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Treas.
HJ
10
.A13P4
v. 218
U. S. [Treasury. Dopt
Press releases.!
LIBRARY
MAR 131980
nccr.j 500.i
TREASURY DEPARTMENT
FOR nfrEDiAIZ RELEASE
November 1, 1978
TREASURY POSTPONES NOTE AND BOND AUCTIONS
The Department of the Treasury has postponed the
auction of $2,500 million of 10-year notes and $1,750
million of 30-year bonds. The auctions had originally
been scheduled for today, November 1 for the notes, and
for Thursday, November 2 for the bonds. The auctions
have been rescheduled for Thursday, November 2 for the
notes and Friday, November 3 for the bonds. The note.:
and bond auction dates have been postponed to allox* time
for the credit markets to digest the actions announced
this morning by the Treasury and the Federal Reserve Board.
FOR RELEASE AT 4:00 P.M.
November 2, 1978
TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
$3,587 million, or thereabouts, of 364-day Treasury bills to be dated
November 14, 1978, and to mature November 13, 1979 (CUSIP No. 912793 Z8 2).
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
November 14, 1978.
This issue will not provide new money for the Treasury as the maturing
issue is outstanding in the amount of $3,587 million, of which $1,878 million is
held by the public and $1,709 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, November 8, 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 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.
(OVER)
B-1239
-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 November 14, 1978,
in cash or other immediately avail-
able funds or in Treasury bills maturing November 14, 1978,
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
November 2, 1978
RESULTS OF AUCTION OF 10-YEAR NOTES
The Department of the Treasury has accepted $2,501 million of
$3,162 million of tenders received from the public for the 10-year
notes, Series B-1988, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 8.75%
Highest yield
Average yield
8.90%
8.85%
The interest rate on the notes will be 8-3/4%. At the 8-3/4% rate,
the above yields result in the following prices:
Low-yield price 100.000
High-yield price
Average-yield price
99.020
99.345
The $2,501 million of accepted tenders includes $ 303 million of
noncompetitive tenders and $2,198 million of competitive tenders from
private investors, including 65% of the amount of notes bid for at
the high yield.
In addition to the $2,501 million of tenders accepted
auction process, $ 931 million of tenders were accepted
price from Government accounts and Federal Reserve Banks
account in exchange for securities maturing November 15,
B-1240
in the
at the average
for their own
1978.
FOR IMMEDIATE RELEASE
EXPECTED AT 10:00, A.M., EST
TUESDAY, NOVEMBER 7, 1978
REMARKS BY THE HONORABLE C. FRED BERGSTEN
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE ASSOCIATION OF AMERICAN
CHAMBERS OF COMMERCE IN LATIN AMERICA
RIO DE JANEIRO, BRAZIL
ECONOMIC RELATIONS BETWEEN THE UNITED STATES
AND LATIN AMERICA
Economic relations between the United States and Latin
America in the late 1970s are governed by two basic realities,
which will clearly continue into the decade ahead.
First, Latin America is patt of the universe of
developing countries. It continues to suffer from pockets
of extreme poverty. It can still be buffeted by external
events beyond its control. Hence it must still be viewed
as part of the developing world.
Second, however, Latin America is a uniquely successful
part of that developing world. Along with a few countries
in the Far East and elsewhere, it has moved far ahead of the
poor nations of Africa and South Asia. It has become a major
partner and, indeed, competitor of the United States in world
trade. Hence it must also now be seen as a key actor in the
/
B-1241
- 2 world economy, adopting a growing responsibility for the
functioning of that economy —
so heavily depends —
on which its own prosperity
and deserving of a seat at the
table for all important international economic negotiations.
U.S. economic policy toward Latin America must
therefore be seen in two lights:
as part of our overall
approach to the developing world, and as part of our
evolving effort to work with the advanced developing
countries —
the ADCs —
in ways which take full cognizance
of their rapidly changing capabilities and in pursuit of
mutual benefit for us and them.
Today I will address
this issue in terms of its three components:
—
the impressive progress of Latin America, which
sets it well beyond any other region in the
developing world;
—
the efforts of the United States toward Latin
America, as part of our policy toward the
developing countries both in aggregate terms and
as differentiated to respond to the evolving needs
of this most advanced region;
—
possible future developments which might build
on the successes to date and exploit still further
the rich opportunities for constructive cooperation
between the northern and southern halves of our
hemisphere.
- 3 Latin America in the World Economy
Latin America has become an important actor in the
world economy. Its impressive development during the past
two decades, while leaving many problems yet unsolved,
has thrust it into the forefront of the entire developing
world. As a result of their development, several
Latin American nations — particularly Brazil, Mexico,
Argentina, and Venezuela — now play a major and creative
role in international trade and finance.
Latin America has outpaced all other developing regions
in its rate of economic progress:
-- Between 1965 and 1977, the gross.domestic product
of the region more than doubled in real terms
to nearly $400 billion. This represents an
annual growth rate of 6.1 percent — compared with
5.1 percent for all developing countries,
and about 3.9 percent for the industrialized
countries.
— During 1973-1977, the region grew at an average
annual rate of nearly 5 percent compared with only
2 percent for the OECD countries. It maintained
impressive growth through the world recession,
cushioning the impact of the recession on the
industrialized countries including the United
States.
- 4 -- Real per capita GNP in the region has increased
by more than half since 1965. It now stands at
$1100, as compared ,with a per capita GNP of
$450 for the rest of the developing world.
This rapid progress has sharply increased the importance
of the region to the United States, and strengthened our
economic relations with it. U.S. exports of goods and
services to Latin America reached $25 billion last year,
five times more than in 1965. U.S. imports from Latin
America totaled $21 billion in 1977, four times as much as
in 1965. Latin America is a major supplier of materials
to the United States, accounting for 40 percent or more
of U.S. imports of several key products. About one-quarter
of U.S. petroleum imports now come from Latin America — a
figure that may well rise in the future.
U.S. financial relations with Latin America have also
expanded greatly. Total U.S. direct investment in the
region approaches $30 billion — about 80 percent of
all U.S. investment in developing countries. U.S. bank
lending to Latin America has also risen rapidly, and
exceeded $42 billion at the end of 1977 — 21 percent of
all U.S. bank lending abroad.
These trends clearly make Latin America part of a
new "international middle class," together with a few
other countries in the Far East and Middle East. The
continent is of course far from being fully developed.
- 5 Indeed, huge pockets of poverty remain even within the most
advanced countries of the hemisphere. Income distribution
needs improvement in many countries. A few of the smaller
nations of the region are still at relatively low levels
of development.
The United States recognizes and respects the diversity
and individuality of the nations of Latin America. But
the region as a whole enjoys living standards far higher
than those of developing Africa and Asia. It has become
a major factor in key trading and financial markets
throughout the world. As a consequence, we see our economic
relations with Latin America as the "cutting edge" for new
modes of international cooperation between industrial and
developing countries — with real benefits for all participants
whether they come from above or 'below the Rio Grande.
Looking ahead, we expect that both the economies of the
region, and U.S.-Latin American economic cooperation, will
continue to grow rapidly. We are optimistic about the
future of the region, and believe that its dynamic economic
growth will continue to exceed that of most of the rest
of the world.
This will further strengthen Latin America's position
in the world economy. It will increase the region's
influence in international economic decision-making.
- 6 Its importance as an exporter of increasingly sophisticated
manufactured goods seems likely to increase sharply, as it
acquires a comparative advantage on world markets for
products such as motor vehicles and computers. One need
look no further than the changing composition of Brazilian
exports — including the shipment of Volkswagens to Germany —
to see what shifting comparative advantage will mean to
Latin America in the years ahead.
The Policies of the United States
As a result of all these changes, the countries of
Latin America — and, indeed, a great many other developing
nations — are clearly an integral part of the global
economic system. They, like we, have a vital interest
in the future of the international economy, in the continued
operation of an open international trading and financial
system, in maintaining stable international monetary
arrangements, and in ensuring adequate rates of growth
of global production. As a result, they have a deep
interest in our policies on a whole host of issues — not
just those sometimes characterized as "North/South."
Indeed, a cardinal tenet of the international economic
policy of the United States is to take developing-country
concerns into account in formulating all of our global economic
approaches. Today's mutuality of interests reduces the
usefulness of bloc approaches to relations between developed
- 8 assistance and preferential treatment in international
trading arrangements. For ADCs, and particularly for
many of the countries of Latin America, a relatively
advanced stage of development implies a gradual phasing
out of preferential treatment, the beginning of active
participation in efforts to assist those countries in less
fortunate circumstances, and growing collaboration in molding
the evolution of the international economic system.
For its part, the United States is making a major
contribution to the developing countries, both those which
are more advanced and those which are poorer. In less than
two years, I believe that the record of ..the Carter Administration
is truly outstanding in this regard:
-- We have engineered an impressive recovery of the
U.S. economy, cutting our unemployment rate from
over 8 percent to under 6 percent, thereby
restoring growing markets for LDC exports and
improving the climate for all types of assistance
to them. We have pressed other key industrial
countries to do likewise, with some notable
successes.
-- We have strongly supported an expansion of international
balance-of-payments financing via the Witteveen
Facility at the International Monetary Fund,
whose more than $10 billion can be used by developing
as well as industrialized countries, whereas the
- 7 and developing nations — which have too often been characterize
by reckless rhetoric instead of pragmatic progress. As
President Carter concluded in a speech earlier this
year in Caracas: "Real progress will come through specific
actions designed to meet specific needs — not symbolic
statements by the rich countries to salve our consciences,
nor by developing countries to recall past injustices."
In short, "North-South" relations are far too important
to be relegated to a separate niche, isolated from the
mainstream of national policies in either industrialized
or developing countries. We seek to integrate the needs
and concerns of the developing countries, into each aspect
of our international economic policy — as we hope they
will increasingly recognize our needs and concerns in
their policies as well.
We believe that an effective economic relationship
between industrialized and developing countries must,
in fact, be based on the twin principles of shared responsibilit
by all and a right for all to full participation in
international economic decisions. These two elements are
central to our approach to the developing countries. We
recognize that the degree of responsibility assumed by
each country will depend on its stage of development. For
the poorest developing countries, where extreme poverty is
pervasive, we support increased concessional development
- 9 previous Administration proposed to limit such
help to OECD countries via the so-called
"Kissinger safety net".
We have given our support to a further increase in
IMF quotas and the first allocation of
Special Drawing Rights since 1972, which was
opposed by our predecessors, both of which
will provide further financial help for all
countr ies.
We have supported a major capital increase and a
steady rise in lending by the World Bank, which is
now committing almost $9 billion annually in
financial resources around the world including
$2.3 billion to Latin America, in the year ending
June 1978, whereas our ,predecessors had put
a ceiling on the Bank's whole lending program.
We have supported a growing role for the World Bank,
the regional development banks, and our own Overseas
Private Investment Corporation in the search for
energy throughout the developing world whereas the
previous Administration rejected such a role for
the public sector.
We have dramatically expanded the financing
available from our Export-Import Bank, some of whose
major clients are also here in Latin America, whereas
- 10 the previous Administration had virtually closed down the
Bank as an effective lubricant for international trade.
— We have succeeded in getting world-wide agreement
that the Multilateral Trade Negotiations should
be concluded by December 15 of this year, thereby
opening up new markets for the exports of developing
(as well as industrial) countries, after three
years in which that effort went absolutely nowhere.
— We have reversed the traditional U.S. position
toward international commodity agreements, and
are working hard both to negotiate agreements
where price stabilization is technically feasible
and to provide our share of the financial resources
needed to make them work.
— We have indicated our willingness to support,
and participate in, a Common Fund which would be
structured to enhance the aims of individual
commodity agreements.
-- We have increased our budgetary allocations for
foreign assistance from $5.1 billion in FY 1976
to $7.2 billion in the current year, including
more than doubling our contributions to the
multilateral development banks.
-- Of particular interest to Latin America, and digressinq
for a moment into the political arena, we have
concluded an equitable treaty with the Government
- 11 of Panama for orderly transfer of the Canal.
— We have made concrete progress in our efforts to
include advanced developing nations in pragmatic,
functional fora heretofore limited to industrialized
nations to discuss mutual economic problems, such
as the OECD Steel Committee and the International
Arrangement on Export Credits.
These accomplishments have not come easily. Increased
appropriations for foreign assistance compete with urgent
domestic priorities and the need to cut government spending
to slow inflation. Our ability to resist protectionist
pressures has been severely tested over the past two years,
with unemployment still around 6 percent and a trade
deficit of over $30 billion. The Panama Canal Treaty
was unpopular with a large portion of the American public.
But we are convinced that these achievements are in the
interest of the United States as well as Latin America.
Indeed, President Carter has embraced each of them personally
and adhered firmly to his policy principles, even when
it would have been much easier to look the other way.
We remain committed to the further expansion of economic
cooperation between North and South, with appropriate
participation by all nations — especially in the areas
of trade and development finance.
- 12 Trade
Trade is probably the most important area of U.S.
economic interaction with developing countries. Our
focus here is threefold:
— rejection of the many proposals to restrict
U.S. imports from developing countries, most
recently for copper;
— support for the Multilateral Trade Negotiations
(MTN), where we are working actively to
significantly reduce tariff and non-tariff
barriers and to improve the rules governing
international trade flows;
— continued preferential trading treatment in our
market for the developing countries.
U.S. trade statistics provide the clearest indication of the openness of our markets. Our imports of
manufactured goods from the developing countries have
grown from $3 billion in 1970 to nearly $16 billion
in 1977 — an average annual growth rate of 25 percent,
accelerating since 1975. Developing countries now
supply 50 percent of our imports of consumer goods
and 24 percent of all our manufactured imports.
At the same time, the trade area reveals most
clearly the importance of policy interdependence among
industrial and developing, particularly advanced
developing, countries. Our ability to maintain an
- 13 open trade policy depends increasingly on their willingness
to gradually open their markets and play by the agreed
international rules. The postwar history of Japan reveals
the risks which are posed for an open world economy
by a country which views itself as poor and dependent
long after it has become a major force in world trade,
and fails to take into account the repercussions on
its own most vital interests of waiting too long to
assume truly reciprocal obligations — such as opening
its own markets to imports and eliminating export aids
which are no longer needed. It is our strong hope that
today's ADCs will not repeat this serious mistake.
In practice, this means an increasing acceptance
by the more advanced developing countries of at least
partial reciprocity in the Multilateral Trade Negotiations.
For example, they could accept a commitment to limit
their government procurement practices which discriminate
against foreign suppliers. They could follow the guidelines
of the International Arrangement on Export Credits.
They could significantly reduce their excessively high
tariffs. In general, it means phasing out special treatment
as development proceeds so that needier countries can
benefit from such preferences more fully.
The acceptance of greater responsibility in trade
relations is especially important in the use of government subsidies. One of our most important objectives
- 14 in the MTN must be to reach an agreement on subsidies
and countervailing duties, to avoid the growing use of
such practices by many countries and retaliation against
them by others:
— We need to put a lid on the growing use of
subsidies to spur export-led growth at
the expense of other trading nations.
-- We need to broaden to more countries, and
deepen in substance, the commitment previously
accepted by most industrial nations not to
use export subsidies.
— We need to strengthen the present GATT provisions on dispute settlement to ensure that
these rules are enforced effectively.
Subsidies can of course pl&y an important role in
national economic policy, and flexibility in the rules
is needed for countries on different rungs of the
development ladder. Fully developed countries should
subscribe to all provisions of the agreement immediately,
whereas developing countries should be accorded special
and differential treatment. However, the code should
provide for increased acceptance of its obligations by
ADCs as their industries become internationally
competitive, as well as acceptance from the outset
of the principle that their subsidies should not hurt
- 15 other countries.
We fully recognize the evolutionary
nature of this process, and hence accept that these
obligations can be phased in over time rather than instituted
all at once.
We have been working extremely closely with several
ADCs — including Brazil — on this problem. Indeed,
Brazil has played an active role in discussions on the
subsidies code, and other aspects of the MTN, in ways
which attempt both to defend the legitimate interests
of developing countries and to strengthen the global
trading system. We hope, and expect, that Brazil and
other key developing countries will continue to make
positive contributions in the closing stages of the
negotiations.
Of course, a large volume qf our trade with
developing countries already enters the United States
duty-free under the existing tariff schedule and
generalized system of preferences (GSP) — which the
United States adopted in large part due to the needs
of Latin America, most of which was excluded from the
extensive system of specialized tariff preferences
offered by the European Community. The total value
of GSP imports from developing countries in the first
six months of 1978 was running at an annual rate of
almost $5 billion, of which almost one-third was
from Latin America. GSP duty-free imports rose an
- 16 impressive 31 percent in January-June 1978 over the
same period in 1977. In Latin America, particularly
strong gains were made by Argentina (up 91 percent)
and Brazil (up 56 percent).
Our approach to GSP is designed to assure that the
greatest benefits are made available to those who need them
most. When a particular product from a country eligible
for GSP becomes competitive in the U.S. market, that
product reverts-to normal tariff treatment on the grounds
that special help is ho longer needed — and that its
continuance would unfairly hamper less competitive countries
from getting an opportunity to enter the market.
Development Finance
Our global policy in the area of development finance
is to expand the flow of resources to developing countries,
on appropriate terms, to assist them in their efforts
to reduce poverty and achieve self-sustaining growth.
This approach suggests that countries should, as they
progress, move gradually but deliberately from (1) concessional
assistance as provided by AID and the soft-loan windows
of the multilateral development banks (MDBs) to (2)
the non-concessional windows of the latter institutions
and the private capital markets into (3) positions where
they can assist their poor neighbors through various
bilateral and multilateral assistance channels.
- 17 As you are aware, this shift is well underway for
most of Latin America. The United States has now terminated
its AID programs in Argentina, Brazil, Colombia, Chile,
Ecuador, Uruguay and Venezuela (and to Korea, Taiwan
and Malaysia). A few of these countries have already
begun to mount their own foreign assistance efforts
to help the poorer LDCs.
As official financing for the more advanced
developing countries has declined, the U.S. capital
market has become their major source of financing.
Open access to such funds has thus become a crucial
element in meeting their financing needs. We applaud
the success of these countries in tapping this source
of funding, which should continue to grow in importance.
For our part, the U.S. Government has taken
numerous steps to assure continued access for
borrowers in developing countries. Recently, our
regulatory agencies have placed increased emphasis
on the principle of diversification of cross-border
risk — a sound principle with benefits for both
borrowers and lenders. Further possibilities for
new sources of finance, such as co-financing with
official institutions and tapping the institutional
investor markets, seem promising as supplements to
bank lending. 'We have appropriated billions of
dollars of callable capital for the World Bank and
- 18 the Inter-American Development Bank (IDB), and are
negotiating sizable expansions of both, so that they
can play a growing role of financial intermediation
—
especially for borrowers in Latin America, who obtained
$4.3 billion from these institutions in the year ending
June 1978.
The current negotiations for replenishment of the
IDB, which are in their final stages, reveal the growing
collaboration between the United States and the ADCs
of Latin America in financial matters.
still borrow from the Bank —
Mexico —
The ADCs which
Argentina, Brazil and
have indicated a willingness to limit their
shares to enable the poorer countries of the Hemisphere
to increase theirs, and to increase their own contribution
to the usable resources of the^concessional lending
window of the Bank.
We have therefore indicated a willingness
to increase sharply the U.S. contribution to the Bank's
capital resources, and we expect the result to be a highly
satisfactory basis for IDB lending for the next four years.
Similarly, we are sharply expanding the lending
program of our Export-Import Bank —
from only $700
million of direct loans in FY 1977 to about $3.6 billion
in the current FY 1979.
The primary purpose of the
Bank is of course to promote U.S. exports.
At the same
time, however, it provides borrowing countries with
terms which are not available in the private markets
- 19 and thereby enhances their financial positions. Latin
American countries are heavy users of Eximbank, having
borrowed almost $1 billion from it during the past twelve
months, and therefore benefit jointly with us from its
sharply expanded lending program.
The area of development finance also embraces an
important, if largely unsung, example of recently enhanced
cooperation among industrialized and developing countries.
For some years, the Group of 77 — the caucus of the
developing countries — had taken the position that they
should be granted relief from their private debt burdens
via generalized moratoria and reschedulinqs. In late
1977 and early 1978, however, an increasing number of
developing countries — to their great credit -- recognized
that any such steps, or even serious discussions thereof,
would severely jeopardize the increased access to private
capital markets which has become so central to successful
development in so many of them. Hence they quietly dropped
their "demands" on this issue, scoring an important
victory for reality over rhetoric and demonstrating
the possibilities for pragmatic cooperation between
"North and South". Some of the major countries of Latin
America played a key role in that change of positions.
Future Directions
As the development process in Latin America and
other developing regions moves forward, continued evolution
- 20 in economic relations will be necessary. It is clear that
the developing countries are going to play an increasing
role in the world economy, as producers and exporters
both of manufactured goods and of key commodities.
The World Bank projects exports of manufactures by
the developing countries to continue growing at an annual
rate, adjusted for inflation, of over 12 percent. This
would bring their total exports in 1985 to around $110
billion in 1975 prices — only slightly less than the
combined manufactured exports of the United States and
Japan in 1975. The ADCs have represented the most dynamic
component of the world economy for over a decade, and are
likely to do so for at least the decade ahead as well.
The great benefits to the advanced developing countries
that will result from this progress require that they
make great efforts to support a more open world trading
and financial system by moving their own policies in this
direction. There are hopeful trends, but there are also
dangers that some countries may resist such an opening.
Such resistance could create severe problems for the
international trade and financial system. It would
certainly jeopardize the ability of the United States
to demonstrate that cooperation is a two-way street,
and thereby to maintain our support for such a system,
and I am sure this is true of all industrialized countries.
- 21 Such policy interdependence means that our ability to keep our
markets open depends importantly on their cooperation in providing
access to their markets, and in avoiding subsidized sales to ours.
Correspondingly, the continued progress of the ADCs will
require still greater participation by them in international
economic affairs. As I have indicated, the United States
is already looking for ways in which such participation can
be enhanced. We welcome the advent of these new economic
powers, and assure them that there is room for them at
the center of world economic arrangements.
The specific focus of such arrangements cannot yet
be clearly seen. To the extent that both developed and
developing countries continue to seek to liberalize their
economic relations with the rest of the world, however,
it is apparent that additional,forms of cooperation will
become both necessary and desirable:
— In the critically important trade field, full
participation and membership in the General
Agreement on Tariffs and Trade (GATT) are central
goals. It is anomalous that important developing
countries — including some in Latin America —
are not members of GATT. Full participation in
other functional groups, such as the OECD Steel
Committee and the International Arrangement on
Export Credits, is also critical to our mutual
discussion of these problems.
- 22 — Increased interdependence between developing countries
and the rest of the world economy will increase
the need for consultation and information
exchange about near-term trends in the world
economy. We will have to give much thought
to how best to carry out this process.
— We believe possibilities in the investment field
are particularly interesting. As the old
ideologies that have resulted in widely differing
views of foreign investment erode, and are
replaced by pragmatic desires to maximize the
contribution of such investment to world development,
we see considerably greater opportunities for
cooperation — as has already been evidenced in
the IMF/IBRD Development Committee. The advanced
developing countries fully understand the
benefits to both home and host countries in assuring
that multinational corporations play a constructive
role in the world economy, and are quite able to
negotiate effectively with these firms in pursuit
of their own national objectives. This new
situation may enable us to move toward agreement
on new, mutually acceptable "rules of the game"
for international investment.
- 23 Conclusion
The international economic role of the developing
countries, particularly the ADCs, cuts across the entire
spectrum of U.S. international economic interests and
relationships:
— They should be assured a larger role in the management
of international economic relations.
— As they reap greater benefits from world trade,
their trade practices should increasingly conform
to the rules applying to major world economic
actors.
— As their financial positions become more solid,
the more rapidly growing developing countries
should depend less upon concessional assistance
so that increased resources can be made available
to their less fortunate neighbors, and they should
begin to contribute to those resource flows themselves.
-- In sum, developing and industrial countries must work
together more closely for the benefit of both the
world economy and for successful pursuit of their
own national objectives. Such increased
participation will bring joint gains for all
countries involved.
The United States has traditionally taken the lead
in expanding the network of international economic cooperation.
- 24 We remain deeply committed to this effort, and seek to work
with as many developing countries as possible to that end.
Recently, the United States has again taken a
leading role in policies of cooperation with the developing
world. We pledge to continue to do so, and will try to
tailor our approaches to the differing needs of different
developing countries.
In return, we seek cooperation from the developing
countries themselves. Some — the ADCs — already have
much to offer, and must naturally be the focal point of
current efforts to expand the bases of shared responsibility
for the effective functioning of the world economy.
This is our basic approach to relations between the
industrialized and developing countries, particularly those
in Latin America. Its foundation is the dramatic progress
of the developing world itself. Its goal is joint progress
with mutual benefit. Its method is enhanced collaboration
and partnership. Only with such close cooperation can we
hope to achieve a peaceful, prosperous and successful
international economic order.
FOR IMMEDIATE RELEASE
November 3, 1978
CONTACT:
ALVIN M. HATTAL
(202) 566-8381
TAX TREATIES
The Treasury Department today announced the countries with
which it is engaged in tax treaty negotiations, and invited
comments.
The Treasury Department has a general policy of announcing
initial income tax treaty negotiations with particular countries,
and giving an opportunity for comment. However, negotiations are
sometimes scheduled on short notice, making such an announcement
impractical, and often negotiations extend over a period of
several years, so that earlier comments no longer reflect current
problems.
In order to give better guidance and in order to
obtain comments from interested persons, the Treasury Department
today announced the status of treaties and negotiations with the
following countries:
I. Income Tax Treaties
Sent to Senate for advice and Date
consent to ratification
transmitted
Morocco
May 1978
the Philippines December 1976
South Korea September 1976 1/
1/
Approved by Senate Foreign Relations Committee in March
1978 but not voted on by full Senate, so must be
reconsidered by Foreign Relations Committee in next
Congress.
(MORE)
B-1242
-2Negotiations completed but text
not yet signed
Signature
expected
France (Protocol)
1978
Hungary
early 1979
Republic of China
n.a.
Ongoing negotiations
Next meeting
(or last discussions)
Argentina
February 1979
Bangladesh
December 1978
Brazil
late 1978 or
early 1979
Canada
(September 1978)
Cyprus
(June 1978)
Denmark
(September 1978)
Egypt
November 1978
Germany
November 1978
Indonesia
(Correspondence
October 1978)
Israel
November 1978
Italy
(May 1978)
Jamaica
(May 1978)
Malta
Spring 1979
Nigeria
n.a. 2/
United Kingdom
(October 1978)
n.a.
2/
Not available
Nigeria terminated the existing treaty by diplomatic notice
given in June 1978. The termination will be effective for
assessment years beginning on or after April 1, 1979.
(MORE)
-3-
Negotiations initiated but
currently inactive
Australia July 1977
Last meeting
Botswana August 1974
India December 1977
Iran April 1975
Kenya January 1977
the Netherlands December 1972
Singapore April 1977
Spain March 1977
Sri Lanka June 1977
Tunisia September 197
Yugoslavia February 1976
Zambia May 1974
ESTATE TAX TREATIES
Denmark - negotiations held in September 1978
France - signature expected 1978
Germany - negotiations in advanced state but current
inactive
Luxembourg - negotiations in advanced state but current
inactive
United Kingdom - signed October 19, 1978
(MORE)
-4The Treasury Department would welcome amendments to previous
comments, or new or supplemental comments concerning negotiations
with those countries. Comments should be sent in writing to
H. David Rosenbloom, International Tax Counsel, U.S. Treasury
Department, Room 3064, Washington, D.C. 20220. In addition, the
Treasury Department always welcomes comments with respect to the
advisability of entering into or revising tax treaties with any
country.
This notice will appear in the Federal Register on
November 8, 1978.
o
0
o
FOR IMMEDIATE RELEASE
November 3, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES START OF
INVESTIGATION OF MARINE RADAR
SYSTEMS FROM THE UNITED KINGDOM
The Treasury Department today said it will begin an
antidumping investigation on imports of certain marine
radar systems from the United Kingdom.
Treasury's announcement followed a summary investigation conducted by the U. S. Customs Service after receipt
of a petition on behalf of the Raytheon Marine Co., Manchester,
N.E, alleging that this merchandise is being "dumped" in the
United States.
Information contained in the petition indicates that
marine radar systems imported from the United Kingdom is
being sold in the United States for less than in the home
market.
The petition also includes information indicating that
the U. S. industry is being injured by the "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.
The term "marine radar systems" refers to small ship
radar systems used on large pleasure craft and small commercial
vessels.
Notice of this action will appear in the Federal Register
of November 6, 1978.
Imports of this merchandise from the United Kingdom
amounted to approximately $5 million during calendar year 1977.
o
B-1243
0
o
REMARKS OF
PETER D. EHRENHAFT
DEPUTY ASSISTANT SECRETARY OF THE TREASURY
FOR TARIFF AFFAIRS
BEFORE THE
UNIVERSITY OF MICHIGAN LAW SCHOOL
FRIDAY, NOVEMBER 3, 1978
AN ADMINISTRATOR'S LOOK AT ANTIDUMPING
DUTY IAWS IN UNITED STATES TRADE POLICY
By
Peter D. Ehrenhaft
I. INTRODUCTION
Trade policy makers, and perhaps even more those in the trenches of its
implementation, are, like military strategists, often "fighting the last war."
Our present antidumping law was passed in 1921. It was a reaction to trade
problems perceived in the years during and after World War I. The related
countervailing duty law hearkens back to an even earlier era. Since their
enactment we have tinkered with each. And the administration of both statutes
has been surrounded by extensive regulations and a body of unwritten practice.
But solving the trade problems of today — if that is what we are doing —
with this elaborate legal corpus will not necessarily provide us with a
sensible guide to the laws we need to meet the challenges of the next decade.
Important new trends are discernible even now. Perhaps the old rules will
continue to serve us in these new situations; more likely, they will give way
to new thinking.
II. PAST TRENDS AND FUTURE PROJECTIONS.
What are some of these important new developments?
A. Looking first at the global economy, I can identify at least six
phenomena that affect the administration of our antidumping and countervailing
duty laws:
1. World Economic Growth. The volufoe of world trade has grown
almost five-fold since 1970. In the next decade it is likely to expand at the
same or even faster rate. The U.S. share of that trade has remained at
between 13 to 17 percent of the world total, and is likely to maintain that
level or increase slightly in the next ten years. These facts alone make our
&-a44-A
-zinternational trade institutions far more important than they have ever been.
The percentage of U.S. GNP devoted to foreign trade has also almost doubled
since 1970; it can be expected to increase substantially — perhaps even double
again — by 1990. This makes domestic firms more susceptible than ever to
foreign competition; concurrently it means that new export markets have opened
for our products. The international price of the dollar now directly affects
about twice as much of the economy as it did in 1970.
^
"*
**
One aspect of growth in our trade that is changing with particular ^
rapidity even now is the cast of characters who are playing. Aside from:our
massive imports .of crude oil, most of our trade has been with only a few
industrialized states and some of the more advanced developing countries. But
other nations will — must, I suggest — play greater roles in world commerce.
They are making claims to "special and differential" treatment to accelerate
their development, posing unique problems for our antidumping and countervailing duty laws.
Third, the EC and Japan have become much more significant competitive
forces to our industrialized economy. Together they now greatly exceed the
economic output of the United States, and each has in numerous sectors
challenged the technological and marketing prominence once held by us alone.
Finally, growth has also caused depletions of increasing numbers of raw
materials and natural resources. It has created needs for national economies
to rely upon each other now more than ever. Commodity cartels such as OPEC
have emerged among the "haves" to squeeze the "have nots." Perhaps less
threatening, cooperative commodity arrangements are evolving, as in sugar.
The existence of such international arrangements cannot help but influence
countervailing duty or antidumping outcomes concerning the affected
comrtodities.
All of these factors, when added together, yield a sum that must mean
greatly enhanced resources devoted to monitoring our trade and dealing with
what will be an expanding volume of cases in which claims of unfair practices
are made.
2. Spread of Technology. Several nations now have closed, or almost
closed, the "technology gap" with the United States. The EC and Japan each
compete on a par with the United States in many very high technology items.
More importantly for the future, the more "advanced developing countries"
(ADC's), such as Erazil and Korea have mastered new technologies and are now
changing the kinds of goods they produce for export. These AEC's do not yet
have the high wage rates of developed countries, but they are competent to use
much of their new technology. Compared with alternative productive activities
in their countries, they perceive trade advantages in exporting products such
as electronic components and parts and spA:ia^ metals and alloys. As these
countries achieve possible comparative advantages in making these goods —
almost exclusively for export — antidumping and countervailing duty laws will
be invoked by our industry as a possible brake on their accelerating access to
our markets.
3. The End of Colonialism. The age of political colonialism
effectively came to an end in the last two decades, even though some remnants
can still be found. But most motherlands retained strong economic ties with
their former colonies. From time to time, these ties have been criticized as
—J—
the economic echoes of earlier exploitations. Partly in response to these
claims, the developed nations have espoused active policies of aiding, in an
unrequited (or "non-reciprocal") way, the economic development of the world's
poorer nations. The United States, Japan and the EC each have set up
generalized systems of tariff preferences for developing nations. The
developing nations are asking for preferential treatment under- the antidumping
and countervailing duty laws as well.
4. State Involvement in Economic Activity. In 1970, less than 0.7
percent of our trade was with the "communist bloc countries." Since then, our
trade with them has increased six-fold in dollar terms, and has doubled in
terms of market shares. Further growth in that sector must be anticipated.
This increase in trade has highlighted the fundamental, but tenuous,
assumption in our trade laws that prices provide the bellwether for action.
Our trade regulations are largely "price driven." That is to say, the measure
for determining the existence of dumping is essentially a price yardstick.
And we remedy the unfair practice by raising the cost, and, logically, the
price of the import through added duties.
What happens when much of our trade occurs with countries where prices
are, to use the most neutral term, "centrally administered"? Even if our
system depends on costs rather than prices, can it operate in say, the USSR,
where capital, labor and raw materials costs are determined by public officials
without regard to economic scarcity or demand?
In the past, these problems have been most obvious in the context of
trade with Eastern Europe, the Soviet Union and the PRC. And in those
contexts, they have provided us with a few — but difficult — conceptual and
practical problems as those of you familiar with our case concerning golf
carts from Poland surely know. In the future, we can expect even more
perplexing issues. The most important will arise from the involvements of
governments in only portions ot am otherwise free market economy. Key
sectors, such as the oil or steel industries, may be under direct state
control. In administering our antidumping and countervailing duty laws, we
must draw some practical limits on the extent to which we will regard a
government's intrusion into the affairs of its domestic economy a distortion
for purposes of our "fair trade" laws. We must recognize that there are
realms of economic activity in which all modern sovereigns will increasingly
intervene as a matter of course to mitigate unemployment, dampen inflation, or
achieve economic development of certain key sectors. But if the prices and
wages are at least partly controlled by the government, the economic signals
of price and cost, which direct our regulatory institutions, have been
impaired. Our laws must recognize these facts and our administrators make
sense of them.
5. Transnational Enterprises. Paradoxically, it is not only the
growing influence of the state that complicates our lives. It is also the
growth in the private sector of transnational enterprises (TNE's). Their
interests span political frontiers and allegiances and their economic power
often dwarfs that of many nations.
TOE's also have changed our perceptions of how private economic activity
is organized. In the past, intra-corporate transactions had little international significance. Today, enormous companies may rapidly shift large fund
balances and even inventories from one place to another, and thus alter a
-4country's finance and trade accounts. In sorting out these transactions for
dumping or countervailing duty purposes, it is often impossible to tell where
the foreign interest ends and the domestic one begins. For example, recall
that the "injury standard" in dumping cases refers to injury caused by
foreigners to "an industry in the United States." We are now being faced with
the perplexing problem that TNE's appear on both sides of the border. Ar<3,even
more difficult is the problem of determing the prices that should be used *for
finding "home country" or "third country" values for computing dunping margins
when related parties deal in all of them. These problems are exacerbated when
TOE's produce components in selected jurisdictions for assembly elsewhere or
otherwise are integrated backward and forward from mine to retail outlet across
national boundaries.
6. Financial Instabilities. Ironically, we face new problems not
only when goods are not subject to market pricing, but also when money is. The
breakdown in the early 1970's of the Bretton Woods international monetary
system began a new age — one in which the value of money itself is the
subject of daily change from market forces. The recent tribulations of the
dollar, however transitory we hope they are, show that U.S. trade policy will
have to account in the future for monetary shifts and changes. Long ago, when
these statutes were first written, we were under a gold standard, and such
shifts and changes were hardly conceivable.
E. And looking now at the United States, we can note some additional
trends and influences. There are at least six that deserve special mention:
1. Domestic Inflation. A few years ago, the United States enjoyed a
rate of inflation considerably lower than that of the rest of the world. Now
the outlook is not so promising. To be sure, inflation cannot be cured through
the antidumping and countervailing duty laws, but these two statutes can have
an impact on inflation; in the short run, perhaps adverse, as their immediate
tenaancy is to increase prices %o«p.S. consumers, but, in the long run
hopefully beneficial, as their real aim is to preserve free competition in the
U.S. market for those suppliers able to demonstrate their comparative
advantage in real terms.
This is a problem of which we are accutely aware as the Administration
attempts to make he control of inflation a priority consideration of all its
programs. But not only do the antidumping and countervailing duty laws become
harder to adminster in a case in which the U.S. inflation rate is consistently
higher than that of the relivant trading partner. The difference between the
foreigner's home market and export prices, expressed in real terms, then
increases slowly, causing almost daily movement in dumping margins. This may
— or may not be — corrected by changes in the exchange rate. But often
exchange rates do not reflect inflation rates with respect to the specific
comnodity in question. Like exchange rate^, interest rates may also take up
some of the slack, but they too may or may not be fine tuned to the product in
question. If the shifts in relative purchasing power caused by inflation are
not reflected by these two "normal" admustment mechanisms, then we will see a
gradual growth of dumping margins by domestic interests affected from
countries with lower inflation rates and a possible increase in the number of
cases filed. Yet this stepped up activity may have little to do with the
underlying economic and business realities of the actual products under
consideration and be counterproductive in our efforts to reduce inflationary
pressures.
