calculated on the weighted-average delivered packed
price to unrelated purchasers with deductions for
inland freight, differences in payment terms, and
differences in packing cost. Adjustments were also
made for differences in merchandise as appropriate.
In the case of Nisshin Steel Co., Ltd., claims
were made for deductions from home market prices
for smaller lot sales, shorter lead times, differences
in warranty cost, and differences in merchandise.
All claims have been disallowed at this time due
to insufficient supporting evidence.
f. Constructed Value. For purposes of this
Tentative Determination, constructed value for
Yamato has been calculated on the basis of the sum
of the cost of the materials and of fabrication of
the merchandise, as provided by that manufacturer, a
statutory minimum amount for general expenses and
profit pursuant to section 206(a)(2)(A) and (B) of
the Act (19 U.S.C. 165(a)(2)(A) and (B)), and the
cost of all containers and coverings used to pack
the merchandise ready for shipment to the United States.
g. Result of Fair Value Comparisons. Using the
above criteria, preliminary analysis suggests that
purchase price and/or exporter's sales price probably
-7will be lower than the home market price of such
or similar merchandise, and/or the constructed
value of the imported merchandise. Comparisons
were made on approximately 5 3 percent of the total
sales of the subject merchandise to the United
States by all manufacturers investigated for the
period under consideration. Margins were tentatively
found ranging from 0.5 to 20 percent for sales
made by Yamato Industries Co., Ltd., on 72 percent
of the sales compared, ranging from 0.4 to 17 percent
for sales made by Nisshin Steel Co., Ltd., on 22
percent of the sales compared, ranging from 0.4 to
12 percent for sales made by Stainless Pipe Industries
Ltd., on 29 percent of the sales compared, and ranging
from 03 to 4 2 percent for sales made by Tokyo
Nishimura Kogyo Co., Ltd., on 96 percent of the sales
compared. Weighted-average margins for each firm's
sales compared were approximately 4 percent for
Yamato Industries Co., Ltd., 1 percent for Nisshin
Steel Co., Ltd., 1 percent for Stainless Pipe
Industries Ltd., and 12 percent for Tokyo Nishimura
Kogyo Co., Ltd. Tentatively, no margins have been
found on sales by Toa Seiki Co. Ltd., and Brasimet
Industries Corp. Based upon the absence of margins
on over 88 percent of its exports to the U.S. and
the fact that Toa Seiki Co., Ltd. appears to be
honoring the price assurances it gave in 1972, it
has been determined that this firm should be excluded
from this Withholding of Appraisement under section
153.38, Customs Regulations (19 CFR 153.38).
Insufficient information has been supplied by Brasimet
Industries Corp. with regard to home market sales
and sales to the U.S. to qualify for an exclusion
at this stage in the proceedings.
It is not contemplated at this time that the
merchandise subject to this investigation will be
covered by the "trigger price mechanism" (TPM)
Accordingly,
are being
directed
to
established. Customs
The TPM officers
is described
in Federal
Register
notices
publishedofonwelded
December
30, 1977
(42 FR
65214)
withhold
appraisement
stainless
steel
pipe
and
and January 9, 1978 (43 FR1464 )
tubing from Japan, other than that produced for export to
-8the United States by Toa Seiki Co., Ltd., in accordance
with section 153.48, Customs Regulations (19 CFR 153.48).
In accordance with section 153.40, Customs Regulations (19 CFR 153-40), interested persons may present
written views or arguments or request in writing that
the Secretary of the Treasury afford an opportunity to
present oral views.
Any requests that the Secretary of-the Treasury afford
an opportunity to present oral views should be addressed
to the Commissioner of Customs, 1301 Constitution Avenue,
N.W., Washington, D.C. 20229, in time to be received by
his office not later than 10 days from the date of publication of this notice in the Federal Register.
Such
requests must be accompanied by a statement outlining
the issues wished to be discussed, which issues may be
discussed in greater detail in a written brief.
All written views or arguments should likewise be
addressed to the Commissioner of Customs in time to be
received in his office no later than 30 days from the
date of publication in the Federal Register.
All persons
submitting written views or arguments should avoid repetitious and merely cumulative material.
Counsel for the
petitioner and respondents are requested to serve all
- 9 written submissions on all other counsel and to file their
submissions with the Commissioner of Customs in ten copies.
This notice, which is published pursuant to section
153.35(b), Customs Regulations (19 CFR 153.35(b)), shall
become effective on the date of publication. It shall
cease to be effective at the expiration of 6 months from
the date of this publication, unless previously revoked.
JAN 0 6 1378
ourisei ~o3: the Treasury
TELEPHONE 566-2041
, D.C. 20220
January 9, 1978
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,301 million of 13-week Treasur) bills and for $3,400 million
of 26-week Treasury bills, both series to be issued on January 12, 1978,
were accepted at the Federal Reserve Banks and Treasury today. T h e details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
13-week bills
maturing April 13. 1978
26-week bills
maturing July 13. 1978
Discount
Rate
Discount
Rate
Price
High
Low
Average
98.320 a/
98.309
98.311
6.646%
6.690%
6.682%
Investment
Rate 1/
6.85%
6.90%
6.89%
Price
96.552b/
96.524
96.538
6.820%
6.876%
6.848%
Investment
Rate 1/
7.16%
7.22%
7.19%
a/ Excepting 2 tenders totaling $1,745,000
b/ Excepting 1 tender of $100,000
Tenders at the low price for the 13-week bills were allotted 67%.
Tenders- at the low price for the 26-week bills were allotted 63%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
$
34,285,000
Boston
3,386,215,000
New York
32,580,000
Philadelphia
91,525,000
Cleveland
44,440,000
Richmond
48,065,000
Atlanta
327,510,000
Chicago
45,390,000
St. Louis
20,625,000
Minneapolis
48,525,000
Kansas City
22,630,000
Dallas
313,355,000
San Francisco
Accepted
$
32,635,000
1,750,140,000
32,580,000
66,825,000
38,790,000
48,065,000
106,510,000
25,390,000
13,975,000
42,335,000
22,630,000
113,545,000
Received
Accepted
$
$
45,215,000
4,144,800,000
18,695,000
38,270,000
44,430,000
19,275,000
452,055,000
44,020,000
33,415,000
41,790,000
23,145,000
450,090,000
j
Treasury
7,625,000
7,625,000
TOTALS
$4,422,770,000
$2,301,045,000c/
4,480,000
$5,359,680,000
c/ Includes $428,850,000 noncompetitive tenders from the public.
d/ Includes $204,120,000 noncompetitive tenders from the public.
1/Equivalent coupon-issue yield.
B-632
38,215,000
2,535,800,000
18,695,000
38,270,000
44,430,000
19,275,000
323,355,000
36,170,000
33,415,000
41,79p,0i)0
18,145,000
248,090,0JD0
•
4,480,000
$3,400,130,000d/
Contact:
Carolyn M. Johnston
(202)634-5377
FOR IMMEDIATE RELEASE January 9, 1978
TREASURY SECRETARY BLUMENTHAL NAMES ROBERT P. BARNETT
SAVINGS BONDS CHAIRMAN FOR DELAWARE
Robert P. Barnett, Executive Vice President, ICI Americas
Inc., has been appointed Volunteer State Chairman for the
Savings Bonds Program by Secretary of the Treasury W. Michael
Blumenthal, effective immediately.
He succeeds John M. Martin, Chairman of the Board,
Hercules Incorporated.
Mr. Barnett will head a committee of state, business,
financial, labor, media, and governmental leaders, who — in
cooperation with the Savings Bonds Division — assist in
promoting the sale of Savings Bonds.
Mr. Barnett is a 1942 graduate of Duke University. He
served in the U.S. Marine Corps during World War II and, in
1947, he received a law degree from Duke University. He
joined Atlas Chemical Industries in 1951 and served in various
executive positions. In July 1961 he was elected Vice President. After the merger of ICI Americas and Atlas Chemical
Industries, he was elected Executive Vice President of ICI
Americas. In July 1974, when ICI Americas became ICI United
States, he was named President of the company. In 1975 he
assumed the position of Chairman & President, ICI United States
Inc. In September 1977, when ICI Americas Inc. combined within
a single corporation with ICI United States Inc., Mr. Barnett
became Executive Vice President of ICI Americas Inc.
Mr. Barnett1s professional memberships include Delaware
State Chamber of Commerce, Delaware and American Bar Associations, the board of directors and the executive committee of
the Wilmington Medical Center. As Ail-American football player
during his college career, he also received the 1966 Sports
Illustrated Silver Anniversary All-America Award.
B-633
Contact:
FOR IMMEDIATE RF.T.KASE
Carolyn M. Johnston
(202) 634-5377
January 9, 1978
TREASURY SECRETARY BLUMENTHAL NAMES DONALD P. KELLY
SAVINGS BONDS CHAIRMAN FOR ILLINOIS
Donald P. Kelly, President and Chief Executive Officer,
Esmark, Inc., Chicago, has been appointed Volunteer State Chairman
for the Savings Bonds Program in Illinois by Secretary of the
Treasury W. Michael Blumenthal, effective inmediately.
Mr. Kelly succeeds William B. Johnson, Chairman of the Board,
IC Industries, Inc., Chicago.
Mr. Kelly will head a conmittee of state, business, financial, •
labor, media and governmental leaders, who — in cooperation with
the Savings Bonds Division — assist in promoting the sale of
Savings Bonds.
Mr. Kelly attended Loyola University, DePaul University and
Harvard, majoring in accounting and finance. He joined Swift &
Company in 1953 as Manager, Data Processing, and became successively,
Assistant Controller, Controller, and Vice President, Corporate
Development and Controller. In 1970 he became Financial Vice
President and Director. Upon reorganization of Swift & Company on
April 30, 1973, fir. Kelly became Financial Vice President and
Director of Esmark, Inc., and currently he serves as President
& Chief Executive Officer.
Mr. Kelly is on the Board of Trustees of Michael Reese
Hospital and Medical Center, Chicago; the Illinois Institute
of Technology and IIT Research Institute, Chicago. He is a member
of the Advisory Council, College of Business Administration,
University of Notre Dame; the National Industrial Energy Council;
the Economic Development Coirmission; the Conmunications Conmittee
of Chicago, and the Economic Club of Chicago. Mr. Kelly is married
and has two sons and a daughter.
B-634
Contact:
Carolyn Johnston
(202) 634-5377
FOR IMMEDIATE RELEASE January 9, 1978
TREASURY SECRETARY BLUMENTHAL APPOINTS DALE B. WRIGHT AS NEW
SAVINGS BONDS CHAIRMAN FOR MARYLAND
WASHINGTON — Secretary of the Treasury W. Michael
Blumenthal has appointed Dale B. Wright, President and
General Manager, WMAR, Inc. as Volunteer State Chairman
for the Savings Bonds Program in Maryland. The appointment
is effective immediately.
Mr. Wright will head a committee of business, banking,
labor, government and media leaders who, in cooperation
with the U.S. Savings Bonds Division, will assist in promoting
bond sales throughout the state. He succeeds Mark F. Collins,
Publisher, Baltimore News-American.
Mr. Wright is a native of Ohio and a graduate of
Wesleyan University. He joined WMAR-TV in 1964 as an Account
Executive and then moved on to a variety of positions including Traffic Manager, Assistant Sales Manager, Business Manager,
Acting Sales Manager, and Program Director. In June of 1976
he assumed his present position of General Manager.
Mr. Wright serves on the boards of Goodwill Industries,
Inc. and the Epilepsy Association of Central Maryland. In
addition, he is a member of the Advertising Club of Baltimore
and Secretary of the Maryland-D.C.-Delaware Broadcasters
Association.
B-635
FOR RELEASE AT 4:00 P.M.
January 10, 1978
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $5,700 million, to be issued January 19, 1978.
This offering will not provide new cash for the Treasury as
the maturing bills are outstanding in the amount of $5,711
million. The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,300
million, representing an additional amount of bills dated
October 20, 1977, and to mature April 20, 1978 (CUSIP No.
912793 P8 3 ) , originally issued in the amount of $3,403 million
(an additional $3,004 million was issued on December 2, 1977),
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,400 million to be dated
January 19, 1978, and to mature July 20, 1978 (CUSIP No.
912793 S3 1 ) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing January 19, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,117
million of the maturing bills. These accounts may exchange
bills they hold for the bills now being offered at the
weighted average prices of accepted competitive tenders.
The bills will be issued on a discount basis under
competitive and noncompetitive bidding, and at maturity their
par amount will be payable without interest. Except for
definitive bills in the $100,000 denomination, which will be
available only to investors who are able to show that they
are required by law or regulation to hold securities in physical
form, both series of bills will be issued entirely in bookentry form in a minimum amount of $10,000 and in any higher
$5,000 multiple, on the records either of the Federal Reserve
Banks and Branches, or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time,
Monday, January 16, 1978. Form PD 4632-2 (for 26-week
series) or Form PD 4632-3 (for 13-week series) should be
used to submit tenders for bills to be maintained on the
book-entry records of the Department of the Treasury.
•p - TT5U
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
oorrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on January 19, 1978,
in cash or
other
immediately
funds
in
Treasury
bills
maturing
differences
accepted
January
19,
in exchange
between
1978. available
the
Cash
and par
the
adjustments
value
issueor
of
price
the
will
maturing
of be
the
made
new
bills
for
bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
Departmental theTREASURY
WASHINGTON, D.C. 20220
TELEPHONE 566-2041
RELEASE ON DELIVERY
January 11, 1978
REMARKS BY THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
AT THE
U.S. INDUSTRIAL PAYROLL SAVINGS COMMITTEE MEETING
DIPLOMATIC FUNCTIONS SUITE, STATE DEPARTMENT
WASHINGTON, D.C.
Thank you for the report, Bill.
thanks for your dedicated service.
Let me express our sincere
To acknowledge your efforts on our behalf, it is now my
pleasure to present a number of awards.
First, to the outgoing 1977 committee. Will all the 1977
members please stand? In grateful appreciation of your service
to the payroll savings program, we would like to present each of
you with the Department of Treasury 1 s silver medal of merit.
I would also like to read one of the letters that
accompanies this award. Each letter differs, of course,
depending upon your assignment. This letter is to our 1977
Rubber Industry Chairman, Chuck Pilliod, and I would like to ask
him to step forward at this time.
"Dear Mr. Pilliod:
"The U.S. Industrial Payroll Savings Committee
had an exceptional year in 1977. While exceeding
its challenging goal of enrolling 2.5 million new or
increased savers, the Committee helped raise the
sale of Payroll Saver denomination E Bonds to $5
billion.
"You, as chairman for the Rubber Industry,
played an important role in these accomplishments.
You made a significant contribution to the financial
security of our citizens and of the Nation.
"It is with great pleasure and gratitude that I
present to you the attached Medal of Merit, with one
B-637
-2service star representing your previous year of
distinguished service on the Committee."
I would now like the savings bonds people to present the
various chairmen with their individual silver medals of merit.
The second group of awards I have goes to the distinguished
past chairmen of this committee.
If Frank Milliken, 1964 National Chairman, will please come
forward, I would like to read the inscription on this Minuteman
plaque.
FOR PATRIOTIC SERVICE
U.S. SAVINGS BONDS PROGRAM
FRANK R. MILLIKEN
JANUARY 11, 1978
Our other former chairmen present who will receive their
Minuteman plaque by mail — are George Stinson for 1976, Gabriel
Hauge for 1975, John deButts for 1974, Mil Batten for 1973, Don
MacNaughton for 1972 and Lynn Townsend for 1966. My thanks to
all of you.
Finally, I have two awards for Bill Miller, our campaign
leader for 1977, and now chairman-designate of the Federal
Reserve Board.
This was my first Savings Bonds drive as Secretary of the
Treasury and having Bill Miller as volunteer National Chairman
was a real pleasure. Thanks to his energy and dedication, the of
Committee contributed greatly to the sale of almost $8 billion
Series E and H Bonds in 1977. This was the best sales level
since 1945 and $400 million more than in 1976.
Bill, if you will come up here, I would like to present you
with this framed parchment citation. It reads, in part:
"G. William Miller, Chairman, U.S. Industrial
Payroll Savings Committee, for exceptional
achievement in the 1977 Payroll Savings Campaign,
'Take Leadership in the Nation — Take Stock in
America.•
"His generous service is in the finest
tradition of the volunteer spirit that
characterizes the Savings Bonds Program."
I also have for you this gold medal of merit.
-3Although I have no formal awards for them, I would like at
this time to express my deepest thanks and appreciation to Azie
Taylor Morton, National Director of the Savings Bonds Division;
Jesse Adams, Deputy Director; Jack Niles, Director of Sales;
Chuck Goodall, Executive Secretary of the Committee; and the
entire Savings Bonds division staff, for their support of this
committee. Without their help and guidance, the year's results
would not have been possible.
In 1978, U.S. Savings Bonds will continue their important
role for this nation's financial stability — as a dependable,
long-term foundation for our national debt.
The total U.S. debt, as of December 31, was $719 billion.
Of that, an estimated $258 billion is held by Federal Reserve
Banks and government trust accounts. This leaves $461 billion in
privately-held debt. And $77 billion of that — a significant
portion — are in Savings Bonds.
These bond holdings are important because they form the most
stable part of the debt. Marketable securities, for example, are
held for not quite three years, on the average, while savings
bonds are held for almost six years.
So Savings Bonds are important from a national viewpoint.
But their importance to individual Americans should never be
underestimated.
Millions of people find this an ideal savings method. A
University of Michigan poll shows that more than one-third of all
American households own savings bonds. It is safe, automatic,
easy, liquid, with competitive interest rates. And the
tax-deferral advantage — buyers pay taxes on interest only when
they redeem Savings Bonds — is another incentive.
The heart of the bond program is payroll savings. Some 9.5
million men and women save this way. These people are the prime
market for your committee.
Earlier, I called Savings Bonds a government program. I
should correct myself because, while we provide staff direction
and backup, 99 percent of all bond sellers are volunteers. There
are an estimated 670,000 volunteers, with many of the top ones in
this room today.
I'd like briefly to mention another important volunteer
group, the Advertising Council. Its professional assistance and
donated space are the equivalent of $75 million worth of
advertising yearly — an immense benefit in our work for bonds.
So as you begin the 1978 campaign, I want to thank you for
your efforts, and to wish you good luck. I hope that you too
will receive a strong sense of personal satisfaction from your
efforts.
-4At this point, I'd like to devote the rest of my remarks to
the state of the economy. With Bill Miller here — about to take
over as Fed Chairman — and with some of the most important
figures in American business here, I feel obligated to take
advantage of this captive audience.
And it's an appropriate subject. For just as we made solid
progress in our savings bond program last year, we also made
solid progress in our economic situation.
We can look back on a year in which we achieved over 5-1/2
percent growth in real GNP, bringing our recovery into its fourth
year. We have reduced the unemployment rate by over 1 percentage
point creating nearly 4 million new jobs during the year.
We ended 1977 with strong retail sales, after some slow-down
in consumer demand around midyear. Housing starts were above the
two million rate year end and building permits were at the
highest level of the recovery.
Not that we didn't also have serious problems, of course.
Our underlying inflation rate of 6 to 6-1/2 percent and
unemployment rate that persists around 7 percent are much too
high. Our trade deficit and lagging rate of business fixed
investment are two other causes for concern.
But despite these problems, we are starting 1978 in a strong
position, with the prospect of gradual, solid improvements across
the economic front.
The expansion shows no real signs of imbalance that could
signal its end, and we are aiming for real growth this year of
about 4-1/2 to 5 percent and further reductions in both
unemployment and inflation.
So we are going ahead this year with consistent, steady,
prudent economic policies that increase take-home pay, improve
profits and allow planning for long-term investment. This
implies, and amounts to, a strong reliance on the private sector
to sustain the growth of the economy and create new jobs.