-52- Change in the Labor Force. American labor has a proper legal
claim to the protective effect of these laws no less than do providers of
capital or raw materials. Moreover, the human impact and cost of labor
adjustment is usually ioore grievous than that for other productive factors.
Accordingly, changes in the labor force are bound to have an effect upon the
administration of the antidumping and countervailing duty laws.. The remo^^l of
the mandatory retirement at age 65 and the increase in the number of families
with two wage earners has created a domestic need for more jobs than ever
before. This rjhenomenon may make relocation adjustments harder; make efforts
to cling to existing jobs more vocal. On top of this, there have been notable
changes in American attitudes toward the kind or quality of work that is
satisfying and enriching. To reflect these popular attitudes, trade policy
must take into account not only the labor-intensity of imported products, but
the quality of that labor and the kinds of U.S. jobs that such imports
inevitably displace.
3. Decline in Productivity. Related to the nature of the work
force, but sufficiently important to merit separate enumeration, is the
observed decline in the value of output per worker in the United States over
the past few years. We are now 10th among the leading industrial nations in
output per man hour. Whatever the causes of this phenomenon, and many have
been postulated, the facts suggest that our growing competitive edge in the
rest of the world must be in goods with relatively high R&D value, capital
value or materials costs. But to what extent should our trade laws protect
the less productive elements of our economy or become more directly connected
to efforts to promote structural adaption and change?
4. Scarcity of Resources. Since the oil crisis, and perhaps even
earlier, U.S. trade policy has had to take into account the need to trade for
some items rather than produce them. Depletion of strategic reserves has
always been recognized as a legitimate reason for encouraging trade in some
items, even though they might Be available domestically at a lower price. Will
there be situations in which the government wants to encourage inexpensive
imports to supplement a strategic stockpile despite domestic interests in
preserving that — and the rest of the U.S. — market to themselves? In other
industries we may want protection from imports, to preserve a domestic
manufacturing capacity in time of national emergency. The present antidumping
and countervailing duty laws allow for no such calculus in their present
administration.
5. Change in Economic Values. The depletion of scarce resources is
one kind of externality of production, that should influence our analysis of
the effects of trade. There are others. Another prominent one is pollution.
Just as we might encourage imports of scarce coirmidities, so also might we wish
to import the products of polluting processes rather than make our own populace
suffer the costs involved in dewiestic proaucteion. While this may seen to be a
rational policy, it cannot be easily woven into the price model of the
antidumping and countervailing duty laws, because such costs are not the stuff
of conventional production accounting. On the other hand, we are already
faced with claims that the failure of foreign governments to require of their
own producers the type of real costs that our industry must bear in complying
with environmental standards is an unfair "subsidy" to be reached by a countervailing duty.
-6This is not an idle issue. We are exporting not only goods but economic
values. We are concerned not only in the choice of what others will produce
or how they produce it; we are concerned about the conduct of business itself.
With the encouragement* of several sectors of our citizenry, we have attempted
to raise the standards-of conduct of private business everywhere. Whether the
strict enforcement of the antitrust laws, the securities laws and other rules
of business conduct have hurt or helped American competitiveness, I cannot*
say, but obviously they may impact on trade policy. At the moment compliance
or non-compliance with such concepts has generally been immaterial to our
decisions. Whether we can remain in "blissful" or "benign" neglect is *
questionable. .
6. Change in Social Values. Finally, there has been an undoubted
shift in our social values. The spirit of entrepreneurury that reigned in preWorld War I America has been dampened. In these more complicated times,
security is as much to be sought as opportunity. And self-help is often
displaced by the hope that some public agent will intervene to provide the
solution to every problem. The pace of change itself has much to do with this
phenomenon. The lesson for us is that more and more private actors will be
relying upon public administrators in the 1980's to represent them in
protecting them from the chill winds of competition — including, of course,
from imports.
III. THE GENESIS OF THE EXISTING RULES.
This list of trends I have described is hardly exhaustive, but it surely
covers enough ground to explain why we are giving a high priority to thinking
about the continued ability — at least in their present form — of our 1921
and 1897 laws. Eut before reshaping those statutes to account for what we
think we see for the future, it behooves us to see how the antidumping and
countervailing duty laws were initially conceived.
A. Antidumping *
Dumping was not a "problem in international trade" until the latter part
of the nineteenth century. Then it had to do mostly with predatory practices
of capturing markets through aggressive pricing. No one had then figured out
some of the more sophisticated reasons why dumping or, at least, price
discrimination between markets, could be a rational, albeit perhaps unfair,
business practice.
There is an historic kinship between the Antitrust Laws and the
Antidumping Act. In 1890, Senator Sherman managed to bring a new morality to
business by making it illegal, among other things, to "monopolize or attempt
to monopolize" trade in the United States.4 In 1894, attempts were made to
place a similar notion into the Wilson Tariff4Act. By 1910, the Supreme Court
had held in two notable cases that the antitrust morality was not exportable.
Congress then tried a new tack to make foreign manufacturers "play fair" in
U.S. markets.
In 1916, a criminal antidumping act was passed at the same time that the
Tariff Commission was brought into existence. However, as no one has been
able even to this date to prove a case under the strict standards of that law,
Congress soon passed the Antidumping Act of 1921, to provide an effective
administrative approach to the problem.
-7The 1921 Act defined no offense and punished no crime. Dumping was not
made something that one can be "guilty of." The law provided for government
investigation of complaints, government calculations of prices (and now costs)
to exquisite detail, and the final government imposition and collection of an
equalizing customs duty. Unlike the antitrust laws, this law did not
encourage private "attorneys general" to enforce the public interest. But it
also provided some looser standards of application and the Act did not
*
recognize certain well-known defenses to claims of unfair or illegal price
competition. Jf a foreigner's price discrimination takes the form of a civil
wrong under the Robinson-Patman Act, he can defend on the ground that he
reduced his prices to "meet competition." In the case of an antidumping
claim, where the gist of the matter is also price discrimination, there is no
such defense, although there are some suggestions in ITC decisions and the
Senate Finance Committee Report on the 1974 Trade Act that such "technical
dumping" ought not to be regarded as "injurious" within the meaning of the
Antidumping Act. Likewise, one cannot show that dumping is justifiable under
a "rule of reason" analysis, or that it permits the defending supplier to
overcome a barrier to entry, or that it is saving a company from going out of
business.
I do not mean to imply that all of these possible "defenses" must be
recognized under the Antidumping Act. But they have a legitimate tradition in
our competition policy with which Antidumping administration should be
harmonized.
In 1921, the fundamental objective of the statute was to prevent injury
to U.S. competitors in domestic markets. The statute has retained this
objective through the intervening years. But there is no requirement to show
that the protected market is "free" in any sense. It can be very
uncompetitive or heavily regulated. Similarly, little concern (other than in
the case of state-controlled economies — the most extreme situation) is given
to the condition of the home marl^t, whose prices are the standard of
"fairness." It is controlled by cartels? Is it a developing economy in which
goods of the type in question are to be exported for foreign exchange while
prices at home are kept high to assure availability of the product for export?
We usually do not ask these questions under our current law. Finally, we are
not trading in homogeneous products, identical in all markets; often we are
dealing in highly differentiated wares tailor-made for separate sale in
various markets.
The bedrock principle of antidumping policy ought to be "comparative
advantage." If a foreign supplier is capable of selling his wares in the
United States at low prices, U.S. consumers certainly benefit. And no one in
the U.S. should be concerned much (on these grounds) that the home country
purchasers of the same or similar product^ might pay more. If the foreigner's
ability to sell at low prices is an accurate * reflection of the comparative
costs of producing goods in his home country, then, we, in the U.S., should
buy more and produce less of that product. We should shift our resources to
what we can do better and more cheaply. There is no intrinsic value "in
producing "X" rather than "Y." We may decide that for national defense or
security purposes or for reasons of tradition or patriotism we should insist
on producing a good for a higher cost than it is available through trade. But
in such cases, the extra cost must be justifiable in terms of the extra defense
-9At the same time, based upon a year's labors at Treasury, I see a need not
only for finding a way to use cost procedures to determine what we have called
"fair values" for antidumping purposes. I see no less the need for expediting
our calculations. We are dealing with a law that is to have macro-economic
impact on our economy and that of other countries. Surely individual companies
may^be affected and may benefit (or be denied benefits). But €fce Act s p e ^ s
of "an industry." Our concern as a government must be for a U.S. "industry" or
a significant segment of it. We must tailor the theories and practice of the
law to those realities.
B. Countervailing Duties. I will not speak much about this, but must
mention that the first countervailing duty law antedates the first Antidumping
Act by nearly 20 years. The distinction between a government subsidy and a
private, predatory practice seemed clear back then. The evils to the
Commonwealth were different; yet the galvanizing notion was the same: We must
protect our industry from unfair advantages enjoyed by foreign competitors. In
this case, the source is government aid; in the other, it is the fruits of
some home market advantage.
Our current countervailing duty law is different from the Antidumping Act
in that for most imports there is no injury test. Dumping was treated as a
problem only when industry is threatened. But subsidies were "per se" harmful.
Unlike dumping cases, countervailing duty cases inevitably involve foreign
governments.
Although the antidumping law does not tell us what "fair value" means, at
least it tells us how to compute the essential equivalents of "foreign market"
or "constructed" values. The countervailing duty law does not oblige with
either a definition or a procedure for determining what a "boutny or grant" is.
And the privacy of the process (until the adoption of the Trade Act of 1974)
has prevented the creation of aijy significant jurisprudence.
The negotiations in Geneva have had the benefit of exposing for all of us
how complex the problem really is. None among us now believes that governments
have no role to play in developing the resources of their countries, promoting
development, aiding the unemployed. The number of devices used by governments
at every stage of economic development to further such laudable aims is
infinite. A simple rule that says all government aids are unfair is not
acceptable in world terms today. But no less is it an acceptable principle
that each nation may look out only for its own interests and export to others
the difficulties of finding suitable employment for its workers or making
changes in its economic or social structures. Yet that is what the game is all
about. Government investment in redundant steel mills or in price supports
paid to farmers of plots too small to yield commercial harvests avoid the
solutions of economic problems our laws should correct.
4
Some progress seems to have been made in Geneva from which our law can
and should benefit. We have come to recognize that at least among "the
industrialized countries of the world that government aids to exports can have
deleterious effects not only on the competing industries of importing countries
but also on such industries' abilities to compete in third markets and in the
country granting the export. Our countervailing duty law has only reached the
imports into the U.S. In a sense it must reach further. On the other handr
-10particularly in the area of domestic subsidies — regional aids, research and
development grants — we also recognize that unless the industry of an
importing country is injured as a result of the foreign aid, we should not
invoke the law. But w£ are properly saying that we will apply that injury test
when our trading partners also recognize the potential for injury that may
inhere in any subsidy they give. None among us lives on an insulated island.
IV. THOUGHTS FOR FUTURE CHANGES
Based now-on a year's experience within Treasury in the administration of
both the antidumping and countervailing duty laws, I think I can venture some
thoughts about weaknesses in their construction and application — particularly
in light of some of the economic trends I have mentioned.
One of our primary aims must be act more quickly. Redress denied in time
may be useless. We must identify the problems, obtain the needed data and
make the calculations the law mandates in less time. We cannot allow foreign
sellers to take advantage of their dumping or subsidies by fiddling with their
facts while our industries burn. The second principle is that antidumping and
countervailing duties are part of the trade law arsenal rather than matters
apart. Their place is one of protection — but protection of the market as
the forum for the clash of competition. No practical "free-trader" can
seriously advocate repealing the antidumping and countervailing duty laws on
the ground that they inhibit trade any more than one can seriously call for an
immediate abolition of all instruments of war in the name of peace. The
question is not one of free versus regulated trade. Rather it is a question
of how the U.S. should assure the freedom of the market from the unfair
intrusions these laws identify.
Change should evolve to provide the best answers. Radical change could
destroy the accumulated learning and insight of the last few active years of
enforcement. It would upset interests on all sides. But the time may soon be
right for a number of improvement^. As the countervailing duty law is so
intimately tied to the on-going talks in Geneva at this time, I will not
address that here. But with respect to the antidumping law, the following are
some personal ideas for possible reforms — and let me stress that these are
my personal ideas and not necessarily the views of the Treasury Department or
the Administration:
(1) Integration of Remedies. One problem of long standing is
the overlap and duplication that exists among remedies in
the field of foreign trade regulation. An aggrieved
domestic producer has a confusing number of statutory paths
and administrative forums from which to select a remedy. He
can file petitions for import relief and complaints of
unfair trade practices wit^ the ITC under Section 201 of the
Trade Act of 1974 and Sectiuon 337 of the Tariff Act of
1930. He could request the STR to consider an unfair trade
practice petition under Section 301 of the Trade Act, or, in
some cases, the market disruption provisions of Section 406.
He could initiate an antidumping complaint or petition to
have a countervailing duty investigation initiated.
Adjustment assistance may be available from the Conmerce or
-11Labor Departments. The Agriculture Department, FDA, FTC
might all be asked to address specified import-related
problems. Even the antitrust laws can be invoked, as
witness the most recent decision of the District Court in
Delaware in the case of golf carts from Poland. Should,
private action — and private recoveries — be encouraged?
Should a domestic industry apparently affected by imports
be able to file a single petition with the government
requesting investigation and possible relief, leaving it to
the government to select the source of the problem and the
most appropriate one or more remedies? The idea has much
to corrmend it. It also has problems, of course. Conment
on the concept would be welcome, but to me it seems to make
sense.
Clarification of Policies. We all know that the trade laws
are not always consistent. But we need to establish a
priority of concerns, so that the administrators have
principles to rely upon when the policies conflict. In the
era of inflation, why should we resist taking advantage of
bargains if foreign governments and manufacturers wish to
give them to us? When should we prevent the foreign export
of unemployment at the expense of raising prices to our
consumers?
I do not suggest here that there is an easy answer to these
questions, or even that there exists a consensus among
scholars, administrators, or, much less, Congressmen. The
point is that we need to ask the questions and order our
priorities in any new law. As I suggested earlier, placing
the notion ofv comparative advantage at the head of the list
seems to me tojprovide at least one such approach.
Consideration of Injury First. Under our antidumping law,
we consider whether less than fair value imports caused or
threaten injury to our industry. This occurs after
appraisement is withheld. However, the GATT Antidumping
Code requires that there be evidence of injury before an
antidumping procedure progresses to the imposition of
provisional remedies such as the withholding of
appraisement, or the collection of estimated duties.
Until 1974, the U.S. approach had been to accept the
allegation of the complainant as the requisite "evidence of
injury." Since 1974, if these allegations nevertheless
leave a "substantial double" of injury in the mind of the
Secretary, he may refer the case to the ITC to determine on
a preliminary basis, whether there is "no reasonable
indication" of injury by reason of the alleged LTFV sales.
The allocated period for this determination is 30 days.
I believe more time should be allowed for this
determination, and that consideration be given to raising
the threshold. If a future Trade Act will create new and
-12even more onerous investigatory tasks for Treasury in
making LTFV determinations based on comparative costs, it
may make more sense to have the entire injury determination
concurrent with, if not ahead of, the LTFV phase. If the
finding were negative, then we might avert the often
enormous and abrasive task of a thorough going into the^
costs of foreign manufacturers. If, on the other hand, the
finding were affirmative, the LTFV investigation ban have
moved forward at least partially, as under current 1
procedures. There are some problems with such an approach,
since the margin of dumping is often a clue to the critical
issue of whether dumping is a cause of injury; margins of 5
percent are a different matter than 50 percent; dumping by
20 percent of the producers may yield a different conclusion
than universal margins. Nevertheless, simultaneous
investigations — as foreseen by the Code and followed by
the EC and Austrailia, for example — seem to be a sensible
approach. And it might be complemented with a second stage
injury inquiry into the "causal link" between the dumping
or subsidy found after Treasury's final determination. Such
an inquiry ought to be feasible within 30 days. This would
reduce the overall antidumping timetable by two months and
also place the investigations into a more logical sequence
when seen as trade policy laws.
(4) Use of Remedies More Likely to Bring About a Cessation of
Dumping. Because the imposition of even provisional
measures generally comes more than a year after alleged
dumping is first observed, and actual duties are rarely
assessed until a year after that, antidumping duties are
almost never:, levied on the shipments that caused the actual
injury complained of. If the procedure could be
streamlined, if the periods for reaching determinations
could be shortened, then the weight of the remedy would fall
closer to the occurrence of the damaging sales.
To bring the remedy closer to the offense and offender, the
procedure for bringing in goods after a final determination
has been made should be changed. Instead of permitting the
importer simply to post a bond to cover possible duties,
actual estimated dumping duties should be deposited in cash.
If the final assessment of duties is less, a refund could be
made. This is the practice in the European Community and
Canada. There is every reason for us to do the same.
(5) Use of the Historic Dumping Margin as a Basis for Depositing
Estimated Duties! If, after a foreign supplier is accused
ot having made LTFV sales that injure a domestic industry
and the shipments from abroad start coming in at a higher
price, these shipments will pay less or no antidumping
duties. The current Act is remedial and not punitive in
this regard. Yet, this practice creates no incentive on the
foreign supplier to avoid the dumping that caused injury and
-13that is beyond the reach of the duties, since those entries
will have been liquidated before even appraisement is withheld at the tentative determination stage.
We might go so far as to consider whether there is sense in
applying an added duty, based on the historic margin of
dumping on all shipments after withholding -begins. Thpi,
the exporter could not avoid being answerable to some degree
for "violation" of the Act. He would have an incentive to
avoid future LTFV sales, as the prices in any quarter would
be relevant for computing the dumping margins for later
periods. But such a change would not be consistent with the
current version of the Code. It would render more "penal"
what is intended to be a remedial law. Nevertheless, the
deposit of estimated duties at historic margins would appear
to be a reasonable procedure to create greater incentives to
avoid dumping, supply timely information and protect the
revenue.
(6) Improved "Settlement" Procedures. Concern that foreign
exporters may take a "free bite" at our market without
concern about antidumping principles led the Treasury in the
early 1970's to abandon its prior policy of suspending — if
not terminating — any antidumping proceedings upon the
receipt of assurances from the exporters concerned that
further sales at less than fair value would cease. The
policy of "discontinuing" proceedings upon the receipt of
such assurances has generally been limited for 8 years to
exporters whose margins of dumping were deemed "minimal" —
roughly 1-1.5 percent. The Canadian authorities have never
discontinued cases upon the receipt of assurances. They
were the fi«rst4to have an antidumping law and are, in a
sense, the "true believers." On the other hand, the
European Community and Australia, the other two
jurisdictions actively applying antidumping measures, are
far more flexible, emulating both earlier U.S. practice and
the apparent contemplation of the Code.
After some experience with this problem, it may be
desirable for us to consider a middle ground: a more
liberal policy of settlements quickly to end the problem
perceived, without the friction of contested cases, yet not
winking at flagrant disregards of the principles of the
Act. In that connection we must be particularly careful
that any policy of liberalized discontinuance based on
assurances does not provide a convenient cover for
agreements between domestic and foreign industries
concerned to increase prices in the U.S. market with the
blessing of a government agency. Therefore, an expanded
settlement policy would also appear to demand some earlier
and more complete injury determination than now exists,
together with the receipt of some significant evidence that
sales at less than fair value did, in fact, occur.
-14(7) Reduced Adjustments. One of the greatest deterents to rapid
antidumping action is the need, under present practice, to
calculate and verify the adjustments claimed by all sides to
the prices we compare. The premise of the law is that the
prices of like merchandise, sold at the same level of tirade,
and at about the same moment of time, in the-two relevant
markets, will be placed side by side and a simple difference
(or similarity) identified. Alas, the world is not so
simple. Merchandise — particularly consumer p r o d u c t ^ —
may differ widely. TV sets sold in Japan are wired "
differently than those made for U.S. sale; their cabinetry
and accessories may differ greatly. Moreover, distribution
methods vary widely making the comparison of trade levels
difficult. In Austria, so-called wholesalers buy 50 ski
bindings for resale to sports shops; a U.S. retailer may buy
5,000 at a time. Can a level of trade adjustment be
recognized? Without belaboring the issue, I can say that
we spend enormous resources considering claims for warranty
expenses, credit costs, after sale servicing and technical
advice, advertising expenses as well as for the physical
differences in the products being compared. And each of
the latter may involve their own small cost of production
analysis. The system has become so encumbered with detail
— much of it of ultimately minimal impact on the final
result — that we have begin to consider limiting the
adjustments to those that, within recognized categories,
are equal to at least some minimally important threshold —
say one percent. The result will favor some exporters;
disfavor others. It should expedite all cases and thus
help both the domestic industry for whom the law exists and
foreign interests with proper rights of access to our
market.
^
(8) "Self-Initiation" of Complaints Based on Prior
Investigation. One means of solving the delays and
complications we have encountered in making elaborate cost
investigations in important industries may be to do more of
the work ahead of time. In essence, the Steel Trigger
Price Mechanism program, was designed to do just that. It
is a creative response to a number of problems the steel
industry had been experiencing. Steel is a key industry,
that had become troubled by low profitability, excess
capacity and unemployment. It appeared as if part of its
problem was caused by competition from exceedingly cheap
foreign steel. But applying the antidumping law "as is" was
not an adequate response. *
First, the process is lengthy. By the time a set of
complaints were filed, investigated and taken to a
conclusion, the threatened harm may have already been done.
Second, the process is oriented to specific products and to
specific producers. Thus, an unfair practice could easily
be shifted to a slightly different product or a different
country, causing the whole procedure to be taken up from the
-15beginning. In fact, the steel industry tried to overcome
this problem by filing antidumping complaints against more
than a dozen steel products from ten different countries.
But steel comes in many forms from more than two dozen
sources.
_ "• **
Tne TPM was designed to meet these objections. It is a
means of determining the need for, and, if necessary,
implementing conventional antidumping remedies in an
expedited manner; it is not an alternative to some other
kinds of antidumping remedy.
A set of "trigger" prices was established at the level of
our best estimates of the costs of the world's most
efficient steel industry — the Japanese — plus the cost
of bringing that steel into the four major importing
regions of the country. Using special invoices, importers
must report the actual prices of their imports as well as
of comparable foreign steel products, and the import prices
are compared with our trigger prices. If steel is being
imported below the trigger prices, it is a signal for
Treasury to consider the matter — to "trigger" an
investigation. If, on reflection, it appears that an
antidumping proceding should be initiated, Treasury can do
so sua sponte, and many of the demands of the investigation
can be satisfied from the special records and research
already performed under the TPM.
This procedure has created two new pieces of antidumping
jargon. The word used to describe Treasury's response to a
case of probgble dumping is "self-initiation." What it
"self-initiate§" is called a "fast-track" antidumping
investigation, because it can hopefully be completed in a
shorter period than the year taken in conventional cases.
How well this will work is now being tested. Three
"fast-tracks" were initiated in October 1978 with respect
to steel plate sold by companies in Spain, Poland and the
Republic of China.
A few points about the TPM must be made clear. First, sales
below the trigger prices do not prove fcn^t dumping has
occurred. The only consequence is that the invoice
reflecting the sale will come to the attention of Customs
personnel, who will put the information together with a
large number of other fjcts.
-4
Second, the trigger prices are not minimum prices. A
foreign exporter is perfectly entitled to sell at below
trigger prices if it is above his costs and at least equal
to his home market price, and a few Canadian producers have
proven they can do so with some items.
-16Third, selling over the trigger price does not shield a
company from an antidumping complaint. Many foreign
producers may well have home market prices and costs in
excess of our triggers. In such cases, a sale at the
reference price may be an LTFV sale. However, the U.S.
industry has contended that it could compete with foreign
steel if it were priced at least at the full'cost of
*
production by the most efficient foreign producters plus
their importation costs. Therefore, sales at or above
trigger — even if at LTFV — are presumably not injurious.
Moreover, to the extent a more efficient producer in
country "X" has unused capacity, presumably it would fill
the gap left by any producer in "Y," whose LTFV sales at
trigger prices were halted by a dumping case. To date we
have not seen any dumping cases filed with respect to abovetrigger price sales. But the TPM has faced, and survived,
one legal challenge. In the Davis-Walker case, a producer
of wire products sued the Secretary of the Treasury on the
grounds that he had no authority to institute the TPM; and
even if he had, he violated the requirorients of the
Administrative Procedure Act. The plaintiff was an
importer of steel products, who produced wire rod. The
plaintiff's inputs were included in the TPM, but some of
its output was not. While the prices of this company's
inputs rose, it received no measure of "extra protection"
for its output.
In Davis-Walker the court held that the Secretary had the
power under the Antidumping Act to "self-initiate" dumping
cases, and that the TPM was lawfully implemented.
A system likef the TPM could be employed in other lines of
commerce should the occasion arise. But the costs are
large and we do not regard it as more than a temporary
solution to a major industry's critical problem. It is
bound to cause — and has caused — some increases in
import prices. It is bound to cause — and has caused —
the government to use substantial resources to monitor
trade and to investigate imports, with perhaps modest
results if measured by the volume of imports. However, it
was and is superior to the alternatives. As many of you may
know, the earlier approach to the problem — through
Voluntary Festraint Agreements (VRA) — raised serious
antitrust questions and was awkward from a diplomatic
standpoint as private foreign manufacturers concluded
international trade agrefem^nts with the U.S. government.
"Orderly marketing agreements" negotiated between
governments are essentially quotas, which create worse
distortions and have even greater inflationary effects in
markets where domestic demand increases. We think the TPM
achieves the objectives of the antidumping laws without
disrupting the price mechanism altogether. But it is
clearly a high cost program to be reserved only for the most
unusual situation such as faced the steel industry in 1977.
-J./-
(9) Publication of Decisions. Finally, let me mention what we
hope will be a real improvement in antidumping and
countervailing duty administration to be achieved simply by
informing those concerned of what we do and indexing the
results. Currently the only available means of knowing
what happens is to research the unindexed Treasury Decisions
and to leaf through the Federal Register. Publication and
indexing of the decisions of the Treasury and the ITC should
provide us and the rest of the interested world a much
greater ability to do the right thing. It will surely give
an incentive to the opinion writers to document the basis of
their decisions. I am pleased to report that at least one
publisher has expressed a strong interest in setting up an
information and reporting service on antidumping and
countervailing duty cases, and realizing this goal may not
be so far off.
Conclusion
Twenty one years ago when I wrote my article on antidumping and
countervailing duties, I dealt with an arcane subject in which even a law
student could rapidly be an instant expert. Much has happened m the tieia
since then. The words themselves, were then hardly known beyond the trade
fraternity. They are now the stuff of daily newspaper articles. So much is
happening now that we could spend much more than a weekend discussing just tne
latest news. But I have outlined some of my thoughts on dumping in the hope
of stimulating further comments and suggestions from those who may have grater
time than we administrators to think about the long view. We need a sensible
and sensitive trade policy. These laws have a sound place within it. Help to
secure it.
O00O
kpanmentoftheTREASURY
INSTON, D.C. 20220
TELEPHONE 566-2041
CONTACT: Charles Arnold
202-566-2041
FOR IMMEDIATE RELEASE
November 3, 1978
TREASURY DEPARTMENT TO DISCUSS INCOME TAX
TREATIES WITH EGYPT AND ISRAEL
The Treasury Department announced today that a delegation
headed by Assistant Secretary of the Treasury Donald C. Lubick
will meet with representatives of Israel on November 5 in Jerusalem
and with representatives of Egypt on November 12 in Cairo to
renew discussions concerning the proposed income tax treaties
between those countries and the United States.
Proposed income tax treaties with Egypt and Israel were
signed in 1975 and submitted to the Senate by President Ford
in January, 1976. They have not yet been considered by the
Senate Foreign Relations Committee. The Treasury asked the
Committee to defer action pending a reexamination of these treaties
by all parties in light of changes in the tax laws of each country.
The scheduled discussions are intended to focus on the results of
this reexamination and to permit any modifications in the treaties
that the parties may feel are necessary.
*
B-1245
*
*
FOR IMMEDIATE RELEASE
November 3, 1978
Contact:
Charleys Artiold
202/566-2041
UNITED STATES/UNITED KINGDOM
ESTATE AND GIFT TAX TREATY SIGNED
The Treasury Department today announced that an estate and
gift tax treaty between the United States and the United Kingdom
was signed in London on October 19, 1978, by Edward J. Streator,
Minister of Embassy for the United States, and Frank Judd,
Minister of State at the United Kingdom Foreign and Commonwealth
Office. The treaty must be approved by the U. S. Senate before
entering into effect.
The new treaty will replace the existing estate tax treaty
between the two countries, which will continue to apply until
the new treaty comes into force.
The new treaty applies in the United States to the Federal
gift tax, the Federal estate tax, and the Federal tax on generation-skipping transfers; and it applies in the United Kingdom
to the capital transfer tax. The treaty is similar in principle to the U. S. estate tax treaty with the Netherlands, which
entered into, force in 1971, and to the U. S. "model" estate and
gift tax treaty published by the Treasury Department on March 16,
1977.
The general principle underlying the US/UK treaty is to
grant to the country of domicile the right to tax estates and
transfers on a worldwide basis. The treaty also permits a credit
for tax paid to the other country in which certain property was
taxed on the basis of its location. The treaty provides rules
for resolving the issue of domicile.
The treaty is subject to ratification by the two Governments.
Once ratified, it will enter into force on the thirty-first day
after instruments of ratification are exchanged and will have
effect in the United States with respect to estates of individuals dying and transfers taking effect after that date.
The treaty shall remain in force until terminated by one of
the contracting States. It may not be terminated for five years
after it enters into force.
A copy of the new treaty is attached.
Brl24£
o
0
o
r
- 2 t
CONVENTION
BETWEEN THE G O V E R N M E N T OF THE UNITED STATES O F
AMERICA A N D THE G O V E R N M E N T OF T H E UNITED
KINGDOM OF G R E A T BRITAIN A N D N O R T H E R N IRELAND
FOR THE AVOIDANCE OF DOl BLE TAXATION A N D T H E
PREVENTION OF FISCAL EVASION WITH RESPECT T O TAXES
O N ESTATES OF DECEASED PERSONS A N D O N GIFTS
The Government of the United States of America tnd the Government of
the United Kingdom of Great Britain and Northern Ireland;
Desiring to conclude a new Convention for the avoidance of double
taxation and the prevention offiscalevasion with respect to taxes on estate*
of deceased persons and on gifts;
Have agreed as follows:
ARTICLE 1
Scope
This Convention shall apply to any person who is within the scope of a
tax which is the subject of this Convention.
ARTICLE 2
Taxes Covered
(1) The existing taxes to which this Convention shall apply are :
(a) in the United States: the Federal gift tax and the Federal estate tax,
including the tax on generation-skipping transfers; and
(b) in the United Kingdom: the capital transfer tax.
(2) This Convention shall also apply to any identical or substantially
similar taxes which are imposed by a Contracting State after the date of
signature of the Convention in addition to. or in place of, the existing taxes.
The competent authorities of the Contracting States shall notify each other
of any changes which have been made in their respective taxation laws.
ARTICLE 3
General Definitions
(1) In this Convention:
(a) the term " United States " means the United States of America, but
docs not include Puerto Rico, the Virgin Islands, G u a m or any other
United States possession or territory;
-
3
-
(») the tern " United K i n g d o m " means Great Britain and Northern
Ireland.
(c) the term " enterprise " means an industrial or commercial undertaking;
(<D the term " competent authority " means:
(i) in the United States: the Secretary of the Treasury or bit delegate.
and
(ii) in the United Kingdom: the Commissioners of Inland Revenue
or their authorised representative;
(e) the term " nationals" means:
(i) in relation to the United States. United States citizens, and
(ii) in relation to the United Kingdom, any citizen of the United
Kinedom and Colonies, or any British subject not possessing that
citizenship or the citizenship of any other Commonwealth country
or territory, provided in either case he had the ngbt of abode in
the United Kingdom at the time of the death or transfer:
(/) the term "tax" means:
(i) the Federal gift tax or the Federal estate tax. includint; the tax
on generation-skipping transfers, imposed in the United States, or
(ii) the capital transfer tax imposed in the United Kingdom, or
(iii) any other tax imposed by a Contracting State to which this
Convention applies by virtue of the provisions of paragraph (2)
of Article 2.
as the context requires; and
(g) the term " Contracting State" means the United States or the
United Kingdom as the context requires.
(2) As regards the application of the Convention by a Contracting State.
anv term nof otherwise defined shall, unless the context otherw.se requires
u d subject to the provisions of Article 11 (Mutual Agreement Procedure).
E v e the meaning which it has under the laws of that Contracting State
relating to the taxes which arc the subject of the Convention.
ARTICLE 4
Fiscal Domicile
(1) For the purposes of this Convention an individual was domiciled:
(a) in the United States: If he was a resident (domiciliary) thereof or if
(
he was a national thereof and had been a resident (domiciliary) thereof
at any time during the preceding three years; and
lb) in the United Kingdom: if he was domiciled in the United Kingdom
n accordance with the law of the United Kingdom or "treated as so
domiciled for the purposes of a tax which is the subject of this
Convention.
-
4
-
(2) Where by reason of the provisions of paragraph (1) an individual wis
at any time domiciled in both Contracting States, and
(a) was a national of the United Kingdom but not of the United States.
- and
(o) had not been resident in the United States for Federal income tax
purposes in seven or more of the ten taxable years ending with the
year in which that time falls,
he shall be deemed to be domiciled in the United Kingdom at that time.
(3) Where by reason of the provisions of paragraph (1) an individual was
at any time domiciled in both Contracting States, and
(a) was a national of the United States but not of the United Kingdom,
and
(b) had not been resident in the United Kingdom in seven or more of the
ten income tax years of assessment ending with the year in which that
time falls,
he shall be deemed to be domiciled in the United States at that time For
the purposes of this paragraph, the question of whether a person was so
resident shall be determined as for income tax purposes but without regard
to any dwelling-house available to him in the United Kingdom for bis use
. ^.1^herc bv reason of to* provisions of paragraph (1) an individual was
domiciled in both Contracting States, then, subject to the provisions of
paragraphs (2) and (3). his status shall be determined as follows:
(a) the individual shall be deemed to be domiciled in the Contracting
State in which he had a permanent h o m e available to him. If he bad
a permanent h o m e available to him in both Contracting States or
in neither Contracting State, he shall be deemed to be domiciled in
the Contracting State with which bis personal and economic relations
were closest (centre of vital interests);
<*) if the Contracting State in which the individual's centre of vital
interests was located cannot be determined, he shall be deemed to be
domiciled in the Contracting State in which he had an habitual abode*
(c) if the individual had an habitual abode in both Contracting States or
in neither of them, he shall be deemed to be domiciled in the
Contracting State of which he was a national; and
(d) if the individuar was a national of both Contracting States or of
S U n r~°i £ C m '
• co9m^ttnt wthorities of the Contracting States
•hall settle the question by mutual agreement.
lfc,1Sft.indiV!?"au Ww° Was » residcnt <d°miciliary) of a possession of the
United States and w h o became a citizen of the United StatesVolely by rcaacm
(a) being a citizen of such possession, or
(o) birth or residence within such possession.
Sfi^ *n,ldcred " »«*«• domiciled in nor a national of the United
States for the purposes of this Convention.
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5
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ARTICLE 5
Taxing Rights
(1) (a) Subject to the provisions of Articles 6 (Immovable Property w
(Real Property)) and 7 (Business Property of a Permanent Establishment and
Assets Pertaining to a Fixed Base Used for the Performance of Independent
Personal Services) and the following paragraphs of this Article, if the
decedent or transferor was domiciled in one of the Contracting States at the
time of the death or transfer, property shall not be taxable in the other State.
(b) Sub-paragraph (a) shall not apply if at the time of the death or
transfer the decedent or transferor was a national of that other State.
(2) Subject to the provisions of the said Articles 6 and 7, if at the time of
the death or transfer the decedent or transferor was domiciled in neither
Contracting State and was a national of one Contracting State (but not of
both), property which is taxable in the Contracting State of which he was a
national shall not be taxable in the other Contracting State.
(3) Paragraphs (1) and (2) shall not apply in the United States to
property held in a generation-skipping trust or trust equivalent on the
occasion of a generation-skipping transfer; but. subject to the provisions of
the said Articles 6 and 7, tax shall not be imposed in the United States on
such property if at the time when the transfer was made the deemed
transferor was domiciled in the United Kingdom and was not a national of
the United States.
(4) Paragraphs (1) and (2) shall not apply in the United Kingdom to
property comprised in a settlement, but. subject to the provisions of the
said Articles 6 and 7. tax shall not be imposed in the United Kingdom on
such property if at the time when the settlement was made the settlor was
domiciled in the United States and was not a national of the United Kingdom.
(5) If by reason of the preceding paragraphs of this Article any property
would be taxable only in one Contracting State and tax. though chargeable.
is not paid (otherwise than as a result of a specific exemption, deduction.
exclusion, credit or allowance) in that State, tax may be imposed by reference
to that property in the other Contracting State notwithstanding those
paragraphs.
(6) If at the time of the death or transfer the decedent or transferor was
domiciled in neither Contracting State and each State would regard any
property as situated in its territory and in consequence tax would be imposed
in both States, the competent authorities of the Contracting States shall
determine the situs of the property by mutual agreement.
ARTICLE 6
Immovable Property (Real Property)
(1) Immovable property (real property) may be taxed in the Contracting
State in which such property is situated.
(2) The term " immovable property " shall be defined in accordance with .
the law of the Contracting State in which the property in question is situated.
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6
-
provided always that debts secured by mortgage or otherwise shall not be
regarded as immovable property. The term shall in any case include property
accessor) to immovable property, livestock and equipment used in agriculture
and forestry,rightsto which the provisions of genera) law respecting landed
property apply, usufruct of immovable property and rights to variable or
fixed payments as consideration for the working of. or the right to work.
mineral deposits, sources and other natural resources; ships, boats, and
aircraft shall not be regarded as immovable property.
^
(3) The provisions of paragraphs (1) and (2) shall also apply to
immovable property of an enterprise and to immovable property used for
the performance of independent personal services.
ARTICLE 7
Business Property of a Permanent Establishment and Assets Pertaining la a
Fixed Base Used for the Performance of Independent Personal Services
(I) Except for assets referred to in Article 6 (Immovable Property
(Real Property)) assets forming part of the business property of a permanent
establishment of an enterprise m a y be taxed in the Contracting State in
which the permanent establishment is situated.
(2) (a) For the purposes of this Convention, the term M permanent
establishment *' means a fixed place of business through which the business
of an enterprise is wholly or partly carried on.
(b) The term " permanent establishment" includes especially :
(i) a branch;
(ii) an office;
(iii) a factory;
(iv) a workshop; and
(v) a mine, an oil or gas well, a quarry, or any other place of extraction
of natural resources.
(c) A building site or construction or installation project constitutes a
permanent establishment only if it lasts for more than twelve months.
(d) Notwithstanding the preceding provisions of this paragraph, the
term " permanent establishment" shall be deemed not to include:
(i) the use of facilities solely for the purpose of storage, display, or
delivery of goods or merchandise belonging to the enterprise;
(ii) the maintenance of a stock of goods or merchandise belonging to
the enterprise solely for the purpose of storage, display or delivery;
(iii) the maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of processing by another enterprise;
(iv) the maintenance of a fixed place of business solely for the purpose of
purchasing goods or merchandise, or of collecting information, for
the enterprise;
-
7
-
(v) the maintenance of a fixed place of business solely for the purpose
of carrying on. for the enterprise, any other activity of a preparatory
or auxiliary character; or
(vi) the maintenance of a Hxcd place of business solely for any
combination of activities mentioned in paragraphs (i>—<v) of this
sub-paragraph.
~
(e) Notwithstanding the provisions of sub-paragraphs (a) and (6) where a
person —other than an agent of an independent status to w h o m sub-paragraph
(0 applies—is acting on behalf of an enterprise and has. and habitually
exercises, in a Contracting State an authority to conclude contracts in the
n a m e of the enterprise, that enterprise shall be deemed to have a permanent
establishment in that State in respect of any activities which that person
undertakes for the enterprise, unless the activities of such person are limited
to those mentioned in sub-paragraph (d) which, if exercised through a fixed
place of business, would not make this fixed place of business a permanent
establishment under the provisions of that sub-paragraph.
(ft An enterprise shall not be deemed to have a permanent establishment
in a Contracting State merely because it carries on business in that State
through a broker, general commission agent or any other agent of an
independent status, provided that such persons are acting in the ordinary
course of their business.
(g) The fact that a company which is a resident of a Contracting State
controls or is controlled by a company which is a resident of the other
Contracting State or which carries on business in that other State (whether
through a permanent establishment or otherwise) shall not of itself constitute
either company a permanent establishment of the other.
(3) Except for assets described in Article 6 (Immovable Property (Real
Property)), assets pertaining to a fixed base used for the performance of
independent personal services m a y be taxed in the Contracting State in
which the fixed base is situated.
ARTICLE
8
Deductions, Exemptions Etc
(1) In determining the amount on which tax is to be computed, permitted
deductions shall be allowed in accordance with the law in force in the
Contracting State in which tax is imposed.
(2) Property which passes to the spouse from a decedent or transferor
w h o was domiciled in or a national of the United Kingdom and which m a y
be taxed in the United States shall qualify for a marital deduction there to
the extent that a marital deduction would have been allowable if the decedent
or transferor had been domiciled in the United States and if the gross estate
of the decedent had been limited to property which m a y be taxed in the
United States or the transfers of the transferor bad been limited to transfers of
property which m a y be so taxed.
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8
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(3) Property which passes to the spouse from a decedent or transferor w h o
was domiciled in or a national of the United States and which m a y be taxed
in the United Kingdom shall, where
(a) the transferor's spouse was not domiciled in the United Kingdom
but the transfer would have been wholl) exempt had the spouse been
so domiciled, and
(b) a greater exemption for transfers between spouses would not have
been given under the law of the United Kingdom apart from this
Convention.
be exempt from tax in the United Kingdom to the extent of 50 per cent of
the value transferred, calculated as a value on which no tax is payable and
after taking account of all exemptions except those for transfers between
spouses.
(4) (a) Property which on the death of a decedent domiciled in the
United Kingdom became comprised in a settlement shall, if the personal
representatives and the trustees of every settlement in which the decedent
had an interest in possession immediately before death so elect and subject
to sub-paragraph (£). be exempt from tax in the United Kingdom to the extent
of 50 per cent of the value transferred (calculated as in paragraph (3)) on the
death of the decedent if:
(i) under the settlement, the spouse of the decedent was entitled to an
immediate interest in possession,
(ii) the spouse was domiciled in or a national of the United States.
(iii) the transfer would have been wholly exempt had the spouse been
domiciled in the United Kingdom, and
(iv) a greater exemption for transfers between spouses would not have
been given under the law of the United Kingdom apart from this
Convention.
(b) Where the spouse of the decedent becomes absolutely and
indefeasibly entitled to any of the settled property at any time after the
decedent's death, the election shall, as regards that property, be deemed
never to have been made and tax shall be pa>able as if on the death such
property had been given to the spouse absolutely and indefeasibly.
(5) Where property may be taxed in the United States on the death of a
United Kingdom national w h o was neither domiciled in nor a national of the
United States and a claim is m a d e under this paragraph, the tax imposed in
the United States shall be limited to the amount of tax which would have
been imposed had the decedent become domiciled in the United States
immediately before his death, on the property which would in that event
have been taxable.
ARTICLE 9
Credits
(1) Where under this Convention the United States may impose tax
with respect to any property other than property which the United States
is entitled to tax in accordance with Article 6 (Immovable Property (Real
-
9
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Property)) or 7 (Business Property of a Permanent Establishment and Assets
Pertaining to a Fixed Base Used for the Performance of Independent
Personal Services) (that is. where the decedent or transferor was domiciled in
or a national of the United States), then, except in cases to which paragraph
(3) applies, double taxation shall be avoided in the following
(n) Where the United Kingdom imposes tax with respect to property in
accordance with the said Article 6 or 7. the United States shall credit
against the tax calculated according to its law with respect to that
property an amount equal to the tax paid in the United Kingdom with
respect to that property.
{b) Where the United Kingdom imposes tax with respect to property
not referred to in sub-paragraph (a) and the decedent or transferor
was a national of the United States and was domiciled in the United
Kingdom at the time of the death or transfer, the United States shall
credit against the tax calculated according to its law with respect to
that property an amount equal to the tax paid in the United Kingdom
with respect to that property.
(2) Where under this Convention the United Kingdom may impose tax
with respect to any property other than property which the United Kingdom
is entitled to tax in accordance with the said Article 6 or 7 (that is, where
the decedent or transferor was domiciled in or a national of the United
Kingdom), then, except in the cases to which paragraph (3) applies, double
taxation shall be avoided in the following manner:
(a) Where the United States imposes tax with respect to property in
accordance with the said Article 6 or 7, the United Kingdom shall
credit against the tax calculated according to its law with respect to
that property an amount equal to the tax paid in the United States
with respect to that property.
(b) Where the United States imposes tax with respect to property not
referred to in sub-paragraph (a) and the decedent or transferor was a
national of the United Kingdom and was domiciled in the United
States at the time of the death or transfer, the United Kingdom shall
credit against the tax calculated according to its law with respect to
that property an amount equal to the tax paid in the United States
with respect to that property.
(3) Where both Contracting States impose tax on the same event with
respect to property which under the law of the United States would be
regarded as property held in a trust or trust equivalent and under the law of
the United Kingdom would be regarded as property comprised in a
settlement, double taxation shall be avoided in the following manner:
(a) Where a Contracting State imposes tax with respect to property in
accordance with the said Article 6 or 7. the other Contracting State
shall credit against the tax calculated according to its law with respect
to that property an amount equal to the tax paid in the first-mentioned
Contracting State with respect to that property.
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10
-
(b) Where the United States imposes tax with respect to property which
is not taxable in accordance with the said Article 6 or 7 then
(i) where the event giving rise to a liability to tax was a generationskipping transfer and the deemed transferor was domiciled in w
the United States at the time of that event.
(ii) where the event giving rise to a liability to tax was the exercise
or lapse of a power of appointment and the holder of the power
was domiciled in the United States at the time of that event, or
(iii) where (i) or (ii) does not apply and the settlor or grantor was
domiciled in the United States at the time when the tax ii
imposed.
the United Kingdom shall credit against the tax calculated according
to its law with respect to that property an amount equal to the tax
paid in the United States with respect to that property.
(c) Where the United States imposes tax with respect to property which
is not taxable in accordance with the said Article 6 or 7 and subparagraph (b) does not apply, the United States shall credit against
the tax calculated according to its law with respect to that property
an amount equal to the tax paid in the United Kingdom with respect
to that property.
(4) The credits allowed by a Contracting State according to the provisions
of paragraphs (1). (2) and (3) shall not take into account amounts of such
taxes not levied by reason of a credit otherwise allowed by the other
Contracting State. N o credit shall befinallyallowed under those paragraphs
until the tax (reduced by any credit allowable with respect thereto) for
which the credit is allowable has been paid. A n y credit allowed under
those paragraphs shall not. however, exceed the part of the tax paid in
a Contracting State (as computed before the credit is given but reduced by
any credit for other tax) which is attributable to the property with respect to
which the credit is given.
(5) Any claim for a credit or for a refund of tax founded on the
provisions of the present Convention shall be made within six years from the
date of the event giving rise to a liability to tax or. where later, within one
year from the last date on which tax for which credit is given is due. T h e
competent authority may, in appropriate circumstances, extend this time
limit where the final determination of the taxes which are the subject of the
claim for credit is delayed.
ARTICLE
10
Non-Discrimination
(1) (a) Subject to the provisions of sub-paragraph (6). nationals of a
Contracting State shall not be subjected in the other State to any taxation or
any requirement connected therewith which is other or more burdensome
than the taxation and connected requirements to which nationals of that
other State in the same circumstances are or m a y be subjected.
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11
-
(b) Sub-paragraph (0) shall not prevent the United States from taxing a
national of the United Kingdom, w h o is not domiciled in the United States.
as a non-resident alien under its law. subject to the provisions of paragraph"
(5) of Article 8 (Deductions. Exemptions Etc).
(2) The taxation on a permanent establishment which an enterprise of a
Contracting State has in the other Contracting State shall not be -less
favourably levied in that other State than the taxation levied on enterprises
of that other State carrying on the same activities.
(3) Nothing contained in this Article shall be construed as obliging either
Contracting State to grant to individuals not domiciled in that Contracting
State any personal allowances, reliefs and reductions for taxation purposes
which are granted to individuals so domiciled.
(4) Enterprises of a Contracting State, the capital of which is wholly or
partly owned or controlled, directly or indirectly, by one or more residents of
the other Contracting State, shall not be subjected in the first-mentioned
Contracting State to any taxation or any requirement connected therewith
which is other or more burdensome than the taxation and connected
requirements to which other similar enterprises of the first-mentioned State
are or m a y be subjected.
(5) T h e provisions of this Article shall apply to taxes which are the subject
of this Convention.
A R T I C L E 11
Mutual Agreement Procedure
(1) Where a person considers that the actions of one or both of the
Contracting States result or will result in taxation not in accordance with the
provisions of this Convention, he may. irrespective of the remedies provided
by the domestic laws of those Slates, present his case to the competent.
authority of either Contracting State.
(2) The competent authority shall endeavour, if the objection appears to
it to be justified and if it is not itself able to arrive at an appropriate
solution, to resolve the case by mutual agreement with the competent
authority of the other Contracting State, with a view to the avoidance of
taxation not in accordance with the Convention. Where an agreement has
been reached, a refund as appropriate shall be m a d e to give effect to the
agreement.
(3) T h e competent authorities of the Contracting States shall endeavour
to resolve by mutual agreement any difficulties or doubts arising as to the
interpretation or application of the Convention. In particular the competent
authorities of the Contracting States m a y reach agreement on the meaning of
the terms not otherwise defined in this Convention.
(4) T h e competent authorities of the Contracting States m a y communicate with each other directly for the purpose of reaching an agreement as
contemplated by this Convention.
-
12
ARTICLE
-
12
Exchange of Information
The competent authorities of the Contracting States shall exchange"
such information (being information available under the respective taxation
laws of the Contracting Suites) as is necessary for the carrying out of the
provisions of this Convention or for the prevention of fraud or the
administration of statutory provisions against legal avoidance in relation to
. the taxes which are the subject of this Convention. A n y information so
exchanged shall be treated as secret and shall not be disclosed to any
persons other than persons (including a court or administrative body)
concerned with the assessment, enforcement, collection, or prosecution in
respect of the taxes which are the subject of the Convention. N o information
shall be exchanged which would disclose any trade, business, industrial or
professional secret or any trade process.
ARTICLE 13
Effect on Diplomatic and Consular Officials and Domestic L a w
(1) Nothing in this Convention shall affect the fiscal privileges of
diplomatic or consular officials under the general rules of international law
or under the provisions of special agreements.
(2) This Convention shall not restrict in any manner any exclusion.
exemption, deduction, credit, or other allowance n o w or hereafter accorded
by the laws of either Contracting State.
ARTICLE 14
Entry into Force
(I) This Convention shall be subject to ratification in accordance with
the applicable procedures of each Contracting State and instruments of
ratification shall be exchanged at Washington as soon as possible.
(2) This Convention shall enter into force immediately after the expiration
of thirty days following the date on which the instruments of ratification are
exchanged, and shall thereupon have effect:
(a) in the United States in respect of estates of individuals dying and
transfers taking effect after that date; and
(b) in the United Kingdom in respect of property by reference to which
there is a charge to tax which arises after that date.
(3) Subject to the provisions of paragraph (4) of this Article, the
Convention between the Government of the United States of America and the
Government of the United Kingdom of Great Britain and Northern Ireland
for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion
with respect to Taxes on the Estates of Deceased Persons signed at
Washington on 16 April 1945 (hereinafter referred to as "the 1945
Convention ") shall cease to have effect in respect of property to which this
Convention in accordance with the provisions of paragraph (2) of this Article
applies.
- 13
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(4) Where on a death before 27 March 1981 any provision of the 1945
Convention would have afforded any greater relief from tax than this
Convention in respect of
(a) any gift inter vivos made by the decedent before 27 March 1974. or
(b) any settled property in which the decedent had a beneficial interest
in possession before 27 March 1974 but not at any time thereafter.
that provision shall continue to have effect in the United Kingdom in relation
to that gift or settled property.
(5) The 1945 Convention shall terminate on the last date on which it has
effect in accordance with the foregoing provisions of this Article.
ARTICLE
15
Termination
(1) This Convention shall remain in force until terminated by one of the
Contracting States. Either Contracting State m a y terminate this Convention.
at any time after five years from the date on which the Convention enters
into force provided that at least six months* prior notice has been given
through the diplomatic channel. In such event the Convention shall cease to
have effect at the end of the period specified in the notice, but shall continue
to apply in respect of the estate of any individual dying before the end of
that period and in respect of any event (other than death) occurring before
the end of that period and giving rise to liability to tax under the laws
of either Contracting State.
(2) The termination of the present Convention shall not have the effect
of reviving any treaty or arrangement abrogated by the present Convention
or by treaties previously concluded between the Contracting States.
- 14
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In witness whereof the undersigned, duly authorised tfcereto ky toff
scspective Govemmenu. have signed this Convention.
Done in duplicate at London this
197«.
19th
*eyof
October
For the Government of the United States of America:
For the Government of the United Kingdom of Great Britain and
Northern Ireland:
tpartmentoftheTREASURY
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
November 3, 1978
RESULTS OF AUCTION OF 30-YEAR TREASURY BONDS
AND SUMMARY RESULTS OF NOVEMBER FINANCING
The Department of the Treasury has accepted $1,752 million of $4,877
million of tenders received from the public for the 30-year bonds
auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 8.82%
Highest yield
Average yield
8.87%
8.86%
The interest rate on the bonds will be 8-3/4%- At the 8-3/4% rate,
the above yields result in the following prices:
Low-yield price 99.266
High-yield price
Average-yield price
98.747
98.851
The $1,752 million of accepted tenders includes $163 million of
noncompetitive tenders and $1,589 million of competitive tenders from
private investors, including 89% of the amount of bonds bid for at the
high yield.
In addition to the $1,752 million of tenders accepted in the auction
process, $ 678 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 15, 1978.
SUMMARY RESULTS OF NOVEMBER FINANCING
Through the sale of the three issues offered in the November financing,
the Treasury raised approximately $2.2 billion of new money and refunded
$8.2 billion of securities maturing November 15, 1978. The following table
summarizes the results:
New Issues
9-1/4%
8-3/4%
8-3/4%
NonmarNotes
Notes
Bonds
ketable
Maturing Net New
5-15-82 11-15-88 11-15-03- Special
Securities Money
2008 Issues Total Held
Raised
Public $2.5 $2.5 $1.8 $ - $6.8 $4.6 $2.2
Government Accounts
and Federal Reserve
Banks
JUO
JK9
0^
IJLQ
3^6 JL6
TOTAL $3.5 $3.4 $2.4 $1.0. $10.4 $8.2 $2.2
Details may not add to total due to rounding.
B-1247
tpartmentoftheTREASURY
tiHINGTQN(kC. 20220
TELEPHONE saewt
FOR IMMEDIATE RELEASE
November 6, 1978
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,301 million of 13-week Treasury bills and for $3,400 million
of 26-week Treasury bills, both series to be issued on November 9, 1978
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
a/
13-week bills
maturing February 8. 1979
26-week bills
maturing May 10, 1979
Price
Discount
Rate
Discount
Rate
97.725
97.714
97.718
9.000%
9.044%
9.028%
Investment
Rate 1/
9.34%
9.38%
9.37%
Price
95.244a/ 9.407%
95.233
9.429%
95.238
9.419%
Investment
Rate 1/
10.01%
10.04%
10.03%
Excepting 1 tender of $160,000
Tenders at the low price for the 13-week bills were allotted 57%.
Tenders at the low price for the 26-week bills were allotted 9% .
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
Received
$
47,685,000
3,736,845,000
19,325,000
29,830,000
25,075,000
30,265,000
191,770,000
32,945,000
15,905,000
24,380,000
10,945,000
263,095,000
8,945,000
$4,437,010,000
Accepted
$
46,985,000
1,924,220,000
19,325,000
28,485,000
19,685,000
27,860,000
81,400,000
18,645,000
12,905,000
19,380,000
10,445,000
82,495,000
8,945,000
$2,300,775,000b/
Received
Accepted
$
62,040,000
5,019,110,000
18,725,000
91,785,000
49,815,000
27,580,000
230,925,000
28,130,000
13,735,000
27,545,000
11,625,000
315,100,000
$
47,040,000
2,918,645,000
18,480,000
66,785,000
35,815,000
25,910,000
94,925,000
13,730,000
13,735,000
24,500,000
10,625,000
114,900,000
15,090,000
15,090,000
$5,911,205,000
.b/Includes $351,120,000 noncompetitive tenders from the public.
SjIncludes $272,675,000 noncompetitive tenders from the public.
1/Equivalent coupon-issue yield.
B-1248
$3,400,180,000c/
tpartmentoftheTREASURY
IINGTON. D.C. 20220
TELEPHONE 566-2041
FOR RFI FASF AN PR IVERY KU
(/^PROXIMATELY /:M5 P.M., NOVEMBER 6, 1978)
REMARKS BY THE HONORABLE ANTHONY M, SOLOMON
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE..
B'NAI B'RITH MINING AND METAL INDUSTRY
NEW YORK,, NOVEMBER 6, 1978
TONIGHT I WANT TO TALK PRIMARILY ABOUT THE INTERNATIONAL
ECONOMIC SITUATION, BUT ALSO ABOUT SOME DIRECTLY RELATED
ASPECTS OF THE DOMESTIC ECONOMIC SITUATION.
I HAVE THE FEELING
THAT ALL OF US AMERICANS ARE UNCERTAIN, EVEN CONFUSED, ABOUT
WHERE WE ARE GOING ~
ABOUT WHAT'S GOING WRONG WITH THE ECONOMY
AND ALSO WHAT IS GOING RIGHT.
THE STARTING POINT FOR UNDERSTANDING WHERE WE ARE GOING
AND WHAT IS GOING RIGHT AND WRONG IS THE U.S, DECISION TO
ESTABLISH AN OPEN INTERNATIONAL TRADE AND CAPITAL SYSTEM
AFTER WORLD WAR II.
THIS DECISION WAS TAKEN IN RECOGNITION THAT
THE SEVERE AND PROTRACTED DEPRESSION OF THE 1930'S WAS DUE
MUCH MORE TO THE TRADE BARRIERS THAT WE AND OTHERS ERECTED THAN
TO THE FINANCIAL PANIC OF 1929. THAT POST WORLD WAR II
DECISION
BY THE UNITED STATES WAS A BRILLIANT AND FAR-REACHING ONE.
THE UNITED STATES HAD THE INFLUENCE TO PERSUADE THE REST OF
THE FREE WORLD TO JOIN US IN THIS APPROACH AND THE POWER TO
IMPLEMENT IT FOR BOTH OUR OWN AND THE WORLD'S PROSPERITY.
B-1249
- 2-
THIS OPEN INTERNATIONAL ECONOMIC SYSTEM WAS CLEARLY THE
BASIS FOR RAPID AND SUSTAINED INCREASES IN OUR OWN WEALTH
AND STANDARD OF LIVING, FOR THE RECONSTRUCTION AND
UNPRECEDENTED GROWTH OF THE OTHER INDUSTRIALIZED COUNTRIES,
AND FOR PROGRESS —
EVEN THOUGH SOMEWHAT MORE LIMITED —
IN THE DEVELOPING COUNTRIES.
THE TRADE SIDE OF THIS OPEN
INTERNATIONAL SYSTEM WAS IMPLEMENTED PROGRESSIVELY THROUGH
MUTUAL REDUCTIONS IN TARIFF BARRIERS WHICH STIMULATED WORLD
TRADE AND CATALYZED HIGH AND SUSTAINED DOMESTIC GROWTH IN ALL
THE KEY COUNTRIES.
THE OTHER MAIN CATALYST WAS THE OPEN CAPITAL
PART OF THE SYSTEM, WHICH WAS EQUALLY CRITICAL TO THE PROSPERITY
AND STEADY GROWTH ACHIEVED BY THE UNITED STATES AND OTHER
COUNTRIES.
U.S. DIRECT INVESTMENT ABROAD, THE AVAILABILITY
OF OUR CAPITAL MARKETS TO INTERNATIONAL BORROWERS, THE FREEDOM
OF OUR BANKS TO LEND ABROAD,ALL COMBINED TO PROVIDE MUCH OF
THE CREDIT (AS WELL AS MUCH OF THE MANAGEMENT TECHNOLOGY)
THAT FUELED VERY RAPID GROWTH IN THE REST OF THE WORLD.
OPEN
TRADE AND CAPITAL POLICIES WERE DIRECTLY AND INDIRECTLY MAJOR
FORCES IN OUR OWN PROSPERITY, BUT OUR ACTIONS IN IMPLEMENTING
THE SYSTEM CHANGED THE COURSE OF THE REST OF THE WORLD AS WELL.
- 3WHAT HAS BEEN THE RESULT OF THE OPEN TRADING AND CAPITAL
SYSTEM AND ASSOCIATED WORLD-WIDE GROWTH?
AN INCREASING
AND INCREDIBLE DEGREE OF ECONOMIC INTERDEPENDENCE, ESPECIALLY
AMONG THE INDUSTRIALIZED COUNTRIES, WHOSE INTERNAL INDUSTRIAL
AND AGRICULTURAL STRUCTURES ARE NOW HEAVILY DEPENDENT ON FOREIGN
SOURCES AND MARKETS.
AT THE END OF THE
1960'S AND DURING THE 1970'S, THE GREAT
POST-WAR RECORD OF GROWTH, EMPLOYMENT AND PROSPERITY RAN INTO
TROUBLE.
YOU ARE ALL FAMILIAR WITH THE BEGINNING OF INFLATION
AS WE ESCALATED AND POURED MORE RESOURCES INTO THE VIETNAM WAR;
THE DEVALUATIONS OF THE EARLY SEVENTIES; THE SIMULTANEOUS BOOM IN
THE INDUSTRIAL COUNTRIES, FEEDING RAPID INCREASES IN COMMODITY
PRICES WORLDWIDE; THE SHOCK OF A FOURFOLD INCREASE IN OIL PRICES;
ALL FOLLOWED INEVITABLY BY VERY SEVERE WORLD RECESSION IN 1975.
SINCE 1975, THE GROWTH PATHS OF THE KEY COUNTRIES HAVE
DIVERGED SHARPLY,
WE IN THE UNITED STATES HAVE ACHIEVED
A VIGOROUS RECOVERY, ADDING 10 MILLION JOBS AND INCREASING
INDUSTRIAL PRODUCTION OVER 30 PERCENT.
EUROPE AND JAPAN HAVE
EXPERIENCED ONLY SLUGGISH GROWTH, WITH RISING UNEMPLOYMENT,
AT LEAST UNTIL RECENT MONTHS.
IN THESE RESPECTS, WE HAVE
CLEARLY DONE BETTER THAN THE REST OF THE WORLD,
BUT BECAUSE
OF THE OPEN TRADING AND CAPITAL SYSTEM, AND THE CONTINUING
INCREASE IN INTERDEPENDENCE, SOME THINGS HAVE GONE WRONG
HERE AT HOME:
- 4—
OUR RAPID GROWTH AND INCREASING OUTPUT HAS
LED TO A VERY RAPID CLIMB IN OUR IMPORTS, WHILE
SLOWER GROWTH IN THE ECONOMIES OF OUR TRADING
PARTNERS HAS MEANT SLOW GROWTH IN OUR EXPORTS.
~
THE SLACK IN PRODUCTION CAPACITY ABROAD HAS
MADE OUR COMPETITORS PUSH HARDER THAN EVER TO SELL
IN THE FASTER-GROWING U.S. MARKET,
—
AND, BACK IN
1975-76, THE COMBINATION OF OUR
RECESSION AND THE ERRONEOUS JUDGMENT THAT WE WOULD
BE HURT LESS THAN OTHERS BY THE OIL PRICE INCREASE
CAUSED THE DOLLAR TO MOVE UP SHARPLY IN THE EXCHANGE
MARKETS,
IMPORTS BECAME CHEAPER AND OUR EXPORTS
LESS COMPETITIVE.
BUT THE FULL EFFECTS OF SUCH
EXCHANGE RATE CHANGES TAKE 18 MONTHS OR LONGER TO
SHOW UP IN THE TRADE ACCOUNTS AND, IN 1977 AND 1978,
THOSE EARLIER EXCHANGE RATE CHANGES CONTRIBUTED TO
OUR LARGE TRADE AND CURRENT ACCOUNT BALANCE OF
PAYMENTS DEFICITS.
THE OTHER THING THAT HAS GONE WRONG IS THAT U.S. INFLATION
IS WORSENING.
THROUGH MOST OF THE
1970'S WE HAD BEEN AVERAGING
ABOUT 6-1/4 TO 6-1/2 PERCENT INFLATION WHICH ~
DAMAGING —
ALTHOUGH VERY
WAS NOT AS BAD AS THE PERFORMANCE OF MOST OTHER
INDUSTRIAL COUNTRIES.
BUT BEGINNING LAST YEAR AND EVEN WORSE
THIS YEAR, VARIOUS FACTORS ~
INCLUDING THE DECLINING DOLLAR
~
- 5INCREASED OUR INFLATION RATE TO WHERE (ALONG WITH CANADA'S)
IT IS THE HIGHEST OF THE MAJOR INDUSTRIAL COUNTRIES, WHILE
SOME DOWNWARD ADJUSTMENT OF THE DOLLAR FROM THE HIGHLY
APPRECIATED LEVELS OF 1975 AND 1976 WAS APPROPRIATE TO REVERSE
THE EROSION IN OUR EXPORT COMPETITIVENESS, EXCESSIVE MOVEMENTS
CONTRIBUTED TO AN INFLATIONARY PSYCHOLOGY — WITH DOLLAR
DECLINES CONTRIBUTING TO INFLATION, AND WITH EXPECTATIONS
OF MORE INFLATION PUSHING WAGES AND PRICES UP AND THE DOLLAR
DOWN EVEN FARTHER. EXPECTATIONS OF MORE INFLATION BECAME
CEMENTED INTO OUR NATIONAL THINKING,
THE GRADUAL REDUCTION OF TRADE BARRIERS, AND THE GREATLY
INCREASED VOLUME OF CAPITAL READY TO MOVE AROUND THE WORLD AT
THE PUSH OF TODAY'S SOPHISTICATED COMMUNICATIONS BUTTONS, HAVE
COME TO MEAN THAT DIFFERENCES'AMONG THE KEY COUNTRIES IN REAL
GROWTH AND INFLATION NOW HAVE A MUCH MORE IMMEDIATE IMPACT ON
THE DIRECTION AND MAGNITUDE OF TRADE FLOWS AND CAPITAL MOVEMENTS,
WE AND THE REST OF THE WORLD ARE THEREFORE MORE VULNERABLE NOW
THAN IN THE PAST — THIS IS THE PRICE WE PAY FOR THE HIGHER WEALTH
AND STANDARD OF LIVING THAT THE OPEN WORLD ECONOMY AND INCREASING
INTERDEPENDENCE HAVE BROUGHT, TODAY, IMPORT AND EXPORT FLOWS,
EVEN IN THE U3S, ~ WHICH IS THE LEAST EXTERNALLY DEPENDENT
AMONG MAJOR COUNTRIES ~ ARE OVER 15 PERCENT OF OUR GNP. THERE
IS NO WAY OF RETREATING, EITHER SHARPLY OR GRADUALLY, FROM THIS
INTERDEPENDENCE, WITHOUT CAUSING MAJOR DISRUPTION TO OUR ECONOMY.
- 6AN EFFORT TO RETREAT WOULD BRING MAJOR SHORTAGES IN SOME
INDUSTRIES, MAJOR GLUTS IN OTHERS, AND HIGH UNEMPLOYMENT.
AND WE WOULD, OF COURSE, FORFEIT
THE BENEFITS YET TO COME
FROM CONTINUING OUR OPEN AND INTERDEPENDENT SYSTEM,
SO WHAT CAN WE DO?
1.
WE CAN TRY TO COORDINATE BETTER THE PERFORMANCE
OF THE MAJOR COUNTRIES, TO ACHIEVE MORE BALANCE
AND CONVERGENCE OF DOMESTIC GROWTH RATES AND REDUCE
INFLATION DIFFERENTIALS.
WE HAVE MADE SOME PROGRESS
AS A RESULT OF EFFORTS AT THE BONN SUMMIT,
RATES ARE BECOMING BETTER BALANCED,
GROWTH
NEXT YEAR, THE
OTHER KEY COUNTRIES WILL FINALLY BE GROWING AT HIGHER
RATES THAN THE U.S. ECONOMY.
THEY WILL BE GROWING
SOMEWHAT FASTER THAN BEFORE, AND WE WILL BE TAPERING
BACK AFTER
3 YEARS OF VERY FAST AND SUSTAINED RECOVERY.
THAT TAPERING OFF DOES NOT MEAN A RECESSION.
2,
WE MUST CURB INFLATION AT HOME,
3.
WE MUST REDUCE OUR DEPENDENCE ON IMPORTED ENERGY, AND
WE MUST IMPROVE OUR COMPETITIVE RESPONSE TO EXPORT
OPPORTUNITIES.
- 74.
WE M U S T STOP THE
DECLINE
OF
THE
DOLLAR AND
SOME OF THE RECENT EXCESSIVE DROPS,
CORRECT
SOME EXCHANGE
RATE CHANGES WERE JUSTIFIED AS NATIONAL GROWTH
RATES AND INFLATION LEVELS DIVERGED SIGNIFICANTLY,
BUT WHAT WE HAVE SEEN RECENTLY IS EXCESSIVE AND
NOT JUSTIFIED BY FUNDAMENTAL FACTORS OR TRENDS
IN UNDERLYING ECONOMIC CONDITIONS,
WE ARE NOW MOVING FORCEFULLY ON ALL THESE FRONTS,
THE
UNDERTAKINGS AT THE BONN SUMMIT ARE SUCCEEDING IN BRINGING
ABOUT A BETTER BALANCE OF GROWTH AMONG THE MAJOR COUNTRIES,
OUR ENERGY LEGISLATION IS AT LAST IN PLACE,
WE HAVE INITIATED
PROGRAMS TO IMPROVE OUR EXPORT PERFORMANCE,
AND THE PRESIDENT
HAS MOST RECENTLY ANNOUNCED COMPREHENSIVE NEW POLICIES ON
INFLATION AND THE DOLLAR.
WHY DIDN'T WE MOVE BEFORE ON THE DOLLAR?
BECAUSE OUR
TIMING HAD TO BE RIGHT IF THE EFFORT WAS TO WORK ~
WE HAD TO
MAKE AFIEAJJSTICJUDGMENT ABOUT THE SUCCESS OF A MAJOR AND BOLD
MOVE,
VARIOUS FACTORS WENT INTO THAT JUDGMENT —
A KEY ONE WAS
THE IMPROVING TREND IN OUR TRADE AND CURRENT ACCOUNT
OF PAYMENTS DEFICIT,
BALANCE
ALTHOUGH THERE WILL BE SOME INCREASE IN
THE PRESENT QUARTER DUE TO SPECIAL FACTORS, WE CAN NOW ENVISAGE
A MAJOR DECLINE IN THE CURRENT ACCOUNT DEFICIT FOR 1979, WHICH
IS THE KEY FIGURE TO LOOK AT,
IF ONE ASSUMES FOR ESTIMATING
- 8PURPOSES THAT THERE IS NO CHANGE IN OIL PRICES, NEXT YEAR'S
DEFICIT MAY BE ONLY ONE-THIRD THE 1978 FIGURE, THE UNDERLYING
TREND IN OUR PAYMENTS POSITION WAS THEREFORE IMPROVING, AND
IT WAS EVIDENT THAT THE MARKETS WERE BEGINNING TO BE READY TO
RESPOND TO FORCEFUL AND SUSTAINED ACTION ON VARIOUS FRONTS,
IT MAY, OF COURSE, TAKE SOME TIME BEFORE ALL THE PEOPLE WHO MOVE
MONEY AROUND ARE CONVINCED OF OUR DETERMINATION, AND BEFORE
WE CAN RETURN TO A MORE NORMAL PATTERN OF TWO-WAY TRADING FULLY
ELIMINATING THE MUTUALLY INFECTING PSYCHOLOGY THAT IT IS A
ONE-WAY STREET DOWN FOR THE DOLLAR, THE RESPONSE TO OUR
ACTIONS HAS BEEN IMPRESSIVE EVEN IN THE SHORT TIME SINCE
THE ANNOUNCEMENT. AND I WOULD EXPECT THAT THE RESPONSE WILL
DEEPEN AND SOLIDIFY AS WE PURSUE THE VARIOUS COMPONENTS OF
THE ANTI-INFLATION AND DOLLAR PROGRAMS WITH DETERMINATION AND
WITH ALL THE POWERS THE GOVERNMENT CAN MUSTER,
NOW, WHAT ABOUT THE TRADE ASPECTS OF OUR SYSTEM? FlRST,
WE SHOULD RECOGNIZE THAT THE TARGET DEPTH OF TARIFF CUTS
AGREED ON BY THE INDUSTRIAL COUNTRIES LAST SEPTEMBER WAS
40 PERCENT, TO BE STRETCHED OUT OVER 10 YEARS. SlNCE AVERAGE
TARIFFS NOW APPLIED TO INDUSTRIAL TRADE BY THE MAJOR COUNTRIES
RANGE FROM ABOUT 7 TO 15 PERCENT, WE CAN ENVISAGE AT MOST
REDUCTIONS OF ONLY A FRACTION OF ONE PERCENT ANNUALLY IN AVERAGE
TARIFF LEVELS. THE MAJOR SUCCESS IN REDUCING TARIFFS IN THE
PAST — AS WELL AS THE MOVE TO MORE FLEXIBLE EXCHANGE RATES ~
MEAN THAT WE ARE TODAY LIVING IN A VERY DIFFERENT TRADING
ENVIRONMENT. IT IS IMPORTANT TO CONTINUE OUR EFFORTS TO REDUCE
- 9TARIFFS, IN ORDER TO SUSTAIN OUR LONG-RUN POLICY DIRECTION
AND CONTINUE PROGRESS ON HIGH TARIFFS IN PARTICULAR SECTORS
AND CERTAIN COUNTRIES,
BUT THE FOCUS OF ATTENTION IN THE
MULTILATERAL TRADE NEGOTIATIONS IS CLEARLY SHIFTING ~
MOST
IMPORTANTLY FOR THE U.S., TO THE NEGOTIATION OF CODES TO
REDUCE OR ELIMINATE NON-TARIFF BARRIERS WHICH HAVE BECOME
THE MAJOR IMPEDIMENTS TO TRADE.
SECONDLY, WE MUST STRIVE FOR A BALANCE IN TRADE POLICY
BETWEEN, ON THE ONE HAND, FOSTERING A DYNAMIC ECONOMY AND AN
INDUSTRIAL STRUCTURE THAT CAN ADAPT TO CHANGES IN COMPARATIVE
INTERNATIONAL EFFICIENCY, AND ON THE OTHER HAND AVOIDING SHOCK
AND DISRUPTION TO DOMESTIC INDUSTRY,
ADJUSTMENT IS ESSENTIAL
~
BUT IN CERTAIN INDUSTRIES MORE TIME IS NEEDED FOR AN ORDERLY
CHANGE.
THE PROBLEM BECOMES BIGGER IF COUNTRIES PREVENT
ADJUSTMENT BY EMPLOYING
PERMANENT SUBSIDIES WHICH GIVE
THEIR EXPORTS AN UNFAIR ADVANTAGE AND BY PROVIDING
PROTECTION AGAINST IMPORTS FOR INEFFICIENT INDUSTRIES.
PERMANENT
THESE
PRACTICES ARE A BREEDING GROUND FOR THE KIND OF TRADE CONFLICT
WE HAD IN THE 1930'S.
ONLY TRANSITIONAL ASSISTANCE BY GOVERNMENT
TO INDUSTRY, WHICH WILL LEAD TO A POSITIVE ADJUSTMENT, IS AN
APPROPRIATE POLICY AND IS IN EVERYONE'S INTERESTS.