Later this month, President Carter will announce the
economic game plan he intends to carry out this year. I'll leave
it to him to announce the detailed program. But it's no secret
that the centerpiece will be tax proposals which would include a
major reduction of individual and business taxes.
Once the program is announced, I think that you'll be
pleased with the balance we've struck.
-5The program balances the need for long-sought reforms with
the immediate need for a tax reduction.
The program will include tax cuts for individuals at
virtually all income levels, providing needed relief to taxpayers
and an added boost to consumer demand. The proposals will make
the system somewhat more progressive.
The program also balances the needs of individual taxpayers
with those of business. Roughly one-third of the tax reductions
will be for corporations, to increase their after-tax profits and
encourage new job-producing investments.
Moreover, the balance we struck will mean a tax bill that
stands a much better chance for passage in Congress this year.
Although the program contains substantial reforms, the tax
package has been designed in a form that can be handled by
Congress this year.
An immediate goal of the tax proposals is to stimulate the
economy in the later part of 1978, when we expect the expansion
to slow down. The effect of higher Social Security taxes, and
probably higher energy costs, will then be exerting a drag on the
economy. And our current economic stimulus program, which relied
heavily on public spending to create jobs, will then be having a
diminishing impact.
The tax proposals, however, represent not only an additional
and timely stimulus measure. They also represent a shift in
emphasis from public to private spending to create permanent
jobs.
Moreover, don't overlook the fact that our proposals call
for structural change beyond the immediate purpose of stimulating
the economy. We are aiming for permanent, across-the-board tax
cuts for business and individuals^ not just temporary cuts
scheduled to expire later.
They should be clear signals to you of the Administration's
determination to restrain the growth of government spending as a
share of GNP. For the private economy to grow, it needs room to
grow, with the assurance that taxes will not consume an
increasing share of the national income.
When the President announces the rest of the economic
program, you will see that the parts add up to a meaningful
overall strategy to encourage orderly, steady growth.
The 1979 Federal budget he will send to Congress reflects
this same concern for caution and restrain. Despite the many
requests from departments for increases, he has held the line.
-6On inflation, he will be addressing some of its basic causes
by starting at home — keeping down Federal spending and reducing
unnecessary regulation of business, reducing some taxes which
directly add to consumer costs, and seeking better labormanagement cooperation.
He will be addressing our balance of payments problem by
emphasizing passage of an effective energy program, and watching
closely the other factors which contribute to that deficit.
Finally, the appointment of Bill Miller to the Fed should
signal to you that we are serious about our private-sector
orientation. Bill was chosen because of his strong business
background and grasp of our economic problems. I look forward to
working with him.
As I said earlier, we are relying heavily on the private
sector for solutions to these probelms, without using the heavy
hand of government intervention.
In closing, let me say that the successful orientation of
our policies has come about because of the active involvement of
the business community in our decision-making. We need more of
that this year. So I ask you again for your support and
cooperation, to help make 1978 another successful year for our
economy.
oOo
Department of theJREASURY
WASHINGTON, D.C. 20220
TELEPHONE 566-2041
FOR RELEASE AT 4:45P.M.
January 12, 1978
TREASURY TO AUCTION $3,250 MILLION OF 2-YEAR NOTES
The Department of the Treasury will auction $3,250
million of 2-year notes to refund $2,239 million of notes
held by the public maturing January 31, 1978, and to raise
$1,011 million new cash. Additional amounts of these
notes may be issued at the average price of accepted
tenders to Government accounts and to Federal Reserve Banks
for their own account in exchange for $27 2 million maturing
notes held by them, and to Federal Reserve Banks as agents
of foreign and international monetary authorities for new
cash only.
Details about the new security are given in the
attached highlights of the offering and in the official
offering circular.
oOo
Attachment
B-638
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 2-YEAR NOTES
TO BE ISSUED JANUARY 31, 19 78
January 12, 1978
Amount Offered:
To the public
Description of Security:
Term and type of security
Series and CUSIP designation
Maturity date January 31, 1980
Call date
Interest coupon rate
$3,250 million
2-year notes
Series K-1980
(CUSIP No. 912827 HJ 4)
No provision
To be determined based on
the average of accepted bids
Investment yield To be determined at auction
Premium or discount
To be determined after auction
Interest payment dates
July 31 and January 31
Minimum denomination available
$5,000
Terms of Sale:
Method of sale
Accrued interest payable by
investor
Preferred allotment
Deposit requirement 5% of face amount
Deposit guarantee by designated
institutions
Key Dates:
Deadline for receipt of tenders
Settlement date (final payment due)
a) cash or Federal funds
b) check drawn on bank
within FRB district where
submitted
c) check drawn on bank outside
FRB district where
submitted
Delivery date for coupon securities.
Yield auction
None
Noncompetitive bid for
$1,000,000 or less
Acceptable
Wednesday, January 18, 1978,
by 1:30 p.m., EST
Tuesday, January 31, 1978
Friday, January 27, 1978
Wednesday, January 25, 1978
Tuesday, January 31, 1973
January 16, 1978
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
v
Tenders for $ 2,300 million of 13-week Treasury bills and for $3,401 million
of 26-week Treasury bills, both series to be issued on January 19, 1978,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
13-week bills
maturing April 20. 1978
26-week bills
maturing July 2Q, 1978
Discount
Rate
Discount
Rate
Price
High
Low
Average
Investment
Rate 1/
98.352 a/ 6.520% 6.72%
98.346
6.543%
6.75%
98.348
6.535%
6.74%
Price
96.593
96.578
96.583
6.739%
6.769%
6.759%
Investment
Rate 1/
7.07%
7.11%
7.10%
a/ Excepting 3 tenders totaling $900,000
Tenders at the low price for the 13-week bills were allotted 100%
Tenders at the low price for the 26-week bills were allotted 3%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
$
31,260,000
Boston
3,699,355,000
New York
22,590,000
Philadelphia
43,070,000
Cleveland
33,700,000
Richmond
38,980,000
Atlanta
383,250,000
Chicago
51,765,000
St. Louis
14,940,000
Minneapolis
38,260,000
Kansas City
22,165,000
Dallas
310,575,000
San Francisco
Treasury
10,345,000
TOTALS $4,700,255,000
Accepted
Received
Accepted
$
26,260,000
1,886,295,000
21,590,000
40,440,000
24,700,000
33,980,000
80,250,000
24,400,000
5,940,000
35,170,000
19,165,000
91,265,000
$
42,500,000
4,598,540,000
45,415,000
111,825,000
28,455,000
19,555,000
351,705,000
34,420,000
30,035,000
22,475,000
13,960,000
340,860,000
$
23,500,000
2,808,575,000
29," 965,000
66,600,000
•25,455,000
19,315,b00
174,420,000
11,710,000
9,035,000
21,775,000
13,960,000
191,910,000
10,345,000
4,580,000
$2,299,800,000b/
$5,644,325,000
b/Includes $479,655,000 noncompetitive tenders from the public
^/Includes $200,315,000 noncompetitive tenders from the public
1/Equivalent coupon-issue yield.
B-639
4,580,00^)
$3,400,800,00,
Immediate Release
Monday, January 16, 1978
Contact:
George Ross
566-2356
TREASURY ANNOUNCES NEW IRS RULINGS
ON FOREIGN TAX CREDITS
The Treasury Department today announced the issuance of
three Internal Revenue Service revenue rulings concerning the
credits that U.S. businesses may take against their U.S. income
taxes for taxes paid to foreign countries.
One of these rulings concludes that amounts received by
Libya from U.S. oil companies operating in that country are not
foreign income taxes and therefore may not be credited against
U.S. income taxes. Today's ruling revokes an inconsistent 1968
ruling involving Libya.
Today's ruling also revokes a 1955 IRS ruling on the basis
of which payments to Saudi Arabia under a posted price svstem
have been treated as income taxes that may be credited by U.S.
oil companies against their U.S. income taxes.
The ruling issued today will take effect for taxes paid or
accrued by the companies in their taxable years beainning after
June 30, 1978. When an IRS ruling is revoked, the"generai rule
is that the revocation takes effect only for the future.
Revocations are not retroactive because taxpayers are entitled to
rely on an IRS ruling until the IRS concludes that the rulinq is
no longer valid.
A principal basis for the conclusion of the ruling is the
use of posted prices in computing the companies' tax payments.
"Posted prices" are an arbitrary price which exceeds the market
price of oil. They have been used to determine the oil
companies' income, raising their nominal income and their foreign
tax liabilities above the levels that would result from actual
market prices.
no
The
B-640
iay
-2information as to the current system employed by Saudi Arabia and
has not been asked to determine the effect that revocation of the
1955 ruling will have on foreign tax credits claimed under a
system not involving posted prices.
Foreign income taxes may be credited against income taxes
owed to the United States. In determining whether a foreign tax
qualifies as an income tax that can be credited against U.S.
taxes, the U.S. Supreme Court has held that U.S. standards apply.
The IRS ruling finds the Libyan and Saudi Arabian taxes have been
in conflict with important U.S. standards of when a foreign tax
may be used as a credit:
* The purpose of a foreign income tax must be to reach "net
gain" and the tax must be structured so as to be almost certain
of doing so. Thus, a foreign levy is not an income tax as
defined under United States standards if it is intentionally
structured to tax artificial or fictitious income, as is the case
with tax systems that use mechanisms such as the posted price.
* A foreign tax can be credited only if it is imposed on
income that is "realized." Income under the Libyan system is not
"realized" within the meaning of this standard since taxes are
imposed even if sales are not made.
Under the ruling issued today, payments under the posted
price system could be deducted from gross income in determining
income subject to U.S. tax. Before today's ruling, such payments
offset, dollar for dollar, taxes the companies would have owed to
the United States.
For example, assume that on $100 of taxable income by U.S.
standards the U.S. tax is $48 and the tax paid to a foreign
government is $85. Prior to the ruling, the foreign tax credit
would fully offset the U.S. tax of $48 (and leave an excess
credit of $37, which could be used against U.S. tax on other
lower-taxed oil extraction income from foreign sources, if any).
After the ruling takes effect, the U.S. tax would be 48 percent
of $15 (100 - 85) or $7.2, compared to a tax of zero before
today's ruling.
Under the conditions that have prevailed in the past, the
use of a credit rather than a deduction for amounts paid by U.S.
oil companies to Libya and Saudi Arabia resulted in tax benefits
of approximately $600 million in 1976, the most recent year for
which data is available. The revocation of the ruling does not
imply that the amount of such tax benefits will necessarily be
eliminated or reduced. That determination cannot be made without
full information about the foreign tax laws that will apply to
actual operations in taxpayer fiscal years beginning after June
30, 1978. Also, it is not known if the affected companies could
reorganize to avoid the effect of the revocation.
-3Although it is not now known if any tax increase will result
from the revocation of the 1955 and 1968 rulings, if there were
such an increase, it could be absorbed by the oil companies or by
the producing countries or passed on in the form of higher
product prices. The increase in gasoline prices attributable to
the maximum conceivable tax increase would be less than one-tenth
of a cent per gallon.
Today's ruling resulted from an extensive general review of
the foreign tax credit conducted over the past four years.
Today's decision was made in the normal course of
administering U.S. tax laws and the conclusion reached in the
ruling was required by statute and court decisions. The IRS's
recommendations were reviewed by Treasury Secretary W. Michael
Blumenthal before the ruling was issued by IRS Commissioner
Jerome Kurtz.
Two other rulings dealing with the issue of when foreign
taxes may be credited against U.S. tax liabilities are also being
issued today. The first of these denies a tax credit for a
mining tax imposed by the Province of Ontario, Canada. The
Ontario tax was found in conflict with U.S. standards concerning
income taxes:
* The foreign tax on trade or business income must permit
the deduction of the generally significant expenses incurred in
producing that income. The failure to allow such deductions
conflicts with the U.S. rule that income taxes must be designed
to reach "net gain."
* The foreign tax must be imposed on the receipt of income
by the taxpayer rather than on transactions such as sales or the
exercise of a privilege or a franchise such as exploiting natural
resources.
The IRS concluded that this tax is an excise or privilege
tax, rather than an income tax, and therefore may not be credited
against U.S. income taxes.
The third ruling reviews a number of court cases and IRS
rulings, reverses outstanding positions allowing credits for
certain Haitian, French, Indian and Cuban taxes, and reaffirms an
existing ruling allowing credit for a Mexican tax on mineral
royalties. This ruling also reviews pertinent court cases and
generally discusses the principles of the U.S. foreign tax
credit.
Copies of the ruling with respect to Libya and the
accompanying rulings are attached to this news release and will
be published shortly in the Internal Revenue Bulletin.
-4Taxpayers who desire guidance as to whether particular
foreign taxes are creditable may request a ruling from the
Internal Revenue Service in accordance with the procedures of
Revenue Procedure 72-3, which is published at 1972-1 Cumulative
Bulletin, page 698 and Revenue Ruling 67-308, which is published
at 1967-2 Cumulative Bulletin, page 254.
oOOo
News
Internal Revenue Service
Public Affairs Division
Washington, D C 20224
For Release: M o n . , Jan. 16, 1978
5:05 P.M. EST
Media Contact: Tel. (202) 566-4024
Copies:
Tel. (202) 566-4054
IE-1937
Washington, D.C.--Three new rulings relating to the foreign tax
credit were today issued by the Internal Revenue Service. These rulings
result from the continuing IRS study of the creditability of amounts
paid to foreign governments.
The three new rulings (Revenue Ruling 78-61 through 78-63) are
attached and will appear in Internal Revenue Bulletin No. 1978-8,
dated February 21, 1978.
PART I
SECTION 901.—TAXES OP FOREIGN COUNTRIES AND OP POSSESSIONS
OP UNITED STATES
26 CPR 1.901-1: Allowance of credit for taxes
(Also Section 903; 1.903-1.)
Rev. Rul. 78-61
Advice has been requested whether the tax imposed by
section 3(1) of the Ontario Mining Tax Act, being chapter
275 of the Revised Statutes of Ontario, 1970, as amended
by Chapter 14 of the Mining Tax Amendment Act of 1971 (the
Act), is an income tax within the meaning of section 901(b)
of the Internal Revenue Code of 195^.
If the profit of a mine located in the Province of
Ontario exceeds $50,000, section 3(1) of the Act imposes
an annual tax of 15 percent on all the profit of such mine
including the first $50,000 of such profit.
Section 3(3) of the Act defines the term "profit" as:
(a) the amount of the gross receipts from the
output of the mine during the taxation year;
or
(b) in case the ore, mineral or mineral bearing
substance, or a part thereof is not sold but
is treated by or for the owner, holder,
lessee, tenant, occupier, or operator of the
mine, the amount of the actual market value
of the output at the pit's mouth; or
(c) if there is no means of ascertaining the
actual market value of the output at the
pit's mouth, the amount at which the mine
assessor appraises such output...;
less the expenses allowed by section 3(3)(d) through (n) of
the Act. (Emphasis added.)
- 2 The term TTpitfs mouth" refers to the loading point
at the mine's ground level of the conveyor or other transportation facility that delivers a mineral substance to
the pick-up point for shipment from the mine property to
market or that delivers it to- the treatment or manufacturing
plant.
The term "output" is defined by section l(i) of the
Act as all mineral substances:
raised, taken or gained from any mine or
land in Ontario which (a) have been sold,
or (b) have been incorporated in a manufacturing process, or (c) have been treated
or partially treated at any mill, smelter
or refinery on or off the mining premises
from which they were taken, and the product
thereof has been sold.
The Act is designed to tax only the profit derived from
the extraction of output in Ontario (the "mining function")
in contrast' with the profit attributable to manufacturing
that output (the "manufacturing function") or concentrating,
milling, smelting, refining, or otherwise treating that
output (the "treatment function"). Because profit from the
mining function is essentially the value of output at the
pit's mouth reduced by deductions for allowable expenses,
it is necessary under the Act to determine the aggregate
value at the pit's mouth of output (a) that is sold without
treatment or manufacture, (b) that is incorporated in a
manufacturing process, and (c) that is treated and then sold.
Output that is sold without treatment or manufacture
is described in section l(i) of the Act as "...mineral
substances... which have been sold." Under section 3(3)(a)
the value of output sold without treatment or manufacture
is the gross sales receipts received therefor. The value
of such output is included in computing the mining profit:
for the taxable year in which the output is sold.
Output incorporated in a manufacturing process is
described in section l(i) of the Act as "...mineral substances... incorporated in a manufacturing process..."
The marker value at the pit's mcuth of such output is
estimated pursuant to section 3(3) (b) of the Act. For
example, to arrive at "actual market value" of a mineral
incorporated in the manufacturing process, -he Ontario
- 3 mine assessor sometimes takes the actual sales price per
ton received by a company from incidental sales of a
mineral not incorporated in a manufacturing process or, if
none, then an independent arm's length price, and discounts
its price, usually not more, than 20 percent. The mine
assessor then multiplies this discounted figure by the
number of unsold tons of the mineral incorporated in the
manufacturing process to arrive at the actual market value
of such mineral* The market value of the above output is
Included in computing- the mining profit for the taxable
year when the mineral is incorporated in a manufacturing
process rather than when materials manufactured from such
output are sold.
Output that is treated prior to being- sold is described
In section 1(1) of the Act as ff.. .mineral substances which
have been treated or partially treated at any mill, smelter
oi* refinery on or off the mining premises from which they
were taken, and the product thereof has been sold." The
market value at the pit's mouth of such output Is included
in computing the mining profit for the taxable year in
which such output Is actually sold. If no actual market
value can be attributed to the output under section 3(3)(b)
before treatment, the market value at the pit's mouth of
treated output is appraised under section 3(3)(c). The
mine assessor is required, under Ontario law, to appraise
the market value at the pitrs mouth of output that Is
treated by reducing the sales proceeds of the treated output by: (1) the treatment and marketing costs of the treated
output; (2) a 15 percent allowance for depreciation of the
treatment equipment; C3) all administrative and general
expenses attributable to treatment; and (4) a profit allowance
for treatment.
The profit allowance for treatment is a set figure
equal to 8 percent of the original cost of the concentrating
facilities if output is only concentrated or milled, 16
percent of the original cost of the smelting facilities if
output is concentrated, and smelted, and 20 percent of the
original cost of the refining facilities if the output is
concentrated, smelted, and refined. However, the profit
allowance for treatment cannot be less than 15 percent or
more than 65 percent of the combined net profit from the
mining- and treatment functions.
- 4 Once the value of output sold during the taxable year
without being treated or manufactured, the value of output
sold during the taxable year that has been treated, and the
value of output incorporated in a manufacturing process
during that year, are determined, the total value is then
reduced by the deductible expenses enumerated in section
3(3)(d) through (n) of the Act*
Expenses that are deductible in computing- profit from
output in section 3(3)(d) through (n) of the Act are
generally similar to deductions allowed under the income
tax laws of the United States.
Nondeductible, expenses under the Act"include:
(I) all development expenses paid or incurred
by a mining company prior to a mine's
commencing; production in Ontario if the
mine commenced production prior to January 2,
1965 > or If and to the extent the ore
taken from the mine was not smelted in
Canada;
(2) any exploration expenses for ascertaining
the existence, extent, location, or quality
of any mineral deposit paid or incurred
prior' to the development stage of the mine;
(3) all expenses incurred for exploration and
development work in Ontario that did not
result in a producing mine, even though the
taxpayer may have had a producing mine somewhere else In Ontario to which these expenses
were not connected;
(4) except for a minor provincial tax on surface
property and for sales and excise taxes on
the purchase of goods and equipment, all
Dominion, municipal, and Province of Ontario
taxes including the Ontario Corporate Income
Tax;
(5) any loss on the sale of the property on which
the mine is located;
(6) cost or other depletion including any expense
incurred in acquiring the real property on
which the mine is located or in acquiring the
right to mine, or an option on the right to
mine,, such mineral deposits;
- 5 (7) all royalties-paid, in respect of, or for
the output of, mines located on private
property, including not only payments to
a person on account of that person's
economic interest In. the minerals in place
but also payments that would be regarded
under Federal income tax law as rent for
the use of the land on which the mine is
located;
(8) all interest paid on borrowed money including
that paid on bonds issued by the taxpayer at
a discount;, and
(9) most expenses for- annual shareholder meetings
and distribution of notices and reports to
shareholders, advertising expenses other than
for promoting of sales and recruitment of"
employees, bank charges for storage of
securities, 50 percent of directors' fees and
expenses, stock exchange fees, transfer and
registration fees, membership fees In chambers
of commerce or similar organizations, subcriptions to nonmining publications, and
salaries or expenses not directly connected with
mining or treatment.
Section 901(b) of the Code generally allows qualifying
United States taxpayers to claim a foreign tax credit for
the amount of any income, war profits, or excess profits
taxes paid or accrued during the taxable, year to any foreign
country or to any possession of the United States. Section
1.901-2(b) of the Income Tax Regulations provides, in part,
that the term "foreign country" Includes any foreign state
or political subdivision thereof.
Section 903 of the Code provides that the term "income,
war profits, and excess profits taxes" shall include a tax
paid in lieu of a tax on income, war profits, or excess
profits otherwise generally Imposed by any foreign country
or by any possession of the United States. Section 1.903-l(a)
of the regulations lists the following requirements for a
qualifying "in lieu of" tax: (1) that the country has in
force a general income tax law; (2) that the taxpayer claiming
the credit would, in the absence of a specific provision
applicable to such taxpayer, be subject to such general income
tax; and (3) that such general income tax is not imposed upon
the taxpayer thus subject to such substituted tax.
6 The first question presented is whether the tax imposed
by the Act is an indivisible tax or is divisible into separate
taxes on three separate tax bases under section 3(3)(a),*
(b), and (c) of the Act.
Generally, a-foreign tax Is divisible into separate
taxes if it is levied on more than one separate tax base
and the tax on each base is separately-computed. See Rev.
Rul* 74-435, 1974-2 C.B. 102; Rev. Rul. 59-208, 1959^1 C.B.
192, as amplified by Rev. Rul. 63-268, 1963-2 C.B. 208; and
Lanmari & Kemp-Barclay &'• Co." of Colombia: v. Commissioner, 26
T.C. 5b2 (195b).
r
Under the act gross receipts from the sale of output
that is not treated or manufactured are added together with
the estimated market value of.output at the pit's mouth that
is incorporated in a manufacturing process and with the
appraised market value of output at the pit's mouth that is
treated and sold. The totaJL is then reduced by the expenses
in section 3(3)(d) through (n) of the Act attributable to
the three types of output referred to in section 3(3)(a),
(b), and (c) of the Act in--arriving at the profit or the base
on which the tax is levied. Thus, in computing the mining
profit subject to tax under the Act, the value of the three
'types of output referred to in section 3(3)(aJ, (b), or (c)
of the Act and the expenses attributable thereto are so
interwoven as to constitute a single tax base upon which the
tax is computed rather than three, separate tax bases.
Accordingly, the tax imposed by section 3 of the Act is an
indivisible tax.
The second question presented is whether the tax imposed
by section 3 of the Act qualifies as an "income tax" within
the meaning of section 901(b) of the Code.
Whether a foreign tax qualifies as an. income tax within
the meaning of section 901 of the Code depends on whether
that tax constitutes an "income tax" as determined from an
examination of the Federal income tax laws of the United
States. BiddTe v. •Commissioner, 302 U.S. 573 (1938), 1938-1
C.B. 309, and Bank of America Natrl T. & S. 'Ass Tn v. United
States, 459 P.2d 513, 51b (Ct. CI. 1972), cert, denied,
409 U.S. 949 (1972). Thus, the courts have often said that
a foreign tax will be considered to be an income tax within
the meaning of section 901 only if that tax is the substantial
equivalent of the income tax in the United States sense.
- 7See e.g., Commissioner v. •American Metal Co., 221 F.2d 134
(2d Cir. 1955); and-P. W. Wooiworth Co. v. "Commissioner, 54
T.C. 1233 (1970), noh acq, on another issue. 19 71-2 C.B. 4.
Whether a foreign tax is the substantial equivalent of
an income tax in the. United States sense "depends primarily
on the measure of the tax or the tax base." Rev. Rul. 69-653,
1969-2 C.B. 152. Thus, to qualify as an income tax in the
United States sense, a foreign tax must, at the very least,
satisfy several requirements. Whether these requirements are
met is determined by reference to the entire class of taxpayers subject to the foreign tax and not on a taxpayer-bytaxpayer or transaction-by-transaction basis. Bank of America
Nat'T T. & S. Ass'n v." United States, and Rev. Rul. 64-260,
1964-2 C.B. Id7* Moreover, when a tax is imposed on a limited
tax base, or on a limited class of taxpayers and the tax
includes a provision that violates one of these requirements,
then the importance of that aberrational provision is necessarily
increased by the limited scope of the tax base or class of
taxpayers.
The first requirement relevant to the instant case is
that the gain on which the foreign tax is levied must be
realized in the United States sense. The United States
Federal income tax, a tax of general application, does tax
in certain limited situations the constructive or deemed
receipt of income. However, as a whole the Federal Income
tax is imposed on gain actually realized. Eisner v. Macomber„
252 U.S. 189 (1920), 3 C.B. 25. A substantially equivalent
degree of realization is required with respect to foreign
taxes. ' Commissioner v. 'American Metal Co., Keasbey & Mattlson
Co. v. Rothensles,-133 F.2d b94 (3d Cir. 1943) 3 and lianman~
Kemp-Barclay & Co.' of Columbia.
The second requirement relevant to the instant case is
that a foreign tax will not be considered to be an income tax
in the United States sense unless its purpose is to reach net
gain and-it is-so-structured- as -to be almost certain of doing
so. ' Bank- of America Nat'T -T. &' S. Ass'n v. United States, 459
F*2d 513 (Ct. CI. 1972); Bank of America Nat'T T. & S. Assrn
Y. 'Commissioner, 61 T.C. 752 (1974). Generally, a foreign
tax is almost certain to fall on net gain if levied on income
computed in such a manner that it is very unlikely that taxpayers generally subject to that tax will have to pay it when
- 8 they have no net gain. ' See the United States Court of Claims
decision in Bank of 'America Nat'T' T. & S. Ass'n v. United
States at 524, wherein it was stated that the "...only
question is whether it is very unlikely or highly Improbable
that taxpayers subject to. the impost would make no profit or
would, suffer a loss." See also Allstate Tns. Co. v. United
States, *H9 F.2d 409 (Ct. CI. 19WT
Certain foreign, taxes on gross dividends, interest,
and royalties have been held to•qualify as income taxes in
the United States sense..' See,' e.g. Rev.. Rul. 73-106, 1973-1
C.B. 343•> These taxes qualify because it is presumed that
the expenses ordinarily connected with such income will almost
never exceed that Income. Therefore, a foreign tax imposed on
such income will be--almost certain of reaching net gain.
Baritc of America Nat'T T. & S. Ass'n v. United States. Additionally,, similar taxes have long been imposed by the United
States on dividends, interest and royalties paid to nonresident
aliens and foreign corporations (which are not effectively
connected with the conduct of a trade or business in the
United States) as a basic part of the United States income tax
system. 'See sections 871(a)(1)(A) and 881(a)(1) of the Code.
The thrust of these United States tax provisions is realistically directed against net gain or profit. See Bank of America
Nat'T T. '& S. Assrh v. Commissioner 61 T.C. 752 (1974).
However, expenses Incurred in producing gross trade or
business income are not inherently so slight as to insure
that they will almost never exceed the amount of that gross
income and thus not produce a loss. For this reason a foreign
tax on income from engaging in business in the foreign country
tha^: does not permit the deduction of the generally significant expenses incurred in producing that Income is not almost
certain to fall on net gain.
Such a tax is not creditable.
Cf. Rev. Rul. 74-435, 1974-2 C.B. 204, wherein this rationale
was applied to sustain- the creditability of a Swiss communal
tax on business income. •• See also Keasb ey S Mat 'tis on Co. v.
Rothensles; and "Continental Insurance Co., 40 B.T.A. 540 (1939).
Iri Keasbey & Kattlson Co. v. Rothensles, the court held
the Quebec Mining Tax not to be a creditable income tax in
part because it restricted allowable deductions only to expenses
incurred in the mining operation itself and failed to allow
deductions for the significant expenses incident to the general
conduct of the mining.business. The Court of Claims in Bank of
America Nat'T T. £ S. Ass'n v. United States interpreted the
- 9 ...a mining business which obviously could either
have lost or made money in any particular year. In
that context, it was significant that "the expenses
incident to the general conduct of the business, as
distinguished, from the cost incurred in the mining
operation, are-not-deductible" (133 F»2d at 898);
'thoserion-deductl'bleexpenses could easily have made
the difference- between a net profit and a loss. For
that business it could not possibly have been said
that the tax would always, or almost always, reach
some net gain. (Emphasis added.)
The final requirement relevant to the instant case is that
in order for a foreign tax to qualify as4 an income tax in the
United States sense, the tax in question must be imposed on
the receipt of income by the taxpayer rather than on transactions such.as sales or the exercise of a privilege or a
franchise, such-as-exploiting natural resources. Commissioner
v. American Metal Co. ; Keasbey &' Mattlson Co. v.' Rothensles;
and Rev. Rul. 57-62, 1957-1 C.B. 241. Furthermore, a tax,
such as an excess tax that-is imposed on subjects other
than the receipt of income, is not creditable even if the
measure of the-tax base- is- net income. ' 'St. Paul' Fire and
Marine Insurance Co.: v. -HeyhoTds, 44 P. Supp. d63 (D. Minn.
1942); Motland v. United States~192 P. Supp. 358 (N.D. Iowa
1961); and Rev. Rul.- 5b-3, 1958-1 C.B. 263.
Whether a tax is a. privilege, excise, or income tax
must be determined by examining the foreign law in its
entirety. Thus, for example, to the extent that a tax is
imposed on a tax base that includes a nonrealization event,
does not allow for the deduction of expenses, or is a condition
for permission to engage in a certain business, then these
factors and others, will-be- considered in determining the
nature of the tax. Commissioner v. 'American Metal Co.;
Keasbey &- Matt Is oh Co. v. Rothensles; and, Ellas Mallouk v.
Commissioner 34 B.T.A. 259 (1936).
In the present case, the tax imposed by section 3 of
the Act is an indivisible tax imposed on a very limited tax
base; that is, It falls on profit from only three items:
(1) the sale of mineral output; (2) the incorporation of
mineral output in a manufacturing process; and (3) the sale
- 10 of treated mineral output.. Because section 3(1) of the Act
imposes a tax when output is incorporated in a manufacturing
process under section 3(3Kb), this indivisible tax, in part,
is not imposed on the receipt of realized income in the
United States sense in violation of requirements (1) and (3)
above.
Alsa, the tax Imposed by section 3(1) of the Act denies
or- limits the deduction of sufficient expenses in computing
profit from the mining function on treated output under section
3(3)(c), on manufactured output under section 3(3)(b), and on
output sold without treatment or manufacture under section
3(3)(a)y to make it possible, for the taxpayer to show a net
gain and thus have to pay the. Ontario1 Mining Tax, evert' though
it had a net loss in the United States sense from raining.
Thus,, the tax is not almost certain, of falling on net gain,
as the following discussion indicates.
First,, a tax free recovery of invested capital has always
been a characteristic of an income tax in the United States
sense. However, like the Quebec Mining Tax discussed in the
Keasbey decision and unlike the Code, the Act allows no
deduction for the taxpayer's expense in acquiring the ore
body because cost or other depletion, the cost of acquiring
the right to mine or an option in. the right to mine, and any
loss on the sale of the real property on which the mine is
located are all nondeductible. Because the Act does not allow
a taxpayer to recover the taxpayer's cost (invested capital),
it is effectively taxing* that capital.
Second, although much of the financing for mining ventures
may be derived from loans,, the Act prohibits the deduction of
all interest expense, regardless of the amount or purpose for
which it was incurred.
Thirds under Federal income tax law, royalties paid by a
mining company to a landowner or other person on account of
that person's economic interest in the minerals in place are
not included in the mining company's income. However, under
the Act, a mining company cannot exclude or deduct from its
gross mining profit the royalties it pays to a landowner on
account of the latter's economic interest in the minerals in
place. Section 3(5)(d) of the 'Act denies any deduction for
such royalties paid in respect of, or for the output of, mines
located on private property.
- 11 Fourth, the Act permits no deduction either currently
or through depletion for any exploration expense incurred
for ascertaining the existence, extent, location, or quality
of any mineral deposit and paid or incurred prior to the
development state of a mine.
Fifth, prior to the 1969 taxable year the Act did not
permit through depletion or otherwise the recovery of any
development expenses paid or incurred prior to a mine
commencing production in Ontario. In 1969, however, section
3(3)(n) was adopted. That section allows a taxpayer to deduct
annually 10 percent of the pre-production development costs
(but not exploration costs) of a producing mine in Ontario.
This deduction is not available, however, to all mining companies, but only to metal mining companies that brought a mine
into production after January 1, 1965, and that smelt the ore
taken from that mine in Canada. The inability to deduct this
significant expense by some mining companies could make the
difference between a net gain and a net loss.
In summary, the Act denies or limits the deduction of
significant expenses in computing profit from the mining
function on treated output under section 3(3)(c), on
manufactured output under section 3(3Kb), and on output
sold without treatment or manufacture under section 3(3)(a).
Accordingly, the tax imposed by section 3(1) of the Act fails
to satisfy the second requirement discussed above because
it is not almost certain of falling on net gain in the United
States sense.
This conclusion is bolstered by the fact that the amount
of profit on which the tax' is paid in the case of treated
output may be artifically inflated or understated by the use
of a treatment allowance formula. As previously indicated,
this formula is used because the tax imposed by the Act is
a tax on the mining function. That is, it is levied only on
profit attributable to extraction of output in Ontario (the
mining function)- as opposed to net profit from the taxpayer's
entire operation. Because both a mining and treatment profit
may be embodied in the actual receipts from the sale of treated
output, to arrive at the market value at the pit's mouth of
such output, the Ontario mine assessor deducts, under section
3(3)(c) of the Act, the costs attributable to the treatment
function and a profit allowance for treatment. This profit
allowance is set at 8 percent of the original cost of the
concentrating facilities if output is only concentrated or
milled, 16 percent of the original cost of the smelting
- 12 facilities if output is concentrated and smelted, and 20
percent of the original cost of the refining facilities
if output is concentrated, smelted, and refined. However,
the profit allowance for treatment cannot be less than 15
percent or more than 65 percent of- the combined profit from
the mining and treatment functions.
The use of the set profit allowance may Inflate or
understate the portion of profit attributable to the mining
function. This is because the 65 percent limitation on
the amount attributable to treatment assures that at least
35" percent of the gain will be considered as attributable to
the mining function. This would be the case even when no
portion of gain from treated, output was actually attributable
to the mining function. Under these circumstances it cannot
be said that the tax is almost certain of falling on net
gain from the1 mining function.
Regarding the third requirement, of an income tax discussed above, the court in' Keasbey held that a Quebec mining
tax was a tax upon the mining privilege or an excise tax as
opposed to an income tax. The court said that, the tax,
although designated as a tax. on annual profits, is in reality
a tax on the mining privilege, measured on the basis of gross
value of the-output determined under a prescribed formula,
less certain deductions, and that the value of the mining
output was the basis of the levy independent of either realization of gain or derivation of profits.
Although the tax imposed by the Act is levied upon a
base designated as profit, the fact that the tax fails to
meet the' United States-realization and net gain requirements,
as heretofore outlined, and the. fact that the tax is structured
to yield taxable profit from- the extraction of output (the
mining function) by a formulary shifting of profit derived
from treating that output (.the treatment function), indicate
that such tax is actually a production or severance tax on the
mining privilege, such as the Quebec Mining Tax in the' Keasbey
case. This, view is supported by the fact that the Act forbids
the mine operator from carrying away from the mine any ore
until the weight thereof has teen correctly ascertained and
entered in the books of account,, and the fact that the mine's
assessor can enter any mine to take- samples for the purpose
of determining the value of the ore.
- 13 Accordingly, for the above reasons the tax imposed by
the Act is not the substantial equivalent of an income tax
within the meaning of section 901(b) of the Code.
The final question is whether the tax imposed by section
3(1) of the Act is a tax in lieu of an income tax within the
meaning of section 903 of the Code and the regulations thereunder.
Section 1.901-3(a)(3) of the regulations provides, in
general, that a credit may be claimed under section 901 of
the Code for a section 903 tax if the taxpayer is not subject
to the foreign country's general Income tax but is subject to
a substituted tax. In addition to the tax imposed by the
Act, Ontario has in force both corporate and personal income
tax laws of general application that are.imposed on profits
from mining operations. Therefore, because the tax imposed
by the Act is imposed in addition to, instead of in substitution for, a general Income tax law, the tax Imposed by the
Act does not satisfy the requirements of section 1.903-1(a)
for an in lieu of tax that would be creditable under section
901. Alls fate Ins.' CoV v.' United States, and F. ¥. WooTworth.
PART I
SECTION 901.—TAXES OF FOREIGN COUNTRIES AND OP POSSESSIONS
OF UNITED STATES
26 CFR 1.901-1: Allowance of credit for taxes.
(Also Section 7805; 301.7805-1.)
Rev. Rul.
78-62
The Internal Revenue Service has been asked to reconsider
a number of its published revenue rulings and acquiescences
relating to the creditability of certain foreign taxes under
section 901 of the Internal Revenue Code of 19 54. Accordingly, the purpose of the instant Revenue Ruling is to
review those prior published positions of the Service and
to indicate what the position of the Service is with respect
to those prior published revenue rulings and acquiescences.
Whether a foreign tax qualifies as an income tax within the meaning of section 901 of the Code depends on whether
that tax constitutes an "income tax" as determined from an
examination of the Federal income tax laws of the United
States. Biddle v. Commissioner, 302 U.S. 573 (1938), 1938-1
C.3. 309, and Bank of America Nat'l T. & S. Ass'n. v. United
States, 459 F.2d 513, 515, 513 (Ct. CI. 1972), cert. deniedT
409 U.S. 949 (1972). Thus, the courts have often said that
a foreign tax will be considered to be an income tax within
the meaning of section 901 only if that tax is the substantial equivalent of an income tax in the United States
sense. See, e.g., Commissioner v. American Metal Co., 221
P.2d 134 (2d Cir. 1955); P. W. Wcolworth Co. v. Commissioner,
54 T.C. 1233 (1970), nonacq. on another issue, 1971-2 C.B. 4.
-2To qualify as an income tax in the United States
sense, a foreign tax must satisfy certain reauirements.
See Rev. Rul. 78-61, 1978-8 I.R.B.
. The first requirement relevant to this Revenue Ruling is that the gain
on which the foreign tax is levied must be realized in^the
the United States sense. The United States Federal income
tax, a tax of general application, does tax in certain
limited situations the constructive or deemed receipt of
income. However, as a whole, the Federal income tax is
imposed on gain actually realized. Eisner v. Macomber,
252 U.S. 189 (1920), 3 C.B. 25. A substantially equivalent degree of realization is required with respect to
foreign taxes. Commissioner v. American Metal Co., 221
F.2d 134 (2d Cir. 1955); Keasbey & Mattison Co.~v7 Rothensles,
133 P.2d 894, 898 (3d Cir. 1943); and Lanman & Kemp-Barclay
& Co. of Colombia, 26 T.C. 582 (1956).