- 10 THAT IS THE ENTIRE RATIONALE OF THE U.S. GOVERNMENT
PROGRAM FOR STEEL WITH WHICH MY NAME IS ASSOCIATED.
THE
TRIGGER PRICE SYSTEM, DESIGNED TO PREVENT UNFAIR DUMPING
IN VIOLATION OF OUR TRADE LAWS, IS NECESSARY ONLY DURING A
TIME OF WORLD STEEL GLUT WHEN SLACK CAPACITY ABROAD INDUCES
FOREIGN STEEL MANUFACTURERS TO SELL IN THE U.S. MARKET AT
BELOW THEIR PRODUCTION COST,
NOT A MINIMUM PRICE ~
THE TRIGGER PRICE SYSTEM IS
ANYONE WHO HAS PRODUCTION COSTS
LOWER THAN THE TRIGGER PRICE LEVELS IS FREE TO SELL STEEL
AT THOSE COSTS IN OUR MARKETS.
INSOFAR AS INJURIOUS DUMPING
IS SUCCESSFULLY DETERRED, IT WILL, OF COURSE, FIRM PRICES
IN THE MARKET.
RESULT.
BUT ANY EFFECTIVE PROGRAM WOULD HAVE THIS
WITH THE RIGHT BALANCE OF FISCAL AND MONETARY POLICY,
AND WITH A MODERATION OF EXPECTATIONS ABOUT INFLATION THROUGH
GRADUAL MODERATION OF WAGE AND PRICE DECISIONS, THE GOVERNMENT
AND THE PRIVATE SECTOR, COOPERATING TOGETHER, CAN DEMONSTRATE
THAT PREVENTING UNFAIR DUMPING ~
COMPETITION ~
AND ENHANCING FAIR
IS NOT INFLATIONARY.
THE OTHER PARTS OF OUR STEEL PROGRAM EMPHASIZE MODERNIZATION
AND COST SAVINGS THAT ARE BENEFICIAL TO THE STEEL INDUSTRY AND
THE AMERICAN PUBLIC AND ARE ACHIEVABLE THROUGH NON-DISCRIMINATORY
-11 ACTIONS WHICH DO NOT DISTORT TRADE.
THE REDUCTION IN THE
DEPRECIABLE GUIDELINE LIFE ON TAXES AND THE LOAN GUARANTEE
PROGRAM AT COMMERCIAL INTEREST RATES ARE DESIGNED TO IMPROVE
CASH FLOW AND PROVIDE CAPITAL TO SMALLER FIRMS FOR MODERNIZATION OF COMPETITIVE PLANTS.
OUR REVIEW OF ENVIRONMENTAL
POLICIES AND PROCEDURES WILL ACHIEVE BASIC ENVIRONMENTAL GOALS
BUT AT LESS COST TO INDUSTRY ~
AND WILL BENEFIT ALL INDUSTRIES,
NOT JUST STEEL.
BEFORE I CLOSE, I WOULD LIKE TO MAKE ONE COMMENT ON THE
INTERMIXTURE OF TRADE AND CAPITAL FLOWS AND THEIR EFFECTS
UPON EXCHANGE RATES WHICH WE HAVE SEEN REFLECTED IN THE RECENT
EXCESSIVE DECLINES IN THE DOLLAR.
WE SOMETIMES HEAR CRITICISM
FROM ABROAD ABOUT THE SO-CALLED DOLLAR OVERHANG ~
CRITICISM
THAT THE $600 BILLION IN DOLLAR DENOMINATED ASSETS HELD ABROAD
IS A RESULT OF U.S. PROFLIGACY, OF A CONSISTENT HISTORY OF
SPENDING BEYOND OUR MEANS.
WITH THE FACTS.
THIS
CRITICISM DOES NOT SQUARE
OUR NET BALANCE OF TRADE IN GOODS AND SERVICES
IN THE POST-WAR ERA HAS BEEN IN SURPLUS.
BETWEEN 1960 AND
MID-1978, WE HAD ACCUMULATED A NET SURPLUS ON OUR CURRENT ACCOUNT
BALANCE OF PAYMENTS OF SOME $34 BILLION.
THEREFORE, THE ORIGIN
OF THE FOREIGN DOLLAR HOLDINGS HAS BEEN INVESTMENT AND FOREIGN
BORROWING, MUCH OF IT FINANCED IN THE OPEN U.S. CAPITAL MARKET,
i
TO FUEL ECONOMIC GROWTH ABROAD.
THE U.S. ECONOMY HAS BENEFITED
FROM THESE FLOWS, AS HAVE FOREIGN ECONOMIES.
MORE BROADLY, THE
OPENESS OF THE SYSTEM AS A WHOLE HAS CONTRIBUTED TO THE
- 12 POLITICAL STABILITY OF THE MAJOR NATIONS, IN STARTLING
CONTRAST TO THE POLITICAL SITUATION IN THE 1930'S AS ECONOMIES
DETERIORATED AND WITHDREW FROM EACH OTHER,
THE UNITED STATES
MAY HAVE EXERCISED A DOMINANT INFLUENCE IN THE ECONOMIC AREA
DURING THE POST-WAR PERIOD, IN BRINGING OTHERS TO SHARE OUR
VISION OF A BETTER WORLD.
BUT WE WERE NOT ECONOMIC IMPERIALISTS ~
WE DID NOT ENRICH OURSELVES AT THE EXPENSE OF OTHERS,BUT SHAPED
A SYSTEM FROM WHICH ALL COULD GAIN,
FURTHERMORE, IF ONE LOOKS INTO THAT FIGURE OF
$600 BILLION
IN DOLLAR-DENOMINATED ASSETS HELD ABROAD, ROUGHLY $300 BILLION
ARE FOREIGNERS' DOLLAR CLAIMS ON OTHER FOREIGNERS AND NOT ON
US —
SIMPLY BECAUSE THE DOLLAR WAS USED AS THE CURRENCY FOR
TRANSACTIONS BETWEEN NON"U,S, RESIDENTS,
AGAINST THE REMAINING
$300 BILLION THAT ARE A TRUE CLAIM ON U.S. RESIDENTS, WE HAVE
LARGER CLAIMS ON THE REST OF THE WORLD ~
OVER $380 BILLION,
THOUGH SOME ARE LESS LIQUID.
THE U.S. MUST BRING INFLATION UNDER CONTROL THROUGH THE
WAYS I HAVE INDICATED AND INTENSIFY THE TREND TOWARD ELIMINATING
RAPIDLY THE CURRENT ACCOUNT BALANCE OF PAYMENTS DEFICIT.
As WE
DO SO, AND AS FOREIGN DEMAND FOR CREDIT REVIVES WITH FASTER
FOREIGN ECONOMIC GROWTH, THE CURRENT TALK ABROAD OF "UNWANTED
DOLLARS" WILL DISAPPEAR ONCE AGAIN, AS IT HAS ON MANY OCCASIONS
BEFORE.
THE U.S. ECONOMY IS THE STRONGEST IN THE WORLD, AND
THE PERCEPTION OF THAT REALITY WILL NOT BE CLOUDED FOR MUCH
LONGER BY OUR TEMPORARY PROBLEMS.
OUR POLICY OBJECTIVES WILL
- 13 -
BE PRUDENT AND BALANCED ~ BUT OUR IMPLEMENTATION WILL BE
AS VIGOROUS AND BOLD AS THE SITUATION MAY REQUIRE,
00 00 00
DEPARTMENT OF THE TREASURY
Office of the Secretary
EFFECTS OF IMPORTED ARTICLES
ON THE NATIONAL SECURITY
Publication of Report of Investigation to
Determine Effects on the National Security of
Metal Fastener Imports
November 1, 1978
Notice is hereby given pursuant to Section 232 of the Trade
Expansion Act of 1962, as amended, 19 U.S.C. Section 1862, and
31 CFR Section 9.9, of the publication of a report by the Secretary
of the Treasury to the President of an investigation under Section
232 of the Trade Expansion Act of 1962. At the President's direction,
the Secretary of the Treasury undertook this investigation to determine the effects on the national security of imports of iron and
steel lag screws and bolts, bolts (except mine-roof bolts), nuts
and large screws specified in TSUS items 6k6.k8, 6k6.5k, 6I+6.56 and
6^.63 (referred to collectively as "screws, bolts and nuts"). The
report, dated October 18, 1978, states that, as a result of the
investigation, the Secretary has concluded that screws, bolts, and
nuts are not being imported in such quantities or under such circumstances as to threaten to impair the national security. Accordingly,
the report recommends that the President take no action under Section
232 of the Trade Expansion Act of I962 to limit imports of screws,
bolts and nuts. The report further states that its conclusion in no
way pre-judges the merits of the International Trade Commission (ITC)
investigation of imports of screws, bolts and nuts under Section 201
B-1250
- 2 (the escape clause) of the Trade Act of 197^ in which a determination
was announced by the ITC on October 26, 1978.
The Secretary's report to the President was based on an investigation of the effect of screws, bolts and nuts imports on the national
security conducted by the General Counsel of the Treasury Department.
The Secretary's report to the President and the General Counsel's
report of his investigation are published herein and copies thereof
are available through the Office of Public Affairs, Department of the
Treasury, by contacting the individual listed at the conclusion of
this notice. Documents received from other federal agencies and the
public in the course of this investigation are available for public
reading at the Library of the Treasury Department, Room 5030, Main
Treasury, 15th and Pennsylvania Avenue, N.W.. Washington, D.C.
The principal authors of these reports were Robert H. Mundheim.
C-ary C. Hufbauer, Clyde C. Crosswhite, Leonard E. Santos, Richard B.
Self, and Russell L. Munk of the Office of the Secretary of the
Treasury. Contact John P. Plum, 202-566-2615.
THE SECRETARY OF THE TREASURY
WASHINGTON 20220
OCT 18 1978
MEMORANDUM TO THE PRESIDENT
SUBJECT:
Report on Section 232 Investigation of Metal
Fastener Imports
On February 10, 1978, you directed me to investigate,
pursuant to Section 232 of the Trade Expansion Act of 1962,
whether screws, bolts and nuts* imports are entering the
United States in such quantities or under such circumstances
as to threaten to impair the national security. I have
completed that investigation and have concluded that imports
of screws, bolts and nuts do not pose such a threat.
In 1975, the metal fastener industry first petitioned
the International Trade Commission (ITC) for escape clause
relief but in that case the ITC reached a negative determination on injury. In 1977, the ITC opened a second escape
clause investigation, and in December 1977, the ITC found
injury and recommended tariff relief. You rejected that
recommendation on the grounds that it would be inflationary
and not in the public interest. On August 3, 1978, the ITC
opened a third escape clause investigation which is now in
progress. I understand that the ITC will announce its
decision on October 26, 1978. My conclusion that imports of
screws, bolts and nuts do not pose a threat to the national
security in no way pre-judges the merits of the current
escape clause investigation.
*
The term "screws, bolts and nuts" as used in this report
means iron and steel lag screws and bolts, bolts (except
mine-roof bolts), nuts and large screws specified in TSUS
items 646.48, 646.54, 646.56 and 646.63.
-2I have been guided in the conduct of this investigation
by the central legal standard of Section 232: do imports of
screws, bolts and nuts threaten to impair the national security. Congress did not intend that Section 232 become an
alternative method to Section 201 of the Trade Act of 1974 of
achieving relief for industries which believe themselves
injured. The health of a particular industry affected by the
imported article is not necessarily determinative of the
existence of a national security threat.
Although there is clear evidence of increasing screws,
bolts and nuts imports into the U.S. and a concomitant
decline in U.S. employment in that segment of the metal
fastener industry, the evidence does not lead to the conclusion that our increasing reliance on imports threatens to
impair the national security.
The basis of this conclusion is that:
- The only scenario for which a threat to the
national security has been articulated is based on
World War II - type of conflict. Although wartime
scenarios are not within our expertise, we think
the likelihood of this scenario is debatable
- Assuming a World War II - type of scenario,
there is insufficient evidence to document the
inadequacy of screws, bolts and nuts production to
meet U.S. needs
- The available data does not distinguish between
"specials" and "standards" fastener wartime
requirements; this distinction is important in
view of the fact that the United States currently
enjoys a trade surplus in specials screws, bolts
and nuts and ship, military vehicle and automotive
fasteners are practically all specials; there is no
adequate data on exclusively military needs for
screws, bolts and nuts in case of a war
- The national security threat articulated for a
wartime scenario was based on the questionable
assumptions that:
civilian needs for screws, bolts and nuts would
increase;
-3-
domestic productive capacity could not be
significantly expanded; and
foreign supplies would be seriously interrupted.
Finally, the remedies available to limit imports of
screws, bolts and nuts are very expensive. Direct import
restraints or the stockpiling of either screws, bolts and
nuts or their production equipment would have a significant
inflationary impact on the U.S. economy. Our finding is
buttressed by our weighing the inflationary costs implicit in
available remedies against the likelihood of the wartime
scenario in which a national security threat is said to
arise.
FINDINGS
I find that screws, bolts and nuts are not being imported in such quantities or under such circumstances as to
threaten to impair the national security.
RECOMMENDATION
I, therefore, recommend that no action be taken under
Section 232 of the Trade Expansion Act to reduce United
States imports of screws, bolts and nuts.
(A) fUchdJ^^^L
W. Michael Blumenthal
REPORT OF INVESTIGATION UNDER SECTION 232
OF THE TRADE EXPANSION ACT,
19 U.S.C. SECTION 1862, AS AMENDED
I.
INTRODUCTION
Section 232 (b) of the Trad e Expansion Act of 1962
authorizes th e President to take action to reduce
imports of ir on and steel lag sc rews and bolts, bolts
(except mine- roof bolts), nuts a nd large screws
specified in TSUS items 646.48, 646.54, 646.56 and
646.63 (herei
bolts and nut nafter referred to collectively as "screws,
that screws, s") if the Secretar y of the Treasury finds
United States bolts and nuts are being imported into the
stances as to in such quantities or under such circumthreaten to impair the national security.
In 1975, the metal fastener industry first
petitioned the International Trade Commission (ITC) for
escape clause relief but in that case the ITC reached a
negative determination on injury. In 1977, the ITC
opened a second escape clause investigation, and in
December 1977, the ITC found injury and recommended
tariff relief. The recommendation was rejected by the
President on the grounds that it would be inflationary
and not in the public interest. The directive for the
current national security investigation was issued
subsequent to that decision. On August 3, 1978, the ITC
opened a third escape clause investigation which is now
in progress. The ITC plans to announce its decision on
October 26, 1978.
This investigation was initiated by the Secretary
of the Treasury on February 10, 1978 pursuant to the
President's directive to determine whether imports of
screws, bolts and nuts threaten to impair the national
security. In keeping with the terms of the statute,
this investigation has focused on whether imports of
screws, bolts and nuts pose such a national security
threat rather than whether such imports have affected
the health of the metal fastener industry in the United
States. While the latter inquiry is not necessarily
irrelevant to a national security finding, we have been
mindful of the fact that Congress did not intend that
Section 232 become an alternative to Section 201 of the
Trade Act of 1974 as a means of providing relief to
industries which believe themselves injured.
-2-
In summary, the conclusion of this report is that
screws, bolts and nuts are not being imported in such
quantities and under such circumstances as to threaten
to impair the national security. This conclusion is
based on the absence of persuasive evidence indicating
that the nation's requirements for screws, bolts and
nuts cannot be satisfied in probable emergency scenarios
and on the failure of available evidence to identify
with reasonable precision the need for and the capacity
to produce the principal categories of screws, bolts and
nuts in an emergency.
In the conduct of this investigation, the Treasury
Department has requested and received data from the
Federal Preparedness Agency (FPA), and the Departments
of Defense, Commerce, and Labor. In response to an
invitation for public comments published in the Federal
Register on March 1, 1978, the Fastener Institute of
Japan, the Japan Machinery Exporters' Association, and
the United States Fastener Manufacturing Group submitted
comments to the Treasury Department concerning the
investigation. Several interagency meetings were held
to discuss the case and consider the application of
Section 232 to imports of screws, bolts and nuts.
Agencies represented at these meetings included the
State, Treasury, Defense, Commerce, and Labor
Departments as well as the Council on Wage and Price
Stability and the FPA.
II. STATUS OF METAL FASTENER INDUSTRY AND IMPORTS
Screws, bolts and nuts are basic to the United
States economy. The two broad categories of screws,
bolts and nuts are "standards" and "specials." There
are about five hundred thousand sizes, shapes,
strengths, and finishes of standards and 1.5 million
specials. Standards screws, bolts and nuts are the
common fasteners for multi-purpose uses; practically all
imported screws, bolts and nuts are standards.
Specials screws, bolts and nuts are made to
specification. Practically all ship, military vehicle
and automotive metal fasteners are specials. The United
States metal fastener industry now concentrates on
producing specials and exports substantial quantities
falling in this category.
During the first six months of 1978, the United
States production of screws, bolts and nuts for domestic
use and export was approximately 67% of the total amount
of screws, bolts and nuts consumed in the United States.
-3During this period, the United States imported
approximately $181 million of screws, bolts and nuts and
exported approximately $60 million of these items. The
United States screws, bolts and nuts imports (primarily
of standards) have more than doubled in the past nine
years. Of this amount, Japan provides approximately 60%
to 70%. According to the Commerce Department, idle
production machinery accounts for 53.3% (by pounds) of
the total 1978 U.S. production capacity for screws,
bolts and nuts. Bolts/screws production capacity in the
United States is now idle. Workers employed in the
production of screws, bolts and nuts have declined by
about 44% over the past nine years. Increasingly, U.S.
producers have changed their production lines to
manufacture specials screws, bolts and nuts.
III. AVAILABLE EVIDENCE FAILS TO ESTABLISH THAT IMPORTS
OF SCREWS, BOLTS AND NUTS POSE A THREAT TO THE
NATIONAL SECURITY OF THE UNITED STATES.
There is no suggestion that imports of screws,
bolts and nuts threaten to impair the national security
under current conditions. Screws, nuts and bolts are
not in short supply in the United States. Japan and the
other suppliers of these items have shown themselves to
be dependable sources of supply. While imports of
screws, bolts and nuts do contribute to the U.S. trade
deficit, they are not a major factor in that deficit.
Moreover, such imports do not appear to create the
impression of U.S. vulnerability in the eyes of other
countries or in the foreign exchange markets.
A study by staff members of the Economic
Preparedness Division of FPA carried out in December
1978 and April 1978 has tentatively concluded that
despite current import levels, the United States could
satisfy its "emergency requirements" for screws, bolts
and nuts, except in a "less favorable" case scenario in
which a conventional war causes a substantial, and at
times total, cut-off of supplies of screws, bolts and
nuts from foreign sources other than Canada. We are not
convinced by the assumptions and analysis leading to
this latter conclusion. In December 1977, the FPA staff
issued its study of metal fasteners as the first of a
series of reports examining requirements for, and
supplies of, selected essential industrial products in a
national emergency. The report examines recent market
trends, projects future domestic supply, estimates war
time supply and compares these elements with "essential
emergency requirements." The study was prepared as a
possible basis for military stockpiling, and was not
-4geared for the particular objectives of a Section 232
investigation. In April 1978, the FPA staff prepared an
addendum to the December 1977 study to the original
study focussing on only screws, bolts, and nuts rather
than on all metal fasteners.
Although the FPA staff study to some degree
distinguishes between screws, bolts and nuts used
directly for military hardware and those which are used
for non defense essential requirements, the study
grouped both categories into one for purposes of
determining total wartime requirements. In the absence
of a direct computation of defense needs in this sector,
this failure to distinguish between the kinds and
amounts of screws, bolts and nuts used directly for
military hardware and the kinds and amounts of screws,
bolts and nuts used for other purposes is crucial. Had
the distinction been made for purposes of gauging war
time requirements, the study might have found that the
United States has sufficient capacity for its emergency
(military and non-defense essential) needs even in a
"less favorable" scenario since the United States now
has a trade surplus with respect to specials screws,
bolts and nuts which are the predominant variety used
for ships, tanks, and other military equipment. (Metal
fasteners of the types used in aircraft and missiles are
not included in screws, bolts and nuts which are the
subject of this study.)
The World War II-type of conventional war, "less
favorable" scenario appears implausible. But even if
the plausibility of this scenario is conceded, the
study's assessment of emergency requirements is
unconvincing. In its analysis of this scenario the
study concluded that U.S. domestic production capacity
of screws, bolts and nuts could not satisfy "emergency
requirements" for both direct military amplications and
the economy as a whole. The "emergency requirements"
projected in the study for a mobilization beginning in
1977 amount to 57% more than actual 1977 U.S. domestic
consumption. This projection includes a 24% increase
(from actual levels) in non-defense needs during the
mobilization year even though the civilian economy would
presumably be running on an austerity basis. Based on
this projection of "emergency requirements", the study
posits that serious shortages could only be avoided if
imports of other countries were somehow readily
available; the study regards stockpiling alternatives as
impractical.
-5-
At least one failing of the FPA staff's projection
of "essential emergency requirements" in time of a
conventional war is the imprecision of the data
available for gauging the nation's needs in such
circumstances. Existing data indicate that the United
States currently enjoys a trade surplus in specials;
this surplus would be available to help cover wartime
needs. There are no projections available indicating
what the military need for standards would be during a
time of war. Neither are there any available
projections indicating the shortage of standards which
may be created in essential civilian industries.
Implicit in the FPA staff's "less favorable"
conventional war scenario is the assumption that there
will be substantial, and at times total, cut off of
supplies of screws, bolts and nuts from foreign sources
except Canada. Yet during the nation's most recent "war1
experience, the Vietnamese Conflict, imports of screws,
bolts and nuts were not interrupted. Furthermore,
collective security arrangements are now being finalized
to afford the United States the support of other
countries for defense equipment and supplies.
Also present levels of production of screws, bolts
and nuts could be significantly and quickly increased in
the event that imports of these goods from countries
other than Canada were to be decreased or stopped
altogether during a war. According to the Commerce
Department, idle equipment capable of producing (in
terms of pounds) the same amount of screws, bolts and
nuts as are now being domestically produced could be put
back into production in 3 to 18 months, thus doubling
present production levels. Equipment now producing
screws, bolts and nuts could be used for more hours each
week, with corresponding increases in production.
Preliminary information provided by the Labor Department
indicates that operators for machines which produce•-••
screws, bolts and nuts could, in many instances, be
trained rapidly or obtained from a number of other
manufacturing industries in an emergency.
The magnitude of the conventional war-related needs
projected in the FPA staff study is highlighted by the
comments submitted to the Treasury Department by the
United States Fastener Manufacturing Group. The group
estimates that total United States screws, bolts and
nuts production facilities operating at full capacity
could produce only about half of the "emergency
requirements" projected in the FPA.staff study...
Accordingly, it has recommended the'imposition of
-6restraints on imports (except from Canada) so that the
industry can, over a period of three years, build
sufficient capacity to meet all domestic peacetime
requirements. However, even if the United States
Government were to implement such restraints, capacity
would be provided to meet only one half of the
conventional war requirements projected by the FPA
staff. For the balance of those requirements, the Group
suggests that supply might be augmented under other
statutory authority, such as the Defense Production Act,
which authorizes stockpiling of finished goods and
production equipment.
There are important economic costs inherent in
these alternatives. Although cost calculations are
tenuous, an "adequate" stockpile of screws, bolts and
nuts satisfying standards established by the FPA would
involve a one-time budget cost of at least 2.9 billion
dollars. Moreover, given the large variety of screws,
bolts and nuts and the impossiblity of projecting future
requirements for a given type of fastener, as well as
the fact that screws, bolts and nuts are susceptible to
deterioration if stored for substantial periods of time,
it would appear uneconomic to spend large amounts of
money on stockpiles of these items. The alternative of
stockpiling production equipment probably would result
in a one-time budget cost of at least $1.8 billion.
Import restraints sufficiently restrictive to replace
all peace time imports with domestic production would
increase cost to U.S. consumers of screws, bolts and
nuts by more than $500 million each year. The further
need ultimately to provide comparable remedies for other
industries which are similarly situated could also
aggravate the inflationary impact of import restrictions. Under present circumstances the inflationary
impact associated with such increased cost could itself
pose a threat to the national security.
Adverse economic consequences may also flow from
the possible reactions of our trading partner to such
restrictions on imports of screws, bolts and nuts. Any
decision to impose import restrictions on screws, bolts
and nuts for national security reasons would have to
take into account the possible adverse action of our
trading partners. For example, it may be possible under
GATT for them to withdraw concessions equivalent to
those the United States would be imposing on imports of
screws, bolts and nuts.
IV.
FINDINGS AND RECOMMENDATIONS
Findings
As a result of this investigation, I recommend that
the following determinations and recommendations be made
by the Secretary of the Treasury and forwarded to the
President: the investigation has established that there
is insufficient probative evidence indicating that
imports of screws, bolts and nuts threaten to impair the
national secur ity.
Recommendations
I therefore recommend that no action be taken
pursuant to Section 232 of the Trade Expansion Act of
1962 to reduce the United States imports of screws,
bolts and nuts.
iobert K. Mundheim
General Counsel
Department of the Treasury
OCT i 8 1978
FOR IMMEDIATE RELEASE
November 7, 1978
HARRY L. GUTMAN IS APPOINTED
DEPUTY TAX LEGISLATIVE COUNSEL AT TREASURY
Secretary of the Treasury W. Michael Blumenthal today
announced the appointment of Harry L. Gutman of Boston,
Massachusetts, as Deputy Tax Legislative Counsel.
Mr. Gutman, 36, has been attorney-advisor to the Tax
Legislative Counsel in the Treasury Department since July
1977. Before joining Treasury, he was an associate at, and
then partner in, the Boston law firm of Hill & Barlow. Mr.
Gutman was also an instructor at Boston College Law School
and a clinical associate at the Harvard Law School.
As Deputy Tax Legislative Counsel, Mr. Gutman will
assist the Tax Legislative Counsel in heading a staff of
lawyers and accountants who provide assistance and advice
to the Assistant Secretary of the Treasury for Tax Policy.
The Office of Tax Legislative Counsel participates in the
preparation of Treasury Department recommendations for
Federal tax legislation and also helps develop and review
tax regulations and rulings.
Mr. Gutman was graduated cum laude from Princeton
University with the A.B. degree in 1963. He received a
B.A. degree in Jurisprudence from University College, Oxford,
England, in 1965 and the LL.B. degree cum laude from Harvard
Law School in 1968. He has published several articles and
is co-author of "Federal Wealth Transfer Taxation; Cases and
Materials" (Foundation Press, 1977), and "Tax Aspects of
Divorce and Separation" (Tax Management, 1975). He is a
member of the Tax Committees of the American, Massachusetts,
and Boston Bar Associations.
o
0
o
B-1251
FOR RELEASE AT 4:00 P.M.
November 7, 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 November 16, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,706 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
August 17, 1978,
and to mature February 15, 1979 (CUSIP No.
912793 W8 5 ) , originally issued in the amount of $3,403 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,400 million to be dated
November 16, 1978, and to mature May 17, 1979
(CUSIP No.
912793 Y5 9 ) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing November 16, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,340
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, November 13, 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.
B-1263
-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 November 16, 1978, in cash or
ether immediately available funds or in Treasury bills maturing
November 16, 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
November 8, 1978
Contact:
John P. Plum
202/566-2615
TREASURY WILL TERMINATE ISSUE OF
$100,000 DENOMINATION TREASURY BILL
The Treasury Department today announced that Treasury
bills in physical form will not be available on new offerings
after December 31, 1978.
Under Section 350.17 of Department Circular, Public Debt
Series No. 26-76, provision was made for the issue of $100,000
denomination bills through December 31, 1978, to investors
legally required to hold securities in physical form. The
grace period was established to provide an opportunity for
appropriate changes in any Federal, State, municipal or local
laws or regulations that precluded certain types of investors
from holding or pledging securities in book-entry form.
A relatively small number of definitive bills have been
issued to institutional investors which were able to establish
their entitlement to physical securities. However, there have
been no developments that would warrant a continuation of the
offering of Treasury bills in definitive form beyond the date
established in the regulations. All new Treasury bills offered
for sale after December 31, 1978, will be available only in
book-entry form.
o 0 o
B-1253
FOR IMMEDIATE RELEASE
November 9, 1978
Contact:
John P. Plum
202/566-2615
TREASURY STARTS NEW FOREIGN
PORTFOLIO INVESTMENT SURVEY
The Department of the Treasury today initiated a new
survey of foreign portfolio investments in securities of
United States business and financial enterprises and Federal,
State and local governments as of the end of calendar year
1978.
The survey is being carried out under mandate of the
International Investment Survey Act of 1976, which requires
a review of foreign portfolio holdings in U.S. securities at
least once every five years. A similar survey was conducted
in 1975 for the year ending December 31, 1974.
The current survey reduces the reporting burden on U.S.
business by limiting its coverage to long-term marketable
securities. The size of firms that must report foreign
holdings of their securities has been raised to $50 million
in total consolidated assets for non-banking enterprises,
and to $100 million for banking and financial institutions
from $20 million and $5 0 million respectively. However, any
firm falling below these asset levels but with assets in
excess of $2 million is required to report if there is
evidence of foreign ownership or it is notified by the
Treasury Department there is such ownership of its securities.
A report is required also from any United States entity
acting as a holder of record of domestic securities on
behalf of foreign persons (e.g. nominees, fiduciaries, etc.),
unless the combined market value of a holder's investments
in domestic securities for all foreign customers is $50,000
or less, as of December 31, 1978.
B-1254
(over)
- 2 -
The Act provides that information collected from the
reports will be published only in aggregate form to prevent
disclosure of data supplied by individual respondents.
information will be used for analytical and statistical
purposes with access to the information restricted to persons
designated by the President to perform functions under the
Act. Deadline for filing completed reports is March 31, 1979.
Final rules and regulations for the survey were published
in the Federal Register on November 6, 1978. Copies of the
reporting forms and instructions are being mailed directly to
some 10,000 businesses in the United States. Business enterprises that are required to report but do not receive forms
by December 8, 1978, should request forms and instructions
from the Treasury Department, Foreign Portfolio Investment
Survey, Office of the Assistant Secretary for Economic Policy.
o 0o
UpartmentoftheTREASURY
ELEPHONE 560*2041
K
FOR IMMEDIATE RELEASE
November 8, 1978
RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $3,587 million of 52-week Treasury"bills,to be dated
November 14, 1978, and to mature November 13, 1979, were accepted at the
Federal Reserve Banks and Treasury today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Price
High
Low
Average -
Discount Rate
90.602 9.295%
90.556
9.340%
90.584
9.313%
Investment Rate
(Equivalent Coupon-Issue Yield)
10.14%
10.20%
10.17%
Tenders at the low price were allotted 35%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Accepted
Received
$ 38,460,000
5,045,635,000
59,015,000
105,930,000
28,040,000
23,130,000
413,365,000
o ti
$ 28,460,000
2,859,885,000
58,515,000
57,930,000
19,040,000
23,130,000
323,565,000
r r> r r\nr\
52-WEEK BILL RATES
DATE: November 8, 1978
Treasury
TOTAL
HIGHEST SINCE
The $3,587 mil] tf ^ ^ %
noncompetitive tendj > ^ ^ ^
/a7U
1
7
Federal Reserve B a n V ^ ^ ^ ^ ^
'
international monet LOWEST SINCE
An additional
Reserve Banks as a<
for new cash.
B-1255
LAST MONTH
Uai%
TODAY
9,3/3 %
- 2 -
The Act provides that information collected from the
reports will be published only in aggregate form to prevent
disclosure of data supplied by individual respondents.
Information will be used for analytical and statistical
purposes with access to the information restricted to persons
designated by the President to perform functions under the
Act. Deadline for filing completed reports is March 31, 1979.
Final rules and regulations for the survey were published
in the Federal Register on November 6, 1978. Copies of the
reporting forms and instructions are being mailed directly to
some 10,000 businesses in the United States. Business enterprises that are required to report but do not receive forms
by December 8, 1978, should request forms and instructions
from the Treasury Department, Foreign Portfolio Investment
Survey, Office of the Assistant Secretary for Economic Policy.
o 0o
department of theTREASURY
tHINGT0N,D.C. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
November 8, 1978
RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $3,587 million of 52-week Treasury bills^to be dated
November 14, 1978, and to mature November 13, 1979, were accepted at the
Federal Reserve Banks and Treasury today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Price
High
Low
Average -
Discount Rate
90.602 9.295%
90.556
9.340%
90.584
9.313%
Investment Rate
(Equivalent Coupon-Issue Yield)
10.14%
10.20%
10.17%
Tenders at the low price were allotted 35%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Received
Accepted
$ 28,460,000
2,859,885,000
58,515,000
57,930,000
19,040,000
23,130,000
323,565,000
12,395,000
22,960,000
8,810,000
6,575,000
160,265,000
Treasury
$ 38,460,000
5,045,635,000
59,015,000
105,930,000
28,040,000
23,130,000
413,365,000
36,695,000
22,970,000
15,810,000
6,575,000
329,265,000
5,730,000
TOTAL
$6,130,620,000
$3,587,260,000
5,730,000
The $3,587 million of accepted tenders includes $109 million of
noncompetitive tenders from the public and $1,573 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 $306 million of the bills will be issued to Federal
Reserve Banks as agents of foreign and international monetary authorities
for new cash.
B-1255
FOR IMMEDIATE RELEASE
November 9, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT REQUIRES PAYMENT
OF INTEREST ON BLOCKED ACCOUNTS
The Treasury Department today announced the
publication of proposed rules requiring that bank
deposits and certain other funds blocked under its
foreign assets control regulations be held in interestbearing accounts.
The new requirement affects blocked accounts in
the United States of the People's Republic of China,
Viet-Nam, Cambodia, North Korea, Cuba, and certain
limited categories of assets that have been in a blocked
status since World War II.
The purpose of the amendments is to preserve and
enhance the value of blocked assets, which are being
held pending possible negotiations and settlement of
claims with the countries involved.
These amendments were prepared in consultation with
the Department of State. They are an administrative
measure applying to all blocked assets and do not represent any change in U. S. foreign policy.
The proposed changes, to be published in the Federal
Register on November 14, would amend the Foreign Assets
Control Regulations, the Cuban Assets Control Regulations,
and the Foreign Funds Control Regulations. Affected
parties will have 30 days in which to submit comments on
the proposed regulations. A proposed reporting form
applicable to blocked accounts subject to the regulations
will also be published.
o
B-1256
0
o
FOR IMMEDIATE RELEASE
November 9, 1978
Contact:
Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES FIRST QUARTER
1979 TRIGGER PRICE ADJUSTMENT
The Treasury Department today announced an increase
of 7 percent in trigger price bases and extras for the
major steel mill products covered by the Trigger Price
Mechanism (TPM). The new resulting prices will apply to
shipments exported on or after January 1, 19 79.
Trigger prices are based on the full cost of production
of the world's most efficient group of steel producers, the
Japanese steel companies. Each quarter the Department updates those estimated costs to reflect changes in, for
example, exchange rates, raw material costs, and labor usage
rates. The TPM was designed to enable Treasury to rapidly
and effectively discharge its responsibilities under the
Antidumping Act.
The rapid appreciation of the yen in the past quarter
results in a 10 percent increase in the Japanese cost of
production. The Steel Task Force Report of December 19 77
proposing the TPM contemplated that Treasury would have
flexibility to adjust quarterly price changes to smooth cut
sharp fluctuations. This flexibility band was used to moderate the First Quarter trigger price increases which the
TPM would otherwise have required.
Today's upward revision in estimated production costs
for the major Japanese integrated producers reflects a
yen/dollar exchange rate of 187 (the average for the period
September 4 through November 3) rather than 215 (the rate
used to calculate Fourth Quarter trigger prices). No other
adjustments of cost components from the Fourth Quarter
trigger prices were necessary.
Application of the 187 rate to the various cost components in Japanese steel production results in an average
cost of $362.51 per net ton of finished product, or a 10.0
percent cost increase over the Fourth Quarter. Only 7
percent of this increase is being reflected in trigger
prices for products made by the major integrated producers.
B-1257
(MORE)
- 2 -
For products produced by the electric furnace producers
(who have a larger proportion of yen-denominated costs),
the First Quarter trigger base prices and extras will be increased by 9.8 percent. The actual increase for these products
would be 12.8 percent if the 187 yen rate were fully applied,
but the Department is reducing the exchange rate effect by
3 percentage points — again using its discretion within the
flexibility band.
The Department also announced today a number of new
trigger prices for pipe and tube products and wire products,
among others. In addition, a number of modifications and
corrections to previously published trigger prices have been
made.
o
0
o
DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
NOTICE
Imported Steel Mill Products Trigger Price Mechanism:
First Quarter Revision of Trigger Prices
The Department of Treasury hereby revises trigger prices
for imported steel mill products for the First Quarter of
1979. These trigger prices are used by the Treasury Department to monitor imports of steel mill products for the possible
initiation of antidumping complaints under the Antidumping
Act. Each quarter the Treasury Department revises trigger
prices to reflect changes in the cost of Japanese steel
production, including such components as the dollar-yen
exchange rate, raw material costs, and labor usage rates.
First Quarter trigger base prices and extras (effective
for all shipments exported on or after January 1, 1979) are
adjusted upward by 7 percent for products produced by the major
Japanese integrated steel producers and by 9.8 percent for
products produced by the electric furnace producers. The
latter group of products accounts for under 10 percent of
steel imports.
The adjustments announced here are made to account for
a portion of the yen's appreciation from the 215 yen/dollar
exchange rate (average for May 15 through July 14, used to
establish Fourth Quarter trigger prices) to a 187 yen/dollar
rate (average for September 4- through November 3).
The Department is utilizing 3 percent of the flexibility
band built into the TPM to smooth the exceptionally sharp
yen/dollar exchange rate experienced in recent months. Such
use of the flexibility band was contemplated by the Steel
Task Force Report of December 6, 1977. No other adjustments
from Fourth Quarter trigger prices were necessary.
CALCULATION OF FIRST QUARTER REVISIONS
To calculate the First Quarter estimates of Japanese cost
of production, a yen exchange rate of 187 ¥/$ was applied to
appropriate components of the Fourth Quarter cost estimates.
Table I below shows the resulting average cost per ton of
finished products for integrated producers.
- 2 Tables II-A through II-C show the revised costs for
electric furnace producers. The same 187 ¥/$ exchange rate is
applied as is applied to the integrated producers' costs.
However, the resulting increase in electric furnace producer
costs is greater because more of those costs are yen-denominated
and hence are more sensitive to the yen's appreciation. The
products produced by electric furnace producers are:
Group A Products: Equal angles; unequal angles;
channels; and I-beams;
Group B Products: Hot rolled strip from bar mills;
merchant quality hot bars; hot rolled round bars,
squares, and round cornered squares; and bar size
channels;
Group C Products: Concrete reinforcing bars, plain
and deformed.
The cost calculations indicate that when valued in U.S.
dollars, the production costs of Japan's integrated steel
producers have increased by approximately 10.0 percent, and
those of electric furnace producers have increased by 12.8
percent for Group A and Group B products, and by 12.7 percent
for Group C products.*/
The resulting base prices for the First Quarter for
each product covered by the TPM are shown on Table III.
Extras accompanying the base product must also be increased
by the percentage applicable to the base price of that
product. Where Fourth Quarter extras have been increased
by a stated percentage over Third Quarter extras, the
percentage increase in extras announced today must be applied
on top of the previous increase. For example, an extra of
*/
— F o r administrative ease, products of all three groups of
electric furnace producers are being increased by the same
percentage, since the calculations come within 0.1 percent
of being identical.
Table
1
First Quarter 197 9
Japanese Costs of Production Estimates: Integrated Steel Producers
(U.S. $/Metric ton of finished product)
Revised
Original (240¥/$)
Fourth Quarter '78
(215¥/$)
First Quarter
(187¥/$)V
Basic Raw Materials
$113.17
$116.20
$116.20
Other Raw Materials
63.66
71.06
81.70
Labor
73.14
85.02
97.75
Other Expenses
26.48
29.56
33.99
Depreci ation
21 .49
23.99
27.58
Interest
21 .30
23.78
27.34
Profit -
22.11
24.14
26.37
2/
Yield Credit -
(9.81)
(10.57)
(11.34)
Total $/MT
$331.54
$363.12
$399.59
Total $/NT
$300.76
$329.42
$362.51
'79
-^Profit = .08 (Raw materials + labor + other expenses)
.865
labor
- Y i e l d Credit =(.827 - 1) (Raw materials +
2 )
—The new yen rate, 187 ¥/$, is applied to that portion of the average production costs denominated in yen (e.g., labor),as distinguished from the portion denominated in dollars (e.g., coal)
Table IIA
First Quarter 1979
Japanese Electric Furnace Costs of Production Estimated for Group A Products"
2/
(U.S. $/Metric ton of Finished Product)
Original
(240¥/$)
4th Quarter '78
(215¥/$)
1st Quarter '79
(187¥/$)1 /
Basic raw materials
$115.87
$146.61
$165.76
Other raw materials
31 .32
33.10
35.76
Labor
24.52
28.17
32.43
Other expenses
10.06
11.23
12.91
Depreciation
5.47
6.11
7.02
Interest
6.14
6.86
7 .89
Profit —
15.32
17.52
19.75
Scrap Credit
(1.94)
(2.59)
(2.98)
$206.76
$247.01
$278.54
$187.62
$224.09
$252.69
Total
$/MT
Total $/NT
— P r o f i t = .08 (Raw materials + labor + other expenses)
2/
— G r o u p A products include equal angles, unequal angles, channels, and I-beams.
3/
— The new yen rate, 187 ¥/$, is applied to that portion of the average production costs denominated in yen (e.g., labor), as distinguished from the portion denominated in dollars (e.g., coal)
Table IIB
First Quarter 1979
2/
Japanese Electric Furnace Costs of Production Estimates for Group B Products—
(U.S. $/Metric ton of finished product)
Original
(240¥/$)
4th Quarter '78
(215¥/$)
1st Quarter
(187¥)V
Basic Raw Materials
$122.59
$157.62
$178.22
Other Raw Materials
37.00
39.10
42.24
Labor
27.94
32.10
36.92
Other Expenses
12.28
13.71
15.76
Depreciation
6.96
7.77
8.93
Interest
8.78
9.80
11.27
Profit -^
17.07
19.40
21 .85
Scrap Credit
(2.14)
(2.92)
(3.36)
$230.48
$276.56
$311.83
$209.09
$250.90
$282.89
Total
$/MT
Total $/NT
'79
— P r o f i t = .08 (Raw Materials + Labor + Other Expenses)
2/
— G r o u p B products include hot rolled strip from bar mills; merchant quality hot bars; hot rolled
round bars, squares, and round cornered squares; and bar size channels.
3/
— T h e new yen rate, 187 ¥/$, is applied to that portion of the average production costs denominated in yen (e.g., labor), as distinguished from the portion denominated in dollars (e.g., coal)
Table
IIC
First Quarter 1979 Japanese Electric Furnace
Cost of Production Estimates for Group C Products—7
(U.S. $/Metric Ton of Finished Product)
Original
(240 ¥/$)
4th Quarter '78
(215 ¥/$)
1st Quarter '79
(187 ¥ / $ ) ^ '
Basic Raw Materials
$114.51
$145.28
$164.30
Other Raw Materials
33.82
35.74
38.61
Labor
19.55
22.48
25.09
Other Expenses
12.68
14.15
16.27
Depreciation
5.60
6.25
7.19
Interest
5.63
6.28
7.23
Profit-^
15.18
17.41
19.54.
Scrap Credit
(2.00)
(2.56)
(2.94)
$204.97
$245.03
$276.11
$186.00
$222.29
$250.48
Total
$/MT
Total $/NT
I/p
Profit = .08 (Raw Materials + Labor + Other Expenses)
2/ Group C products include concrete reinforcing bars, plain and deformed.
3/
— T h e new yen rate, 187 ¥/$, is applied to that portion of the average production costs denominated in yen (e.g., labor), as distinguished from the portion denominated in dollars (e.g., coaL )
Table III
PRODUCT BASE PRICES FOR SHIPMENTS EXPORTED DURING FIRST QUARTER 1979
(All Base Prices Increased
7% Unless Otherwise Noted)
*/
Page2-1
2-2
2-3
2-5
2-7
2-9
2-13
2-15
3-1
3-5
3-7
3-9
3-11
4-1
5-1
6-1
6-3
6-5
8-1
9-1
Product
Wire Rods Commercial Quality AISI 1008 5.5 mm
Wire Rods Welding Quality AISI 1008
Wire Rods High Carbon AISI 1065 5.5 mm
Wire Rods Cold Heading Quality AISI 1038
12.7 mm
Wire Rods Cold Finished Bar Quality
Mo Alloy Steel Wire Rod
Spheroidized Annealed Mo
AISI 4037 5.5 mm to 13 mm
Spheroidized Annealed Si-Mn-Cr High Carbon
Steel Wire Rod AISI 9254 5.5 mm to 13 mm
Spheroidized Annealed High Carbon Cr Steel
Wire Rod AISI 52100 5.5 mm to 13 mm
Wide Flange Beams and Bearing Piling ASTM A-36
12" x 12"
Standard Carbon Steel Channels ASTM A-36
Unequal Leg Carbon Steel Angles ASTM A-36
Equal Leg Carbon Steel Angles ASTM A-36
Standard Carbon Steel " I " Beams ASTM A-36
Sheet Piling ASTM A-328 Arch Web PDA-27
Steel Plates ASTM A-36 1/2" x 80" x 240"
Heavy Carbon Steel Rails AREA 115 132 or 136
Light Rails 60 lbs./yd.
Tie Plates
Plain and Deformed Carbon Steel Concrete
Reinforcing Bars ASTM A-615
Hot Rolled Carbon Steel Bar Size Channel
ASTM A-36
Fourth Quatrter
Base Price
($/Metric Ton)
$ 294
295
342
Firs t Quarter
Bas e Price
($/Me trie Ton)
$
315
316
366
353
353
378
378
516
552
494
529
567
607
286
251
264
238
290
323
295
329
323
330
306
276**/
290**/
261**/
318**/
346
316
352
346
353
234
257**/
350
3ft4**/
*/Page references are to the Fourth Quarter Trigger Price Manual published by the Department
of thp Trpa.qurv on October 10. 1978. The first fiaure of each oaae reference corresnonds to
Table III
*/
(Continued)
Fourth Quarter
Base Price
($/Metric T o n )
Page- 7
Product
10-1
Rolled Carbon Bars Special Quality AISI 1045
40 mm round x 4 m e t e r s
M e r c h a n t Quality Hot Rolled Carbon Steel
Squares and Round Cornered Squares ASTM A-36
or AISI 1020
M e r c h a n t Quality Hot Rolled Carbon Steel
Round Bar ASTM A-36 or AISI 1020
M e r c h a n t Quality Carbon Steel Flat Bars ASTM
A-36 or AISI 1020
Hot Rolled N i - C r - M o Alloy Steel Round Bar
AISI 8 6 2 0 4 0 mm
S p h e r o i d i z e Annealed High Carbon Cr Steel
Round Bar AISI 52100 4 0 mm to 100 mm
Cold Finished Carbon Steel Round Bar AISI
1008 through 1029 19.05 mm (3/4")
Cold Finished Round Steel Bar (Free Cutting
S t e e l - S u l f u r ) AISI 1212 through 1215,19.05mm(3/4")
Cold Finished Round Steel Bar (Free Cutting
S t e e l - L e a d ) AISI 12L14 and 12L15 19.05mm ( 3 / 4 ) "
Electric R e s i s t a n c e Welded Carbon Steel
Pressure Tubing For Use in B o i l e r s , Heat
Exchangers, Condensers, Etc.
C o n t i n u o u s Butt Welded Standard Pipe
Electric R e s i s t a n c e Welded P i p e , Excluding
Oil Well C a s i n g , Without Coupling
Submerged Arc Welded Pipe
Electric Resistance Welded Structural Tubing
to ASTM A - 5 0 0 Grades A, B & C
Electric Resistance Welded Standard Pipe ASTM
A - 1 2 0 (A-53)
10-5
10-5
10-7
11-1
1 1-6
12-1
12-2
12-3
14-1
14-6
14-8
14-13
14-16
14-22
$
First Q u a r t e r
Base P r i c e
($/Metric T o n )
376
$
402
291
320**/
291
320**/
265
291**/
433
463
483
517
460
464***/
521
524** * /
544
550***/
483
307
517
328
344
417
368
446
360
385
332
355
*/Page r e f e r e n c e s are to the Fourth Quarter Trigger Price Manual published by the D e p a r t m e n t
of the T r e a s u r y on October 1 0 , 1978. The first figure of each page reference c o r r e s p o n d s to
the AISI product category for that p r o d u c t .
*_*/Electric furnace p r o d u c e r .
The increase from Fourth to First Quarter is 9.8%.
***/Cold Finished Bar Base Trigger Price has been revised downward.
See accompanying n o t i c e ,
"New and Adjusted Trigger Base Prices and Extras for Imported Steel Mill P r o d u c t s " .
Table ill
Page-
(Continued)
Product
15-1 Seamless Carbon Steel Oil Well Casing, Not
Threaded, up to 7" in Outside Diameter
15-4
Seamless Carbon Steel Oil Well Casing, Not
Threaded, Seven Inches and Over in Outside
Diameter
15-7
Seamless Carbon Steel Oil Well Casing, Threaded
and Coupled, Seven Inches and Over in Outside Diameter
15-10
Seamless Carbon Steel Oil Well Casing, Threaded
and Coupled, up to 7 Inches in Outside
Diameter
15-13
Electric Resistance Welded Carbon Steel Oil
Well Casing, Not Threaded
15-15
Electric Resistance Welded Carbon Steel Oil
Well Casing, Threaded
15-17
Seamless Carbon Steel Pressure Tubing Suitable
for use in Boilers, Superheaters, Heat Exchangers, Condensers, Refining Furnaces, Feed
Water Heaters, Cold Finish
15-43
Seamless Carbon Steel Oil Well Tubing EUE With
Threading and Coupling
15-45
Seamless Carbon Steel Line Pipe
15-48
Hot Rolled High Carbon Cr Steel Tube Suitable
for Use in Manufacture of Ball or Roller
Bearings AISI 52100 60 mm to 100 mm
15-49
Cold Rolled High Carbon Cr Steel Tube Suitable
for Use in Manufacture of Ball or Roller
Bearings AISI 52100 60 mm to 100 mm
15-50
Seamless Stainless Steel Round Ornamental
Tube AISI TP 304, 1 1/4 x 0.049"
15-52
Seamless Stainless Steel Square Ornamental
Tube AISI TP 304, 1 1/2 x 1 1/2 x 0.065"
Fourth Quarter
Base Price
($/Metric Ton)
$ 407
First Quarter
Base Price
($/Metric Ton)
$ 435
403
431
457
489
462
494
363
388
428
458
777
831
608
414
651
443
590
631
877
938
1989
2128
2167
2319
*/Page references are to the Fourth Quarter Trigger Price Manual published by the Department
of the Treasury on October 10, 1978. The first figure of each page reference corresponds to
Table III
*/
(Continued)
Page—
Product
16-1
Cold Heading Round Wire AISI 1018 Killed 0.192"
Hard Drawn
Cold Heading Drawn from Annealed Rods
Cold Heading Drawn from Spheroidized Annealed
Rods
Cold Heading Anneal in Process
Cold Heading Spheroidize Anneal in Process
Cold Heading Anneal in Process and Drawn from
Annealed Rods
Cold Heading Spheroidize Anneal in Process and
Drawn from Annealed Rods
Cold Heading Anneal at Finish Size
Cold Heading Spheroidize Anneal in Process
Cold Heading Anneal at Finished Size & Drawn
from Annealed Rods
Cold Heading Spheroidize Anneal at Finished
Size and Drawn from Annealed Rods
Bright Basic Round Wire AISI 1008 #8 Gauge
Rimmed
Galvanized Iron Round Wise AISI Type I Coating
#8 Gauge
Round Baling Wire 14.50
Bright Annealed Cold Drawn Stainless Steel
Wire AISI 304, 0.080"
Spring Hard Temper Nickel Copper and Plastic
Coat Cold Drawn Stainless Steel Wire AISI
302, 0.040"
Cold Heading Quality Copper and Molybdenum
Coat Cold Drawn Stainless Steel Wire ASTM
493A, XM-7, 0.131"
16-1
16-1
16-1
16-1
16-1
16-1
16-1
16-1
16-1
16-1
16-4
16-5
16-8
16-9
16-11
16-12
Fourth Quarter
Base Price
($/Metric Ton)
First Quarter
Base Price
($/Metric Ton)
$ 443
503
$ 474
538
514
518
527
550
554
564
558
597
567
503
514
607
538
550
542
580
554
593
364
389
458
508
490
544
2414
2583
3037
3250
2603
2785
*/Page references are to the Fourth Quarter Trigger Price Manual published by the Department
of the Treasury on October 10, 1978. The first figure of each page reference corresponds to
Table III
Page
/
-
16-13
16-14
16-15
16-16
16-18
20-1
21-1
22-1
23-1
25-1
25-2
26-1
26-3
26-5
27-1
(Continued)
Product
~~-~
Cold Heading Quality Copper and Molybdenum
Coat Cold Drawn Stainless Steel Wire AISI
305, 0.131"
Cold Heading Quality Copper and Molybdenum
Coat Cold Drawn Stainless Steel Wire AISI
410, 0.131"
Cold Heading Quality Copper and Molybdenum
Coat Cold Drawn Stainless Steel Wire AISI
430, 0.131"
Cold Finished Spheroidized Annealed SI-MN-CR
High Carbon Steel Wire AISI 9254 5.5 mm to
13 mm
Cold Finished Spheroidized Annealed Mo Alloy
Steel Wire AISI 4037 5.5 mm to 13 mm
Wire Nails Bright Common 20d # 6 13/32 x 4"
Barbed Wire 2 Ply, 12.50
Black Plate ASTM A625-76 0.0083" x 34" x Coil
Electrolytic Tin Plate SR-25/25 75L x 34" x C
Hot Rolled Steel Sheets ASTM A-569 0.121" x
48" x Coil
Hot Rolled Steel Band ASTM 569 0.121" x 48"
x Coil
Electrical Steel Sheets Grain Oriented M-4
0.012" x 33" x C
Electrical Steel Sheets Non Oriented M-45
0.018" x 36" x C
Cold Rolled Sheets ASTM A-366 1 . Om/ig x 48" x C
Electro Galvanized Sheets EGC lOg/M
l.Om/m x 48" x C
Fourth Quarter
Base Price
($/Metric Ton)
First Quarter
Base Price
($/Metric Ton)
$2673
$ 2860
1728
1849
1772
1896
494
516
424
578
380
515
529
552
454
618
407
551
262
280
250
268
1106
1183
596
328
638
351
388
415
*/Page references are to the Fourth Quarter Trigger Price Manual published by the Department
of the Treasury on October 10, 1978. The first figure of each page reference corresponds to
the AISI product category for that product.
Table III (Continued)
*/
Page-
Product
27-4 Galvanized Sheet ASTM A525G90 0.8m/m x 48" x C
29-1
Hot Rolled Carbon Steel Strip Produced on Bar
Mills Cut Lengths
29-3
Hot Rolled Carbon Steel Strip Produced on
Sheet Mills Coils Only
52-1
Tin Free Steel Sheets SR 75L x 34" x C
Fourth Quarter
Base Price
($/Metric Ton)
First Quarter
Base Price
($/Metric Ton)
$ 390
$ 417
296
317
256
441
274
472
483
324
332
434
772
517
347
355
464
826
Product Additions
12-5 Cold Finished Ni-Cr-Mo Alloy Steel Round Bar, 433 463
AISI $620
12-7
Cold Finished Spheroidized Annealed, High
Carbon Cr Steel Round Bar, AISI 52100
14-26
Piling Pipe ASTM-A 252
14-30
ERW Galvanized Fence Pipe
14-32
ERW Mechanical Tubing
16-20
High Carbon Steel Drawn Wire, AISI 52100
*/Page references are to the Fourth Quarter Trigger Price Manual published by the Department
of the Treasury on October 10, 1978. The first figure of each page reference corresponds to
the AISI product category for that product.
DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
NOTICE
New and Adjusted
Trigger Base Prices and "Extras"
for Imported Steel Mill Products
I am hereby announcing (1) new trigger base prices
and "extras" for products not previously covered by the
Trigger Price Mechanism and (2) adjustments to, and additional "extras" for products for which trigger prices have
been previously announced. Attachment 1 lists the specific
products involved and describes the action being taken.
These trigger prices will be used by the Treasury Department in monitoring imports of these products under the
trigger price mechanism. Accordingly, a number of pages
in the Steel Trigger Price Handbook are being reissued to
reflect these actions.
Description of the trigger price mechanism may be
found in the "Background" to the final rulemaking which
amended regulations to require the filing of a Special
Summary Steel Invoice (SSSI) with all entries of imported
steel mill products (43 F.R. 6065).
These base prices, and extras, and adjustments are
based upon information made available to the Treasury
Department by the Japanese Ministry of International Trade
and Industry (MITI), as well as other information available to the Department.
All the trigger prices being announced here will be
used by the Customs Service to collect information at the
time of entry on all shipments of the products covered
which are exported after the date of publication of this
notice. However, the following rules will be applied to
entries of these products covered by contracts with fixed
price terms concluded before the publication date of this
notice.
1. Contracts with fixed price terms between unrelated
parties: If the importer documents at or before
the time of entry that the shipment is being imported under such a contract with an unrelated
party, the entry will not trigger an investigation
- 2 even if the sales price is below the trigger price,
provided that product is exported on or before
December 31, 1978. However, failure to initiate
an investigation will not diminish the right of
affected interested persons to file a complaint
with respect to such imports under the established
procedures for antidumping cases.
2. Contracts between related parties: If the importer
documents at the time of entry that the shipment is
to be resold to an unrelated purchaser in the United
States under a contract with fixed price terms concluded before the publication date of this notice,
the entry will not trigger an investigation even
if the sales price is below the trigger price, provided that product is exported on or before
December 31, 1978.
While these sales will not as a rule trigger a self-initiated
antidumping investigation, information concerning such sales
will be kept as a part of the information in the monitoring
system and will be available in the event that an antidumping petition is filed with respect to such products sold by
that producer or the Treasury Department decided to selfinitiate an antidumping investigation of such products based
upon subsequent sales.
General Counsel
Dated:
NOV 9 1978
11-9-78
TABLE OF PRODUCT ADDITIONS AND ADJUSTMENTS
AISI Category/T.P. Handbook
Page Number and Product
Description
Type of Action
Description of Action
2-6 Wire Rods, Cold Heading
Quality
Correction of a
previous listing
Grade extras corrected
2-8 Wire Rods, Cold Finished
Bar Quality
Correction of a
previous listing
Grade extra corrected
2-12 Alloy Steel Wire Rod,
AISI 4037
Correction of a
previous listing
Size extra dimensions corrected
2-16 High Carbon Steel Wire
Rod, AISI 52100
Correction of a
previous listing
Size extra for 19mm and over corrected
3-4 Wide Flange Beams
Reclassification
of Product
3-12 Standard Carbon Steel
"I" Beams ASTM-A-36
Reclassification
of Product
Revised size extras for Junior Beams are
found on revised page 3-12. Size extras
for Junior Beams shown on p. 3-4 are
being deleted. Further study and recent
data from MITI indicate that Junior Beams
are more appropriately
categorized with Standard I Beams as M
sections, and accordingly will be recalssified.
See above note for p. 3-4. This product
is an electric furnace product under the
TPM.
TABLE OF PRODUCT ADDITIONS
(Continued)
D ADJUSTMENTS
Revised Base Price downward from $460
to $434 (in terms of 4th Quarter T P ) .
Recent data from MITI confirmed that hot
rolled product input costs should be based
on 1 part bar and 3 parts rod, and clarified
the destinction between these two in
Japanese practice. Applying the proper
ratio has the effect of lowering the
material costs for cold finished bars and
consequently the trigger price.
Revised Base Price downward from $521 to
$490 (in terms of 4th Quarter TP). See
above explanation (12-1).
Cold Fini shed Carbon
Steel Round Bar, AISI
1008 through 1029
Revised Trigger
Price
Cold Finished Round
Steel Bar, AISI 1212
through 1215
Revised Trigger
Price
Cold Finished Round
Steel Bar, AISI 12L14
and 12L15
Revised Trigger
Price
Revised Base Price downward from $544 to
$514 (in terms of 4th Quarter TP). See
above explanation (12-1).
/. Size Extras for Cold
Finished Steel Bars
Revised Page
Published Size extras in terms of 4th
Quarter T P ) . See above explanation (12-1).
5,6 Cold Finished, NI-CR-MO
Alloy Steel Round Bar,
AISI 8620
New Page and
Product Coverage
Published base price and grade, size,
quality, thermal treatment extras.
7,8 Cold Finished Spheroidized Annealed, High
Carbon Cr. Steel Round
Bar, AISI 52100
New Page and
Product Coverage
Published Base price and thermal treatment
and size extras.
7
Revised Page and
Extended Coverage
Published new trigger price for sprinkler
pipe (sch. 10). Figures shown are
expressed in terms of 3rd Quarter prices
to be consistent with all other pipe nnd
tube product pages in trigger price
handbook.
3
Continuous Butt Weld
Pipe
TABLE OF PRODUCT ADDITIONS
(Continued)
ADJUSTMENTS
14-17,18,19,20
ERW Structural Tubing
ASTM-500
Correction of a
previous listing
Extra listings for selected O.D./W.T.
corrected. Figures shown are expressed
in terms of 3rd Quarter prices to be consistent with all other pipe and tube
product pages in trigger price handbook.
14-23 ERW Standard Pipe
ASTM-A-120 (A-53)
Revised Page
14-24,25 ERW Standard Pipe
ASTM-A-120
New Page
14-26,27,28,29
Piling Pipe ASTM-A-252
New Page
A-53 Pipe sizes from 2 3/8" through 4 1/2"
may be found on p. 14-9. These sizes have
been deleted from p. 14-23 in order to
avoid duplication. Figures shown are
expressed in terms of 3rd Quarter prices
to be consistent with all other pipe and
tube product pages in trigger price
handbook.
New trigger prices published to cover
ASTM-A-120 pipe in sizes from 2-3/8" to
16"; also extras for Extra Strong W.T. on
larger size ranges. Figures shown are
expressed in terms of 3rd Quarter prices
to be consistent with all other pipe and
tube product pages in trigger price handbook.
Published Base Price and size and grade
extras. Figures shown are expressed in
terms of 3rd Quarter prices to be consistent
with all other pipe and tube product
pages in trigger price handbook.
14_30,31 ERW Galvanized
Fence Pipe
New Page
Published Base Price and extras for fence
pipe. Figures shown are expressed in
terms of 3rd Quarter prices to be consistent with all other pipe and tube
product pages in trigger price handbook.
TABLE OF PRODUCT ADDITIONS AND ADJUSTMENTS
(Continued)
32,33,34
ERW Mechanical Tubing
New Page
4
Bright Basic Round Wire
AISI 1008
New Extras
5
Galvanized Iron Round
Wire, Type 1 Coating
New Extras
Published Extra for Regular or commercial
coating; grade extra.
6
Bright Basic and Galvanized Wire Size Extras
New Extras
Published Size Extra for additional
gauges.
New Page
Published Base Price and size extras.
Barbed Wire
Revised Page
Changed title to read "Barbed Wire,
2-ply, 12.50 Gauge". This change is
made to assure coverage of all 2-ply
barbed wire, rather than merely Iowatype .
Hot Rolled Sheet
Correction of Pre
vious listing
Corrected Width Thickness dimensions
on Extra Table.
12 Hot Rolled Sheet
Correction of Pre
vious listing
Corrected Checker, and Pickled and
Oiled Extra.
7
Deleted Extra
Deleted statement pertaining to adjustment due to fluctuation in the zinc price
20,21 High Carbon Steel
Drawn Wire AISI 52100
Galvanized Sheet
Published Base Price and extras for
Mechanical Tubing. Figures shown are
expressed in terms of 3rd Quarter prices
to be consistent with all other pipe and
tube product pages in trigger price
handbook.
Published grade extras and annealing
extras.
Pevised November, 1978
2-6
WIRE RODS - COLD HEADING QUALITY
Extra (Sizes/Grade) Per Metric Ton
GRADE
AISI NUMBER)
005, 1006, 1008
010, 1011, 1012
013
(Rimmed Steel)
015, 1016, 1017
018, 1919, 1020
021, 1022, 1023,
025, 1026
(Rimmed Steel)
.005, 1006, 1008
.010, 1011, 1012,
.013
(Killed Steel)
.015,
.018,
.021,
.025,
1016, 1017
1019, 1020
1022, 1023
1026
L029, 1030, 1035
L037, 1038, 1039
L040, 1042, 1043
L0B18 10B21
L0B22. 10B23
10B30
7/32" thru
35/64
SIZES
over 35/64"
to under 39/64"
39/64" to
under 3/4"
3/4"
and over
Minus $23
$31
$17
NIL
Minus $23
$42
$30
$ 8
Minus $ 7
$43
$30
$ 9
Minus $6
$55
$42
$21
$43
$31
$ 9
77
81
65
64
69
51
41
45
31
43
30
9
59
69
53
46
55
40
24
33
19
75
62
40
NIL
20
24
21
1110
Minus 5
1522
1524
1541
15B41
NIL
12
9
32
Tolerance Extra
If bar tolerances are specified or required for over 35/64" to
under 3/4" ...
Plus $11/M.T.
Mote: All above extras are to be increased 4.86% on all wire '
rods exported to the United States on or after 10-1-78.
Revised November, 1978
2-6
WIRE RODS - COLD HEADING QUALITY
Extra (Sizes/Grade) Per Metric Ton
GRADE
(AISI NUMBER)
1005, 1006, 1008
1010, 1011, 1012
1013
(Rimmed Steel)
1015, 1016, 1017
1018, 1919, 1020
1021, 1022, 1023,
1025, 1026
(Rimmed Steel)
1005, 1006, 1008
1010, 1011, 1012,
1013
(Killed Steel)
1015,
1018,
1021,
1025,
1016, 1017
1019, 1020
1022, 1023
1026
1029, 1030, 1035
1037, 1038, 1039
1040, 1042, 1043
10B18 10B21
10B22. 10B23
10B30
7/32" thru
35/64
SIZES
over 35/64"
to under 39/64"
39/64" to
under 3/4"
3/4"
and over
Minus $23
$31
$17
NIL
Minus $23
$42
$30
$ 8
Minus $ 7
$43
$30
$ 9
Minus $6
$55
$42
$21
$43
$31
$ 9
77
81
65
64
69
51
41
45
31
43
30
9
59
69
53
46
55
40
24
33
19
75
62
40
NIL
20
24
21
1110
Minus 5
1522
1524
1541
15B41
NIL
12
9
32
—
Tolerance Extra
If bar tolerances are specified or required for over 35/64" to
under 3/4" ...
Plus $11/M.T.
Note: All above extras are to be increased 4.86% on all wire '
rods exported to the United States on or after 10-1-78.
2-8
WIRE RODS-COLD FINISHED BAR QUALITY
Revised Nov..
197S
Extras (Sizes / Grade) Per Metric Ton
SIZES
GRADE
(AISI NUMBER)
1015,
1018,
1021,
1025,
1016, 1017
1019, 1020,
1022, 1023
1026
1029,
1037,
1040,
1044,
1049
1030,
1038,
1042,
1045,
1050
7/32" Thru
35/64"
Over 35/64" to
to Under 39/64"
39/64" To
Under 3/4"
3/4" and
Over
Minus $36
$22
$ 9
Minus $11
Minus $19
$23
$ 9
Minu.s. $ 9
1117
1141
1144
1151
Minus $ 5
2
2
4
$51
38
43
45
$38
25
30
32
$17
16
9
12
1212, 1213, 1215
Minus $ 2
$43
$30
$ 9
10L18
10L38, 10145
Minus $16
NIL
$52
43
$39
30
$18
9
11L17
11L37
$22
15
$81
57
$69
44
$45
23
12L14, 12L15
$15
$60
$47
$25
1035
1039
1043
1046
Tolerance Extra
If Bar Tolerances ar specified or required for over 35/64" to
under 3/4" — plus $11 per metric ton.
Note: all above extras are to be increased by 4.86% for wire
rods shipped to the U.S. on or after 10-1-78.
2-12
Rev.
Size Extras
Size
Over 13 mm but less than
19 mm
19 mm & over
Nov. 1978
3rd Quarter
4th Quarter
Extra ($/MT)
Extra ($/MT
Minus 26
Minus 27
Minus 37
Minus 39
Thermal Treatment Extras
Extra ($/MT)
Extra ($/MT)
Regular Anneal Only
Minus $21/MT
Minus $22/MT
No heat treatment
Minus $63/MT
Minus $66/MT
Aircraft Quality Extra
$26/MT
$27/MT
Bearing Quality Extra
$26/MT
$27/MT
$13/MT
$12/MT
Vacuum Degassed Extra
(This extra does not apply when requirements are subject to
extra for aircraftand/or bearing quality.)
2-16
Rev. Nov.
Grade Extras (per MT)
AISI NUMBER
3rd Quarter
1978
4th Quarte
Extra ($/MfT
E50100, E51100
NIL
NIL
Size Extras
Size
Extra($/MT)
Extra ($/MT)
Over 13 mm but less
than 19 mm
Minus 26
Minus
19 mm & Over
Minus 37
Minus 39
Minus $21/MT
Minus $22/MT
27
Thermal Treatment Extras
Regular Anneal Only
No heat treatment
Minus $63/MT
Minus $66/MT
3-12
Rev. Nov. 1978
SIZE EXTRAS
($/MT)
4th Qtr.
SIZE EXTRA
S12 x 31.8 lb./ft. Base
S8 x 18.4 lb./ft. Base
S6 x 12.5 lb./ft. 12
S4 x 7.7 lb./ft. 12
SIZE EXTRAS JUNIOR BEAMS
M-12M x 11.8 lb./ft. Base
M-10" x 8.0 lb./ft. Base
M-8" x 6.5 lb./ft. 12
M-6" X 4.4 lb./ft. 32
NOTE: Above size extras for Junior Beams supercede p.3-4
published October 10, 1978.
12-1
REV. Nov. 1978
Cold Finished Carbon Steel Round Bar
AISI 1008 through 1029, 19.05 mm (3/4")
Category AISI
12
Tariff Schedule Number (s) 608.5015 87%
4th Quarter
Base Price Per Metric
Charges to CIF
$434
Ocean Freight
Handling
West Coast
$30
$7
Gulf Coast
35
Atlantic Coast
40
Great Lakes
58
Insurance 1% of base price + extras +
Extras
Size, See Table p. 12-4
Interest
$ 8
5
10
4
10
4
13
ocean freight
12-2
REV. Nov. 1978
Cold Finished Round Steel Bar (Free Cutting Steel-Sulfur)
AISI 1212 through 1215 19.05mm (3/4n)
Category AISI
12
TAriff Schedule Number (s) 608.5005 8-5-%
4th Quarter
Base Price per Metric Ton
$490
Charges to CIF
Ocean Freight
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
$30
35
40
58
Handli•ng
Interest
$7
5
4
4
$ 9
11
12
15
Insurance 1% of base price + extras + ocean freight
Extras
Size, See Table p. 12-4
12-3
REV. Nov. 1978
Cold Finished Round Steel Bar (Free Cutting Steel-Lead
AISI 12L14 and 12L15 19.05 mm (3/4")
Category AISI
12
Tariff Schedule Number (s) 608.5005 8j%
4th Quarter
Base Price Per Metric Ton $514
Charges to CIF Ocean Freight Handling Interest
West Coast $30 $7 $ 9
Gulf Coast
35
5
12
Atlantic Coast
40
4
12
Great Lakes
58
4
15
Insurance 1% of base price + extras + ocean freight
Extras
Size, See Table p. 12-4
12- 4
REV. Nov. 1978
Size Extras for Cold Finished Steel Bars ($ Extra/M.T.)
Size
4th Quarter
Shape
Round
Hexagon
Up to 3/16" inclusive
69
170
Over 3/16" thru 5/16"
46
92
5/16" thru 7/16"
37
56
7/16" thru 5/8"
19
37
Base
8
7/8" " 1-7/16"
8
19
1-7/16" thru 1-3/4"
15
33
1-3/4" thru 2-11/16"
19
46
2-11/16" thru 3"
27
3" thru 3-3/4"
37
3-3/4" thru 4"
46
5/8"
M
7/8"
New Page
12-5
Effective Nov. 1978
COLD FINISHED, NI-CR-MO ALLOY STEEL ROUND BAR
AISI 8620, 40 MM
Category
12
Tariff Schedule Number (s)
608.5240
Base Price per Metric Ton
10^% additi onal
duties (see Head
note 4, TSUS)
4th Quarter
$433
Charges to CIF
Oce
Freight
Handling
I]Ttere.
West Coast
$7
$49
$ 9
51
5
12
Gulf Coast
63
4
12
Atlantic Coast
79
4
15
Great Lakes
Insurance 1% of base price + extras + ocean freight
Extras:
(1)
(2)
(3)
(4)
Grade Extras
Thermal Treatment Extra
Quality Extra
Cold Finished Extra
New Page
12-6
Effective Nov. 1978
COLD FINISHED, NI-CR-MO ALLOY STEEL ROUND BAR
(CONTINUED)
Extra
1. Grade Extra - same as hot rolled grade extras, pp. 11
11-3
2. Thermal Treatment Extra - same as hot rolled thermal
treatment extra, p. 11-4
3. Quality Extra - same as hot rolled extra, p. 11-4
4. Cold Finish Size Extra
Cold drawn with or without pickling. Smooth
Turned (Turned & Polished).
4th Quarter
Extra ($/MT)
Size (Inches)
Diameter
5/16
3/8
i
2
5/8
1
li
3
4
Exclusive
5/16
3/8
i
2
5/8
1
li
3
4
6
348
287
255
194
166
149
144
149
172
New Page 12-7
Effective Nov. 1978
COLD FINISHED SPHEROIDIZED ANNEALED, HIGH CARBON CR
STEEL ROUND BAR AISI 52100, 50100, 51100
Category AISI
12
Tariff Schedule Number (s)
BAse Price per Metric Ton
Charges to CIF
608.5225
10i% + additional
duties (see Headnote 4, TSUS)
4th Quarter
$483
Freight
Handling
Intere
$7
$10
$49
west Coast
5
13
51
Gulf Coast
4
13
63
Atlantic Coast
4
16
79
Great Lakes
Insurance 1% of base price + extras + ocean freight
Extras:
1.
2.
3.
Size Extras
Thermal Treatment Extras
Cold Finish Extra
New Page 12-8
Effective Nov.1978
COLD FINISHED SPHEROIDIZED ANNEALED, HIGH CARBON CR
STEEL ROUND BAR AISI
(Continued)
Extras:
1. Thermal Treatment Extra: $/MT without spheroidize
anneal minus $63
2. Cold - Finished Extra
Cold drawn with or without pickling
Smooth Turned (Turned & Polished)
1
1
Size
(Inches)
Dia. i
5/163/8
i
5/8
Exclusive
5/16
3/8
i
5/8
1
1
li
li
3
4
3
4
6
4th Quarter
Extra
($/MT)
348
287
255
194
166
149
144
149
172
Rev. Nov, 1978
14-7
BASE PRICE, INCLUDING O.D./WT., GALVANIZING, THREADED AND COUPLED EXTRAS
($/M.T., 3rd Quarter)
CONTINUOUS BUTT WELDED PIPE AISI 14 TSUSA 610.32
P.P. (INCHES)
NOM. (INCHES)
DESCRIPTION
IX
\%
2 3/8
2 7/8
3%
4
302
300
300
293
293
293
300
300
317
310
307
307
302
302
302
307
307
408
394
383
377
377
377
372
372
377
377
EX STRONG, GALV, PLAIN END
420
405
395
387
387
383
383
383
387
387
STD WEIGHT, BLK T AND C
3b4
342
329
326
326
320
3?0
320
331
331
EX STRONG, BLK T AND C
364
351
339
33*
335
329
329
329
342
342
STD WEIGHT, GALV, T AND C
446
427
410
403
403
399
399
399
409
409
EX STRONG, GALV, T AND C
459
440
422
416
416
410
410
410
421
421
SPRINKLER PIPE, (SCH. 10)
331
332
316
314
314
308
308
308
314
314
1/2
3/4
STD WEIGHT, BLK, PLAIN END
317
308
EX STRONG, BLK, PLAIN END
317
STD WEIGHT, GALV, PLAIN END
Note:
All above prices are to be increased by 4.86% for tubing
exported on or after October 1, 1978
4V2
14 - 17
Revised Nov. \<y/Q
BASE PRICE INCLUDING OUTSIDE DIAMETER (OD) / WALL THICKNESS (WT) EXTRAS ($/MT) 3rd Quarter
ELECTRIC RESISTANCE WELDED STRUCTURAL TUBING TO ASTM A 500 GRADE A B & 'C
AISI 14
SQUARE WT/ OT .047
1/2
b/3
3/4
7/8
1
1 1/4
1 1/2
1 3/4
2
2%
405
307
375
375
375
375
375
TSUSA
.056
.063
.072
405
387
375
375
375
375
375
387
365
353
353
353
353
353
353
353
387
365
353
353
353
353
353
353
353
o
3 1/2
4
5
6
7
8
10
12
Note:
610.32
.078
.083
.095
.109
1
,120
.125.134
.