In addition to realization, the second requirement
relevant to the instant case is that a foreign tax will
not be considered to be an income tax in the United States
sense unless its purpose is to reach net gain and it is
so structured as to be almost certain of doing so. Bank
of America Nat'l T. & S. Ass'n. v. United States; Bank of
America Nat'l T. & S. Ass'n. v. Commissioner, 61 T.C. 752
(1974). Generally, a foreign tax is almost certain to
fall on net gain if levied on income computed in such a
manner that it is very unlikely that taxpayers generally
subject to that tax will have to pay it when they have no
net gain. See the United States Court of Claims decision
in Bank of America Nat'l T. & S. Ass'n. v. United States
at 524, wherein it was stated that the ". '. . only question
is whether it is very unlikely or highly improbable that
taxpayers subject to the impost would make no profit or
would suffer a loss." See also, Allstate Ins. Co. v.
United States, 419 P.2d 409 (Ct. CI. 1969).
The final requirement relevant to the instant case
is that in order for a foreign tax to qualify as an income
tax in the United States sense, the tax in question must
be imposed on the receipt of income by the taxpayer rather
than en transactions such as sales or the exercise of a
privilege or a franchise, such as exploiting natural
resources. Commissioner v. American yieza.1 Co.; Keasbey &
Mattison Co. v. Rothensles; and Rev. Rul. 57-o2, 1957-1
C.B. 241.
-3Kerbert Ide Keen v. Commissioner, 15 B.T.A. 1243
(1929T"Tacc. , VIII-2 C.B. 27 (1929), involved a French
tax imposed solely on the French source income of individuals who maintain a residence in Prance but are not
domiciled there (non-dcmiciliaries). These non-domiciliaries
pay the aforementioned tax on estimated income fixed at a
sum equal to seven times the presumed rental value of their
respective residences in France, unless their actual French
source income exceeds their estimated income. If so, the
tax will be computed on their actual Income.
The tax paid by non-domiciliaries is separate from
the tax paid by individuals who are domiciled in France.
The latter pay a tax on their actual income from all sources
and not some form of estimated income.
The United States Board of Tax Appeals held this French
tax on estimated income to be a creditable income tax principally because it was an income tax under French standards.
Relying on the decision in the Keen case, the Board reaffirmed the creditability of that French tax in James R.
Hatmaker v.' 'Commissioner, 15. B.T.A. 1044 (1929) (decided
for the Commissioner on other grounds). However, subsequent to the Keen and Hatmaker decisions, the Supreme Court
of the United States held in the Blddle case that in order
for a foreign tax to qualify as a creditable income tax,
it must satisfy the United States standard and not the
foreign standard of an income tax.
It is apparent that the aforementioned French tax on
estimated income does not satisfy any of the United States
standards of an income tax discussed above. Such tax is
imposed on estimated income fixed at seven times the presumed rental value of a residence even if the non-domiciliary has not realized any gain from French sources or even
if such gain as may have teen realized is less than such
estimated income. Thus, the Service is withdrawing its
acquiescence in the Keen case and substituting a nonacquiescence therefor, see 197S-8 I.R.3.
. Accord, Commissioner
v. American Metal Co., wherein the court stated that Keen
is in conflict with the later decision of Hiddle. In
addition, the Service will not follow the conclusion expressed in the Hatmaker case that the French tax is a
creditable income tax.
-4Also decided prior to the Biddle case was Burk 3ros.
v. Commissioner, 20 B.T.A. 657 (1930) (decided for the
Commissioner on other grounds). In that case the taxpayer,
a domestic corporation that manufactured goat skins into
leather, purchased some goat skins in India through its
Indian office. As a result, India levied a tax on the
income deemed to be derived by the taxpayer from the
goat skins. This income was determined by multiplying
the number of goat skins purchased by the difference between the average sales price of goat skins in Philadelphia
and their average sales price in Calcutta. The resulting
figure was reduced by certain transportation and skin
preservation expenses. The Board of Tax Appeals held the
Indian tax to be creditable. However, because the tax in
Burk Bros, was triggered by a purchase and was levied without reference to the amount of income, if any, actually
realized by the taxpayer during the year, it does not
satisfy the first and third requirements of an income tax
discussed above. Accordingly, the Service will not follow
the holding in the Burk Bros, decision that the Indian tax
is a creditable income tax.
Rev. Rul. 272, 1953-2 C.B. 56, involved a Haitian tax
imposed at progressive rates under chapters III, IV, and V
of the Haitian statute. Chapter III taxed the business income of associations, companies, corporations, except stock
companies, individual or partnership enterprises, manufacturers, merchants and professional people. Income for
purposes of chapter III was computed on a fixed-rate basis
by multiplying by five the yearly rental value of the buildings and land occupied by the aforementioned taxpayers.
Chapter IV of the Haitian statute taxed the net profit
of all partnership or individual enterprises, companies,
and stock corporations conducting a business. For purposes
of chapter IV, net profit was actual receipts less the
ordinary and necessary expenses incurred in producing
these receipts. Taxpayers who were subject both to the tax
on net profits under chapter 17 and the tax on income
computed on a fixed-rate basis under chapter III were
required to pay the net profits tax only on that portion
of the net profit, if any, which exceeded the income
computed on a fixed-rate basis under chapter III. Moreover, even if a taxpayer with this dual liability had no
net
on aprofit,
fixed-rate
it still
oasis.
had to pay a tax on income computed
-5Relying on the decision in the Keen case, Rev. Rul.
272 held that the tax imposed by chapter III on income
computed on a fixed-rate basis qualified as a creditable
income tax. The Revenue Ruling also concluded that the
tax imposed by chapter IV was a creditable income tax.
The tax imposed by chapter III is not triggered by a
realization event in the United States sense and is levied
on a base that is not computed from actual receipts. Therefore, the chapter III tax fails to qualify as a creditable
income tax. Moreover, insofar as the chapter IV tax is
concerned, the only creditable portion of such tax is that
portion that exceeds the tax imposed under chapter III.
Accordingly, Rev. Rul. 272 is modified to eliminate the
holding thereof that the tax imposed by chapter III of the
Haitian tax is a creditable tax and to provide that a taxpayer may treat as a creditable income tax only that portion of the chapter IV tax that exceeds the taxpayer's
tax under chapter III. However, the holding in Rev. Rul.
272 that the tax imposed by chapter V of the Haitian
statute is creditable is reaffirmed because it is the
substantial equivalent of an income tax in the United
States sense.
Rev. Rul. 59-192, 1959-1 C.B. 191, and Rev. Rul. 56-658,
1956-2 C.B. 501, dealt with certain Cuban Taxes on unrealized
net income expected to be derived by sugar mill owners from
processed sugar. The event that triggered the imposition
of the taxes was the manufacture of the sugar and not its
subsequent sale. Moreover, the net income of the sugar
mill owners was computed by multiplying the amount of
sugar produced in the mill by the average market price of
sugar produced in the mills for the past three years and
then reducing this figure by an arbitrary 60 percent figure
to cover processing costs. Because the Cuban taxes in
Rev. Rul. 59-192 and Rev. Rul. 56-658 were imposed independently of any realized gain, they do not satisfy the United
States realization standard. Moreover, if a sugar mill
subject to the Cuban taxes had a loss for any year by
United States standards, it would still pay the tax because
net income by Cuban standards is ^0 percent of the average
market price of sugar produced by the mill for the past
three years. Therefore, the taxes fail to meet the second
United States standard that the foreign tax must be almost
Rev.
certain
Cuban
Rul.
taxes
of 59-192
falling
are not
and
on
creditable
Rev.
net Rul.
gain.income
56-658
Per these
are
taxes.
revoked.
reasons
Accordingly,
the
-6In Santa Eulalia Mining Co. v. Commissioner, 2 T.C.
241 (1943)a acq. 1946-1 C.B. 4, the United States Tax Court
held that a Mexican tax of 10 percent imposed by Articles
26(1) and 27, Chapter IV, Third Schedule, of the "Ley del
Impuesto sobre la Renta" is a creditable income tax under
a predecessor of section 901 of the Code. The "Ley del
Impuesto sobre la Renta" (Law) imposed a series of schedular
taxes on various classes of taxpayers. The First Schedule
of the Law Imposed a tax on taxpayers engaged in commerce,
industry, and agriculture and thus would include taxpayers
actively engaged in the conduct of a mining business in
Mexico.
Article 26(1) of the Third Schedule of the Law imposed
a modified gross income tax on "(t)axpayers who . . .
receive participations, whether in the form of rentals or
otherwise, from the exploitation of the subsoil or concessions granted by the Federal or state Governments or
Municipalities." The amount of participations subject to
tax are the gross amount received, less a limited number
of deductions as set forth in regulations issued under
Article 27. However, persons who are actively engaged in
the mining business in Mexico, " . . . taxpayers whose
income consists -of a participation in the profits of the
exploiting concern. . .," are specifically excluded from
Article 26(1) of the Third Schedule of the Law because they
pay tax under the First Schedule of the Law. Thus, only
taxpayers not engaged in the conduct of a mining business
in Mexico who receive participations are subject to the
tax imposed by Article 26(1).
Though the tax imposed by Article 26(1) falls on the
gross amount of participations received by the above taxpayers as reduced by a limited number of deductions, the
tax does not violate the third requirement of an income
tax discussed above. Because the above taxpayers are not
engaged in the conduct of a mining business in Mexico, it
Is presumed that the expenses ordinarily connected with
such participations and incurred by such taxpayers will
almost never exceed the income from such participations.
Therefore, the foreign tax imposed on such participations
as reduced by the aforementioned deductions will be almost
certain of reaching net gain. Bank of America Nat'l T. &
S.
Ass'n
v.
United
and
Rul.
73-106,
1973-1
of
C.B.
legal
imposed
income
royalties
343,
entities
tax.
by
holding
the
received
Additionally,
United
notaStates,
established
Mexican
by
States
nonresident
similar
tax
onRev.
in
imposed
dividends,
Mexico
taxes
aliens
on
have
to
the
interest,
and
be long
gross
aforeign
creditable
been
amount
and
-7royalties paid to nonresident aliens and foreign corporations (that are not effectively connected with the conduct
of a trade or business in the United States) as a basic
part of the United States income tax system. See sections
871(a)(1)(A) and 881(a)(1) of the Code. The thrust of
these United States tax provisions is realistically directed
against net gain or profit. 'See Bank of American Nat'l
T. S. Ass'n. v. Commissioner, 61 T.C. 752 (1974).
Accordingly, because the tax imposed by Article 26(1)
and 27 of the Third Schedule of the Law is the substantial
equivalent of an income tax in the United States sense,
the Service reaffirms its acquiescence in the decision in
Santa Eulalia Mining Company.
Pursuant to the authority contained in section 7805(b)
of the Code, this Revenue Ruling will not be applied to
taxable years beginning before January 16, 1978, with respect
to taxpayers who have relied on Rev. Rul. 59-192, Rev. Rul.
56-658, and Rev. Rul. 272, but only insofar as the specific
taxes discussed in those Revenue Rulings are concerned.
Rev. Rul. 272 is modified. Rev..Rul. 59-192 and Rev.
Rul. 56-658 are revoked.
PART I
SECTION 901.—TAXES OF FOREIGN COUNTRIES AND OF POSSESSIONS
OF UNITED STATES
26 CFR 1.901-1: Allowance of credit for taxes.
(Also Sections 903, 7805; 1.903-1, 301.7805-1.)
Rev. Rul. 78-63
The purpose of this Revenue Ruling is to reconsider
Rev. Rul. 68-552, 1968-2 C.B. 306, and Rev. Rul. 55-296,
1955-1 C.B. 386. Rev. Rul. 68-552 held the "surtax" paid
to Libya under Article 14(1)(a) of Libyan Petroleum Law
No. 25 of 1955, as amended through Nov. 20, 1965, to be
a creditable Income tax under section 901 of the Internal
Revenue Code of 1954. Rev. Rul. 55-296 held that amounts
received by Saudi Arabia under Royal Decree No. 17/2/28/3321,
dated November 4, 1950, and under Royal Decree No. 17/2/28/
7634, dated December 27, 1950 are creditable income taxes.
Rev. Rul. 68-552
Article 1(1) of Libyan Petroleum Law No. 25 of 1955,
as amended through January 1, 1975 (hereinafter "Petroleum
Law") provides that all underground oil and gas in Libya
is the property of the Libyan government.
Article 1(2) of the Petroleum Law provides, in part,
that no person shall mine or produce petroleum unless
authorized by a concession issued under that Law.
Article 14(1) of the Petroleum Law and Clause 8(1) of
the Second Schedule (Standard Form Deed of Concession) to
that Law, specify that an oil company or other concession
holder under the Petroleum Law shall pay such income tax
and other taxes and imposts as are payable under the laws
of Libya.
-2All companies engaged in business in Libya must pay
a company income tax. See. Articles 1 and 93-104 of Part
II of Law No. 64 of 1973* effective Oct. 1, 1973, as
amended through December 1975 Chereinafter "Company Tax").
Prior- to. the effective date of this law such companies
were subject to a company income tax substantially similar
to the above law. See, Articles 1 and 89-99 of Income
Tax Lavr No. 21 of 1968.
In addition, Article -14(1) (a) of the Petroleum Law,
and Clause 8(.l)(s0 of the Second Schedule to the Petroleum
Law, require that-if the total annual amount of fees,
rents, Income tax,, and other direct taxes except royalties
equal to 16.67 percent of the value of crude oil exported,
paid or payable-by a petroleum concession holder to Libya,
falls short of. 65 percent of-Its profits from all its
Libyan petroleum concessions, such concession holder
must pay Libya such sum by way of "surtax" as will make
the total of its payments equal 65 percent of its profits.
Thus, this provision guarantees Libya at least a 65 percent
share of each concessionaire's profits.
"Profits" are defined, as the income resulting from
the operations of the concession holder in Libya after
deducting CD operating expenses and overhead, (2) depreciation of all physical assets in Libya, (3) amortization for all other capital expenditures in Libya, (4)
exploration and prospecting expenses, (5) intangible
drilling costs, and (6) royalties not mentioned in
Article 14(1)(a) of the Petroleum-Law. Article 14(2),
(3)* and C4) of the Petroleum Law, and Clause 8(2), (3),
and (4) of the Second Schedule to that Law. No deduction is allowed for interest or expenses incurred in
organizing and initiating petroleum operations in Libya
prior- to -receiving a concession from the government and
for fees, rents, Income tax, and other direct taxes
mentioned in Article l4(l)OK
Article 14(5)(a) and Cb) of the Petroleum Law, and
Clause 5(a) and Cb) of the Second Schedule to that Law,
further- define "income resulting from the operations of
the concession holder in Libya" as follows:
-3In relation to crude oil exported by the
concession holder from Libya: total gross
receipts realized by-the--concession- holder
from such export ,'• arid such-receipts shall
hot be 'less-than-the •amount which results
from ••multiplying--the- number of barrel's of
such-crude-oil exported by the applicable
posted price per barrel of such crude' oil
less Lcertain" marketing allowances as
discussed below] . . . .
In relation to other operations of the
concession holder In Libya the income to
be ascertained in a manner to be agreed
between the concession holder and the
Ministry of Petroleum.
The value of petroleum and natural gasoline
taken as a royalty in kind under Article
13 of the Petroleum Law shall be deemed to
form part of such Income. [Emphasis added.]
term "posted price" is defined as
... the price f.o.b. Seaboard
Terminal for Libyan crude oil of the
gravity and quality concerned arrived
at by reference to free market prices
foir individual commercial sales of
full cargoes and in accordance with
the procedure to be agreed between the
concession holder and the Ministry of
Petroleum or if there is no free market for commercial sales of full cargoes
of Libyan Crude Oil, then posted price
shall mean- a fair price fixed by agreement between the concession holder and
the Ministry of Petroleum. . . . [Article
14C5) of the Petroleum Law.]
-4Prior to 1965, Libya permitted oil companies to
reduce the posted price by certain marketing discounts in
computing their "surtax" under Article 14(1)(a) of the
Petroleum Law. See Article 15 of Petroleum Reg. No. 6,
dated December 21, 1961. The resulting net price figure
was approximately equal to the actual price that an unrelated purchaser would ordinarily pay for a barrel of
Libyan crude oil Chereinafter "market price"). However,
in 1965* Libya began to.eliminate these discounts, thereby assuring that the "surtax" would be computed on the
basis of posted prices set in excess of actual market
price. See, Clause 8(5)Ca) of the Second Schedule to
the Petroleum Law. Thereafter, Libya exercised increasing
control over the level of posted prices and subsequently
assumed total responsibility for fixing those prices.
The posted price is an.arbitrary value placed on a barrel
of crude oil for the purpose of computing a foreign oil
concessionaire's, tax under Article 14(1)(a) of the
Petroleum Law.
Except for some differences not here relevant, the
"surtax" imposed by Article l4CD(a) of Libyan Petroleum
Law is essentially identical to the "surtax" imposed by
Article l4CDCa) of Libyan Petroleum Law No. 25 of 1955,
as amended through Nov. 20, 1965.
Some foreign oil concessionaires sell Libyan oil
directly to unrelated, parties at the market price even
though under either version of the Petroleum Law they are
required to pay the above "tax" on a base measured from
the posted price. Others* seli-the oil to purchasing
affiliates at the posted price. These affiliates then
resell the oil at the market price and regularly suffer
losses equal to the difference between the posted and
market price.
Foreign oil concessionaires, must also pay Libya a
per barrel royalty currently fixed at 16.67 percent of the
value of crude oil exported as determined from the posted
price.
Subject to certain limitations, section 901 of the
Code permits domestic corporations to claim a credit for
income taxes paid or accrued to foreign countries.
-5Whether a payment made to a foreign government qualifies as an income tax under section 901 of the Code depends
on whether it is the substantial eauivalent of an "income
tax" as determined from an examination of the Federal income
tax laws of the United States. E.g., BlddTe v. Commissioner,
302 U.S. 573, 578 (1938), 1938-1 C.B. 309, and Bank of
America Nat'l T. & S. Ass'n v. United States, 459 F.2d 513
51b (Ct. CI. 1972), cert, denied, 409 U.S. ^49 (1972).
To qualify as an income tax in the United States
sense, amounts received by a foreign government must
satisfy certain requirements. See generally, Rev. Rul.
78-61 , 1978-8 I.R.B.
. Among these requirements, the
amounts must constitute a tax that is paid or accrued. The
tax must be based upon gain or profit realized by the
taxpayer. The tax must be structured to be almost certain
of falling on net gain.
An income tax in the United States sense is not one
that is intentionally structured to tax artificial or
fictitious income. -F. W. Woolworth v. Commissioner, 54
T.C. 1233 (1970), nonaca.. on another issue, 1971-2 C.B.
4.. The Woolworth case considered the creditability of
Schedule A of the British Income Tax Act of 1952. Under
that schedule a tax was levied on the rent derived from
real property. However, if the property was owner-occupied
or otherwise, not rented, the tax fell not on actual income
but on a fictitious amount, the imputed rental'value of
the property. The court denied credit for the tax stating
that:
[t]he United States concept of "income" is
based upon gain or profit realized by the
taxpayer (i.e., net income as opposed to
gross income, gross sales, or some other
basis). . . By no stretch of the imagination
could it be said that the tax under Schedule A
on the ownership of property as measured by
its annual rental value, which may be an
estimated figure,falls within the scope of
this concept. F. W. Woolworth Co. v. Commissioner, at 1260T LEmphasis added.J
-6As previously stated, the income subject to the "surtax" is defined under Article 14(5) of the Libyan Petroleum Law, and Clause 5(a) of the Second Schedule to that
Law, as total gross receipts with, the further requirement
that such receipts.shall not be less than the number of
barrels exported multiplied by the posted price less marketing allowances. Because the "surtax" Imposed by
Article 14(1)(A) of the Libyan Petroleum Law is levied on
a base measured from an arbitrarily determined value (the
posted price), the base on which the "surtax" is levied
is artificial or fictitious. For example, when a concessionaire sells Libyan oil directly to unrelated parties
at the market price, the concessionaire must pay the "surtax" on a base measured from the posted price even though
the sales proceeds are less than the posted price. The
Libyan "tax" base is not made any less fictitious or artificial by the fact that CD some concessionaires actually
sell the Libyan oil to their affiliates at the posted
price,, and C2) the affiliates then dispose of the oil at
the lower market price, claiming losses equal to the
difference. Although the purchasing affiliate makes a
payment equal to the posted price in this situation, It
does so only because It is required to do so by the persons who control both it and the concessionaire.