353
353
353
353
353
353
353
353
353
353
343
353
353
353
353
353
343
343
343
343
353
353
353
353
353
343
3^3
343
343
353
353
351
353
353
343
343
343
343
All above prices are to be increased by 4.86% for tube
exported to the United States on or after October 1, 1978
353
343
343
343
343
J
14 - 18
Revised N o v , 1978
BASE PRICE INCLUDING OUTSIDE DIAMTER (OD) / WALL THICKNESS (WT) EXTRAS '($/MT) (3rd Quarter)
Electric resistance welded Structural tubing to ASTM A SOO Grade A B & C
AISI M
TSUSA
610 .32
SQUARE
WT/OT
„,.,.
.156 .180&.1875 .250
.313
.375
.500
1/2
5/8
3/4
7/8
1
1 1/4
1 1/2
1 3/4
353
353
353
2
343
343
343
2%
343
343
343
3
343
343
343
3%
343
343
356
356
343
343
343
4
343
356
Jbb
343
343
343
356
365
356
5
343
343
343
356
356
365
6
343
343
356
356
365
7
343
356
356
365
8
353
365
365
375
10
12
Note:
All above prices are to increased by 4.86% for
tube exported to the United States on or after Octber 1, 1978
14- 19
Revised Nov
1978
Base Price Including Outside Diameter (0.D.1) Wall Thickness (W.T.) Extras ($/MT)
Electric Resistance Welded Structural Tubing to ASTM A 500 Grade A B & C (3rcj Quarter)
JU S I 14
Rectangular \•VT/OD
610,.32
.056
.063
.072
.078.
375
375
375
375
375
375
375
375
375
375
353
353
353
353
353
353
353
343
353
353
353
353
353
353
353
343
353
353
353
353
353
353
343
Note:
.083
353
353
353
353
353
353
343
343
#095
353
353
353
353
353
353
343
343
343
343
343
343
343
.109
.120 &
.125
353
353
353
353
353
353
353
343
343
343
343
343
343
343
CO CO
.047
CO CO
Ixl 1/2
1 1/2x3/4
11/2x1
2x1
2x1 1/2
2 1 / 2 x 1 1/2
3x1
3x1 1/2
3x2
4x2
4x3
bx2
5x3
6x2
6x3
6x4
7x4
7xb
8x4
8x6
9x7
10x6
12x8
14x6
16x8
TSUSA
353*
343
343
343
343
343
3*43
343
All above prices are to be increased by 4.86% for tube exported to the
United States on or after October 1, 1978
14-20
Revised
Base Price Including Outside Diameter (O.D.I/ Wall Thickness (W.T.) Extras ($/MT)C3rd O
Electric Resistance Welded Structural Tubing to ASTM A 500 Grade A B & C
AISI
Rectangular WT/OD
1 x 1/2
I .1/2 x 3/4
11/2x1
2x1
2 x 1 1/2
2 1/2 x 1 1/2
3 x 1 1/2
3x2
4x2
4x3
5x2
5x3
6x2
6x3
6x4
7x4
7x5
8x4
8x6
9x7
10x6
12x 8
14x6
16x 8
Note:
.134
.343
34d
343
343
343
343
14
TSUSA
.156
. 180
.1875
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
343
610.39
&
.250
343
343
343
343
343
343
343
343
343
343
343
343
343
343
353
393
353
610.49
.313
.375
356
356
356
356
356
356
356
356
356
356
365
365
365
156
356
356
356
356
356
356
356
365
365
365
.500
375
375
375
175
375
375
375
375
All above prices to be increased by 4.86% for tube
exported to the United States
or after October 1
1978
N
w
Base Price Including Outside Diameter <OD)/Wall Thickness (WT)
Threaded and Coupled extras ($/MT) (3rd Quarter)
Electric Ilea I stance Nelded Pipe to ASTM A 120 (A 53)
(Standard Weight)
Norn (inches)
D1H. P.E.
D1H. T.O C,
Qalv,, p.Et
Qalv. T.& C,
U
U
415
323
352
4O0
323
352
4O0
443
437
437
1
3/4
1
342
332
320
303
371
354
44CJ
425
401
462
Note: All above prices are to be increased by 4.86% for tube
exported to the United States on or after October 1, 1978.
o
<
B W
cr W
00
CO
14-24
New Page Nov. 1979
Electric Resistance Welded Standard Pipe
ASTM-A-120 (larger sizes)
Category AISI 14
Tariff Schedule Number (s) 610.32 0.30 per lb.
Base Price per Metric Ton
3rd Quarter
4th Quarter
$317
$332
Charges to CIF
Handling
Interest
7
6
Gulf Coast
5
8
Atlantic Coast
4
8
Ocean Freight
West Coast
see freight
table
Great Lakes 4 10
Insurance 1% of base price + extras + ocean freight
Extras
A. Outside diameter and wall thickness
B. Galvanizing
C. Threading and Coupling
14
25
New Page, Nov. 1978
Base Price Including OD/WT, Thread and Couple
ERW Pipe to ASTM A-120
$/MT (3rd Quarter)
Black, Plain End,
Standard W.T.
2 3/8
2-7/8
3i
317
317
317
323
4*
5-9/16
6 5/8
8 5/8
10 3/4
12-3,4 14
323
323
323
309
309
309
309
309
332
332
318
318
318
318
318
Black, Plain End
Extra Strong W.T.
Black, Thread &
Couple Standard W.T.
345
345
345
357
357
Galv., Plain End
Standard W.T.
401
401
401
408
408
Galv., Thread &
Couple, Standard W.T. 430
430
430
443
443
NOTE:
All above trigger prices are to be increased 4.86% for all pipe exported on or
after October 1, 1978.
16
New Page 14- 26
November, 1978
Piling Pipe
ASTM
A-252
AISI Category 14
610.32
0.30 per lb
Tariff Schedule Number
Base Price Per Metric Ton
Charges to CIF
West Coast
3rd Qtr.
$309
Ocean Freight
4th Qtr
$324
Handling
Interest
see freight
table,
p. 14-2
Gulf Coast
5
Atlantic Coast
4
9
Great Lakes
4
11
Insurance:
8
1% of base price + extras + ocean freight.
Extras:
Outside diametric/wall thickness by grade.
Note:
In order to be consistent with pipe and tube trigger
prices published in the October 10, 1978 Handbook,
the trigger prices listed on pages 14-26 and 14-27
are 3rd Quarter prices. So, these trigger prices
must be increased 4.86% for all pipe exported to the
United States on or after October 1, 1978.
14-27
Base Prices Including OD/WT and Grade Extras ($/M.T.)
(3rd Quarter)
Piling Pipe ASTM - A-252
OD
W.T.
6-5/8 .125 332 352
.141
.156
.172
.188
.203
.219
.250
.280
.375
.432
8-5/8
.125
.156
.172
.188
.203
.219
.258
.277
.312
.322
.344
.375
.500
Grades 1, 2
Grade 3
332
323
323
323
323
323
323
323
323
332
352
342
342
342
342
342
342
342
342
352
318
318
318
309
309
309
309
309
309
309
309
309
318
337
337
337
327
327
327
327
327
327
327
327
327
337
14- 28
Base Prices Including OD/WT and Grade Extras ($/M.T.)(3rd Qtr.)
Piling Pipe ASTM A-252
WT
Grades 1,2
Grade 3
.156
.172
.188
.203
.219
.250
.279
.307
.344
.365
.500
318
318
318
309
309
309
309
309
309
309
318
337
337
337
337
327
327
327
327
327
327
337
.172
.188
.203
.219
.250
.281
.312
.330
.344
.375
.406
.500
318
318
309
309
309
309
309
309
309
309
309
318
337
337
327
327
327
327
327
327
327
327
327
337
New Page 14-29
November, 1978
Base Prices Including OD/WT and Grade Extra ($/M.T.)(3rd Quarter)
Piling Pipe ASTM A-252
OD W.T. Grades 1, 2 Grades 3
14 .188 318 337
.203
.219
.250
.281
.312
.344
.375
.438
.500
16
.188
.203
.219
.250
.281
.312
.344
.375
.438
.500
318
309
309
309
309
309
309
309
318
337
327
327
327
327
327
327
327
337
318
318
309
309
309
309
309
309
309
318
337
337
327
327
327
327
327
327
327
337
NEW PAGE 14-30
November, 1978
Electric Resistance Welded Hot Dipped Galvanized Fence Pipe
and Tubing in Plain Ends
Category AISI
14
Tariff Schedule Number(s) 610.32 0.30 per lb.
Base Price per Metric Ton
3rd Quarter
317
4th Quarter
332
Charges to CIF
Ocean Freight
Handling
Interest
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
see freight
table
7
6
Insurance
5
4
4
8
8
10
1% of base price + extras + ocean freight
Extras
A. Hot Dipped Galvanized
B. In-line Galvanized
C. Cut length extra
D. Swaging
New Page 14-31
November, 1978
ERW GALVANIZED FENCE PIPE AND TUBING IN PLAIN ENDS
($/MT, 3rd Quarter)
A. OD/WT Extras - Hot Dipped Galvanized Type
WT.(inches) .047
0D(inches)
1.315
476
1.660
469
1.900
2.375
2.875
4.000
B.
.069
.079
.104
.116
.128
.144
453
447
447
437
431
425
425
415
415
431
425
425
415
415
418
409
409
403
403
409
418
409
409
403
403
409
418
409
409
403
403
409
...
403
403
409
...
...
sch40
418
409
409
403
403
403
OD/WT Extras In-Line Galvanized Type
WT (inches) .047
0D(inches)
1.315
415
1.660
409
1.900
2.375
2.875
4.000
C.
.055
.055
.069
.079
.104
.116
.128
.144
403
396
396
390
380
374
374
368
368
380
374
374
368
368
374
368
368
361
361
368
374
368
368
361
361
368
374
368
368
361
361
368
...
Cut Length Extra:
5% of base price for specific OD/WT
D. Swaging at One End:
5% of base price for specific OD/WT
...
...
361
361
368
sch40
374
368
368
361
361
368
New Page
14-32
Nov. 1978
ERW Mechanical Tubing ASTM A 513
Type I A.W.H.R.
AISI Category 14
Tariff Schedule Number 610.32
610.31
0.30 per lb.
0.625 C per lb.
Base Price per Metric ton
3rd Qtr.
413
Charges to CIF
Ocean Freight
West Coast
see freight
table
4th Qtr.
434
Handling
Interest
$7
$ 8
5
4
4
11
11
14
Gulf Coast
Atlantic Coast
Great Lakes
Insurance 1% of base price + extras + ocean freight
Extras
Outside diameter/wall thickness
A.
B. Cut Lengths
C. Quantity
Note:
In order to be consistent with pipe and tube trigger
prices published in the October 10, 1978 Handbook, the
trigger prices listed on pages 14- 30 and 14-31 are 3rd
Quarter prices. So, these trigger prices must be increased 4.86% for all pipe exported to the United States
on or after October 1, 1978
1A-75 3
ERW MECHANICAL TUBING ASTM-A-513 TYPE 1 AWHR
Base Price Including OD/WT Extras ($/MT 3rd
3/4
0 .049
O .065
O .083
O ,095
O 105
O 109
O, 120
O 125
O, 134
O. 135
O. 148
O. 150
O. 165
O. 180
O. 2 0 0
O. 203
O. 220
O. 238
o.259
O. 284
o. 300
701
682
5 99
5 99
57 9
57 9
579
1 1/4
641
57 9
57 9
5 37
517
517
517
517
517
517
599
579
5 37
537
4 96
475
475
475
475
475
475
496
496
4 96
1 1/2
537
496
475
455
434
413
413
413
413
413
434
434
455
475
475
496
1 3/4
537
475
455
434
413
413
413
413
413
413
413
413
413
413
434
434
455
496
455
434
434
413
413
413
413
413
413
413
413
413
413
434
434
455
496
2 1/8
2 1/4
2 3/8
2 1/2
455
434
434
413
413
413
413
413
413
413
413
413
413
434
434
455
496
455
434
413
413
413
393
393
393
393
393
413
413
413
413
413
434
455
434
434
413
413
413
393
393
393
393
393
393
393
413
413
413
434
434
434
413
413
413
393
393
393
393
393
393
393
393
393
393
393
413
413
2
New Page, Nov
Quarter)
3/4
434
413
413
413
393
393
393
393
393
393
393
393
393
393
393
413
413
Intermediate wall thickness will be priced on the next heavier wall
1978
434
413
413
393
393
393
393
393
393
393
393
393
372
372
372
393
393
413
shown.
3 1/4
3 1/2
4
4 1/Z
413
413
413
393
393
393
393
393
393
393
393
372
372
372
393
393
413
434
413
413
393
393
393
393
393
393
393
393
372
372
372
393
393
393
413
434
434
413
413
393
393
393
393
372
372
372
372
393
393
393
413
475
434
434
413
413
413
393
372
372
372
372
393
393
393
413
New Page
14-34
Nov. 1978
ERW Mechanical Tubing ASTM A-513
Type I A.W.H.P.
Cut Length Extra
Cut Length
Extra %
10
on inquiry
10 to under 36
Base
36 to under 40
2.5
40 to under 44
7.5
44 to under 48
10
48 and over
on inquiry
Quantity Extras
Weight (pounds)
Extra (percent)
10,000 or more
base
5,000 to 9,999
20
Under 5,000
on inquiry
16-4
Rev. Nov., 1978
Bright Basic Round Wire, AISI 1008, #8 Gauge Rimmed
Category AISI
16
Tariff Schedule Number(s)
609.4010
609.4105
609.4125
8 1/2%
0.30 per lb.
0.30 per lb.
4th Quarter
$364
Base Price per Metric Ton
Charges to CIF
Ocean Freight
Handling
Interest
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
$40
$7
$ 6
42
45
60
5
4
4
8
8
11
Insurance 1% of base price + extras + ocean freight
Extras
(1) Grade Extras:
Same as Wire Rod Commercial Quality (page 2-1)
(2) Annealing Extra: $28/MT
(3) Size Extra: See Extra Table page 16-6
(4) Packing Extra: See Extra Table page 16-7
16-5
Rev. Nov. 1978
Galvanized Iron Round Wire, AISI
Category AISI
Type I Coating, #8 Gauge
16
Tariff Schedule Number(s) 609.4040 8 1/2%
609.4165 0.30 per lb
4th Quarter
$458
Base Price per Metric Ton
Charges to CIF
Ocean Freight
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
$40
41
45
60
Handling
Interest
$ 7
5
4
4
$ 8
11
11
13
Insurance 1% of base price + extras + ocean freight
Extras
(1) Grade Extra:
Same as Wire Rod Commercial Qiality
(Page 2-1)
(2) Regular or Commercial:
Coating Extra
(3) Size Extra:
Minus $50/MT
See Extra Table p. 16-6
(4) Packaging Extras:
See Extra Table 16-7
16-6
Rev. Nov., 1978
SIZE EXTRAS FOR BRIGHT BASIC WIRE,
ANNEALED WIRE AND GALVANIZED IRON WIRE
$ EXTRA/MT
(4th Quarter)
GAUGE
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
BRIGHT BASIC WIRE
22
16
8
4
Base
6
8
12
14
18
22
33
41
49
60
71
85
100
111
122
133
149
167
175
ANNEALED WIRE
22
16
8
4
Base
6
8
12
14
18
22
35
43
52
61
75
89
104
115
126
139
156
174
181
GALV.IRON WIRE(TYPE I)
35
27
21
16
Base
14
18
24
35
43
51
66
80
99
115
141
163
188
210
237
265
306
349
366
16-20
Nov. 1978
High Carbon Cr Steel Drawn Wire in Coil AISI 52100,
50100, 51100, Suitable for use in manufacture of
Ball or Roller Bearings
AISI Category
16
Tariff Schedule Number (s) 609.4560 10^% + additional duties
(See Headnote 4, TSUS)
Base Price per Metric Ton
4th Quarter
$772
Charges to CIF
Ocean Freight Handling Interest
West Coast 58 7 15
Gulf Coast
69
5
19
Atlantic Coast
72
4
19
Great Lakes
79
4
24
Insurance 1% of base price + extras + ocean freight
Extras:
1 Size Extra
16-21
Nov, 1978
High Carbon Cr Steel Drawn Wire in Coil AISI
52100, 50100, 51100, Suitable for use in manufacture of Ball or Roller Bearings
1.
Size Extra
Size Extra 4th Quarter
(inches)
0.688 and over nil
0.500 - 0.687 nil
0.312 - 0.499 Base
0.250 - 0.311 11
0.188 - 0.249 66
0.174 - 0.187 221
0.094 - 0.173 232
0.083 - 0.093 277
0.062 - 0.082 431
($/MT)
21-1
Rev. November, 1978
BARBED WIRE 2-ply, 12.50 Gauge
Category AISI 21
Tariff Schedule Number 642.0200 Free
3rd Quarter 4th Quarter
Base Price per Metric Ton $551 $578
Charges to CIF Ocean Freight Handling Interest
West Coast $42 $7 $ 9
Gulf Coast
50
5
12
Atlantic Coast
55
4
12
Great Lakes
60
4
14
Insurance 1% of base price +extras +ocean freight
Hot Rolled Sheets + Band
Width Thickness Extra ($/MT)
W i U L I 1/ UI 1 J. l^ J v i c; o o
over
from
from
from
from
from
from
from
from
from
from
over 12"
up to 24"
0.5
0,312 thru 0.5
0.251 thru 0.3119
0.230 thru 0.2509
0.180 thru 0.2299
0.121 thru 0.1799
0.081 thru 0.1209
0.071 thru 0.0809
0.061 thru 0.0709
0.0568 thru 0.0609
0.0509 thru 0.0567
Note:
26
26
17
17
17
17
25
38
41
41
From 24"
thiru 36 M
12 + N
12
12
0
0
0
13
19
28
32
+ N 32+N
Over 36"
thru 48"
Over 48"
thru 72"
12 + N
12
12
0
0
0
7
14
21
31
31 + N
12 + N
12
12
0
0
0
0
14
21
21 + N
21 + N
All above extras are to be increased by 7.38%
for all sheet and band exported to the United States
on or after October!, 1978.
25-3
Rev. Aug. 1978
Over 72"
thru 76 M
12 + N
12
12
7
6
11
11
11 + N
Over 76"
thru 84"
15 + N
15
13
13
12
12 + N
•
25-12
Rev. July, 19 78
3- OTHER EXTRAS
$/MT
Description
21
Killed
6
Fine Grain
Charpy
+40 °P & up
L
16
T
21
L & T
26
under +40°F
21
26
L & T
Normalize
32
74
Quench. & Temper
127
Normalize 6c Temper
12 7
Checker
21
Pickled & Oiled
Up to 0.172" Thickness
Over 0.172" Thickness
Others
21
14
To be specified
on SSSI
27-7
REV. Nov. 1978
(5)
QUALITY
COMMERCIAL
BASE
LOCK FORMING
NONE
DRAWING
11
DRAWING SPECIAL KILLED
27
STRUCTURAL
GRADE A
B and C
D and E
(6)
QUANTITY
20ST4 W
(7)
3
5
11
BASE
15ST4W<20ST
1
10ST£W<15ST
3
THEORETICAL MINIMUM WEIGHING
16
(8) OTHERS SUBJECT TO NEGOTIATION
(9) Corrugating $19
Note: All above extras are to be increased by 7.14% for all
sheets shipped to the U.S. on or after 10-1-78.
FOR IMMEDIATE RELEASE
November 9, 1978
Contact:
Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT ANNOUNCES FINAL
COUNTERVAILING DUTY DETERMINATION
AGAINST TEXTILE IMPORTS
FROM EIGHT COUNTRIES
The Treasury Department today announced its final
determination that exports of Uruguayan textile products
and of woolen suits from Argentina are subsidized.
Two other investigations also led to the conclusion
that "bounties" are being paid. In one of these cases —
concerning Brazil — a waiver of countervailing duties was
granted, based on certain steps taken by the Brazilian
Government to reduce the adverse effects of the subsidies.
The Colombian Government had been found.to pay small bounties on its exported textiles, but the producers renounced
the subsidy,) resulting in a negative finding with respect
to products other than leather wearing apparel.
In four cases — concerning Taiwan, Korea, India and
the Philippines — the subsidies did not exceed 0.4 percent
and, thusjunder established Treasury policy are not subject
to countervailing duties.
The countervailing duty law requires the Secretary of
the Treasury to assess an additional customs duty equal to
the net amount of a "bounty or grant" that is paid on exported merchandise.
In the case of Uruguay, the Treasury determined that
countervailing duties would be due on all textile exports,
which consist principally of woolen apparel.
In the case of Argentina, the Treasury determined to
apply countervailing duties to only one category of textiles —
that involving woolen suits. All other textile products from
that country were found not subsidized.
In the case of Brazil, the Treasury found that the
Brazilian Government had paid subsidies of approximately 37.2
percent on its textile exports. The Treasury waived countervailing duties on these items based on the following steps
taken by the Government of Brazil:
B-1258
- 2(1) An immediate reduction of 25 percent of the subsidy
followed by a further 25 percent reduction no later than
January 3, 1979;
(2) Elimination of the remaining 50 percent no later than
January 1, 1980;
(3) The commitment by the Government of Brazil to an
active participation in the Multilateral Trade Negotiations,
including its agreement to a number of principles that should
be included in a code governing the use of subsidies and
countervailing duties and the commitment to seek final agreement on that code during the negotiations in Geneva by the
end of this month;
(4) The agreement by the Government of Brazil to make
reductions in its overall programs of export incentives as
a contribution to more discipline in international trade.
In view of these steps, a waiver of countervailing duties
was considered appropriate.
No net bounties were found to exist on Indian textiles,
since the export payments made by that country are offset
by indirect taxes on the exported products.
These final decisions will appear in the Federal Register
of November 16, 1978.
The value of trade from these eight countries in 1977
was approximately $1 billion.
kpartmentoftheTREASURY
TELEPHONE 566-2041
lSHINGTON,D.C. 20220
FOR IMMEDIATE RELEASE
November 13, 1978
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
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 November 16, 1978,
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 15. 1979
Price
Discount
Rate
97.836
97.823
97.828
8.561%
8.612%
8.593%
26-week bills
maturing May 17, 1979
Investment ]
Rate 1/ : Price
8.87%
8.93%
8.91%
Discount
Rate
:
95.311
95.299
:
95.303
:
9.275%
9.299%
9.291%
Investment
Rate 1/
9.87%
9.89%
9.88%
Tenders at the low price for the 13-week bills were allotted 48%
Tenders at the low price for the 26-week bills were allotted 81%
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
$
43,250,000
3,478,510,000
24,780,000
26,140,000
23,975,000
30,700,000
201,090,000
35,230,000
51,435,000
38,825,000
13,160,000
258,290,000
Treasury
TOTALS
Accepted
Received
Accepted
$
33,250,000
1,842,510,000
24,780,000
26,140,000
23,975,000
30,700,000
37,590,000
23,230,000
19,875,000
37,105,000
13,160,000
181,045,000
$
65,655,000
5,095,765,000
22,685,000
64,815,000
19,295,000
24,915,000
223,625,000
41,450,000
20,030,000
41,040,000
11,570,000
249,755,000
$
40,655,000
2,973,875,000
12,685,000
50,265,000
19,275,000
24,915,000
61,210,000
24,275,000
14,030,000
39,940,000
11,570,000
113,550,000
6,980,000
6,980,000
14,485,000
$4,232,365,000
$2,300,340,000a/: $5,895,085,000
BJ Includes $438,995,000 noncompetitive tenders from the public.
il/Includes $351,240,000 noncompetitive tenders from the public.
^/Equivalent coupon-issue yield.
B-1259
14,485,000
$3,400,730,00
FOR RELEASE UPON DELIVERY
EXPECTED AT 2:30 P.M., EST
MONDAY, NOVEMBER 13, 1978
REMARKS BY THE HONORABLE C. FRED BERGSTEN
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE
NATIONAL FOREIGN TRADE COUNCIL
NEW YORK, NEW YORK
Two key issues now dominate the outlook for the world
trading system:
— the evolution of the U.S. trade balance
— prospects for concluding the Multilateral Trade
Negotiations (MTN) by December 15/ as agreed at
the Bonn Summit last July.
The coming year could provide the best news for
international commerce for at least a decade if, in 1979,
the U.S. trade deficit can be sharply reduced and the
MTN package completed. There are good signs that both
can be achieved, though much hard work lies ahead to assure
their realization. I will address each issue in turn
during my remarks today.
THE OUTLOOK FOR THE UNITED STATES TRADE BALANCE
The U.S. trade balance posted a record $45 billion
(annual rate) deficit in the first quarter of 1978.
B-1260
- 2 The first quarter current account balance, which adds
our sizable and growing surplus in services items to
the merchandise trade, was in deficit by $27 billion
(annual rate).
Since that time, however, the tide has
clearly turned.
The trade balance improved sharply in the second and
third quarters.
The trade deficit receded to a $31 billion
annual rate, an improvement of $14 billion.
The current
account deficit also fell about $14 billion, to an
annual rate of around $13 billion in the second and
third quarters.
Roughly 40 percent of this improvement reflects a sharp
rise of almost $6 billion (a.r.) in the level of agricultural
exports, which is unlikely to be repeated quarter after quarter.
But a substantial portion of the improvement suggests
that the underlying trends are also looking up.
After
2 1/2 years of sluggish growth, U.S. non-agricultural
exports began to pick up in March of this year; by the third quarter
non-agricultural export volume had grown at a 29 percent
annual rate above the first quarter.
In value terms,
third quarter exports had risen 47 percent (a.r.) over
the first.
These are impressive gains in both volume
and value terms. Clearly, U.S. exporters are beginning
to regain some of their recently lost market shares.
We have also begun to observe the effect of changed
competitiveness on the growth of U.S. imports.
After
- 3 growing at a 26 percent annual rate from the third quarter of
1977 to the first quarter of this year, real imports increased
at only a 5 percent rate from the first to the third quarter.
The comparable drop in nominal values was from 40 to 15 percent.
Given the strength of U.S. real growth over the period,
this is an impressive performance.
The merchandise trade deficit should be under $35 billion
for the full year 1978, declining by roughly 1/3 in
the second half of the year to an annual rate of just
over $30 billion from the first quarter rate of $45
billion — even though there is likely to be a substantial
pick-up in the volume of oil imports during the fourth quarter.
We believe that the deficit in the trade account
will continue to decline in 1979 in both value and volume
terms, aided by several special factors including stepped-up
gold sales. The trade deficit for the year as a whole
should be roughly $25 billion, assuming no rise in oil
prices. (A 5 percent rise in oil prices would add about
$2 billion to the total.)
The improving trend in the basic U.S. competitive
position clearly emerges in projected developments in
the trade balance after excluding agricultural and petroleum
trade. This balance was in deficit at an annual rate
of $31 billion in the first quarter of 1978. It should
decline to under $15 billion in the fourth quarter of
1978, and continue to decline to less than $10 billion by the
- 4 fourth quarter of 1979. This would represent an improvement
of over $20 billion within two years in our non-agricultural,
non-oil trade performance —
perhaps the best single
indication of the improved underlying competitive strength
of the U.S. economy in world trade.
Merchandise trade, however, is only part of the
picture.
As already noted, the United States —
our major competitors in world trade —
unlike
runs a sizable
and growing surplus on international services transactions.
Equilibrium, and even substantial surplus, can be
achieved in our current account even when merchandise
trade is in sizable deficit.
Even including government grants, which represent
a net outflow of $3-4 billion, the surplus on "invisibles" —
as opposed to "visible" merchandise trade —
will probably
exceed $17 billion this year and could reach $19 billion
in 1979. The main sources of strength in our invisible
receipts have been rapidly growing military sales, and
net investment income of about $18 billion on our huge
stock of foreign investment.
Taking account of all these factors, our latest
projections indicate that the U.S. current account deficit
—
which is now expected to total about $17 billion for 1978 —
could drop by more than 50 percent in 1979, perhaps
to as little as $6 billion in the absence of any increase
in world oil prices.
This outlook is broadly consistent with
- 5 those of several other respected forecasters.
I hasten to note that, since I have been at the Treasury
Department, I have become much more aware of the tenuousness
of balance of payments forecasts.
We have never experienced
exchange rate movements of the size recorded in the last
18 months, for example, and it is quite possible that such
large changes in relative prices will trigger movements in
trade volume considerably larger than those estimated by
econometric estimates of price elasticities.
It is also
possible that we will continue to underestimate the level
of U.S. farm exports, a consistent error made by most
forecasters in recent years.
Any specific numbers can therefore
represent only rough orders of magnitude, but we are
confident that the trend portrayed here is correct.
New Factors in the U.S. Trade Outlook
In fact, despite all the uncertainties, it seems
clear that basic improvement in the U.S. trade balance
(and hence current account) can be expected to derive
from a number of changed conditions:
—
a reversal of relative growth rates, back to
the more traditional situation where real growth
abroad exceeds that in the United States;
—
regained international competitiveness of U.S.
exports;
- 6 — energy conservation and legislation;
—
a sharp increase in U.S. gold sales.
Since the global recession of 1974/75, the U.S.
recovery has far outpaced that of all other developed countries.
Only the U.S. economy has followed a 'normal1 recovery
path:
led by government stimulus, followed by a pick-up
in consumption expenditures, and then turning to expansion
when the previous output peak was exceeded as real investment
began to play its own role in the cyclical recovery.
By late summer of 1978, the level of U.S. industrial
production was roughly 10 percent above its pre-recession
peak and about 30 percent above the recession trough.
Production performance in other OECD countries has been
lackluster.
The average level of industrial production
in twelve other countries by late summer, by contrast was a scant
1 percent above its pre-recession peak and only 15 percent
above the recession trough.
This divergence in recovery
has had a major negative effect on the U.S. trade balance.
During the 1960's, growth rates were much faster abroad
than at home —
the U.S. economy averaged real growth of
4.2 percent, while the rest of the OECD averaged 6.5 percent.
From 1975 to 1977, however, U.S. real growth averaged
5.4 percent while that of the rest of the OECD averaged only
3.8 percent.
This shift alone caused an adverse swing
of $10-20 billion in the U.S. trade balance.
Now we are coming back to a situation where growth
- 7 abroad will exceed U.S. growth.
We now see real growth
abroad — at about 4 percent for 1979 — at a higher rate
than in the United States for the first time since 1974.
This reversal will tend to offset the deterioration
in the trade balance due to growth differentials that has
underlain our recent problems.
In addition, we believe that improvements in the
international price competitiveness of U.S. products
over the past year and a half are now beginning to show
up in the data and will significantly affect trade volumes
during 1979. The U.S. dollar depreciated about 13 1/2
percent on a trade-weighted basis between September
1977 and early Novemoer of this year. A rule of thumb
we frequently use is that a 1 percent depreciation in
real terms will be associated with a $1 billion improvement
in the trade balance. The time lag involved in adjusting
trade flows to exchange rates is something like 1-2 years.
A primary reason why the United States must
improve its inflation preformance is to protect these recent
gains in our international trade competitiveness resulting
from the exchange rate movements. In real terms — that
is, exchange rates adjusted for relative price performance —
the U.S. competitive position has improved nearly 10
percent since September 1977. Over 3 percent of
the potential competitive gain due to exchange rate
change was lost due to relatively poorer inflation performance.
- 8 But we would still expect that the net effect of changes
in relative prices of traded goods could improve the
trade balance next year by some $5-10 billion.
A third major factor in the trade outlook is the demand
for imported oil.
demand —
As is well known, our rising energy
coupled with declining domestic supply and OPEC
price increases —
has been a major cause of the trade
balance deterioration.
Recent Congressional action on the energy bill
will temper that trend.
In addition, the coming on
stream of Alaskan oil this year well illustrates the
benefits from increasing domestic energy supplies.
Current
forecasts suggest that the U.S. oil import bill in 1978
will be less than the 1977 bill, a substantial degree
of progress at a time when the U.S. economy grew almost
4 percent.
Next year we will not be so fortunate.
oil imports will again rise somewhat.
The volume of
However, the
Congressional action on natural gas deregulation should
significantly slow that growth.
In addition, continued
gains in gas mileage and other conservation efforts will
continue to temper the growth in demand for imported oil.
Finally, U.S. gold sales contribute directly to
reducing the trade deficit.
In 1978, these sales will
probably total about $800 million.
On November 1, we
- 9 announced that the level of sales beginning in December 1978
would rise to at least 1 1/2 million ounces per month
—
five times the leyel of most of 1978. Assuming sales at the
level of 1 1/2 million ounces monthly throughout the year,
this would produce a year-over-year gain of about $3 billion
for the trade balance at the current market price of gold
The Services Sector
The continuing growth in the surplus on services will
also help strengthen the U.S. current account position in 1979.
Although the services sector has received little attention
in most analyses of the U.S. external position, it has
become a large and growing part of our international
activity.
As recently as 1970, gross flows in the services
sector were only about $43 billion.
By 1977, total U.S.
trade in services had grown to $105 billion.
By the
end of 1979, they could total $140 billion.
Over the 1970-77 period, the U.S. surplus on services
has grown from $3 billion to $20 1/2 billion.
The net
services surplus could approach $25 billion in 1979, with
an "invisibles" balance of over $19 billion when private
remittances and government grants are deducted.
Three components of the service accounts are primarily
responsible for its strong position: (1) military sales
and expenditures; (2) direct investment receipts; and
(3) earnings on other private assets (largely bank activity).
The net military account has benefitted from strong
growth in sales —
up about $5 1/2 billion between 1970
- 10 and 1977 — at a time when the level of U.S. defense
expenditures abroad held relatively steady.
Sales to
OPEC and Middle East countries account for most of the
growth in these sales.
The direct investment account has
recorded the strongest improvement —
about $10 billion net
between 1970 and 1977. This growth reflects the profitability
of U.S. overseas investments, the effects of oil company
nationalizations, and exchange rate changes —
as local
currency profits are converted into dollars for repatriation.
Of particular interest is the growth in the net surplus
on private assets. These accounts measure interest receipts
and payments on privately held assets, on bank loans and
deposits, and dividends on portfolio investments.
The lion's
share of the growth in the surplus parallels the increased
intermediation role of U.S. banks in the wake of the oil
crisis and the removal of U.S. capital controls.
The outlook is thus for solid improvement in the U.S. trade
balance and current account.
This of course does not
mean that we can in any way relax our efforts to assure
the projected gains in 1979, achieve further improvement
beyond, and place the U.S. external balance in a stable
position for the longer run:
—
the President's anti-inflation program, buttressed
by the dollar defense measures announced on
November 1, must succeed if our competitive gains
are to be preserved
- 11 —
the export expansion program announced by the
President on September 26 must be carried out
effectively, providing opportunities
for even more impressive gains if business takes
advantage of its new opportunities
— still greater conservation and domestic production
of energy is needed to reduce further U.S.
dependence on imported oil.
Successful implementation of these policy actions
can assure achievement of the steady, sizable improvements
in the U.S. external balance which are essential for a strong
dollar, and therefore for the health of both the U.S.
economy and the world. At the moment, the outlook is
favorable. On this count, 1979 should be a good year for
the world trading system.
THE MULTILATERAL TRADE NEGOTIATIONS
International trade policy stands today at a critical
crossroads. The Multilateral Trade Negotiations (MTN) in Geneva
are in their most sensitive stage, as we approach the
December 15 deadline for completion of the Tokyo Round and
all major trading nations seek to assure themselves that
they have obtained overall reciprocity in the negotiations.
Several of the toughest political issues remain to be resolved,
but we have come a long way toward designing a future trading
system which will be more open and fair for all nations.
- 12 The basic Framework of Understanding achieved in July was
an important barometer of mutual political resolve to reach
agreement on substantial further liberalization of international trade.
now crucial —
Success in wrapping up the negotiations is
to our economic and political relations with
other nations, as well as to our future welfare here at home.
Indeed, maintaining an open trading system is more
essential today than ever before. The global community
faces the very real risk of retreating into a mutually
destructive protectionism if we fail to move forward
together.
The Multilateral Trade Negotiations are our
chosen instrument for helping achieve two general objectives:
—
Reduced inflation:
Imports are of great benefit
to the United States. They lower prices in the
U.S. market, allowing the consumer to stretch
his dollar further.
Where imported goods can
be used as inputs by domestic producers, U.S.
production costs can be lowered.
Import competition
has often spurred American producers to develop
more efficient methods and new products.
Conversely, new import restrictions would add to
inflation, harm consumers, and generate
resource misallocations which impose permanent
losses on our economy at a time we can least
afford them.
- 13 —
Expanding trade-related employment:
Millions of
American jobs depend on the preservation of an
open trading system.
The erection of new barriers
would lead to similar actions by our
trading partners, choking off export-related
American jobs.
It would lead to a direct loss
in import-related employment among those engaged
in handling, transportation and sale of imports,
as well as in the fabrication of finished
goods using imported components.