Gain on which the foreign tax is levied must be
realized in the United States sense. Since the income
subject to the "surtax"'cannot be less than the number of
barrels exported multiplied by the posted price less marketing allowances, the "surtax" may be triggered by the
export of crude oil regardless of whether a sale has taken
place. Thus, the requirement that the tax be imposed on
realized-income is not- satisfied. See, Motland v. Commissioner, 192 F. Supp. 358, 361 CN.D. Iowa 1961), denying
a credit for-a Cuban tax-triggered by the export of capital,
and 'Keasbey & Mattison Co. v.' Rothensles, 133 F.2d 894,
895* n. 1 and b9« C3rd Cir. 1943).
In Keash ey, the court, denied a credit for the Quebec
Mining Tax which was imposed on the gross value of mineral
output, less allowable deductions, and which was triggered
by shipment, use, or sale of that output. Gross value was
computed from the ruling- market prices of the minerals
whether or not sold and, if sold, without regard to whether
the sales proceeds were greater or lesser than the ruling
market prices.
-7Por these reasons, the "surtax" imposed by Article
14(1) (a) of the Libyan Petroleum Law is not the substantial
equivalent of an Income tax in the United States sense as required by section 901 of the Code. F. W. Woolworth;
Mot land;' Keasbey.
The next question Is whether the "surtax" is a tax in
lieu of an. income tax within the meaning- of section 903 of
the Code.
Section 903 of the Code provides, in part, that income
taxes as used in section 901 shall include a tax paid in
lieu of a tax on income otherwise generally imposed.
Section 1.903-lCa) of: the Income Tax Regulations
provides,. - in part,, that the- term "income tax" includes a
tax imposed by statute or decree by a foreign country or
by a possession of the United States if (1) such country
or^ possession has in force a general income tax law, (2)
the taxpayer* claiming the credit would, in the absence of
a specific provision applicable to such taxpayer, be subject
to such general income tax, and (3) such general income tax
is not imposed upon the taxpayer thus subject to such substituted tax.
An oil concessionaire Is subject to both the Company
Tax and the "surtax" with respect to the profits it derives
from its operations In. Libya. Thus, the "surtax" cannot
qualify as a tax imposed in lieu of the Company Tax within the meaning of section. 903 of the Code. See, sections
1.9Q3-iCa)(2) and C3) of the regulations; ' Alls tat e Ins . Co.
v. United States, 419-P.2d 409 (Ct. CI. 1969); Rev. Rul.
5b-3> 1958-1 C.B. 263.
Accordingly, the "surtax" imposed by Article 14(1)(a)
of the Libyan Petroleum Law is neither an income tax in the
United States sense nor a tax in lieu of an income tax.
Therefore, it is not creditable under section 901 of the
Code.
Rev. Rul. 68—552 is revoked. Pursuant to the authority
contained in section 7805(b) of the Code this Revenue Ruling
will be applied only to amounts paid or accured to Libya for
taxahle years beginning on or after July 1, 1973, provided
the taxpayer does not change the taxpayer's accounting period.
-8•Rev. Rul. 55-296
Chapter I of Royal Decree No. 17/2/28/3321, dated
November 4, 1950,. as amended through September 2, 1970
(the November Decree), levies a tax at progressive rates
on the combined Saudi source "personal Income" and "income
earned by investment of capitals," derived by, individuals.
Articles 1, 2, 3, 4, and 6 of the November Decree. Chapter
I of the November Decree has been cancelled with respect
to income earned by individuals after May 14, 1975.
Chapter* IX of the. November Decree levies a tax at
progressive rates currently set as high as 45 percent on
the Saudi source, "net profits" derived by all companies
engaged in business in. Saudi Arabia whose capital Is nonSaudi Cforeign companies). Article 11 of the November*
Decree.
In addition, under-Royal Decree No. 17/2/28/7634,
dated December 27* 1950, as amended through November 27,
1974 Cthe December Decree), foreign companies engaged in
the production of oil and gas in Saudi Arabia and owned
in whole or in part by non-Saudis (foreign oil companies)
must also pay a so-called "additional income tax" en their
"net operating income."
Articles 1 and 3 of. the December Decree provide that
if the total amount of duties, rents, income tax, Chapter
II tax, other direct taxes, and that amount of royalties
which exceeds 20 percent of the value of crude oil produced and sold for export does not equal 85 percent of an
oil company's net operating income, then such company must
pay Saudi Arabia "additional income tax" sufficient to
make its total payments equal 85 percent of its net operting income. Thus, the December Decree assures that
Saudi Arabia will receive at a minimum 85 percent of a
foreign oil company's net operating income.
Except for" differences not here relevant, the statutory
provisions of both Chapter II of the November Decree- and
the December Decree are essentially identical to the
statutory provisions of the December Decree, and Chapter
II of the November Decree, respectively, in effect when
Rev. Rul. 55-296 was issued.
-9No United States company engaged in producing oil and
gas In Saudi Arabia computes the levies Imposed, respectively, by the December Decree and by Chapter II of the
November Decree exactly as provided by the above decrees.
Instead, both the December Decree and Chapter II of the
November Decree, as they apply to such companies, have
been modified by individual agreements and understandings
between each of the companies and the Saudi Government
and, since 1973, by directives issued to each of the oil
companies by that Government. It is understood that these
agreements are not contractual agreements in the ordinary
sense, but*rather are imposed upon the oil companies by
the Saudi Government.
Under* the. individual agreements and understandings
discussed abovey United States oil companies engaged in
producing oil and gas in Saudi Arabia pay "Chapter II
tax" calculated at a flat 20 percent rate. By contrast,
companies engaged in other business activities in Saudi
Arabia are required to pay such tax at progressive rates
as high as 45 percent.
Also^ a United States company engaged in producing
oil and gas in Saudi Arabia Is required by the above agreements and understandings to sell in Saudi Arabia all oil
destined for export. Additionally, for the purposes of
such sales and for the computation of "net profits" under
Chapter II of the November Decree, and thus "net operating
income" under the December Decree, the oil companies have
been required, at least up until 1977, to use a posted price
established by the Saudi Government. Posted price is a fixed
price generally in excess of the actual price (market price)
that an unrelated purchaser would ordinarily pay such
companies for a barrel of Saudi crude oil.
Posted price is an arbitrary value placed on a barrel
of crude oil which has been used for the purpose of computing
a foreign oil company's "income tax" under Chapter II of
the November Decree-and its "additional income tax" under
the December Decree,, each as modified by the aforementioned
agreements, understandings,, and directives.
Foreign oil companies must also pay Saudi Arabia a
per barrel royalty currently fixed at 20 percent of the
oosted price.
-10Neither the "income tax" nor the "additional income
tax" imposed, respectively, on foreign oil companies by
Chapter II of the November Decree, and by the December
Decree, each as modified by the aforementioned agreements,
understandings, and directives, has been imposed upon income in the United States sense.. As is stated above, an
Income tax in the United States sense is not one that is
intentionally structured to tax artificial or'fictitious
income. Accordingly, these Saudi "taxes" are not substantial equivalents of income taxes in the United States
sense as required by section 901 of the Code.
The next question is whether amounts received by
Saudi Arabia from foreign oil companies under Chapter
II of the November Decree, as modified, and under the
December Decree, as modified, respectively, are taxes in
lieu of income taxes within the meaning- of section 903 of
the Code.
Saudi Arabia has no generally Imposed income tax.
Instead, it imposes a series of separate taxes restricted
to limited classes of taxpayers. Companies wholly owned
by Saudis are required to pay the Islamic religious tax
known as the Zakat. Article-2 of Royal Decree No.
17/2/28/86T34, dated April 24, 1951, as implemented by
Royal Decree No. 17/2/28/8799* dated June 15, 1951.
Only foreign companies engaged in activities in Saudi
Arabia other than the production of oil and gas are required, to pay the income tax imposed by Chapter II of the
November Decree. Only foreign companies engaged in the
production of Saudi oil and gas are required to pay the
"taxes" imposed, respectively, by Chapter II of the
November Decree, as modified, and the December Decree,
as modified.
Since there is no generally imposed Saudi income tax
in the United States sense for which the "taxes" on foreign
oil companies imposed, respectively, by Chapter II of the
November Decree, as modified, and the December Decree, as
modified, are substitutes, such "taxes" cannot qualify as
in lieu of "taxes" within the meaning of section 903 of
the Code.
Accordingly, the levies imposed on oil companies by
Chapter II of the November Decree, as modified," and by the
December Decree, as modified, respectively, have been
neither
in lieu income
of suchtaxes
income
intaxes
the United
in theStates
United sense
States
nor
sense.
taxes
-11Rev. Rul. 55-296 is revoked. However, pursuant to
the authority contained in. section 7805(b) of the Code,
this Revenue Ruling will be applied only to amounts paid
or accrued to Saudi Arabia for taxable years beginning
on or after July 1,. 1978, provided the taxpayer does not
change the taxpayer's accounting period.
The holdings, of this Revenue Ruling with respect to
section 901 of the Code are limited to the questions discussed herein and no opinion is expressed as to whether
the amounts received by Libya and Saudi Arabia might fail
to qualify as creditable income taxes for any other reasons.
Rev. Rul. 68-552 Is revoked. Rev. Rul. 55-296 is
revoked.
Department oltheTREASURY
WASHINGTON, D.C. 20220
TELEPHONE 566-2041
FOR RELEASE AT 4:00 P.M.
1M\
January 17, 1978
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $ 5,800 million, to be issued January 26, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,807 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,300
million, representing an additional amount of bills dated
October 27, 1977,
and to mature April 27, 1978
(CUSIP No.
912793 P9 1), originally issued in the amount of $3,403 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,500 million to be dated
January 26, 1978,
and to mature July 27, 1978
(CUSIP No.
912793 S4 9).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing January 26, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,106
million of the maturing bills. These accounts may exchange bills
they hold for the bills now being offered at the weighted average
prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Except for definitive bills in the
$100,000 denomination, which will be available only to investors
who are able to show that they are required by law or regulation
to hold securities in physical form, both series of bills will be
issued entirely in book-entry form in a minimum amount of $10,000
and in any higher $5,000 multiple, on the records either of the
Federal Reserve Banks and Branches, or of the Department of the
Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time,
Monday, January 23, 1978.
Form PD 4632-2 (for 26-week
series) or Form PD 4632-3 (for 13-week series) should be used
to submit tenders for bills to be maintained on the book-entry
records
B-641 of the Department of the Treasury.
-2Each 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.
Banking institutions and dealers who make primary
markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and
oorrowings on such securities may submit tenders for account
of customers, if the names of the customers and the amount
for each customer are furnished. Others are only permitted
to submit tenders for their own account.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual
issue price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches, or for
bills issued in bearer form, where authorized. A deposit of 2
percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action
shall be final. Subject to these reservations, noncompetitive
tenders for each issue for $500,000 or less without stated price
from any one bidder will be accepted in full at the weighted
average price (in three decimals) of accepted competitive bids
for the respective issues.
Settlement for accepted tenders for bills to be maintained on the book-entry records of Federal Reserve Banks
and Branches, and bills issued in bearer form must be made
or completed at the Federal Reserve Bank or Branch or at the
Bureau of the Public Debt on January 26, 1978,
i n cash or
other immediately available funds or in Treasury bills maturing
January 26, 1978.
Cash adjustments will be made for
differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills.
-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, No. 418 (current
revision), Public Debt Series - Nos. 26-76 and 27-76, and this
notice, prescribe the terms of these Treasury bills and govern
the conditions of their issue. Copies of the circulars and
tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
FOR IMMEDIATE RELEASE
January 18, 1978
CONTACT:
Charles Arnold
(202) 566-2041
TREASURY HISTORICAL ASSOCIATION DEDICATES BUILDING
The Treasury Historical Association has unveiled a plaque
dedicating the Treasury Annex on Lafayette Square as the site of
the main office of the Freedman's Savings Bank. Rex D. Davis,
Director of the Bureau of Alcohol, Tobacco and Firearms, and
President of the Society, officiated. The guests included Mrs.
Azie Taylor Morton, Treasurer of the United States. The Freedman's Bank, chartered by Congress in 1865, was established to
receive the deposits of former slaves and their descendents.
Frederick Douglass was its last President. When the bank failed
in 1874, it had over 61,000 depositors. A bureau of the Treasury
Department, the Office of the Comptroller of the Currency, was
responsible for examining the Bank and for liquidating it and
paying the dividends owed the depositors.
The Comptroller recommended that Congress purchase the
building because of its location and fireproof character. But
the building was razed a few years after its sale in 1882 and
the Annex was constructed in 1918.
The Freedman's Bank had a great impact on the post Civil
War economic development of Blacks. Though its failure at first
created a distrust of banks, it became the model by 18 88 for
black banks, that is, banks owned and operated by and not just
for blacks. Today there are 4 9 black banks and 4 8 black savings
and loan associations.
Mr. Davis noted that it was appropriate on the day honoring
Martin Luther King's birthday, to unveil the plaque which also
commemorated the courage of Treasury officials who were among
the few to speak out and champion the poor freedmen by insisting
that an affluent nation could afford and was morally obligated
to pay the entire deposit rather than the simple dividend.
oOo
B-642
MEMORANDUM FOR CORRESPONDENTS:
January 18, 1978
Secretary Blumenthal will hold a news conference
on the President's tax proposals at 3:15 p.m., Friday,
January 20, in the Cash Room, located directly opposite
the Pennsylvania Avenue entrance to the building. The
material is embargoed for 12:00 noon, Saturday, January 21.
Contact: Charles Arnold, 566-2041.
B-643
FOR IMMEDIATE RELEASE
January 18, 1978
RESULTS OF AUCTION OF 2-YEAR NOTES
The Department of the Treasury has accepted $3,252 million of
$6,652 million of tenders received from the public for the 2-year
notes, Series K-1980, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 7.52% 1/
Highest yield 7.56%
Average yield 7.55%
The interest rate on the notes will be 7-1/2%. At the 7-1/2% rate,
the above yields result in the following prices:
Low-yield price 99.963
High-yield price
99.891
Average-yield price 99.909
The $3,252 million of accepted tenders includes $706 million of
noncompetitive tenders and $2,441 million of competitive tenders
(including 39% of the amount of notes bid for at the high yield) from
private investors. It also includes $105 million of tenders at the
average price from Federal Reserve Banks as agents for foreign and
international monetary authorities in exchange for maturing securities.
In addition, $ 592 million of tenders were accepted at the average
price from Government accounts and Federal Reserve Banks for their own
account in exchange for securities maturing January 31, 1978,
($272 million) and from Federal Reserve Banks as agents for foreign
and international monetary authorities for new cash ($320 million).
1/ Excepting 7 tenders totaling $3,780,000
B-644
FOR RELEASE UPON DELIVERY
Expected at 9:30 a.m.
January 19, 1978
STATEMENT OF DONALD C. LUBICK,
ACTING ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY,
ON TUITION TAX RELIEF FOR EDUCATIONAL EXPENSES
BEFORE THE SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT
OF THE SENATE FINANCE COMMITTEE
JANUARY 19, 1978
Mr. Chairman and Members of this Subcommittee:
I am pleased to appear here today to present the
Treasury's views on bills that would provide relief in the
form of tax credits for the expenses of education. With me
is Emil Sunley, Deputy Assistant Secretary of the Treasury
for Tax Policy.
Before proceeding to analyze the various proposals for
credits for educational expenses, we would like to make a
formal request on behalf of the Administration: That the
various proposals for tax relief for education expenses be
considered by the Congress along with basic educational
assistance programs. Only in this manner can the Federal
government's programs and expenditures in assisting students
be considered in a unified and comprehensive way. The
Administration is formulating educational proposals that
include an increase in the funds available to assist students
attending institutions of post-secondary education. These
proposals would provide assistance to families at higher
income levels than is currently the case. Only if tuition
tax credits are considered along with other educational grant
B-645
-2programs can we rationally allocate dollars spent for
education in a comprehensive and integrated manner.
Thus, a proper consideration of our views requires a
necessary evaluation of available alternatives.
I will first discuss bills such as S. 311, which would
provide a tax credit for the cost of tuition for higher
education. Then I will discuss such bills as S. 2142, which
would extend such a credit to tuition paid to elementary and
secondary schools. Finally, I will comment on proposals
related to education assistance programs provided for workers
by employers.
College Tuition Tax Credits
The Treasury Department supports the use of Federal
monies for assisting students in meeting the costs of
post-secondary education. However, the Department maintains
its opposition to a tax credit because a credit is an
improperly targeted and inefficient method of providing such
assistance. We note that we are joined in this opposition by
such groups as the National Education Association, Parent
Teachers Association, and the AFL-CIO.
The specific reasons
for our opposition, are compelling:
(1) Contrary to popular belief — a belief that lies at
the heart of the support for the measures — increases
in student charges in recent years have not outpaced the
rate of growth of family income;
(2) Relief in the form of a credit would operate to the
disadvantage of private institutions of higher
education;
(3) The benefits of the credit would go largely to
families with incomes well above the median family
income, thus having an adverse distribution effect;
(4) A credit is not an efficient means of encouraging
investment in higher education;^
(5) A credit would make current educational policy —
already a maze — even more complex;
(6) A credit would increase the costs of higher
education.
-3-
Revenue Cost. Most bills that provide for tuition tax
credits will involve substantial losses of revenue. For
example, Table 1 shows that the revenue cost of a
non-refundable tuition tax credit of $250 would' be in the
neighborhood of $1.2 billion. A similar credit of $500 would
cost $2.2 billion a year at 1978 levels of income and would
grow over time. Refundability would add approximately $100
million and $150 million, respectively to these costs. Once
a credit of this size is adopted, one can expect continuing
efforts to increase it. Such a program could easily become
an even larger drain on Federal revenues. Again, if monies
are to be spent in the area of higher education they can be
better targeted and more efficiently spent.
Family Income and Student Charges. The underlying basis
for the belief that tax relief for the expenses of higher
education is necessary is that expenses for education now
take a larger share of family income than in the past. The
data available to us indicate that this is not the case.
During the period 1967 - 1976 median family income has risen
at a rate comparable to the rate of increase in gross student
charges at institutions of higher education (see Table 2).
Per capita disposable personal income—or, average after-tax
income of individuals — has risen even faster than gross
student charges. Moreover, the rate of growth in student
charges has recently declined.
Combining the increase in
family income with the increase in appropriations for student
aid programs, a Congressional Budget Office study 1/
concluded that during the past nine years, the charges faced
by students from low and moderate income families, net of
Federal assistance, have dropped as a percentage of family
income; while, for middle income families, the ratio of
charges net of Federal assistance to family income has
remained about the same.
1/ Congressional Budget Office, Post-secondary Education:
The Current Federal Role and Alternative Approaches
(February, 1977) .
-4Table 1
Maximum $250 Tax Credit for Tuition for Higher Education
Full Time Undergraduates Only (Including Vocational)
Calendar year 1978 Liability - For Full Year
Adjusted Gross
Income Class
($000)
Non-Refundable
Number of Tax Credits Allowed
0 - 5
5 - 1 0
10 - 15
15 - 20
20 - 25
25 - 30
30 - 35
35 - 50
50 - 100
100 and over
TOTAL
750
963
1,288
1,069
800
655
323
599
274
45
6,766
150
642
1,258
1,069
800
655
323
599
274
45
5,815
Revenue Loss ($ millions)
0 - 5
5 - 1 0
10 - 15
15 - 20
20 - 25
25 - 30
30 - 35
35 - 50
50 - 100
100 and over
TOTAL
60
141
215
223
174
152
78
144
69
12
12
94
210
223
174
152
78
144
69
12
1,268
1,168
Office of the Secretary of the Treasury
Office of Tax Analysis
January 14, 1978
Table
2
INCOME AND STUDENT CHARGES, 1967 - 1976
All
Year
Families
.
Median Family Income
with 13-24 yr.
Dependents
(2)
(1)
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
Percent Change
1967 - 1976
$
7,933
8,632
9,433
9,867
10,285
11,116
12,051
12,836
13,719
14,547
+ 83.4
Estimated Percent
Change 1976-78 d/
a/
with 18-24 yr.
Dep. in co liege
$
9,228
10,169
11,076
11,485
11,960
13,062
13,956
14,624
15,739
16,897 c/
+ 83.1
(3)
$
11,433
12,550
13,712
14,396
15,079
16,048
17,220
18,634
20,014
21,918 c/
+ 91.7
:
::
:
;i
Per Capita
Disposable
Personal Income
(4)
$ 2,740
2,930
3,1H
3,348
3,588
3,837
4,285
4,639
5,062
5,494
b/
d/
c/
+100.5
1,026
1,064
1,117
1,205
1,288
1,357
1,530
1,566
1,710
1,882
$ 2,124
2,204
2,321
2,533
2,740
2,917
3,035
3,163
3,744
3,981
+ 83.4
+ 87.4
I
+ 18.0 to
+ 22.0
Family incomes for all families are those reported in the Bureau of the Census March Current
families with 18-24 year old dependents are those reported in the October Current Population
income for all families. The Bureau of the Census reports that for the above period October
86 percent of the median family incomes reported in March.
A census family is two or more persons related by blood, marriage, or adoption, and residing
members of the same family. Columns (2) and (3) are incomes of primary families. A primary
the wife, or married. Only those in which the 18-24-year-old dependent is attending college
Estimated
College Scholarship Service estimates for changes at 4-year resident colleges.
Source:
Total Student Charges
(School year ending
spring of yeai' Indicated)
Public
Private
*
(5)
(6)
$
Office of the Secretary of the Treasury
Office of Tax Analysis
a/
::
::
::
:
!:
+ 11.9
+ 11.8
April 26, 1977
Population Surveys. Family incomes for
Surveys but projected to March levels of
median family income ranged from 82 to
together. All such persons are considered
family includes a head of the household,
full time are included in Column (3).
Survey of Current Business and Congressional Budget Office, Postsecondary Education: The Current Federal Role and Alternative
Approaches (February, 1977\ Bureau of the Census Current Population Reports, Uation.il Center for Education Statistics.
I
-6The Federal Government has substantially increased its
investment in higher education over the last few years and,
doubtless, will increase that investment over the coming
years. However, that increased investment should be
responsive to the greatest needs of our educational system,
and not to an illusory need that focuses solely on price
increases and does not take into account corresponding
increases in income.
Private Education. We are also concerned about the
competitive effect of relief through a tuition tax credit on
private educational institutions. Let me illustrate the
problem, using 1976 student charges. A tuition tax credit of
$250 would reduce a family's total student charges for
attendance at a private post-secondary school from $3,981 to
$3,731 or by about 6 percent. However, it would reduce the
total student charges of attending an average public school
from $1,882 to $1,632 or by 13 percent. For the student
living at home and attending a public institution, the
percentage reduction in cost would be even greater. Thus, on
the average, the cost of attending a private post-secondary
school would increase relative to the cost of attending a
public school and would increase even more relative to the
cost of public school where the student lived at home.
A small tuition tax credit thus does little to reduce
the absolute cost of private schools, and it may actually
decrease their competitiveness with public schools. While it
has proven difficult for various organizations of colleges
and universities to formally oppose tuition tax credits for
the parents of their students, I think that the lack of
support from many of these organizations for such a measure
indicates their own uneasiness. The Board of Directors of
the National Association of Independent Colleges and
Universities, for instance, stated in their December meeting
that "a student aid approach is a higher priority than that
embodied by a tuition tax credit."
Distributional Effects. From the standpoint of tax
equity, a tax credit for tuition and related expenses would
be an inappropriate tool to provide educational assistance.
First, a tax credit generally grants equal relief to
taxpaying families regardless of their need and regardless of
their costs of education. I believe that a program based on
-7taxpayer ability-to-pay and the expenses of the educational
institution in question would be better targeted to meet
appropriate objectives of Federal policy. An
across-the-board tax credit is thus inferior to programs of
targeted grants or loans in meeting the goal of equalizing
educational opportunity.
Second, and more specifically, the typical recipient of
the tax credit would be wealthier then the average citizen.
In 1975, the median family income of families with an 18 to
24 year old dependent in college was more than $4,000 greater
than the median family income of all families with an 18 to
24 year old dependent and more than $6,000 a year greater
than the median family income of all families. In a sense, a
tuition tax credit might realistically be viewed as providing
relief to upper-middle income taxpayers for the temporary
liquidity problem associated with the transfer of wealth to
children through payment of educational expenses.
Investment in Higher Education. It has been claimed
that a tuition tax credit would permit more individuals to
obtain a college education. Yet Government assistance is
more likely to increase expenditures for higher education if
it is designed to assist those who are on the margin in
deciding whether to attend college. Since poor and
low-middle income families are more likely to be at the
margin, programs designed to assist such families are more
likely to increase the number of students attending college
— in general, to increase overall investment in education
per dollar of Federal expenditure — than are programs that
provide benefits to all families without regard to need. In
fact, for a family that will spend the same for higher
education regardless of whether the credit is available, the
credit ends up providing resources for their consumption of
such items as food, clothing or recreation. The credit then
becomes selective tax relief pure and simple — not a subsidy
for education.
Complexity. I realize that the argument has been made
that a tuition tax credit would be simple to administer.
Yet adding an additional program onto an already large number
of Federal and state programs inevitably increases complexity
of both the tax system and the educational system. For
example, most tuition tax credit bills require that grants
received elsewhere be taken into account in determining net
-8tuition costs, and grant and loan programs similarly would
need to take into account a tax credit in determining levels
of assistance.
Moreover, the Internal Revenue Service is not staffed or
equipped to monitor educational institutions to determine if
their courses meet the necessary requirements for tax
credits, nor should it be asked to check on students to see
if they are meeting requirements such as full time attendance
for a tax credit. The Service does not want to duplicate the
administrative efforts of other agencies. A tuition tax
credit moves the administration of educational policy away
from that agency of the Federal Government that is and should
remain responsible for trying to bring some consistency and
rationality to the existing program structure.
Effect on Student Charges. Finally, it is entirely
unclear how much of the benefits of the credit would even
remain with the recipients. Some of the benefits would be
shared with institutions of learning through higher tuition
charges. In the simplest case, we would certainly expect
that the amount of the credit would set a floor on the
tuition charges of eligible institutions. It is equally
apparent that a rise in tuition by the amount of the credit
would leave the net burden on recipient families the same.
As with most subsidies, it can be expected that some of the
benefits of the subsidy will go to the suppliers of the
services — the college and universities -- as well as the
purchasers — the students and their families -- and thus
that at least some of the benefits to the recipient will be
drained through higher tuition costs. In the case of
publicly supported higher education, the credits may result
in higher tuition charges and thereby indirectly substitute
Federal support for State and local support.
Elementary and Secondary Education
Extending a tuition tax credit for tuition charges paid
by families for the cost of elementary and secondary
education raises a number of problems that are different from
those bearing on a tuition tax credit for higher education.
At this time, Treasury opposes extending a credit to tuition
costs of primary and secondary education. Again, we note
that we are joined in this opposition by such groups as the
National Education Association, the National School Boards
Association, and the Parents-Teachers Association. The
reasons for Treasury's opposition are as follows:
-9(1)
The credit initially would be expensive and revenue
costs would rise over time even without an increase
in the basic credit amount;
(2) A credit raises a number of serious issues related
to the nation's historical commitment to public
school education.
Let me briefly review these points:
Revenue Cost. There is additional revenue cost in
extending the credit beyond higher education. For instance,
in S. 2142, extending a nonrefundable maximum credit of $500
or 50 percent of tuition charges to elementary and secondary
education raises the cost of the bill by about $1 billion to
$4.7 billion at 1980 levels of income. However, there are at
least two reasons why this revenue loss would increase over
the years even without an increase in the maximum credit
amount. First, as with the tuition tax credit for higher
education, schools could be expected to increase their
tuition charges in order to share in the benefits of the
credit. Second, the number of students attending private
elementary and secondary schools could also be expected to
increase, and thus the cost to Federal taxpayers would rise
further.
Effects on Public School Education. Any increase in
private school attendance would also have serious
repercussions on public schools.
First, an increase in private school attendance would
correspond to a decline in the number of students attending
public schools. A number of public school systems recently
have undergone dramatic changes because of declines in birth
rates, and a further decline would place further strains on
those systems.
Second, a credit might be interpreted as an incentive
for State and localities to charge tuition for public
education at the primary and secondary level. Certainly, in
the short run, it is doubtful that there would be any
dramatic effects of the credit on charges by public schools.
Institutionally, tuition charges currently are not allowed in
most States and localities. However, in the long run, it is
-10not clear what the incentive of a tax credit may do. Perhaps
a small charge for books or other fees would be allowed, or
some minimal tuition charge in place of a minimal fee
schedule. Whatever the eventual reaction, the bill clearly
reverses past practices by offering an incentive to charge
such tuition or fees.
Third, substantial progress has been made over the last
15 years in the desegregation of both public and private
schools. The effect of a tuition tax credit in this area is
an unknown factor, and I hope that this Subcommittee would
examine all possible ramifications of a credit in this area
before taking action. At a minimum, it is clear that the
credit would make it easier and cheaper for a student to
attend a private school if his family wished to avoid an
integrated public school.
I realize that most bills limit the credit to expenses
of tuition and fees at tax-exempt institutions in order to
prevent the credit from going to schools that have had
discriminatory racial policies. Even here there is a
difficulty, however, because some non-tax-exempt
institutions, particularly vocational schools, have not
foregone tax exemption because of segregation, but because
they are profit-making.
Fourth, without a phase-out of benefits for higher
income taxpayers, some of the credit would certainly go to
families with substantial income and which sent their
students to elite private schools. Given our commitment to
providing equality of opportunity through our public school
systems, I seriously question whether public monies given to
those families would be well spent.
Employer-provided Education Assistance. Tomorrow this
Subcommittee will hold hearings on legislative proposals
regarding education assistance programs provided for workers
by employers. We have been requested to comment briefly on
this subject at this time. Under the proposals, education
assistance received by employees would not be regarded as
taxable income to employees. Treasury opposes a general
statutory exclusion from income for employer-provided
education assistance.
-11Equity requires that if compensation received by some
employees is taxed, compensation received by other employees
should also be taxed. Compensation received in kind, such as
compensation received in the form of education benefits, is
just as valuable as compensation received in cash. An
exclusion for employer-provided educational assistance would
allow students who receive education benefits from their
employers to receive those benefits tax free, while other
students must pay for their education out of after-tax
income. A principle of our tax laws has been that those with
equal incomes should pay equal taxes, and each violation of
that principle erodes the confidence of taxpayers in that
system.
Moreover, any proposal that provides that certain types
of income not be taxed encourages taxpayers to rearrange
their affairs so that taxable income is received in a
non-taxable form. An exclusion for employer-provided
education assistance would be likely to produce a growing
revenue loss to the government.
It has been suggested that employer-provided education
assistance programs should be encouraged because they promote
the advancement of low-income employees with limited
education or training. However, middle- and upper-income
employees also receive education benefits, and, when benefits
are provided tax free, those taxpayers with the highest
incomes receive the greatest benefits from the tax exemption.
National education policy should not be created in such a
manner that those with the least needs receive the greatest
benefits. Poor persons who receive employer-provided
benefits which are subject to tax are nonetheless not taxed
on those benefits because their total incomes are too low.
The President's tax proposals will raise these tax-exempt
levels of income even more. It is by raising tax-exempt
levels of income that a direct and equitable attack can be
made on the problems of those persons at or near poverty
levels, not by providing an exemption to a selected group of
persons, only some of whom may be poor.
Finally, if employer-provided education assistance were
excluded from income, administrative complexity could result.
For instance, a rule would be needed to prevent one- or
two-person corporations from converting all their normal
personal education expenses into deductible expenses of the
corporation.
-12Consideration should also be given to the relationship
between an exclusion for employer-provided education benefits
and the current tax treatment of education expenses. In many
cases, education expenses are already deductible by the
employee as business expenses under Code Section 162 and,
hence, in effect exempt from tax. In some cases, the value
of deductible employer-provided education benefits need not
even be reported on the employee's return. If the primary
reason for proposing an exclusion is disagreement with
existing rules on the circumstances under which education
expenses are deductible as business expenses, consideration
should be given to simply modifying those rules on
deductibility. Such an approach would properly be more
narrow in scope than a blanket exclusion. Such an approach
would also avoid favoring employer-financed education over
education financed by the individual student.
Conclusion
I would like to conclude by repeating my appeal to you:
Treat educational policy more as a unified whole, and
consider tuition tax credits at the same time that other
measures to assist students are considered. The
Administration is formulating educational proposals that
include an increase in the funds available to assist students
attending institutions of post-secondary education. We would
like to request that direct expenditures for assistance be
given due consideration as a superior alternative to tuition
tax credits for higher education.
As for extending credits to elementary and secondary
schools, we oppose such a proposal at this time both because
of its costs and its possible effects on our historical
commitment to public school education.
Finally, in the area of employer-provided education
assistance, we oppose a general statutory exclusion from
income because of the unfairness that such an exclusion would
create and because it could represent a significant drain on
Federal finances.
NOT DISTRIBUTED
Treas. Press Release B-646
1-20-78
Under Secretary Anderson before the Economic
Club of Orlando
epartmentoftheTREASURY
WASHINGTON, D.C. 20220
TELEPHONE 566-2041
PRESS
SECRETARY
CONFERENCE
OF
THE
TREASURY
W. MICHAEL BLUMENTHAL
ON THE PRESIDENT'S TAX PROPOSALS
FRIDAY, JANUARY 20, 19 78
-
3:15 P.M.
IN THE CASH ROOM OF
U. S. TREASURY DEPARTMENT
2
SECRETARY BLUMENTHAL:
Ladies and gentlemen, I
thought I would begin with some general comments to explain
a few things about the President's tax program, including
the goals and principles upon which it was built up, to
give you some perspectives and then to answer questions
that you may have.
I understand you all have the detailed message
and the explanations on each one of the proposals.
The
technical staff will be available to you today and tomorrow
for specific technical questions that some of you may have
upon any of the provisions.
As you will have noticed the President is proposing cuts for individuals of $23 and a half billior* for
business
of $8.4 billion, and miscellaneous cuts of $2
billion, for total cuts of $33.9 billion.
And that will be offset by $9.4 billion of various actions that limit deductions, eliminate shelters,
and reduce the deductibility of certain entertainment expenses and eliminate certain business preference expenses.
And that offset of $9.4 billion to $33.9
nets a
reductio n
of taxes for the U.S. economy of
$24.5 billion of cuts in 1979.
The main emphasis of the program is to attempt
to return the necessary resources to the economy so that
the U.S. economy can continue to grow at a rate in real
ctne t^eporllntj C-o/npants
3
terms of f6ur and a half percent to five percent a year
over the next year or two.
And at the same time, to change the tax system
to make it simpler and easier for the average American
taxpayer, as well as to make it fairer.
The need for this tax cut for the economy as a
whole is clear, by virtue of this action; by the end of
1979 there will be created approximately one rrillion additional jobs in the U.S. economy.
Unemployment will decrease by at least a half
a percentage point below what it would be without the tax
reduction.
We will add more than one point to the GNP and
real terms, and in that way we will be able to sustain the
growth of the four and a half to the five percent level.
Moreover, by using the tax route, the President is implementing the general philosophy which he has outlined, which
is to use not government spending, but the private sectors,
and to rely on the private sector for creating the jobs
that are needed to providecopportunities for all Americans,
and to bring down the rate of unemployment.
The principles that underlie this program are,
first, to stimulate purchasing power for the average American. I have indicated there are $23.5 billion of those
tax cuts designed to do so, by taking account of the l.!v-
^~rcmp /NCfarn/J'* l .on*pants
(Z02J »78-4999
4
increases in Social Security taxes, and inflation.
Secondly, to concentrate importantly on lower and
middle-income groups in the country. And 9 4percent to'
9
5
percent of all of the tax cuts that are being proposed
therefor will go to taxpayers making less than $30,000 a
year.
I think if we can look at the first chart it
will demonstrate that. You will see from this chart that
there is a substantial reduction, that it is heavily concentrated in percentage terms at the lower level, and that
the emphasis is, indeed, on those that make less than
$30,000 a year.
I will have a few other examples to cite in that
regard. The third principle i .s one of seeking to simplify
the tax system that will be accomplished by various reforms, which will reduce from 25 to 15 lines the tax form .
that most Americans will use.
It will be achieved by increasing by our estimof
ate/the total number of taxpayers using the standard deduction from the present 77 percent to about 84-'percent
of all taxpayers filing returns.
And, importantly, it will be achieved by substituting for the present combination of an exemption and
a credit, a single tax credit. That single tax credit, also!,
will have the effect of aiding substantially people in the
Cmc fcvrjorllnq K am pan
ph.
,
!!
lower and middle tax brackets for a much more significant
2 i
benefit to those taxpayers than it is to those at the upper
i
a
tax level.
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SECRETARY BLUMENTHAL:
The fourth principle is
to make the system more equitable. That is achieved by
the introduction of the single credit of $240.00. The
old exemption system was obviously more significant to
people who were in higher income brackets.
And importantly, we increase equity in the "
system by eliminating many of the abuses, and the tax
shelters that were taking up, and still exist under the
present system. That involves four to five billion dollars
of additional tax revenues that we gain by this means,
which we can use as a means of offset, and as a means of
reducing taxes, particularly those in the^lower brackets.
On the business side, we are primarily emphasizing the stimulation of private investment as a means
to create the jobs that are needed. So the tax cuts are
designed to increase productivity,increase investment
and productive facilities, and to spur business investment
overall.
of
By doing so we're also thinking/a contribution
to fighting inflation, for as the economy continues to
move up at the four and a half to five percent real level
that we anticipate, we will create additional capacities
that will eliminate the risk of bottlenecks in particular
parts of the economy, bottlenecks which would add to the
inflationary pressures in this society.
/J
W._..ml^.
/^
Morever, another important principle that
underlines the business tax reduction is to
help not just big companies, but also snail companies.
And there are a number of provisions that you may have
already noticied that are particularly desiqned for this
purpose.
This includes, amongst other things, the
President's proposal to reduce corporate tax rates at the
bottom levels, reducing them from 22 to 20 percent on the
$25,000
first$25,000, and from 20 to 18 on the next / as well
as "for all additional income making some changes in
the shelter tax provisions, and broadening the possibility
for write-offs as ordinary losses of stock in small corporations which will be particularly helpful for debenture
capital and small business activities.
Let me then, in conclusion to these introductory
comments, refer you merely to some of the examples in
the rate tables. You will
the impact that
notice/the tax cuts that we are proposing by reducing the
rate levels and introducing the single credit
has on the average taxpayer.