A successful
MTN, we are convinced, would help preserve and
expand such employment on both the import and
export sides.
The July 13 Framework of Understanding negotiated in
Geneva by Ambassador Robert Strauss and his colleagues
took us a substantial distance toward the agreement we seek.
We are now working toward the December 15 target mandated
at the Bonn Summit for completion of the MTN.
The major
topics are as follows:
Tariffs.
Historically, tariffs have been the major
topic of trade negotiations.
They have been somewhat
overshadowed in the Tokyo Round by the difficult bargaining
over subsidies and other non-tariff issues.
Nevertheless,
they remain important because of their political and
psychological importance as barometers of trade liberalization,
because tariffs in certain product areas remain high and
- 14 because they can be used to "fine tune" an agreement for
purposes of calculating reciprocity.
At present, we have
a reasonably good agreement with Japan but still have
some distance to go in our talks with Canada and the EC.
Negotiations with the LDCs are progressing slowly.
Subsidies and countervailing duties.
The increasing
level of export subsidization by a number of governments
represents a major potential source of trade friction in the
next decade.
The United States strongly believes that
there must be better international discipline over the use
of subsidies in order to discourage governments from
exporting their economic problems through direct financial a
and other kinds of help to favored industries. If we obtain
an agreement providing such discipline, along with
effective procedures to ensure implementation, we are
prepared to insert ah injury test into our countervailing
duty law —
the only one among major countries which
does not now contain such a test.
The injury test would be incorporated within the
framework of a "two-track" approach suggested by the
United States and endorsed by our major negotiating
partners.
If a country were to grant a subsidy in violation
of specific commitments not to use certain practices, then
the importing country could apply countermeasures
without having to demonstrate injury.
This is fully
- 15 consistent with the GATT approach to tariffs: retaliation
is authorized whenever a country violates its tariff
bindings, with no requirement to demonstrate injury.
The other "track" provides for counter-measures against
subsidies after a finding of injury.
Before any code can be accepted we must resolve three
key issues:
—
Agriculture:
The agreement must deal with
subsidized competition in world agricultural
export markets.
—
Provisional measures: We must maintain the right
to act against the most blatant subsidy practices
pending the outcome of international dispute
settlement procedures.
—
Domestic subsidies:
We believe that international
guidelines are necessary to minimize trade
distortions resulting from subsidies applied for
legitimate domestic reasons.
This is a tough, ambitious agenda.
But we consider
agreement feasible and necessary by the end of the year.
It is necessary particularly because the authority
of the Secretary of the Treasury to waive the imposition
of countervailing duties expires on January 3, 1979.
This could result in the imposition of countervailing duties
- 16 on a number of politically sensitive foreign products and
clearly complicates the negotiation process — especially
with regard to the European Community.
In view of the importance of this matter, the President
did everything possible to secure an extension of the
countervailing duty waiver authority from the last Congress.
We failed largely because of the confusion that often
attends the last days of a Congressional session. If
substantial agreement on an MTN package, including a
subsidy/countervailing duty code, is achieved by December 15,
the President is confident that he can secure an extension
of the waiver authority from the new Congress or take
other measures to mitigate damage to trade pending Congressional
review of the agreement. In the absence of such an agreement,
cooperation in this sensitive area will inevitably suffer.
I would like to make clear, however, that there has
been no change in the underlying situation due to the failure
of Congressional action on waiver extension during the past session.
Substantial completion of an MTN package — including a
subsidy/CVD code — is a vital prerequisite to continued
cooperation in this area. Even with an extension of seven
months, as we had sought, we would have needed a successful
MTN package for the waiver to go into effect. If we do
not achieve this agreement, there is no basis for waiving
countervailing duties and cooperation in other areas
of trade will also inevitably suffer.
- 17 Safeguards.
At present, governments contemplating
"escape clause" action to provide relief to import-impacted
industries are required by GATT to do so on a most-favorednation basis.
The United States believes that this
should continue to be the case, but that the GATT rules
should be improved to reflect changes in international
practice over the past several years.
The European Community and others, however, want
the right to take selective action unilaterally against
the trade of specific countries causing the damage.
We believe selective action should be permitted only if the
exporter agrees, or otherwise under strict conditions including
prior international review.
To do otherwise would too radically
compromise the MFN principle which has served us all so well.
Government Procurement.
The GATT now exempts from
coverage all purchases by governments of goods for their own
use.
We believe this large and growing area of economic
activity should be brought within the purview of the
international trading rules, particularly since governments
are increasingly inclined to use it to further their broader
economic policy objectives.
We are proposing rules which
would eliminate discrimination against foreign suppliers and
provide greater transparency in government tendering.
Framework.
In this "GATT Reform" group, we seek
improved international procedures for resolving trade
disputes, tighter discipline over trade restrictions
- 18 imposed for balance of payments reasons to ensure that they
are used only when truly justified, and clarification of
GATT rules governing the use of export restraints.
Successful conclusion of the MTN can thus provide
the first steps in dealing with the whole range
of issues which are likely to dominate world trade policy
in the 1980s. The heads of Governments and States meeting
in Bonn last July pledged to complete the negotiations
by December 15 of this year. We believe that it is of
crucial importance to meet this timetable, and that there
is every likelihood that it can be met. If it is, the trade
policy outlook will also augur well for 1979.
EXPORT CREDITS
Although it is not being negotiated in the MTN, I
would like to comment finally on a closely related topic —
the International Arrangement on Official Export Credits,
concluded by twenty-two countries and the Commission of the
European Communities earlier this year. The Arrangement
is intended to head off the possibility of a self-defeating
export credit war, a very real danger in this time of
increased government intervention in trade.
Our hope has been that the new Arrangement would
form the basis for cooperation among the major trading
nations to curb excessive competition in export credits.
It was a welcome first step, but further action is needed
- 19 to restrain aggressive government financing practices and
reduce the element of subsidy in official export credit
financing.
On September 26, the President directed
the Secretary of the Treasury to undertake immediate
consultations with our trading partners to expand the scope
and tighten the terms of the Arrangement.
Similarly concerned over what it regards as unfair
financing of exports by U.S. competitors, Congress last
month amended the Export-Import Bank Act to authorize
the President to begin negotiations at the ministerial
level with other major exporting countries to end predatory
export financing programs and other forms of export subsidies,
including mixed credits.
The President is required to
report to the Congress prior to January 15, 1979, on
progress toward meeting the goals of this section of the
Eximbank Act.
To begin our efforts to carry out these mandates,
I visited Bonn, Paris, Brussels and London in mid-October.
These consultations and the meeting of Participants in
the Arrangement during late October have been constructive.
It is too early to determine, however, whether they will
result in the improvements in the Arrangement we consider
essential.
At a minimum, we hope to achieve some movement in
- 20 the following areas over the short-term:
—
an increase in interest rate minimums;
—
limitations on local cost financing;
—
requiring adherence to Arrangement interest
rate minimums whenever exchange risk insurance
is coupled with official export insurance and
guarantee cover;
—
eliminating export credit subsidies on sales to EC
markets, as already agreed by all EC member countries;
—
bringing up-to-date the country groupings under
the Arrangement, particularly with regard to
the advanced developing nations;
—
better consultations on tough specific cases; and
—
better information exchange on sensitive programs.
These are ambitious goals, given the present global economic
environment, but they are essential if we are to
avoid serious confrontation in this area in the future.
While we pursue a more rigorous international agreement,
we are also taking action to maintain our own competitiveness
in the export credit market.
The Export-Import Bank is
increasing its financing fivefold from $700 million in
FY 1977 to $3.6 billion in FY 1979.
The President
has stated he will ask Congress for loan authorizations of
$4.1 billion in FY 1980.
- 21 Congress has also asked the Secretary of the Treasury,
in instances of foreign competition with U.S. firms in the
U.S. market, to seek the withdrawal of foreign official
export credit financing which exceeds the limits of
existing standstills or other agreements.
If such financing
is not withdrawn, the Secretary may authorize the Eximbank
to provide competing U.S. sellers with financing to
match that available through the foreign official export
credit agency.
This new authority —
rather than export, finance —
for import-competing,
is a clear indication
of Congressional concern over predatory export credit
practices by foreign governments, and of our intent
to meet such unfair financing practices.
Conclusion
We are thus working in a number of areas to restore
and maintain a successful U.S. trade position and trade policy
for 1979 and beyond:
—
sizable and steady reductions in the U.S. trade
deficit
—
expanding U.S. exports
—
further liberalization of international trade,
opening new markets to our exports and
maximizing the contribution of trade
to our fight against inflation
—
avoiding the risk of an export credit war.
- 22 None of these tasks are easy ones. But all are vital
to the national interest of the United States. We believe
that we are on the right track and that, with your help,
their achievement is in sight. If so, 1979 will indeed
be a good year for world trade.
U.S. - ISRAEL JOINT COMMITTEE FOR INVESTMENT AND TRADE
WASHINGTON
November 14, 1978
JOINT STATEMENT
The U.S.-Israel Joint Committee for Investment and
Trade met on November 14, 1978, at the Treasury Department
in Washington, D.C. The session, which was held in a
very friendly and relaxed atmosphere, was co-chaired by
Treasury Secretary W. Michael Blumenthal and Finance
Minister Simcha Ehrlich. U.S.-Israel Business Council
Co-Chairman Augustine R. Marusi and senior officials from
both Governments also participated.
The meeting represents a continuation of the close
dialogue between the United States and Israel on means for
enhancing economic cooperation between the two nations.
The Joint Committee is the Cabinet-level body established
in 1975 to discuss a wide variety of economic topics. The
Committee, which meets annually, held its previous session
during Secretary Blumenthal's visit to Israel in October, 1977.
The Business Council, which was formed at the request
of the two Governments in 1976, is the private sector counterpart of the Joint Committee. Accordingly the Business
Council serves as the primary channel for private sector
advice to the two Governments on a wide variety of important
trade, investment, and other business topics.
-2At the meeting Secretary Blumenthal and Finance Minister
Ehrlich initialed the new Income Tax Treaty.
Additionally
the Committee received a report from Mr. Marusi on the
revitalization of the U.S. Section of the Business Council.
Other principal topics were the MTN Subsidies Code, U.S.
Defense Department procurement regulations, and energy
cooperation.
Details regarding these discussions are
noted below.
I.
Business Council
U.S.-Israel Business Council Co-Chairman Augustine R.
Marusi, who is Chairman of the Board and Chief Executive
Officer of Borden, Inc., briefed the Committee on his
recent activities to revitalize the U.S. Section of the
Council.
Mr. Marusi indicated the Council will be under-
taking programs to better acquaint U.S. businessmen with
the new investment climate -in Israel.
The Committee
expresses deep appreciation to Mr. Marusi for his impressive
efforts, especially for the recruitment of new U.S. Section
members.
The Israeli Section of the Council, which is headed
by Chairman of the Board of Elite Ltd. Mark Mosevics, consists
of a group of major Israeli business leaders.
The Committee
strongly believes that a closer relationship between the
American and* Israeli private sectors will .produce a mutually
beneficial expansion of trade and investment between the two
nations.
-3II.
Tax Treaty
Secretary Blumenthal and Finance Minister Ehrlich
initialed the new Tax Treaty which revises the draft 1975
Treaty in order to take account of subsequent tax law changes
in both countries and to encourage mutually beneficial trade
and investment. The Committee expects that the new Treaty
will play an important role in expanding economic relations
between the two nations. The two countries will move as
promptly as possible towards signature so that the Treaty can
soon be submitted to the appropriate authorities of the two
nations for ratification.
III. MTN Subsidies Code
The Committee agrees that the successful conclusion of
the present MTN negotiations in Geneva is vital to maintaining and expanding the open world trading system which
has been of such great global economic benefit durinq the
last generation. The Committee believes that the Subsidies
Code now being negotiated is an essential part of any
successful MTN outcome. The Code should provide for
improved discipline on the international use of subsidies
and rules on the use of countervailing measures, while taking
into account the special needs of developing countries.
The Committee agrees that both Governments will consider in a
favorable light the final version of the Code to determine
whether they can adhere to it.
-4The Committee notes that U.S. and Israeli trade experts
will meet in Washington in early Decemoer to discuss the. MTN,
GSP, and other trade matters.
IV. Defense Department Procurement
The Committee reiterates the views and policies expressed
at its previous sessions regarding purchases of Israeli goods
and services by the U.S. Defense Department and its contractors.
The Committee carefully examined problems which have recently
arisen regarding possible purchases of Israeli items by the
DOD and its U.S. suppliers, and decided that at the technical
level accelerated examination of possible solutions to these
difficulties will be undertaken.
The Committee expresses
satisfaction with recent progress regarding DOD procurement
of Israeli items, as several major DOD contractors have recently
stated a desire to purchase Israeli goods.
V.
Research Cooperation
The Committee notes with satisfaction that the Agriculture
Research and Development Fund, which was agreed to at the
1977 Joint Committee session in Jerusalem-, has now been
established.
The BARD recently held its first Board meeting,
and it has already received numerous project proposals.
The Committee expressed satisfaction with the existing
binational research and development foundations and discussed
the scope of their future activities.
-5The Committee agrees that an exchange of information
regarding energy research would benefit both the United
States and Israel. Accordingly the two Governments intend
to negotiate an agreement providing for the exchange of
information and future collaboration in the energy field.
Suitable opportunities for future cooperative research
projects may be identified as a result of this information
exchange.
The Committee welcomes the establishment of the
U.S.-Israel Energy Council, which will advise the Government of Israel on energy matters. The Council membership
consists of prominent private sector energy experts from
both countries.
VI. Future Work
The Committee noted the usefulness of this meeting and
decided that its next annual meeting will take place in
Israel on a date to be mutually decided.
W. Michael Blumenthal, Chairman
United States Delegation
Simcha Ehrlich, Chairman
Israel Relegation
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Joint Statement of the U.S.-Israel Joint Committee for Investment and Trade by The
Honorable W. Michael Blumenthal, Treasury Secretary and Chairman of the U.S. Delegation
1978-11-14
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partmentoftheTREASURY
HiN6T0N,D.C. 20220
TELEPHONE 566-2041
FOR RELEASE AT 4:00 P.M.
November 14, 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 November 24, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $ 5,708 million.
The two series offered are as follows:
90-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
August 24, 1978,
and to mature February 22, 1979 (CUSIP No.
912793 W9 3 ) , originally issued in the amount of $3,404 million,
the additional and original bills to be freely interchangeable.
181-day bills for approximately $2/900 million to be dated
November 24, 1978, and to mature May 24, 1979
(CUSIP No.
912793 Y6 7 ) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing November 24, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,038
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, November 20, 1978.
Form PD 4632-2 (for 26-week
ainta>fi<
series) or Form PD 4632-3 (for 13-week
series) should be used
e^s-tff?y.
to submit tenders for bills to be maintained
on the book-entry
records of the Department of the Tre.
5-1261
-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 November 24, 1978, in cash or
other immediately available funds or in Treasury bills maturing
November 24, 1978.
Cash adjustments will be made for
differences
accepted in exchange
between the
andpar
thevalue
issueof
price
the maturing
of 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.
Tuesday, November 14, 1978
v r . P KTH£HT
REMARKS BY THE HONORABLE C. FRED BERGSTEN
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE
FORDHAM CORPORATE LAW INSTITUTE
NEW YORK, NEW YORK
The International Investment Policy of the United States
The international investment policy of the United States
is based on the premise that the investment process works
most efficiently in the absence of government intervention.
Intervention by governments in either home or host countries
will usually distort the allocation of resources and thereby
reduce world output — an outcome we can least afford at this
time of high unemployment and continuing inflationary pressures.
Moreover, efforts by one government to tilt the benefits of
international investment in its direction through interventionist policies are likely to prompt countermeasures by
other governments, with adverse effects on the world economy
and on overall international relationships.
Hence the United States has adopted a model approach
to international investment, containing three elements.
Under normal circumstances, we should:
B-1262
- 2 (1) neither promote nor discourage inward or outward
investment flows or activities;
(2)
avoid measures which would give special incentives
or disincentives to specific investment flows or
activities; and
(3)
avoid intervention in the activities of individual
companies regarding international investment.
This model approach to the investment process must
obviously be tempered by the realities of today's world.
It is clear that many governments actively intervene
in the investment process in an effort to garner benefits
for their national economies.
Indeed, many state and
local governments within the United States, and occasionally our own Federal Government, have embraced such policies.
Intervention takes many forms, but it usually combines two
basic features —
incentives to attract the particular
investor in the first place, and performance requirements
to assure that the firm does in fact contribute to the
priority economic and social goals of the host government.
These performance requirements usually focus on job
creation, technology transfer, value added and export levels
A major objective of U.S. policy, therefore, must be
to achieve increased multilateral discipline on incentives
and other interventions, both to maintain an open investment
environment, and to avoid being forced into the adoption
of emulative countermeasures.
With offshore output by
multinational firms now approaching a value of $1 trillion,
- 3 it is anomalous that no such disciplines now apply to the
international investment process. International trade,
which has reached similar levels, is of course governed
by long-standing rules and institutional arrangements,
embodied both in the GATT and in bilateral treaties.
The development of such disciplines has become an
important part of our day-to-day policy initiatives in
the international investment area. I and my colleagues
in the Administration have recently discussed these
problems bilaterally with Canada and our major European
allies, and multilaterally in the OECD. The need for
additional action was framed in the communique issued
at the Bonn Summit last July, in which we joined other
participants in emphasizing our willingness to increase
cooperation in the field of foreign private investment
flows among industrialized countries and between industrialized and developing countries. We also stated in the
Summit communique that we will intensify work for further
agreements in the OECD and elsewhere.
The basic problem we face in trying to achieve
discipline is that most governments have not yet recognized
the need for international rules on investment as they
did long ago for trade and international monetary policy.
In part, this is because direct investment is relatively
new as a T.^jor vehicle for international economic exchange,
and thus its irr.cact has not been as visible as the impact
- 4 of trade flows and exchange rate changes.
The attitude
also reflects ambivalent and conflicting views on the
jurisdiction of the different sovereign states involved
in the broad-gauged activities of multinational companies.
A similar ambivalence exists within the United States.
Many of our own laws, regulations, and policies affecting
multinational firms have been carried out unilaterally,
without full consideration of their international dimensions.
Our own states and localities often extend incentives
implicitly or explicitly designed to attract investors
from abroad. I recently discussed this issue with representatives of state and local governments meeting under
the auspices of the Advisory Commission on Intergovernmental
1/
Relations.
I was encouraged to learn that most state and
local government representatives have considerable sympathy
for the federal view that such incentives frequently represent
a waste of taxpayers' money, and that all government entities
would be better off if a way could be found to eliminate this
kind of competition. The Commission is now studying the
interaction between such internal U.S. actions and the
international investment process, as part of its broader
analysis of relations among the states themselves regarding
1/
ACIR was created by Congress in 1959 to monitor the
operation of the American federal system and to
recommend improvements. It is a permanent national
bipartisan body representing the executive and
legislative branches of Federal, State and local
government and the public.
- 5 investment policies. Similar sub-national issues regarding
international investment policy also arise in other
countries with federal governmental systems, such as Canada.
The lack of concert among governments in the
investment area thus raises increasingly important
questions.
Beyond the newly important issue of incentives
and performance requirements, discord also exists along
more traditional lines:
Treatment of the investor.
Host governments
including the United States, often assert the
right to control foreign-owned subsidiaries as
a normal exercise of jurisdiction over one of
their nationals.
Meanwhile, home governments
feel a responsibility for protecting the foreign
property interests of their nationals.
—
Performance of the local affiliate.
Governments
worry that, because they can only observe affiliates
located in their jurisdiction and cannot observe
the multinational enterprise as a whole, they are
unable to assess the real impact of the "local"
firm.
This concern arise in the context of
investment levels, taxation, competition, and
* labor relations, as well as in other areas.
- 6 -
—
Behavior of the foreign affiliate.
Governments
also clash over efforts to influence the behavior
of an affiliate in another country's jurisdiction,
efforts that sometimes involve commands to the
parent to be relayed to a subsidiary.
Fortunately, popular alarm over the power and growth
of multinational firms has substantially abated during the
past few years.
worse —
It is now recognized —
for better or
that most governments are quite able to deal
effectively with these firms.
Hysteria over the "global
reach" of multinationals is much abated.
However, this healthy relaxation of. concerns has not
yet led to the development of new international understandings in this area.
With appropriate effort, progress
might well be made on many of these traditional issues.
And it is clearly time to start working seriously on the
growing intervention of governments which affects the
location of international investment.
If they are not addressed soon, the underlying
problems will likely get worse, simply by force of the
growing volume of international investment.
Japan and
Europe are now beginning to rival the United States as
home countries to major multinationals.
Some of the
advanced developing countries (e.g., Brazil, Mexico, Taiwan,
Korea) have become large host countries for foreign investment.
And growing investments by Germany and Japan in the
- 7 in the United States promise to accentuate our own position
as second largest host to foreign investment, after Canada.
Just as international arrangements became necessary when
trade and monetary relationships among nations reached
sizable magnitudes, such arrangements now clearly seem
called for in the investment area.
I have focused on the problems created by increased
government intervention in the international investment
process, but we should be aware of one positive aspect
of this trend. All interventionist policies rest on an
increasing awareness of the importance of increased
capital formation, a principle which we strongly support.
Coordinated international action to spur investment and
capital formation is a highly laudable objective, and one
which we are pursuing with other major countries in the
OECD and elsewhere.
What is troublesome, however, is the way governments
are carrying out this objective. Rather than adopting
generalized approaches which will increase total capital
formation, they often adopt industry-specific, or even
firm-specific, measures which will only redistribute
existing investment or divert to a different location
investment that would have been made in any event.
The recent Canadian offer of $68 million to the Ford
Motor Company to build a plant in Ontario instead of Ohio
is a case in point. So is the British enticement of
- 8 Hoffman-LaRoche, the giant Swiss pharmaceutical firm, with
an incentive package approaching $100 million.
A number
of advanced developing countries, such as Brazil and
Mexico, require foreign companies to produce locally
up to 100 percent of the value-^dded as a condition of
participation in their automobilo industr.Los —
a require-
ment which is equivalent to a zero import quota on parts
and other imports and which is relaxed only as the
companies expand their exports.
All of these arrangements,
and numerous others like them, have the effect of shifting
the location of investment across national borders —
thereby,
in essence, exporting one country's problem to another.
If these measures continue to proliferate, more and
sharper conflicts between governments appear inevitable.
The conflicts will also be harder to resolve in the
absence of international arrangements which address these
problems.
We can easily envisage a spiral of beggar-thy-
neighbor competition, in which intervention by one government
stimulates both emulation and countermeasures by others to
the detriment of all.
If past experience concerning the interplay of national
economic policies has taught us anything, it should be the
need to identify and devise means to address problems at an
early stage —
before vested interests become so strong that
a crisis is required to bring forth appropriate international
rules.
Failure to take early action in the past led to trade
- 9 wars and competitive exchange rate devaluations, much
to the detriment of the international economy.
In the case of international investment, we are not
yet at the point where vital interests have been damaged
as a result of undesirable national competition for international investment.
There is certainly no global crisis,
though individual problems —
—
such as those mentioned above
have already produced some nasty clashes. Moreover, major
intellectual problems will inevitably arise as we try to
deal with these issues, for example:
When is an incentive legitimate as a means to
offset the disadvantages of investing in a
particular locale, and when does it exceed that
bound?
When does an incentive actually induce a firm
to move offshore, as opposed to influencing
where, among several offshore sites it might
choose?
In what circumstances can the investment issue
be handled through the normal approaches to
trade policy, since international investment
frequently leads eventually to trade flows, and
in what circumstances does it call for separate
or additional responses?
- 10 We do not pretend to have clear answers to all of
these problems at this time.
Indeed, we are at a very
exploratory point in many of our international discussions.
Nevertheless, we believe that the problem is already serious
and is virtually certain to become more serious, and that
it is therefore our duty to seek ways to deal with it
constructively.
We are moving ahead in a number of ways,
and I would like to report on them today.
OECD Agreements
OECD member countries reached two agreements in 1976
on international investment problems.
First, each nation
declared that it should treat established foreign investors
no less favorably than it treats domestic investors in
similar circumstances —
in other words, foreign investors
are granted "national treatment." Second, each nation
agreed to take into account possible damage to other member
countries should it provide official incentives or
disincentives to foreign direct investment.
Both agree-
ments were accompanied by consultative procedures.
These agreements are limited in scope but they
are the first, and so far the only, multilateral
agreements on international investment.
Both agreements
will be reviewed next year, and we are examining the
possibilities for improvement.
In addition, we have recently examined whether
additional steps might be taken to strengthen the
OECD's work concerning incentives and disincentives.
I have
- 11 t
consulted on this bilaterally in the major European
capitals, and Under Secretary of State Cooper has
discussed it with our OECD colleagues. We have reached
agreement to consider the issue outside, and beyond,
the regular 1979 review of the OECD Declaration.
The Development Committee
In the fall of 1977, the Development Committee of
the International Monetary Fund and the World Bank decided
to include "The Role of Direct Foreign Investment in
Development" in its work program. The object was to
improve understanding of the problems surrounding
direct foreign investment, in the expectation that this
might lead to proposals to improve the international
investment process.
The Development Committee is a relatively new
forum, started in 1974, with representatives from both
developed and developing countries. Representatives are
drawn from the finance and economic ministries of the member
countries, or from their Executive Directors' offices at
the IMF/IBRD. Thus it is a forum where controversial issues
can be, and have been, discussed in a quiet, relatively nonideological fashion, with a focus on their economic and
financial merits.
The Committee's Working Group on Access to Capital
Markets has met three times during the past year, focusing
on the economic questions posed by home and host country
- 12 policies towards direct foreign investment and the effect
of such investment on home countries.
This has been a
useful exercise, and has improved understanding of the
difficulties involved in direct foreign investment.
As
a result of these efforts, we may be moving toward a consensus
on certain basic principles.
Such agreement among industrial-
ized and developing countries could represent a major step
toward dealing more effectively with some important investment
issues.
Bilateral Investment Treaties
Some 43 bilateral treaties of Friendship, Commerce and
Navigation (FCNs) are presently in force between the United
States and other countries, 10 of which are with developing
countries.
All of the FCN treaties with developed countries
were negotiated prior to 1961, however; only two treaties
have been concluded since then, with Togo in 1966 and
Thailand in 1968.
Recently, the Congress and the private sector have
again become interested in these treaties.
report recommended that:
A 1977 GAO
"The Secretary of State should
initiate a broad based effort to negotiate treaties of
Friendship, Commerce and Navigation, emphasizing protection of private foreign investments, with the developing
countries of the world when some significant potential
for U.S. private investment exists."
The United States
has recently decided to enter into negotiations with Singapore
- 13 on a bilateral investment treaty.
Another aspect of this issue is that several European
countries —
especially Germany and Switzerland, but also
Britain to some extent —
have recently negotiated an
extensive network of bilateral investment treaties to
protect their foreign investment.
Similar action by
the United States would assure our investors of equivalent
good offices, and provide a possible basis for joint
approaches by major home countries.
The U.S. draft treaty, under preparation for delivery
to Singapore, contains a new provision which would advance
U.S. aims in the international investment area.
This
provision provides for consultations between the contracting
parties if one of them feels its national interests are,
or will be, significantly and adversely affected by the
other party's pre-existing or prospective rules and
regulations.
The object of these consultations is twofold:
to seek ways to minimize the adverse impacts of such measures
on foreign investors, and to provide a basis for discussing
the problem of incentives and performance requirements
outlined earlier.
International Cooperation in Taxation
The U.S. Treasury is coordinating international tax
rules in various forums as a means of facilitating
international investments.
We are expanding our network
- 14 of bilateral income tax treaties and have published a U.S.
model income tax treaty which has been widely distributed.
Treasury has also participated actively over the years
in the work of several international organizations in an
effort to improve coordination among countries in the
taxation of international income flows.
The Fiscal Affairs
Committee of the OECD is a regular forum for exchanges of
views and experience on international tax matters.
In 1977,
the OECD published a revised Model Income Tax Convention which
serves as a basis for negotiations of double taxation conventions by many countries.
In a parallel effort, the United States is actively
participating in the work of a group of experts convened
by the United Nations, which is concluding its development
of a manual for the negotiation of tax treaties between
developed and developing countries.
Finally, we are par-
ticipating in efforts by the Inter-American Center for
Tax Administrators to harmonize tax policy and administration
among Western Hemisphere countries.
Until recently, the United States has been notably
unsuccessful in negotiating income tax treaties with developing countries.
This is the result, principally, of the
desire of many developing countries that tax treaties
contain some form of U.S. tax incentive for investment
in their countries.
The tax incentive goal runs squarely
against the oft-repeated views of the Senate, and the
- 15 investment neutrality principles enunciated by several
administrations.
Fortunately, in recent years, some
developing countries have come to recognize that a treaty
with the United States, even without an explicit tax
incentive element, can make a valuable contribution to
their economic development.
The United States has been willing to make a number
of modifications in the standard treaty in an effort to
minimize its revenue cost to the developing country,
while still retaining the positive effects of a treaty
on the climate for U.S. investment in these countries.
In addition to these benefits, the tax enforcement programs
of developing countries can be aided by exchange of
information provisions of tax treaties.
Treaties with
Korea, the Philippines and Morocco are currently awaiting
Senate action.
We are hopeful that treaties with Egypt
and Israel, both signed in 1975, can be moved forward in
the coming months.
Treaties with several other developing
countries, including Jamaica and Bangladesh, are in
advanced stages of negotiatons.
Multilateral Trade Negotiations
We also expect to make progress in the Multilateral
Trade Negotiations (MTN) in establishing new internatonal rules on government practices in the investment
area.
One of our major objectives in the MTN is to
reach agreement on new international commitments to
- 16 prevent or limit the effects on trade of export and
domestic subsidy programs. Under the proposed arrangement,
signatories would sanction appropriate countermeasures
when an importing nation determines that any subsidy program
of another country threatens or has caused injury to one
of the importing nation's industries.
In addition, in
the case of an outright export subsidy, any adverse effect
on another nation's trading interests would be sufficient
to justify countermeasures.
Some of the incentives currently
used to attract foreign investment would be covered under
these provisions.
If we are successful in reaching agreement
on this issue in the MTN, those countries whose production
and trade interests are harmed by others' subsidies, including
investment incentives will have recourse to an internationally
sanctioned means of dealing with the situation.
One might well ask why the entire problem of
investment incentives cannot be handled through appropriate modification of trade policy rather than through
new arrangements related directly to investment policies.
Part of the answer lies in the fact that such incentives,
rather than creating trade, may destroy opportunities for
trade by creating import substituting investment and thus
be hard to reach via trade policies.
More importantly, however, trade policy would
frequently represent a case of "too little, too late"
in responding to investment incentives.
In 1973, for
- 17 example, the United States responded actively to U.S.
imports of Michelin tires from a Canadian tire plant which
benefitted from Canadian government subsidies. A trade
measure — such as a countervailing duty — can only be
taken after production is underway and trade is established,
long after millions of dollars are invested in the facility
and thousands of jobs have been created. When that kind of
damage has been done, trade policy and trade measures can't
remedy the injury. Preventive medicine is thus needed to avoid
the difficulties caused by many investment incentive programs.
International Antitrust Cooperation
In the area of competition policy, the OECD member
countries have made a number of multilateral and bilateral
efforts to coordinate their international enforcement
activities. The OECD Committee on Restrictive Business
Practices has been the primary multilateral forum to
facilitate exchange of information between government
authorities. However, when particular jurisdictional
issues arise, consultations are generally bilateral.
Progress has been very slow, however, in gaining
acceptance and use of the OECD forum. Thus the United
States has recently made efforts to examine whether improved
OECD cooperation is feasible. Bilaterally, the U.S.
Government has a voluntary agreement with West Germany
on information exchange, and periodic consultations are
held with Canada on restrictive business practice issues.
- 18 We also have underway ongoing bilateral discussions with
the United Kingdom, the European Economic Community, and
Japan, and have more recently begun such discussions with
Australia.
We have also had useful discussions with the
Mexican and Nigerian governments about antitrust topics of
mutual interest.
In time, these modest foundations could
be improved on considerably.
Codes of Conduct
The United States is also involved in a number of
exercises relating to activities of multinational enterprices (MNEs):
The OECD successfully negotiated a set of
voluntary "Guidelines" for MNEs two years
ago (as part of a "package" including the
national treatment and incentives/disincentives
agreements outlined earlier).
These consist
of recommended standards of good behavior in the
areas of information disclosure, antitrust,
employment and industrial relations, and others..
The OECD has instituted a consultative procedure
in connection with the guidelines.
The United Nations Commission on Transnational
Corporations began work on a comprehensive code
of conduct last year.
The United Nations Conference on Trade and
Development (UNCTAD) is trying to negotiate a
- 19 *
code of conduct on the international transfer
of technology.
Another UNCTAD group is investigating various
aspects of restrictive business practices (RBPs).
-— The International Labor Organization (ILO) has
adopted a "Declaration of Principles Concerning
Multinational Enterprises and Social Policy."
The United Sates has participated in these negotiations in accordance with its general objective of
encouraging multilateral action to maintain an open
international environment for investment flows. Codes of
conduct that set forth general standards of behavior can
serve a useful parpose by helping to shape common views
on the wide range of issues relating to foreign investment.
The United States has consistently maintained, however,
that any code should satisfy two important conditions:
(1) 'it should be non-binding, at least for an extended
trial period; and (2) it should set forth the responsibilities of governments as well as MNEs. In the U.N.
negotiatons, developing countries have taken a contrary
view — that the various codes should be binding and be
exclusively directed to MNEs. The differences on these
and other points make it impossible to say when or
whether these exercises will produce results.
Conclusion
As this brief review indicates, there is a substantial amount of ongoing activity designed to relieve
- 20 tensions in the international investment area.
A close
analysis of the existing and proposed international
initiatives shows that they are steps in the right direction,
although of modest magnitude.
But a number of serious problems
remain to be addressed.
New international arrangements seem necessary to
protect firms from the increasing and often inconsistent
demands of the many governments they deal with.
needed to head off conflicts among nations.
They are
They are needed
to buttress the legitmacy of the MNEs themselves as an effective
instrument in the world economy.
The creation of satisfactory arrangements cannot occur
overnight.
Many countries remain unconvinced of the need
for restraint on their freedom of action.
Many nations
consider investment policy as part of domestic industrial
policy and not, therefore, properly subject to international
arrangements.
The process of negotiaton will probably be
at least as lengthy in the investment area as it was in
the trade and monetary fields.
Yet the United States believes
there is an important need for new international arrangements
in this area.
Past experience in the trade and monetary spheres has
taught us the need to identify and devise means to deal
with potential international economic conflicts at an
early stage, before they become crises and significantly
retard the growth of world economic activity.
- 21 We anticipate that the process of developing these
arrangements, which has already begun, will be evolutionary
in nature. It will involve gradual development rather
than the creation of a complete international investment
regime at a single stroke. But the need for it is
clear, and we are fortunate that we have time to act.
We do not intend to lose this opportunity.
EXPECTED 8:30 P.M. EST
MONDAY, NOVEMBER 13, 1978
sv
REMARKS OF
THE HONORABLE W, MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
BEFORE THE
ARCO FORUM OF PUBLIC AFFAIRS
NEW KENNEDY SCHOOL OF GOVERNMENT
HARVARD UNIVERSITY, CAMBRIDGE, MASSACHUSETTS
When Professor Vernon first invited me to speak here
tonight, I asked what about. It was suggested that in. light of
our recent experience with the dollar, I should perhaps update
the article I had contributed to last July's Foreign Affairs,
(an article which was born of the good work Ray did for me as
a consultant to the Treasury). Well..,.Ray is a close enough
friend that I don*t think he*11 mind my saying that this
brought to mind James Thurber^s encounter with a reader who
proclaimed that she dearly loved his work, especially when
published in French. To which Thurber replied, TrMadam, you're
quite right. My writing does lose something in the original.1'
I think that I will let that piece and the actions subsequently taken, speak for themselves. But I will take this
opportunity to attempt a similar -- though admittedly less
studied — analysis of our domestic economic situation. For as
with the international system, the domestic economy is being
shaped and complicated by forces which we do not adequately
understand. We have rarely experienced a time when the problems
faced have been this complicated. Yet we find ourselves as
academics, government leaders, and as a people ill-equipped to
deal with them.
So let me devote my comments to defining what our underlying problem is and what the Carter Administration is attempting
to do about it. I would then like to hear your views.
The Problem of Inflation
It is no secret that inflation is the underlying problem of
our economy. While business cycles come and go, inflation
continues to defy economic theory by moving inexorably upward
along a secular trend. From 1957 to 1967, the average rate of
B-1263
- 2inflation for the economy was lc7%. Inflation rose to average
4.6% during the period 1968 to 1972 and 7.7% between 1972 and
1977. Even after a severe recession, inflation'has tended to
build up rather than wind down, despite the well paced economic
expansion we have been experiencing. The result is that today
consumer prices are rising at faster than an 8% rate. Yet no
one-not even the academic theorists of this great university-fully understand why. Is this inflationary trend really serious?
Yes it is. For inflation is exerting a crippling influence on
our economy.
In terms of the economyTs overall performance, inflation
distorts, reduces, delays and prevents needed capital formation;
it stultifies long-term business planning; and generates unproductive forms of purely speculative activities.
In terms of the allocation of resources, inflation
disrupts the essential role of relative changes in prices, and
in costs, as guides to efficient production and distribution.
In terms of the international position of the United
States, inflation impairs the competitiveness of our exports,
increases our balance of payment problems, erodes our purchasing
power, and undermines our dollar -- and our leadership in world
affairs.
In terms of the common welfare of the people, inflation
discourages thrift and encourages imprudence; it destroys the
hopes and living standards of the poor, the unemployed, the
retired -- the groups that can least afford it.
We simply must get a better handle on this corrosive
phenomenon.
What does this new inflation stem from? Let me posit some
hypotheses.