The average income tax is reduced, in
fact, for all taxpayers, below $100,000.00. For example,
for a single taxpayer it is reduced by 16.4 percent,
for a single taxpayer who makes $10,000.00 or less.
And for the single taxpayer earning between 50
and 100,000, it is reduced only by three percent, 3.1 percent
If you take the typical taxpayer, who files a
joint return, and has two dependents, a typical family of
if less than
four, at the bottom leve^/ such taxpayer makes/$10,000.00,
thyre would be a very substantial reduction, in fact
there would be an earned income tax credit.
The actual changes would be a reduction Of
976 percent, so the tax is actually negative. And for
a taxpayer in the 50 to 100 percent bracket, it would
involve a reduction of 1 1/2 percent.
the tax cuts are
So agaiiv/very much skewed toward the lower
level. And for a taxpayer with two dependents, at the
$10,000
'' to $15,000.00 level, as another example/ there will
be a substantial reduction/.-of 3 2.1 percent.
The total taxes by income class,
that are paid by the American public, will again be
essentially reduced for the lower and middle levels.
At the$5/000to $10,000.00 level,one will notice that
under the present set of circumstances, 8.2 billion
dollars out of all income taxes collected come from people
who nake$5'000to $10,000.00.
That, under the new proposals, will be
dollars,
reduced
6.37 billion/ in other
words a reduction of 23 percent in that income class.
n IO ,.._ /*.
$30,000
At the / to $50,000.00 level, we presently
collect $22 billion from that group,and that will be
reduced to a little less than$21 billion/ for a five
percent"reduction ' again, a much heavier reduction at the
lower level. r& more moderate reduction, and still a
is
$30,000
significant one/at the / to $50,000.00 level.
• At the
$200,000.00 and up level,
there actually is an increase.
vie presently collect about six and a half
billion dollars from that group making more than 200,000,
and that will go up to over $6.8 billion for an increase of
five to six percent.
Finally, just one other set of statistics that
I believe is significant. These proposals by the President
substantially raise the levels that are not taxable any
longer, and indeed they raise the non taxable levels above
the property level, and that is, I think, a very important
point.
For a single taxpayer, the present level of.
income that is not taxable is $3,200.00. That will rise
to almost $4,000.00, $3,967.00 to be exact,
For a married taxpayer, again, with two
dependents, the present level is $7,520.00 and that will
rise to 9,256 dollars in 1979.
Just for reference, the poverty level for a
/?
10
,.
r
single taxpayer in 1977 is calculated at $3,252.00, so
we are beginning to tax at this point, slightly below the
poverty level.
In 1979 the poverty level we calculate will
be $3,44 9.00, so our cut off point for beginning taxation
$3,967.00, .•' substantiallyabove the poverty level.,
I think these are a few of the sianificant points that
I thought I wanted to mention by way of introduction, and
I will be glad to answer any questions.
QUESTION:
Mr. Secretary, the President refers
to this message taking millions off the tax rolls. How
many millions would really come from the tax rolls?
SECRETARY BLUMENTHAL: I think it's about 5 or
6 million — 6 million.
QUESTION: What's the total universe, Mr. Secretary? Is that like 90 million taxpayers all together?
Six million of the 90?
SECRETARY BLUMENTHAL: No, not that many. About
80. We are talking about 80. I am sorry, it is close to
90.
QUESTION: Mr. Secretary, on Wednesday Senator
William Proxmire met with the President and was briefed on
this topic, and afterwards he told the reporters that the
President's tax reductions have a good chance of getting
through, but your tax reform is not likely in this election
year.
Do you agree with that assessment?
SECRETARY BLUMENTHAL: I don't agree with that.
I feel that it's important to recognize that we have a
total of $34 billion of tax reductions, and with a package
of net reductions of $24.5, we have something like nine or
$10 billion of reductions that we will have to finance out
of some of the reforms that we are proposing.
This revenue will go for two purposes: It will
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go, particularly, to provide relief for low and middleincome taxpayers. And, secondly, it will go to business,
large and small, to provide the additional one million jobs
by about the end of 1979 that we need.
If we cannot get these reforms we would, therefore, not have the revenues necessary to do the kind of
job we have in mind.
I think that in addition to that, the reforms
will make the system so much simpler and so much more equitable that the Congress certainly will want to help in that
regard.
And we will work very hard to make that point in
our discussions and testimony with the Congress.
QUESTION: Does that mean, sir, that the President would veto reductions without the reforms?
SECRETARY BLUMENTHAL: I certainly cannot speculate upon that now. We haven't even begun, at this point.
QUESTION: The President said he would not find
it advisable to veto the entire tax cut if the reforms —
SECRETARY BLUMENTHAL: I believe that is saying —
what I have said is that he is saying the same thing. If
we cannot get the reforms, we will be short something like
$9 billion or more for the gross reductions of $33.9
billion, so, clearly, we would have to cut back somewhere
in that case.
QUESTION:
Mr. Secretary, I would like to ask
you about the rationale for increasing the deductible on
the combined medical casualty, from three percent to ten
percent.
That- excludes a great deal of deductions for
many people. What is the reason for that?
SECRETARY BLUMENTHAL: Well, there are two reasons. One, we are combining ~ it is not a simple raising
from three to ten percent — we are combining the casualty
deduction and the medical deduction into one single deduction, to make the system much simpler.
And we are, for the combined total, saying that
it will be in excess of ten percent.
QUESTION: With respect, I don't think that meets
the main part of the question. Most people, many more
people take deductions from medical expenses than from casualty losses, and it seems to me it's in that area that you
are effectively raising the tax burdens.
What reason is there for doing that?
SECRETARY BLUMENTHAL: I think you have to take
the net of all of these things-. In fact, most of the
reductions that we are making are going to the lower and
middle levels.
people at these
It means that/these levels of income will have
a considerable incentive to use the standard deduction into
which there has been imputed some recognition of the costs
of medical expenses.
When medical expenses are truly extraordinary,
taken together with casualty losses, and we think that
they are truly extraordinary when they begin to exceed ten
percent, then they are large enough that
it pays you to itemize your deduction, then you
would get recognition for that in the tax code.
And I think that that is fair.
QUESTION: Mr. Secretary, why isn't there a dollar limit on business lunch deductions? Now the President
proposes 50 percent, while, on the other hand, the airline
fares,
ne
proposed to completely disallow first class fare
and have coach fare.
Now maybe that is a fair proposal, but that is
a business deduction, and you are penalized for those who
deduct a reasonable amount and for those who do not engage
in a three-martini lunch.
Now why the disparity or this discrimination between the two flights, which are basically the same thing?
If you aire trying to curtail abuse, it is not fair.
SECRETARY BLUMENTHAL: Well, we studied various
means of accomplishing the basic objective, which is to try
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to separate out from business meal deductions that element
which represented, really, the personal expenditure of an
individual which he would have to undertake — he or she
would have to undertake in any case, and to do that in a
fair way.
But also to do it in a manageable way. The costs
for meals under different circumstances in different parts
of the country are very different, and a typical lunch in
one part of the country under one circumstance is quite^
different than it is in another part.
A dollar limit would have been not only
difficult but also unfair in some instances, so we felt
that recognizing that half could be deductible, which is
at the individual's own expense,
was not an(
^
was
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easiest and the fastest way to deal with that problem.
Yes?
QUESTION: On Table 5, Fact Sheet 5-A, where
you-cite-the deduction of $258 to the taxes of a family of
four with an income of $15,000,to put this in perspective,
how much of that $258 tax reduction will be offset by
Social Security increases and increases from inflation
on the tax liability of that family?.
SECRETARY BLUMENTHAL: Which table is this?
QUESTION: This is Fact Sheet 5-A, the Burden
with two
Table for joint returns / dependents, and I was citing the
;
•
$15,000 wage earner/ .
gets a tax cut of $258.
The ques-
tion is, How much of that is offset by increased Social
Security, payroll taxes, and by the effects of inflation on
that taxpayer's liability?
SECRETARY BLUMENTHAL: Well, I can give you the
effect for a four-person, one-earner family of the increase
in the payroll taxes against the $258 r.eduction of income
tax.
That is $42. I do not have the number broken
down in this way for inflation '78 to nine or '77 to nine.
I don't have that number broken down in this way. But it
is $42 on *'*»
QUESTION: Mr. Secretary, what will be the
effect of the tax benefit —
SECRETARY BLUMENTHAL: Could you repeat that?
QUESTION: What will the effect be on foreign
investment?
SECRETARY BLUMENTHAL: The question is, What
would be the effect on foreign investment of the elimination of deferral? Our view is that the effect will be
minimal, if nonexistent.
Indeed, in terms of the overall position of
US industry within the context of a world economy, our
view is that it may well be favorable,for we are doing
many things in this program to make American industry
more competitive.
And we do not believe that any artificial means
are needed in that regard, and that providing for more investment by providing many of the benefits that are in the
program we are helping American industry to be more efficient.
Also, by reducing the corporate tax rate from
48 percent to 44 percent we are, in any case, reducing
substantially the benefit that would have accrued in any
case from deferral of taxation on foreign source income.
So, all together, we do not believe that it will
have any significant impact on foreign investment. It will
mean that the system will be neutral,in the sense that
investments that have gone abroad because of these tax benefits may well be made in this country.
And, therefore, they will add to employment and,
hopefully, also to exports from this country which will
be helpful to our balance of trade and to our current economy.
QUESTION: Mr. Secretary, I wonder whether we
might have a table that shows the slightly increased
Social Security taxes that went into effect this year as
a result of previous law and set off against the interim
tax reductions so we can see whether the taxpayer can ex•
pect —
how he will do in calendar year 1978?
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SECRETARY BLUMENTHAL:
We prepared these
tables in many different forms. We have one here which
we have tried to Include several, in fact, which would
in fact include the impact of Social Security increases.
Q. I see one for 1979.
SECRETARY BLUMENTHAL: Well, the '76 levels of
income — I'm looking at this one — table 10. There
are several. If you look at table 10, in the presidential
message, would you turn to that.
That is one effort to set off payroll tax
increases, based on the recent changes in the law. Again,
the income tax reductions at various levels of income.
Is what what you had in mind?
Q. I couldn't find the table, but doesn't that
cover calendar year 1978?
SECRETARY BLUMENTHAL: It says at the bottom,
that's for 1979.
Q. My question dealt with what about this
year that we are now in.
SECRETARY BLUMENTHAL: Well, the changes that
were mandated — oh, you mean the changes that were
effective as of January of this year?
O. Yes. In other words, do I end up paying
more taxes or less taxes when I count both Social Security
and income tax?
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SECRETARY BLUMENTHAL:
Lers''taxes.
I can
give you that number in global terms, if you like. For
the economy as a whole, if you take — let me start at
the beginning. If you take that individual reduction out,
individual, if you take cuts of 33.5 billion gross, and
you take out the elimination of various deductions and
shelters, you have a net cut of 16.8 billion.
Then we have — this is now for fiscal '79 —
we have $3.9 hillion for employee Social Security taxes,
just passed. And we have another 1.8 billion that were
previously enacted, and which went into effect on January 1
of this year.
So it would be about $13 billion, without the
— those that went into effect at the beginning of {-•--this year, just those that were enacted and will begin in
1979.
If you take into account what began at the
beginning of this year, you would have a net reduction
for individualsof 11 billion.
0. This is for calendar year?
SECRETARY BLUMENTHAL: yes.
0. What about —
SECRETARY BLUMENTHAL: IV' sorry, one at a time,
please.
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Q.
What about the calendar year '78.
People
pay taxes by calendar year, sir.
SECRETARY BLUMENTHAL: Well, I'm going to have
to see whether we make that calculation for you. I don't
have that. I think there was a gentleman here. Yes.
0. Mr. Secretary, the President says nothing
about extending the new jobs credit, the new jobs credit
expires at the end of 1978. What is your intention about
the new jobs credit Congress passed last spring?
Will that add to the cost of your present cost
if you do extend it, or did you figure that extension
into the president's message?
SECRETARY BLUMENTHAL: We have not yet made a
recommendation to the Congress on the extension of that
credit. We, as you know, opposed that credit when it was
before the Congress, and I would suspect that we will
probably oppose it again.
0. Is it possible to get some breakdown of
how you arrived at this figure of $9 billion?
There is something mentioned of a two billion, of entertainment expenses, and so forth.
But I wonder if you have any estimates of
how much the curtailment of tax shelters is going to net
you, and the various other burdens.
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SECRETARY BLUMENTHAL:
The best thing that I
can do is refer you in your voluminous package to the
table 2, entitled the effect of tax proposals on calendar
year tax liability, and where we have sought to set out
in detail, item by item, each of these elements.
have it
Now you// , which one were you interested in?
Q. I have the table now, and I can see it.
SECRETARY BLUMENTHAL: This gentleman here."
0. Sir, is it safe to conclude from this
table 10, which compares the income tax relief with Social
Security tax increase, that any one earninq $30,000.00 or
more will pay an increased tax in 1979 and beyond as
the Social Security taxes increase?
SECRETARY BLUMENTHAL: The calculation, of
course, is needed for different types of tax filers.
It's a little different for a single individual than it is
for, in this case, a four person, one-earner family, ior
a six person, one-earner family.
But generally speaking, the break, taking into
account the increase in Social Security, and the reduction
in income taxes, is about at that level. In other words
I would not say that anyone would, but generally speaking
that's -about where the break occurs.
0. Roughly what proportion of the taxpayers
earn, under 30, and what proportion earn over 30?
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SECRETARY BLUMENTHAL:
The vast majority are
under 30. I don't have a breakdown of taxpayers — and
there is a chart, I believe, which gives that. Let me
see if I can find it.
Actually from the numbers that I mentioned here
— table 3, go to table 3, which is the one — yes, which
is the one after the one you just looked at. You will
see that out of 8 7 million - --* returns, 94 or 95
percent are — in other words all but 4.4 -*-all but 4.6
million out of the 87 are at 30,000 or less.
SECRETARY BLUMENTHAL:
So, in fact, most of
the income tax cuts go into that group. It also means
that anyone at that level, or below, will have a net reduction.
Q. Mr. Secretary, the chart that shows —
SECRETARY BLUMSNTHAL: Which chart?
Q. Unnumbered, it shows the incidence of federa!.
income tax with personal income, shows the incidence
beginning to rise very sharply in 1979 and into 198 0. Does
that suggest to you the need for additional tax relief
as we move out toward 1980?
SECRETARY BLUMENTHAL: It clearly means that if
we wish to maintain the historical percentage of individual
income taxes as the percent of personal income, then
in looking out toward 1981, we would get, even with the
present reduction at the end — at the upper range, that
option would have to be seriously considered.
But I clearly can't stand here today and tell
you whether that in fact will be done, or how great the
need will be. I think it depends on the circumstances
of the economy at the time.
It does mean that with this reduction we
are now well within the traditional range of about 10 to
11 percent, actually about 10,5 percent, I believe.
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But if nothing else happens we would be pushing
the 12 percent level, which would be higher thanv.----.we
have in the past.
Q . Mr. Secretary, in shifting from the ?750.00
personal deduction to the $240.00 tax credit, can you tell
me in what income level this shift becomes disadvantageous
to the taxpayer?
SFCRETARY BLUMENTHAL:
I think it depends
very much on how many dependents you have.
The more
dependents you have and the higher your tax bracket, the
more the benefit under the present exemption.
I believe
that is correct, yes.
So, it depends on the number of dependents that
you are claiming, and also what the income tax level is-.
I believe the break generally is about $22,000.00 of taxable
income.
For almost anyone who files less than $22,000.00
of income, this is a benefit.
And, again, from the previous
chart that we've just discussed, that means a large proportion
of all American taxpayers.
Q.
Mr. Secretary, I would like to get your
response to two criticisms made by Chairman Ullman yesterday.
There was that the proposal expense accounts,
especially business
mealg would create unemployment in
the restaurant and hotel and resort industries, and
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therefore it was objectionable and had policy.
We also argue, that any deferral on unrepatriated
foreign earnings would invite other governments to increase
their corporate taxes, and not let the United States
realize those revenues. How do you find those?
SECRETARY BLUMENTHAL: On the first part, we
calculate that there will be no unemployment created as
a result of the president's proposal. The main reason being
that there is traditionally quite a bit of turnover in the
restaurant industry.
The best estimate that we have is that there
may possibly be a reduction in the level of employment,
and I underline possibly in that industry as a whole of
about one percent •
The turnover level is quite a bit above that.
Secondly, it clearly means that this particular form
which will be fairer, leads to a better allocation of
resources and gives us money to put into the pockets of
the average American, particularly in the lower and
middle income people where that money would be spent,
and would create demands for the parts of the American
economy.
;
:
So you would have a truer allocation of resources,
in my judgment, and possibly an increase in total employment!.
i
And since in the restaurant industry there is a fairly
heavy turnover any way, we don't really anticipate that
there would be any unemployment.
On the second point, I think this is a matter
which has to be looked at country by country. In many
instances there are tax treaties and the ability of a
country to raise taxes discriminately to discriminate
against an American corporation located there, is severely
circumscribed.
In the second instance, this particular proposal
was not put forward by the president particularly because
it is intended to raise a great deal of additional
revenue. It is put forward because it is considered
equitable, it is considered unwarranted a tax benefit
to American corporations operating abroad, because it is
believed that it would lead to a better allocation
of resources by American corporations and to increasing
investments in this country.
And therefore, even if it were true, and in
some countries in some instances, no doubt, Chairman
Ullman is right that it may well be true, that it wculd
lead to added tax collection in those countries.
It would still be considered by us to be a
beneficial reform.
Q. Your capital gains revision here is quite
modest, compared to the kind of plans that were being
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talked about early last year.
Has total revision of
capital gains been dropped completely in the administration
plan, or is it possible that they might resurface in
some other form in future plans by the administration?
SECRETARY BLUMENTHAL: Well, as you know,we
looked, over the course of 1977, a: t virtually every aspect
of the tax code, with the viewpoint of examining possibilities of reform, and in the end the president made a judgment
as to the kinds of reforms that he would decide to propose
to the Congress, bearing in mind that there were opportunities
for substantial reform, and at the same time bearing in
mind the need to get action on a tax package which could
be packaged in one year.
A number of important opportunities for reform
were eliminated. These do include capital gains, they
also included the possibility of eliminating the double
taxation on dividends, for example. They eliminated the
possibility of eliminating the distinction between
earned and unearned income.
And many other reforms. The president's
decision was that these were not — this was not the
right time for him to go forward with the set of reforms
that were so comprehensive as to require a great deal of
detailed and lengthy study by the Congress.
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And therefore the decision was made in this way.
Q\, Mr. Secretary, what would be the right time
for having a comprehensive tax reform?
SECRETARY BLUMENTHAL: That is simply for the
president to judge. No doubt he will be looking at it
in the subsequent years# I suspect there will be further
tax reductions while President Carter is in office, over
the next several years, and I'm sure he will want to reexamine that when the opportunity arises.
0. Mr. Secretary, when will Donald Lubick
be appointed for assistant secretary for tax policy?
SECRETARY BLUMENTHAL: The question, as I
understand it, is when will Mr. Lubick be formally appointed
and will there be a reorganization?
No doubt you belong to the Don Lubick for
assistant secretary booster club, and I assure you there
are a good many people in the Treasury who are: membersfof
that club.
I cannot tell you that, that's a decision the
president will have to make. We have been so busy and
Mr. Lubick, who has done a fantastic job taking over from
Larry Woodworth, iLi\ leading the tax policy group in the
Treasury and helping to put all this together, I think
you can see from the document that it is a good job.
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He has been so busy, and/the president, that we really
haven't focused on this, but I'm sure we will.
And as to reorganization, I know of no plan to
reorganize.
Q. Chairman Ullman also criticizes a $25
billion net tax cut as inflationary and said he would _
prefer something in the range of 10 to 15 billion dollars.
what's your reaction to his reaction? Would you accept
something in th^t range?
SECRETARY BLUMENTHAL: We carefully reviewed
the various possible levels of tax cuts. The president is
very concerned about inflation, and we have made a very
serious effort, through the anti-inflation program, to
deal with this matter, and we certainly did not want to
propose an inflationary level of cuts.
But bearing in mind increases in Social Security
taxes that have been discussed here, and the general level
of inflation/which is still at 6 1/2 percent* the president
dollars
decided that 25 billion/would be non inflationary, and
would allow us in an uninflationary way to continue the
economy on its upward path, of 4 1/2 to 5 percent a year.
And we'll be testifying to that effect before Chairman
Ullman's committee, and we hope that we could convince
him that that is a correct estimate.
Q. Mr. Secretary, I would like to refer to
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table 10 again, which deals with the
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income tax cut.
SECRETARY BLUMENTHAL: Just a minute/
4
Soc
let
ne
get to table 10 first.
end tape
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24
25
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SECRETARY BLUMENTHAL:
Okay, go ahead.
QUESTION: My question is, Do the Social Security taxes referred there seem to be misleading? Because
they go from a wage base of $18,900 instead of $17,700,
which is the actual change, so that those figures — I
wonder if you would agree with that? •
Why was the $18,900 base used instead of
$17,700, which is the actual?
SECRETARY BLUMENTHAL: Well, as I understand it,
and those who made up the table can correct me if I am
wrong, this was an attempt, and there is a footnote that
this,
clearly indicates/to calculate the additional payroll taxes that will have to be paid by individuals in these various
classes as a result of the Social Security law that was
just passed last month.
it to
I have given/you —
and I think that's right;
isn't it? Okay, and it does include the rate increase
from 5.85 to 6.I3 percent. I guess that is also listed
in the footnote.
I have given you the additional amount in
global terms. I don't have it broken down by each group,
wage income group.
If you include the increases that were previously enacted and that went into effect in January ofv.
this year on a global basis, that is another $3.9 billion.
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I don't have it broken down.
QUESTION: May I ask, that same table, the Treasury normally uses 17 percent as figuring the deduction was
17 percent of income. Now they are using 23 to 20 — is
there some technical reason for the change to higher deductibility?
SECRETARY BLUMENTHAL: I cannot answer that question. I will have to ask staff.
MR. SUNLEY: Maybe I can respond to both the
last two questions. Taking the 23 percent figure first,
for those taxpayers who itemize their personal deductions
currently, the average taxpayer itemizes 23 percent of his
deductions — his deductions are equal to 23 percent of
adjusted gross income.
And it is estimated that under our proposal,
after removing some of the itemized deductions, that the
average taxpayer who itemizes will then be able to deduct
20 percent of adjusted gross income.
So I think that's why we switched to 23 and 20.
It reflects the average change in the itemized deductions
for those taxpayers who itemize.
With respect to the Social Security question,
it seemed to us that if money income, money wages increased
ten percent between, let us say, 1977 and 1973, under prior
law the wage base of Social Security tax would increase
by ten percent.
And that worker, his Social Security tax, though
rising in money terms, would not be rising in real terms.
It would remain 5.85 percent of the Social Security base.
So it would be appropriate in measuring the
increase that Congress provided last year and in between
1977 and 1979 only to account for the increase in the base
over what the base would have been, given the inflation
adjustment in prior law.
So it is estimated that the base would be 18.9
in 1979.
QUESTION: Mr. Secretary, Chairman Ullman has
indicated that he would like the Congress to look at Social
Security tax increases again because of their size. There
are a great many arguments that can be made about that tax,
about the changes that were made, the changes that the
Administration had recommended.
Would you encourage him and encourage the Congress to look again at Social Security, and might the Administration, for instance, finally decide that it politically could support financing Medicare out of general
revenues?
SECRETARY BLUMENTHAL: As I read the Chairman's
comments, he was talking about the possibility of taking
another look at that in 1979.
We are now at the beginning of 1979 and Chairman
Ullman will be working closely with us on the President's
proposal.
I would want to consult with him very carefully
to see what he has in mind, and, certainly, we will consider whether further reviews or further changes in 1979 might
be proposed or might be desirable, including the question
of taking, again, another look to see whether and to what
extent general financing makes sense under certain circumstances.
But that's not a question that we have faced
with him. He has just made that suggestion, and we will
have all of '78 to review that with him.
QUESTION: Mr. Secretary, what effect would the
proposed —
SECRETARY BLUMENTHAL: I cannot hear you.
QUESTION: The personal tax credit that is now
being proposed or worked out on the Hill, what effect would
it have on the President's tax package?
SECRETARY BLUMENTHAL: Well, that's difficult
to say, because it really depends on what kind of proposal
amongst the various ones that I have heard discussed would
be taken.
You can talk about a tuition tax credit for
primary and secondary school children. You can include
college students.
You can give it to everybody.
You can
phase it out above a certain level.
There are various proposals at the table. I
think they have one thing in common. They are all very
expensive, but some are more expensive than others. They
all involve several billion dollars of revenue of expenditure
revenue losses to the Treasury.
And, clearly, since the President considered
$25 billion to be about the right amount, there would be
a serious question about where that revenue would have to
come from.
QUESTION: Mr. Secretary, I'll tell you why we
are all hung up on Table 10. It was said it was to offset
Social Security, and grants that are already built into
the system.
Now this table doesn't go to the key point. What
we would like is a very precise explanation of at what point
are you going to get actual tax increases under the combination of Social Security and payroll taxes offsetting your
across-the-board taxes?
That's a very key figure there.
SECRETARY BLUMENTHAL: I understand the concern.
I don't know whether I can shed total light on this
issue, but let me try.
In the first place, I think you have-
to distinguish between the impact on individuals on the
individual taxpayer of, on the one hand, the reduction in
income taxes, and, on the other hand, increases in Social
Security, those that just took effect, those that are mandated for the future, to take effect in 1979.
And the impact of inflation and of increases in
the real level of activity in the economy, real earnings.
You have to distinguish between that and, on"the other hand,
in macro-economic terms, you can take a look at the total
impact of this tax program as it is offset by other tax_
programs, and what kind of a drag or stimulant those factors
have on the overall trend of the economy.
In the first instance of looking at individuals,
what I try to do is, although I can't do it by income
class, I don't have the data here, is to point out to you
increases
that the cut, minus the deduction, minus the/now in effect,
minus the mandated increases in Social Security taxes still
leave you will 5,11 billion of additional cuts distributed
among individuals.
^When you take inflation into account for one
year, '78, it is still a plus. We haven't broken it down,
and we can't give it to you by different income classes.
When you then go to the economy as a whole, there, as I
think Mr. Schultz indicated to you yesterday, if you take
'78 over '79 there is still a net stimulant of about
$5 billion.
But if you take '77 to '79 there is a minus of
a few billion, but then you have -- about three or four—
but then you have to take into account also that you can't
just look at the tax element macroeconomically, you have
to look at the spending program and at the overall budget.
QUESTION: I'm not really getting into that
issue. What we have precisely got to tell people in various
income brackets what to anticipate from this, and how are
they going to make an informed opinion if we don't have
these basic facts broken out?
And that's what they are, basic information.
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SECRETARY BLUMENTHAL:
You have, I think, a
large, amount of basic data broken out, including the
increases in Social Security taxes that were just passed,
including the increase in the rate of from 5.85 to 6.05
percent by class.
And that is what we can give you at the moment.
O. But just breaking it down, this tables
takes the narrowest of views. It takes one year, is that
correct, it takes one year on the Social Security increase
and compares it with one year '79. This is just the effect
in '79 of two laws, correct. Your proposed tax reduction
SECRETARY BLUMENTHAL: From '77 to '79.
Q. And a Social Security tax increase. You
don't really know what effect on individuals there will
be from other factors as inflation. The energy program,
obviously you don't know.
And other tax increases that are built in.
SECRETARY BLUMENTHAL: The energy program, we
are not including in these calculations because it is
the President's intention to have that neutral to return
through a credit or a rebate, all of the taxes that
would be assessed as a result of the energy program, back
to the average taxpayer.
And until we have an energy bill, we
really
can't give you those data. And I think there is reference
in the president's message to the fact that if it turns
out that Congress does not act accordingly, then he
would have to come in with a supplemental proposal.
We have an inflation figure, verbally/but
what we have not done is to impute, we've not been able
to do it to impute,project inflation impact by wage
class or by income class. And I guess that's what you are
asking for.
0. Mr.Secretary.
SECRETARY BLUMENTHAL: I think there are a
few people who have not had a chance yet.
Q. Could we have one more table showing 1977
combined individual tax, plus Social Security taxes, 1978
combined under the proposed Carter amendment, and the
new Social Security lav/, and the same thing for 1979.
That would be the most basic one.
SECRETARY BLUMENTHAL: We could do that.
Q. And if we could add to that, assuming
individual's wage rates in '78 and '79 rise at the
rate of inflation, what kind of impact that would have.
SFCRETARY BLUMENTHAL: We'll try to prepare
that.
0. Could we have that for two wage earner
^rr^me i^eporlina C antpanu
families?
2
We'll try to prepare it in the most informative
way possible.
You know, there are any number of combinations
of tables that we could prepare.
0. Mr. Secretary, do you think there will be
an aggregate tax on home mortage money availability,and
thus a depressing effect on housing construction market
8
because of your change?
SECRETARY BLUMENTHAL: We don't really think
10
so. We think that the S&L will continue to have a
** considerable benefit with their reserves, reduced to 30
i
J
percent, and the savings rate have been good and we
13
don't
think it will have a significant impact.
M
0 • Mr. Secretary, what happens to the provision
15
that there will be a 50 percent limit on all income
16 '
dividends and interest, now as well as earned income.
17
j' And since ycu spoke why didn't you insist that
this would
is iin this package?
be
19 !
SECRETARY
BLUMENTHAL: Well, I indicated
20
earlier that we looked at virtually every aspect of the
21
tax
code, including that one. That was carefully
22
examined,
and when the decision was made of what
23
combination
of reduction and reform was most iadvisable,
24
in
the light of all of the circumstances, the president
25
made his decision.
mw/t cm a /<•('trorfit*<* mCera/tts
o
0.
But your prestige was at stake.
Q. Mr. Secretary, on the reform aspect of this
package, we have $9 billion and 9.4 in so called reforms.
Seven billion about for individuals, and of that seven
billion, about five billion looks to be for like simplification than it does actual reform. By simplification I mean
elimination of gasoline tax deduction, sales tax deduction,
medical, and you're talking about $2 billion in tax
reform affecting so called wealthy, non tax paying, leeching
Americans.
There's $2 billion. Is that important, is that
an important reform?
SECRETARY BLUMENTHAL: Well, I think in the
first place, when the president talks of reform, he
certainly has simplification in mind. We've always made
it clear that reforms for President Carter means greater
simplicity and greater equity.
So these reforms try to cover both of the
points, and achieve both of these goals. Secondly, even
elimination of the deductibility of various miscellaneous
taxes tends to be of greater benefit to the high income
groups than it does in the lower income group.
So it also serves the dual purpose of simplifying
•
as well as making it more equitable.
Sir, I don't really believe that you can look
only-at the
additional revenues that are generated
by a particular reform. They may be in global terms,
and not amount to many hundreds of* millions of dollars,
but they may be of very particular benefit to a small
number of very high income earners, and therefore/simply
from the point of view of equity, they would be the
right thing to do.
And I think the sub-total of reforms, and
there are a good many, are that they include many of
that nature.
Q Q. It cannot be reflected in $1.00 a month
then.
SECRETARY BLUMENTHAL: You can't take a dollar
amount and measure whether or not the reform is
significant or not. That's r>y point.
/?
IO
r-
/*
QUESTION:
o
I
M r . S e c r e t a r y , h o w do y o u
the A d m i n i s t r a t i o n ' s d e c i s i o n to e l i m i n a t e
SECRETARY BLUMENTHAL:
reconcile
—
W e looked very
carefully
a t t h e q u e s t i o n and it is simply a m a t t e r of j u d g i n g w h e t h e r
a ii
o r n o t this p a r t i c u l a r p r o v i s i o n w a s a f f e c t e d , and c o s t -
6 .
effectively would raise exports.
O u r b e s t c a l c u l a t i o n i n d i c a t e s t h a t for a c o s t
3 i
to the T r e a s u r y o f $1.2 b i l l i o n the added e x p o r t s t h a t a r e
g e n e r a t e d b y t h a t $1.2 b i l l i o n in e x p e n d i t u r e , lots a r e
10
a r r a n g e d s o m e w h e r e b e t w e e n o n e and $3 b i l l i o n , and e v e n
11
1
i
13 j
that is a very c h a n c y c a l c u l a t i o n .
It w a s o u r j u d g m e n t t h a t w e could u s e t h a t
$1*2 b i l l i o n m u c h m o r e c o s t - e f f e c t i v e l y , m u c h m o r e e f f e c t -
i
i
M
!
15
16
ively, to h e l p A m e r i c a n i n d u s t r y b e c o m p e t i t i v e o n an o v e r all b a s i s in the w o r l d m a r k e t , and to b e n e f i t all o f
L
17
13
19
20
A m e r i c a n i n d u s t r y and to p r o m o t e i n v e s t m e n t s in t h i s c o u n try.
A n d in t h a t w a y to s t i m u l a t e m o r e e x p o r t s , p o s s i b l y , than w e do t h r o u g h
STAFF:
this.
Thank you very much, Mr. Secretary.
Copies of the t r a n s c r i p t w i l l b e a v a i l a b l e in M r . A r n o l d ' s
»i
23 !
21
office some time b e f o r e n o o n .
(Whereupon, a t 4:19 p . m . o ' c l o c k , the P r e s s
Conference was c o n c l u d e d ) .
25
ph*8
tn
/?
FOR IMMEDIATE RELEASE
Contact: Alvin Hattal
Phone: (202) 566-8381
January 20, 1978
TREASURY ACTS ON ANTIDUMPING CASES
INVOLVING IMPORTS OF VISCOSE RAYON STAPLE
FIBER FROM BELGIUM AND AUSTRIA
The Treasury Department said today that it has tentatively
determined that viscose rayon staple fiber from Belgium is
being sold at less than fair value and issued a withholding
of appraisement.
In another action, the Treasury Department announced that
it is discontinuing its antidumping investigation of viscose
rayon staple fiber from Austria.
In the Belgian case, the Treasury will determine by
April 23, 1978, whether the product is being sold at less than
fair value within the meaning of the Antidumping Act.
In the Austrian case, the Treasury had withheld appraisement in October 1977 after it had tentatively determined that
"sales at less than fair value" were taking place. Since the
time of that determination, all differentials between the price
of viscose rayon staple fiber sold for export to the U.S. and
the price of viscose rayon staple fiber sold in the home market
have been eliminated, and assurances have been filed that no
future "sales at less than fair value" will be made. Given these
factors, a discontinuance has been granted.
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"
are talking place. Sales at less than fair value generally
occur when the price of merchandise sold for exportation to the
United States is less than the price of such or similar merchandise sold in the home market or to third countries.
B-648
- 2 Withholding of appraisement means that the valuation
for customs duty purposes of goods imported after the date
of the tentative determination is suspended for up to six
months, thus allowing any dumping duties that are ultimately
imposed to be levied on those imports.
Notice of these actions will appear in the Federal
Register of January 23, 1978.
Imports of viscose rayon staple fiber from Belgium were
valued at approximately $2 million in the first nine months
of 1977.
Imports of viscose rayon staple fiber from Austria were
valued at approximately $15.2 million in 1976.
o
0 o
Contact: Alvin Hattal
Phone: (202)566-8381
January 20, 1978
FOR IMMEDIATE RELEASE
TREASURY DEPARTMENT EXTENDS
PERIOD OF INVESTIGATION ON
MOTORCYCLES FROM JAPAN
The Treasury Department said today that it will extend
its antidumping investigation involving imported motorcycles
from Japan for an additional period not to exceed ninety days.
The decision was made because more time was needed to analyze
the data provided.
Under the Antidumping Act,"sales at less than fair value"
generally occur when the price of merchandise sold for exportation to the United States is less than the price of such or
similar merchandise sold in the home market or to third countries.
If Treasury determines that "sales at less than fair value" occur,
the case is referred to the U.S. International Trade Commission
for an injury determination. An affirmative ITC decision would
require dumping duties.
Notice of this action will appear in the Federal Register
of January 20, 1978.
Imports of motorcycles from Japan were valued at approximately $380 million during calendar year 1976.
*
B-649
*
*
FOR IMMEDIATE RELEASE
Contact: Alvin Hattal
Phone: (202) 566-8381
January 20, 1978
TREASURY DEPARTMENT STARTS FOUR
ANTIDUMPING INVESTIGATIONS ON CARBON STEEL
PRODUCTS FROM THE UNITED KINGDOM
The Treasury Department said today that it will begin
four antidumping investigations on certain carbon steel products
from the United Kingdom: hot rolled bars, certain structural
shapes, strip, and plates.
The announcement follows a summary investigation by the
U.S. Customs Service after receipt of a petition filed by Armco
Steel Corporation alleging that these products are being dumped
in the United States. The petition was received before establishment of the "trigger-price" system for steel products.
Information contained in the petition indicates that imports
of the four steel products from the United Kingdom are priced
under the same products sold in the home market. The petition
also includes information that the U.S. industry is being injured
by the alleged "less than fair value" imports. However, with
respect to two of the product groups under investigation, bars
and strip, Treasury concluded that it has substantial doubt that
an industry is being injured as a result of the alleged sales.
Under the Antidumping Act, if Treasury has substantial doubt
that an industry is being injured as a result of the alleged sales,
the case is referred to the U.S. International Trade Commission
(ITC) for a preliminary injury determination. Should the ITC find,
within 30 days, that there is no reasonable indication of injury
or likelihood of injury, the investigations with respect to bars
and strip will be terminated; otherwise, Treasury will continue
its investigations of these two products.
If sales at less than fair value are determined by Treasury,
the ITC will subsequently decide the injury question- Both"sales
at less than fair value" and injury must be found before a
finding of dumping can be reached.
B-650
- 2 Imports of the steel products covered by these investigations amounted to approximately $67.7 million during the
period January-September 1977.
Notices of the actions will appear in the Federal Register
of January 23, 1978.
*
*
*
Contact:
FOR IMMEDIATE RELEASE
Carolyn M. Johnston
(202) 634-5377
January 18, 1978
TREASURY SECRETARY BLUMENTHAL APPOINTS JOSEPH B. COLLINSON
AS NEW SAVINGS BONDS CHAIRMAN FOR RHODE ISLAND
Secretary of the Treasury W. Michael Blumenthal has
appointed Joseph B. Collinson, President, Textron Inc., as
Volunteer State Chairman for the Savings Bonds Program in
Rhode Island. The appointment is effective immediately.
Mr. Collinson will head a committee of business, banking,
labor, government and media leaders who, in cooperation with
the U. S. Savings Bonds Division, will assist in promoting
bond sales throughout the state.
Mr. Collinson joined Textron in August 1959 as Vice
President and Treasurer. He was made Executive Vice President
in 1963, and in April 1974, he assumed his present position
as President and Chief Operating Officer.
Prior to joining Textron, Mr. Collinson spent most
of his business career with the accounting firm of Arthur
Young & Company.
Mr. Collinson is a graduate of Ohio State University.
He is a member of the American Institute of CPA's and is a
director of the Old Stone Bank, Business Development Corporation
of R. I. and Fry, Inc.
B-652
Treas.
HJ
10
.A13P4
v.209
U.S. Dept of the
Treasury.
Press releases.
U.S. TREASURY LIBRARY
1 0031581
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