First, it is a legacy of an increasingly sluggish pace of
investment activity. Investment has lagged for the simple reason
that it has become less profitable. The rational investor, before
he leaps, looks to expected returns and the probability of realizing them. Today's investor looks out and sees declining real
profit margins; uncertainties about energy costs and availabilities;
the necessity to utilize investment funds to meet legislative
standards for environmental, health and safety purposes for which
there are no measurable economic returns. One does not have to be
a right wing ideoloeue to glean from the data that after-tax
rates of return on capital -- reflecting the replacement cost of
- 3capital -- have declined from around eight percent in the mid1960 's to between 3 and 3-1/2 percent in recent years. That's a
very substantial fall-off. As a percent of corporate product,
profits have declined from more than 11 percent in the mid-1960*s
to around eight percent in recent years. We are underinvesting
because it no longer pays enough to invest enough.
Too much capital spending has been going to short-payout,
off-the-shelf items such as computers and trucks, and too little
into the expansion and modernization of basic productive capacity.
The fact was that the stock of productive capital per worker
increased every year in the post-war period of 1974. The fact ijs
that since then, the process of capital deepening has come to a
complete halt.
And the performance has been no better for research and
development. As a share of GNP, R§D spending has declined in
the United States by more than 25% between the mid-1960's and
today. Scientists and engineers, as a share of the population,
have also declined, while the ratio has increased among our
competitors, notably West Germany and Japan. The number of U.S.
patents granted to foreign residents has doubled. Our acquisition
of foreign patents has declined.
We cannot expect to rid ourselves of inflation and continue
to improve our real standard of living until we improve our nation's
productivity. In the last three years, 10 million jobs have been
created. Many of these workers are new to the work force. With
training and greater experience, they will improve their performance,
better exploit the tools they work with, and provide the economy
with more goods. But these developments will be of limited use
with investment continuing to lag and R§D declining. In summary,
for want of capital formation, productivity growth is falling
short of levels required to support improved real standards of .
living.
Second, today's heightened inflation stems directly from the
quadrupling of oil prices in the mid-70's. This sudden quantum
jump in energy prices represented a profound structural change.
It has brought about a mutation in the production function of
the American economy which, as the world's most energy-intensive
industrial plant, we have yet to assimilate.
Third, the new inflation reflects the considerable costs
imposed by the rapid growth of Federal regulatory activity.
Investment in environmental capital -- negligible only
slightly
over a decade ago -- now accounts for about nine percent of
investment outlays in the manufacturing sector. In fact, if you
exclude these mandated expenditures, investment as a share of
value added has actually declined in the manufacturing sector
since 1966. For the economy as a whole, just filling out Federal
- 4reports costs businesses $25 to $30 billion a year. And
estimates of the capital cost to our economy of Federal regulations range from $60 billion a year to well over $100 billion.
A year! These programs do, of course, produce needed social
benefits: cleaner air, purer water, a healthier populace. But
like every other desirable product, these things come at a
cost which translates into an increase in the cost of living.
There is one other source of the new inflation which I
would call structural. And that is the growth of the Federal
(and I presume state and local) government to dinosaurian
proportions. While this growth represents a long term evolution,
the process has noticeably accelerated since I last served in
Washington in the 1960's. Government today is more than disorganize
it is hopelessly oyerorganized._
Within the Executive Branch, every interest group and idea
has acquired its own department, agency or office. As a result,
no single official can do anything, even the slightest thing,
without an exhaustive round of consultations and interagency
meetings. Decisions are of necessity made--or not made-- through
a process of endless talk and compromise and consensus. It is
nearly impossible to act quickly on small issues, yet alone on
one as complex as inflation,
.J.
But the real cost has come from the growth of duplicative
bureaucracies throughout the government. In a perceptive lecture
entitled "An Imperial Presidency Leads to an Imperial Congress
Leads to an Imperial Judiciary." Patrick Moynihan recently
spelled what he aptly calls the "Iron Law of Emulation." It states
that when any branch of government acquires a new technique which
enhances its power in relation to other branches, that technique
will soon be adopted by those other branches as well.
Thus, Congress creates a Congressional Budget Office to
rival the Executive's 0MB. The Congress acquires an Office of
Technology Assessment to parallel the President's Office of
Science and Technology Policy. The Senate Finance Committee
develops a Subcommittee on International Trade to advise the
President's Special Representative for Trade Negotiations. The
list of analogous functions is long. The result is that in the
Office of every Congressional member and committee, there has
been an explosion of advisors and experts, to match the specialists
in every Executive agency.
The bottom line is a huge and expensive Congressional
bureaucracy. A recent report stated that the Senate budget for
FY 1978 was greater than the budget of 74 countries. As for the
House, $282 million will be spent this year merely to manage the
affairs
ofby
its50435
members:
about
$650
thousand
per member.
the
increased
Senate
alone,
percent
the
number
in the
oflast
committees
15 years.
andThus,
subcommittees
while inIn
has
the
- 5first session of the 85th Congress — 20 years ago -- there
were 107 votes in the Senate and 100 in the House, in the first
session of the current 95th Congress there were 636 in the Senate
and 706 in the House. A Congressional study committee in 1977
found that for one-third of their day, members of the House were
supposed to be in at least two places at the same time. This is
hardly a good way to ensure sound decisions.
This impulse to grow and spread out has also been noted in
the Judiciary.
A system of checks and balances? Yes, But the kind of
check that comes to mind is that used in ice hockey. With
elaborate conflicting bureaucracies in place and growing in each
branch of government, the result is an abrupt cutting off of
forward progress, and a de-facto imposition of sluggishness on
the rest of the economy.
We are, moreover, living with the heritage of a decade's
neglect and inappropriate treatment of the economy by the
Federal Government. Previous Administrations and Congresses
have allowed inflation to become a way of life; they have allowed
the system of government to complicate itself to such an extent
that its ability to undertake the decisive action required to
prevent inflation from crippling our great economy has seriously
been jeopardized.
To all of these structural changes there has been added a
psychological bias for inflation. This is unprecedented in
American history. Inflation has become a pattern of behavior, a
way of thinking. Thus, labor simply assumes that, try as the
President may, the prices his workers pay at the counter will
continue to rise. They demand still higher wages. Borrowers
expect that inflation will bail them out regardless of debt levels
and money will become expensive, but not tight. Similarly, sellers
of dollars in the foreign exchange markets take for granted that
inflation will continue to cover their short position. All of
these practices become self-fulfilling prophesies. They internalize
inflation making it all the more difficult to extract.
Finally, the new inflationary foundation defined by
the phenomena I have just described, exacerbates the
impact of cyclical developments. It now appears that
our economy is moving closer to the zone where demand
will begin to be met by supply limitations. In labor
markets, while the overall unemployment rate is 5.8%,
unemployment among married men is down to 2.7%, the
same" low level reached when the economy was gathering
steam in 1955, 1964 and 1972. Help wanted advertising
is at an all time peak. And non-union wages have begun
of
to rise
increasing
more rapidly
strength
than
of market
union wages
forces.
as a
Inconsequence
industrial
- 6markets, comparable pressures are beginning to be
felt. Tight supply conditions are evident' in the
construction business -~ particularly for single
family homes--where strong demand has contributed
to sharp acceleration in wholesale prices. Scattered
shortages of concrete are being reported. Non-electrical machinery operators are at a higher rate of
utilization than ever attained during the 1973-74
capital goods boom. And there are other examples. If
we prove unable to counter these influences, still
more fuel will be added to the fire of inflationary
expectations.
The Action Required
This then explains in good measure the causes of today's
inflation. It is perplexing, it is pervasive, it is pernicious.
And this Administration is determined to do something about it.
The corrective program initiated by President Carter on October 24
and supplemented by the measures announced on November 1, undertakes to strike forcefully at the diverse sources of inflation
that I have outlined,
it entails a budgetary policy designed to reduce the
government's preemption of the nation's real and.financial
resources. The Federal deficit, which was at $66 billion when
we came into office will be reduced to $30 billion or below in
FY 1980.
this discipline in spending is being reinforced by
rigorous controls over the size and complexity of the Federal
bureaucracy and a drive to "defossilize" the bureaucracy. The
President defied the odds by getting the Congress to enact his
program of civil service reform. Now he has ordered a freeze on
existing vacancies in government positions, and a limit has been
placed on the hiring of employees for vacancies arising in the
future.
our effort aims to curb regulatory excess. You may be
shocked to learn •- as I was -- that no Administration has ever
before kept tab of the number of regulations in force or pending,
let alone of the capital costs they impose on the economy. There
is much scope for the kind of cost benefit analysis that led
the Administration to deregulate the airline industry. And this
scope will be utilized.
the President will continue to parry and veto bills
which are plainly inflationary, such as the sugar bill, the
textiles bill, the meat import bill, the public works bill, the
nurses' education bill, and the recommendations sent forward by
the
ITC calling
for restrictions
in the importation of copper,
industrial
fasteners
and other goods.
/'
- 7-
in addition, the tax bill signed by President Carter
includes, within a tight framework, important incentives to
encourage capital formation via a reduction in the corporate
tax rate, enhancements to the investment tax credit, and capital
gains relief;
These tight - indeed austere - fiscal policies will be
supported by and consistent with the monetary policy of the Federal
Reserve. This was made abundantly clear on November 1. The Fed will
not let down its guard. It will conduct the kind of monetary policy
needed to curtail excessive growth in the money supply and buttress
the dollar, Chairman Millerfs commitment to these goals is unwaivering and the President has clearly shown that he is in full support.
Finally, the government's policy is designed to facilitate
voluntary wage and price restraint by the private sector, in order
to begin rooting out inflationary behavior.
In short, the Carter Administration has pledged itself to a
course of austerity. We have committed ourselves to paring back
the size of the government. We are committed to exercising restraint
on the conduct of monetary policy. We are committed to warding off
protectionist legislation. We are acting now to curtail excessive
demand. And we are taking steps today to increase productivity
tomorrow through increases in output and reduction in costs, rather
than through the sustained shrinkage of income and employment to
which we might otherwise be condemned.
Now that our program has been announced, it has become
fashionable to ask if President Carter has the courage to stay
the course. I assure you that none of these are politically
pleasant tasks. Yet the President is determined to stick to it.
And he must. Because if he fails -- if we fail -- we will only
end up pushing inflation to the next highest plateau, making our
problem all the more intractable.
Our commitment to the anti-inflation effort has led critics
to less than charitably brand Jimmy Carter as a "conservative".
But the program he has initiated is rooted neither in conservatism
nor liberalism. It is rooted in realism, in the realization that
in order to deliver to society the goals that liberal Democrats
have long cherished, inflation must be licked.
New problems beset us. New answers are required. And this
President aims to provide them.
0O0
iHINGTON, D.C. 20220
TELEPHONE 566-2041
November 14, 1978
RELEASE AT 4:00 P.M.
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury invites the
attention of potential bidders in the weekly bill
auction to be held on Monday, November 20, 1978
to the change in the relative amounts of 13-week
and 26-week bills being offered in this auction.
This adjustment was made in light of recent market
conditions and is intended to enlarge the potential
competitive award of 13-week bills.
# # 1
B--U64
FOR IMMEDIATE RELEASE
November 14, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT ANNOUNCES FOUR
DECISIONS UNDER ANTIDUMPING ACT
The Treasury Department today announced it has determined
that viscose rayon staple fiber imported from France and Finland
is being sold in the United States at "less than fair value."
Appraisement is being withheld in these cases for three months.
The cases are 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 decision of the Commission is affirmative, dumping duties
will be collectd on those sales found to be at less than fair
value.
Sales at less than fair value generally occur when imported
merchandise is sold in the United States for less than in the
home market.
Interested persons were offered the opportunity to present
oral and written views prior to these determinations.
The Treasury also said it has tentatively determined that
viscose rayon staple fiber from Sweden and Italy has been sold
at less than fair value. The Department is, accordingly, withholding appraisement on imports of that merchandise from those
countries. The withholding action will not exceed six months.
The Treasury's final determinations in these two cases are
due by February 16, 1979. If affirmative, the U. S. International Trade Commission will then have three months from the
publication of those determinations to decide whether such
imports have caused, or threatened to cause, injury to an
American industry.
Imports of viscose rayon staple fiber from France, Finland,
Sweden, and Italy during calendar year 1977 were valued at
$1,700,000, $900,000, $2,100,000, and $49,000, respectively.
These four determinations will appear in the Federal
Register of November 16, 19 78.
o
B-1265
0
o
FOR IMMEDIATE RELEASE
November 14, 1978
Contact:
Robert E, Nipp
202/566-5328
SECRETARY BLUMENTHAL TO VISIT MIDDLE EAST
Secretary of the Treasury W. Michael Blumenthal this week
will head the U.S. delegation to the Middle East to participate
in the Fourth Annual meeting of the U.S.-Saudi Arabia Joint
Commission for Economic Cooperation and to discuss financial,
economic and energy matters.
The Secretary and his party depart Washington Thursday
morning, November 16, returning late Wednesday, November 22, or
early Thursday, November 23. The group will visit Saudi Arabia,
Kuwait, Iran and Abu Dhabi.
In Jidda, the Secretary will participate in the meeting of
the U.S.-Saudi Arabia Joint Commission for Economic Cooperation.
Also while in Jidda and in visits to Abu Dahbi, Kuwait and
Tehran, the Secretary will hold discussions with his counterparts and other government officials on the world economic
and financial situation and other subjects of mutual interest.
The Secretary will be accompanied by Assistant Secretaries
C. Fred Bergsten, Gene Godley and Joseph Laitin of the Treasury
Department. Officials of the Departments of State, Interior,
Agriculture, Commerce, Labor, Transportation, Energy, General
Services Administration and the National Science Foundation will
participate in the U.S.-Saudi Arabia Joint Commission meetings.
o 0 o
B-1266
FOR RELEASE AT 4:00 P.M
November 15, 1978
TREASURY TO AUCTION $2,691 MILLION OF 2-YEAR NOTES
The Department of the Treasury will auction $2,691
million of 2-year notes to refund the same amount of notes
maturing November 30, 1978* The $2,691 million of maturing
notes are those held by the public, including $570 million
currently held by Pederal Eeserve Banks as agents for foreign
and international monetary authorities.
In addition to the public holdings, Government accounts
and Federal Reserve Banks, for their own accounts, hold
$250 million of the maturing securities that may be refunded
by issuing additional amounts of the new notes at the
average price of accepted competitive tenders. Additional
amounts of the new securities may also be issued at the
average price, for new cash only, to Federal Reserve Banks
as agents for foreign and international monetary authorities.
Details about the new security are given in the
attached highlights of the offering and in the official
offering circular.
oOo
Attachment
(over)
B-1267
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 2-YEAR NOTES
TO BE ISSUED NOVEMBER 30, 1978
November 15, 1978
Amount Offered:
To the public
Description of Security:
Term and type of security
Series and CUSIP designation
Maturity date November 30, 1980
Call date
Interest coupon rate
$2,691 million
2-year notes
Series V-1980
(CUSIP No. 912827 JF 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
May 31 and November 30
Minimum denomination available
,. $5,000
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
Tuesday, November 21, 1978,
by 1:30 p.m., EST
Settlement date (final payment due)
a) cash or Federal funds
Thursday, November 30, 1978
b) check drawn on bank
within FRB district where
submitted
Monday, November 27, 1978
c) check drawn on bank outside
FRB district where
submitted
Friday, November 24, 1978
Delivery date for coupon securities; Monday, December 4, 1978
FOR IMMEDIATE RELEASE
November 15, 1978
Contact: Alvin Hattal
202-566-8381
TREASURY SAYS GOLD MEDALLIONS
CAN BE OFFERED FOR SALE IN 1980
The Treasury Department today said gold medallions bearing
the images of American artists could be offered for sale in
the spring of 1980 if appropriated funds are provided for their
production and sale.
Legislation providing for the issuance of American Arts
Gold Medallions is effective October 1, 1979,and requires that
medallions containing one ounce and one-half ounce of fine gold,
totalling one million ounces of fine gold, be struck and offered
for sale in each of the five following calendar years.
The artists to be honored on the medallions are: Grant Wood
and Marian Anderson, in 1980; Mark Twain and Willa Cather in 1981;
Louis Armstrong and Frank Lloyd Wright in 1982; Robert Frost and
Alexander Calder in 1983; and Helen Hayes and John Steinbeck in
1984, on the one-ounce and half-ounce medallions respectively.
The obverse side of each medallion will bear the image of
the artist and the reverse side the inscription "American Arts
Commemorative Series" and designs representative of the achievements of the artist being honored.
The law specifies that the medallions are to be nine-tenths
fine gold and one-tenth alloy and that they be "sold to the
general public at a competitive price equal to the free market
value of the gold contained therein plus the cost of manufacture,
including labor, materials, dies, use of machinery, and overhead
expenses including marketing costs."
In the initial year, 500,000 ounces of gold will be struck
in medallions of each size. Thereafter, the proportion of medallions
in each size will be determined by the Secretary of the Treasury
on the basis of expected demand.
Detailed plans for production and sale of the medallions,
which will not be legal tender, are being developed but cannot be
made final until the required appropriation is enacted.
*
B-1268
*
*
For Release Upon Delivery
Expected at 12:30 P.M.
Thursday, November 16
Remarks by Donald Haider
Deputy Assistant Secretary for State and Local Finance
Department of the Treasury
Before the
Conference Board Session on Business
in The Cities: Profits, Prospects, and Problems
The Mayflower
Washington, D. C.
Urban America: A Challenge for Business
We meet in Washington at a critical time. To paraphrase
the opening line of an urban classic written 100 years ago, "It
was the best of times and the worst of times."
In the 43rd month of the nation's recovery from its worst
post-war recession, we have made significant progress. Total
employment has increased by 12%; 10 million new jobs have been
created; and unemployment has been reduced from 9% to 6%. Industrial production has increased 31% and real GNP by almost 18%
since 1975.
This prosperity plus targeted countercyclical programs
directed at areas of high unemployment have stabilized what
many perceived to be a rapidly deteriorating urban condition
just three years ago. Central city unemployment has been
brought down, and for most of the nation's largest cities,
B-1269
- 2 deterioration has been stemmed.
Take New York City, for example,
the primary but not exclusive concern of Treasury's Office of
State and Local Finance. Real income and jobs are increasing
slightly, the city's FY 1979 budget will be balanced under
State law, and, with guarded optimism, we think the city will
be able to regain access to conventional borrowing sources
for short- and long-term debt by the early 1980s. This week
New York City will draw down the first $200 million in the
$1.65 billion loan guarantees under the New York City Loan
Guarantee Act of 1978.
Eight months ago President Carter announced a comprehensive national urban policy. Built upon the theme of a "New
Partnership," it represented a commitment to revitalization
of America's communities. As could be expected from such
ambitious and sweeping initiatives contained in this announcement, some passed the Congress and some did not. Others were
enacted by Executive Orders, and a few still remain to be acted
upon. Let me briefly highlight some of the major urban
accomplishments over the past year:
Executive orders required the location of new
Federal facilities and jobs in central cities
and targeting of more Federal procurement activities
to high unemployment areas.
A targeted employment tax credit replaced the
existing jobs credit program. A credit may be
elected by employers who hire individuals from
seven specified target groups equal to 50% of the
first $6,000 of qualified first year wages—or
$3,000; and $25% of the first $6,000 during the
second year—or $1,500.
- 3 The investment tax credit of 10% has been made
permanent, extending beyond investment in equipment
and machinery to include rehabilitation and modernization of certain existing industrial and commercial
structures.
The extension of CETA programs includes a "Private
Sector Initiative Program" to encourage private
employers to hire and train unemployed and lowincome individuals. The Youth Employment and Demonstration Projects Act of 1977 created four new
youth employment and training programs. The $1.2
billion initiatives represent the largest commitment
to youth employment in the post-war period, three
times the size, for example, of youth programs
during the high point of the War on Poverty.
Other successful initiatives included: Section
#312 housing rehabilitation loans funded at $230
million; a 5-year $750 million urban parks program,
and expanded funding for inner-city health clinics,
social services, and Title I ESEA.
The limitation on small issues of tax-exempt industrial
development bonds was increased from $5 million to
$10 million, and if done in conjunction with a UDAG
recipient project the capital expenditure limitation
increases to $20 million.
The Federal Home Loan Bank Board, the independent
regulatory agency for the savings and loan industry,
established a 5-year community investment fund which
will make up to $10 billion available through 12
District Banks to Savings and Loans. Savings and
Loans will be able to institutionalize their community investment efforts and to begin the process
of revitalizing their communities.
As significant as these accomplishments may be, the fact
that important urban programs failed to be passed or to be
renewed may be indicative of the shifting national mood
specifically, and what might be expected in the 96th Congress
generally. The proposals that failed or were not acted
upon would have continued extra aid to cities with high
- 4 jobless rates, created a program of public works maintenance
jobs, established a national development bank, and given
the states a financial incentive to help their depressed cities.
Clearly economic recovery has been the critical reason
why the distressed cities of the country have been able to
maintain their fiscal viability.
Many did not share equally
in the recovery just as they have disproportionately borne
greater costs of recessions.
These cities also have learned
to better manage retrenchment even though this process involved
in some cases reduced services, layoffs, and deferred maintenance.
However, an additional reason why large central cities have
performed above general expectations these past few years
is the massive inflow of direct federal assistance.
Three
programs alone—Antirecession Fiscal Assistance (ARFA),
Local Public Works (LPW), and Public Service Employment
(CETA)—from January 1977 to September 1978—provided
$15.8 billion in new funds of which $3.2 billion or 20%
went to the 48 largest cities.
programs have been ended.
The first two of these
CETA has been capped by the Con-
gress both in numbers of jobs and regulations governing
length of participation in public service employment programs.
In short, the first half of the 95th Congress was far
more generous to the cities than the second half.
The Presi-
dent's 1977 Economic Stimulus Program provided two years of
infusion of funds to fiscally strained cities.
With the fail-
ure to renew these programs or to phase them out gradually,
- 5 termination has been abrupt.
This situation plus the
slowdown of State spending will likely result in cities —
at least for the immediate future—learning to cope with
slower growth rates of intergovernmental assistance.
As experience has demonstrated from more permanent
programs, the price of getting those fiscally strained cities
additional funds can be extremely costly. The costs of the
economic stimulus programs from January 1977 to September 1978
are roughly equivalent to one quarter of the FY 1978 deficit.
As one New York wag put it, "To get us $300 million in
Federal Revenue Sharing Funds, you have to spend $6.85
billion annually for allocations to 39,000 other jurisdictions." Distributional equity may carry greater political
weight when the pie is expanding than when it is shrinking.
That is what we face now in reviewing the FY 1980-81
budgets: innovation amidst scarcity.
Thus, from the public finance side of the ledger, we have
cautious optimism. The slowing of economic growth as well as
Federal aid flows confronts the evaporation of whatever Statelocal operating surpluses existed. New State and local expenditure limits and local lid laws auger a further slowing of
State-local spending. Without hazarding an economic projection
regarding the national economy, we can only hope that the
brakes have not been applied too precipitously as to induce
severe local fiscal strain.
Turning to the private side of the city-business perspective, let me indicate that much progress in the business
- 6 environment has occurred over the past two years.
However,
more durable problems of the competitiveness and productivity
of our economy still must be faced:
. The real level of nonresidential fixed investment
is still below the peak of 1973. Our investment of
productive capital per worker increased in every
year in the post war period up to 1974 and declined
since.
Capital investment has fallen short of the level
deemed necessary for plant expansion and
technological innovation. •
Productivity continues to lag behind major industrialized nations. Not surprisingly, if we were to look
at aggregate capital investment and investment per
production employee, it is lowest in cities than other
geographic areas—lower for older than newer cities.
Chronic inflation adds an even greater uncertainty
to business, especially business in the cities.
Then there are a host of issues the country faces
concerning R&D investment, new patents, impact of government
regulation, adequacy of business profit margins, and the like.
These issues relate not just to business in the cities, but
the future prosperity of business in this country generally.
In linking the two, urban America and the business
challenge, what can we say? First, inflation is the chief
threat to both—ultimately driving expenditures faster than
revenues for cities and providing an unfavorable investment
climate for business in cities. Inflation, as the President
has made clear, is our foremost domestic problem. Efforts
aimed at reducing inflation cut across all other priorities
and commitments. Recent monetary and anticipated fiscal actions
- 7 -
have been and will continue to be painful, but the problem
of inflation must and will be dealt with. This means that:
. An FY 1980 deficit of $30 billion or less is
likely to require cutting into the base of current
expenditure programs;
New initiatives and unfinished business will be
temporarily deferred;
Efforts will be made to preserve the enormous
employment gains achieved over the past two years,
but with greater government reliance on the private
sector to maintain current employment levels.
Business and government alike understand the risks
of the present and future courses of actions. Neither can
be wildly confident about the outcome. However, Government
and business have contributed to rather short-sighted behavior
with respect to the economy. Understandably, elected officials may all too easily operate with short-term returns on
investment insofar as elections fall within short time frames
of one another. That is one reason why the Administration's
goal of steady but more modest growth reflects lessons hard
learned over the past decade.
Economic fluctuations have introduced comparable uncertainties
into our business and financial communities and their decisions.
Cities are the victims of both. Feast and famine or pump priming
and contraction have been characteristic of federal fiscal
relations with cities for more than a decade. During economic
slowdown or recession, industries with declining employment
reduce activities more at facilities where operating costs are
- 8 higher and plants older. This usually means older cities.
So, too, businesses die rapidly in central cities under
such circumstances.
We know this all too well from the
experiences of 1973-1975.
Cumulatively, a declining
economic base depresses revenues, inflation increases the
costs of goods and services.
What all this adds up to is the necessity for business
and government to approach many of their mutual problems togeth
in a longer term perspective and to begin putting in place the
necessary machinery to do so.
In the case of inflation, the
President's anti-inflationary program represents the beginning
of a voluntary effort to gradually reduce the nation's rate
of inflation.
The extreme alternatives to what the President
has proposed—wage and price controls or severe monetary-fiscal
policies—have been tried in the past and proven to be ineffectual, or worse still, counter-productive.
The President's
voluntary program must be made to work for the prospect of
failure would result in irreparable harm to cities and American
business alike.
In terms of cities, there are limitations to the direct
grant expenditure route for providing assistance or using
state-local governments as agents of macro-economic policy.
Although progress has been made to make tax policy more
urban sensitive, there are limits to which tax policy can
be used exclusively to promote urban investment.
Thus, given
- 9 new constraints and priorities, we must look again at what city
leaders and business interests can begin to accomplish by working
together.
And this leads to the key message I wish to convey
to you this afternoon—your contribution to a long overdue
debate on economic development.
When President Carter proposed his National Urban Policy,
the National Development Bank stood as the centerpiece for
urban economic development.
Variations of the bank have been
introduced to the Congress before.
The U.S. Conference of
Mayors first broached the idea of an urban development bank
to President-elect Carter as a lending facility to overcome
the higher business costs and risks of locating or expanding
in inner cities.
Broadened by the input of the Urban and
Regional Policy Group, an interagency working committee on
the President's Urban Policy, a final draft was put together
by Treasury and introduced into the 95tii Congress in June.
Preliminary testimony occurred on the bill and no legislative action was taken.
The proposed Bank should be viewed as a significant effort
to rebuild private sector economies of distressed areas.
It
emerged from what was learned during the year-long process
of developing an urban policy.
We found that despite the overall
increase in national economic activity, many geographic areas
have not fully participated in recovery and growth.
What was
needed was a long-term economic development strategy—one which
- 10 recognized market forces and the pervasive tides of economic
changes, but also could be responsive to those credit worthy
businesses who, with financial incentives, could be persuaded
by local authorities to remain, expand, or locate in such
areas.
The proposed Bank offers a package of incentives which
will lower the cost of capital and hence the cost of doing
business in cities and other distressed areas. To create jobs
and to improve the fiscal and economic base of these areas,
the Bank brings together a package of tools to influence private
business investment. Briefly, the original Bank legislation
contained the following combination of financing incentives
for fixed asset investments:
Federal guarantee of up to 75% of private loans to
finance the costs of plant and equipment up to $15
million per project.
Interest rate subsidies on the guaranteed portion of
a project's debt to as low as 2.5%.
. Grants to fund up to 15% of the capital cost of a
project to cover the costs of equipment, land acquisition, site preparation, construction and rehabilitation of facilities up to $3 million for each project.
. Taxable development bonds up to $20 million of the
capital cost of projects with interest subsidies on
the bonds provided by the Bank.
A liquidity facility to purchase long-term private
loans made in distressed areas to encourage the flow
of capital into these areas.
As initially proposed, the Bank would have substantial
resources, as great if not greater than all existing Federal
- 11 programs for economic development.
Over three years this would
include $8 billion in loan guarantee authority, nearly $4.8
billion in interest rate subsidies, nearly $1.7 billion in grants,
and $3 billion for the liquidity facility.
Admittedly, there are difficulties in the original Bank
structure, defining the Bank's relationship to other Federal
programs as well as mix of development tools, eligibility, and
overall mission. These problems and others are being given
thorough review in OMB, the participating Federal agencies, and
within Treasury. However, the proposed National Development
Bank did not succeed in stimulating the kind of discussion I feel
it warranted. For at the heart of the Bank concept is a rather
unique and unprecedented relationship between business and government. The Bank offers a means for building institutional capacities
at the local government level among elected officials, financial
institutions and business that are needed for both public and
private purposes.
There are hundreds of cities across this country where
such positive relationships have been or are being worked out.
The Bank offers a vehicle for promoting this new partnership
whereby new tools, new cooperative relationships, new intergovernmental relations, new forms of financing and public-private
relationships will be promoted. The Bank introduces the prospect
of more efficient use of resources through a leveraging of private
resources and a sharing of risks endemic to large economic development undertakings.
- 12 Let me suggest to you that the proposed Bank is controversial.
sures.
It faces numerous competing and cross-cutting pres(1) urban and rural interests; (2) differences among
agencies, programs, and missions; (3) differences among congressional committees and their jurisdictions; (4) small
business and large; (5) loans vs. grants; (6) public sector
capital formation and private sector capital formation;
(7) grants and loans vs. working capital or venture capital;
(8) sectoral borrowing interests within the public sector
(housing, hospitals, transportation, etc.), government-aided
industries, and overall borrowing demands in the credit markets;
(9) reorganization of existing departments and programs vs.
reorganization and consolidation of government's loan guarantee
and interest subsidy programs; and (10) budgeting constraints
vs. new initiatives.
The Federal Government, it should be noted, is already
involved in dozens of credit programs whose objectives are
to encourage certain types of economic activity by providing
individuals, businesses, and government bodies, with credit
at more favorable terms than would otherwise be available
in the private market.
This is particularly the case in
the economic development area.
So, the Bank ought to be
viewed as a major attempt to consolidate resources, coordinate interagency activity, and to minimize direct government
involvement where local elected officials, financial institutions, and businesses can draw upon the Bank's resources for
economic development objectives.
- 13 How these issues will eventually be resolved is anyone's
guess at this time.
Growing recognition of the need to
deal with public and private sector needs on a longer term
basis than we have in the past suggests that there will be
a healthy debate over these issues in the 96th Congress.
We welcome this debate and expect your interests and viewpoints
to be fully represented.
Thus, as we scan the horizon, we must conclude that most
of our older, hard pressed cities have weathered recent storms
intact.
Cities and rural areas are learning to live with
economic and population decline.
They are also learning to
stabilize, to innovate, and to work with rather than against
economic forces.
Still, the short-term future suggests that,
until we get inflation under greater control, it will be incumbent
on cities to go through another round of belt tightening.
Optimism springs from the growing recognition that there exists
a certain convergence of interests in dealing with urban economic
problems in the context that we deal with the basic problems
that afflict American business.
This new partnership has been
begun in many of our cities and we have been working on means
to allow it to thrive.
The key to our country's economic future is our private
sector.
The key to many of our most pressing domestic
problems—particularly jobs, welfare, capital infrastructure, and economic growth—lies largely in our urban areas.
- 14 Thus, the challenge to business and government alike
is a monumental one. Economic and political pressures
are increasingly compelling us to search for common solutions.
This, too, should be viewed as a source of optimism. We are
in this together and, with your help, the answers we mutually
develop will make our cities a better place to live and for
business to once again prosper.
As Preesident Carter once observed, "If, a hundred years
from now, this nation's experiment in democracy has failed,
I suspect that historians will trace that failure to our own
era, when a process of decay began in our inner cities and
was allowed to spread unchecked throughout society." I
suspect the same judgment may also be rendered about our
economic system. Should the competitiveness and productivity
of our business be unresponsive to the winds of change, it
will be largely attributable to the failure to respond to
the opportunities and challenge of our urban areas.
o 0 o
FOR IMMEDIATE RELEASE
November 16, 1978
Contact:
Alvin M. Hattal
(202) 566-8381
TREASURY DEPARTMENT ANNOUNCES TERMINATION
OF ANTIDUMPING CASE INVOLVING SPANISH STEEL
FIRM AND REAFFIRMS POLICY CONCERNING
STEEL IMPORT DOCUMENTATION
The Treasury Department announced today termination of
the recently commenced antidumping investigation of sales of
carbon steel plate by Empresa Nacional Siderurgica, S.A. of
Spain. The investigation of sales by the other two companies
named in the Department's notice of October 25, 1978 (43
FR 49875) is unaffected by this action.
In a related action, the Department reaffirmed its
policy of exercising Customs Service authority to deny entry,
if necessary, to inadequately documented imports of steel
mill products covered by the steel trigger price mechanism
(TPM).
The antidumping case against Empresa Nacional had been
initiated October 25 based upon entries of carbon steel
plate below the applicable trigger prices. Delayed or incomplete responses by the company to Customs Service telex
inquiries, as well as inadequate documentation by the company of other plate shipments, contributed to the Department's
decision to initiate the case.
Upon receiving full documentation from the company, the
Customs Service was able to conclude that the below-TP tonnage was limited to two shipments which had narrowly missed
an announced grace period and a quarterly shipping date.
Since the full documentation confirmed that all other plate
sales of the company were at or above the applicable trigger
prices, the Treasury Department decided to terminate the investigation involving this company.
In the future, information relevant to monitoring under
the trigger price mechanism which could have been provided
upon entry or upon initial inquiry by Customs will not be
considered once an antidumping investigation is formally
initiated.
B-1270
- 2 -
In a related action, the Department announced today
action designed to prevent recurrence of situations in
which importers fail to provide at entry the data needed
to operate the trigger price system effectively. Strong
action -- including denial of entry of steel shipments, if
necessary -- will be taken if entry documentation, including
the Special Steel Summary Invoice (SSSI), is incomplete or
inadequate.
The Department said such action is also necessary to
improve its monitoring of steel imports generally. The
Department indicated that documentation by companies from
many countries, particularly in Europe, is inadequate and
has made it difficult in many instances for the Customs
Service to complete its trigger price analysis of particular sales promptly and thoroughly. Today's action is
designed to remove that impediment.
Finally, the Department issued a reminder that Customs
Service telexes inquiring into sales below trigger price
are sent only to importers of record. Exporters. producers,
or governments that wish to be fully informed of these matters should arrange with the appropriate importer of record
to receive word of any Customs Service inquiries.
"
*
•
*
*
"
*
•
Attached is an errata sheet for recent Treasury Department
trigger price announcements.
DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
CERTAIN CARBON STEEL PLATE
FROM VARIOUS COUNTRIES
Partial Termination of Antidumping Investigation
AGENCY:
U.S. Treasury Department
ACTION: Partial Termination of Antidumping Investigation
SUMMARY:
This notice is to advise the public that the antidumping investigation concerning carbon steel plate from
various countries is being terminated with respect to sales
by Empresa Nacional Siderurgica, S.A. of. Spain. The termination with respect to this company is based upon a determination that, with the exception of two shipments described
in the body of this notice, all exports of carbon steel
plate to the United States by this company during the period
April 30 to October 31, 1978, have been proved to be at or
above applicable trigger prices.
EFFECTIVE DATE:
FOR FURTHER INFORMATION CONTACT:
Donald W. Eiss, U.S. Treasury Department, Office of
Tariff Affairs, 15th Street and Pennsylvania Avenue, NW.,
Washington, D. C. 20220 (202-566-8256).
SUPPLEMENTARY INFORMATION:
On October 25, 1978, a notice was published in the
FEDERAL REGISTER advising the public that based upon information collected under the Department's Trigger Price Mechanism (TPM) the Treasury was self-initiating an antidumping
investigation concerning carbon steel plate from various
countries (43 FR 49875). The initiation was based upon a
determination that imports of carbon steel plate sold by
certain companies were entering the United States at prices
below applicable trigger prices and that such sales are, or
are likely to be, at less than fair value within the meaning
of the Antidumping Act of 1921, as amended (19 U.S.C. 160
et seq.).
- 2 In the case of imports from Empresa Nacional Sideri*rgica,
S.A. (Empresa), the Department decided to initiate based
upon certain below trigger price sales of carbon steel plate.
Other entries of carbon steel plate appeared to be at or
above the applicable trigger prices. However, inadequate
documentation and delayed or incomplete responses by the importer of record to Customs Service inquiries made it impossible to verify that all shipments were in fact at or above
the applicable trigger prices.
After the proceedings were formally initiated, Empresa
alleged that none of its sales to the United States since
the TPM went into effect were below applicable trigger prices.
A thorough investigation by the Treasury of all sales by this
company of carbon steel plate from April 30 to October 31 revealed that, with the exception of two shipments representing
a small portion of Empresa's total shipments, this allegation
was correct. The two shipments which entered below applicable
trigger prices were identified as such by Customs because, in
one case, the shipment entered within hours of the expiration
of the Department's grace period for the contracts with fixed
price terms, and, in the other the shipment was exported
within hours of the change from second quarter to third quarter trigger prices.
Accordingly, I hereby conclude that based upon a thorough
examination of all imports of carbon steel plate by Empresa
between April 30 and October 31, 1978, and a determination
that virtually all such sales have been at or above applicable
trigger prices, it is appropriate to terminate the Department's
self-initiated antidumping investigation of sales of carbon
steel plate by Empresa.
In the future, information relevant to monitoring under
the trigger price mechanism which could have been provided
upon entry or upon initial inquiry by Customs will not be
considered once an antidumping investigation is formally
initiated.
The investigation of sales by the other two companies
named in the Department's notice of October 25, 1978 (43 FR
49875) is unaffected by this action
ert'fcr. Mundheim
General Counsel
NOV 1 6 1978
ERRATA
Errata, November 9, 1978 Release
A
Base price for cold finished bars during the Fourth Quarter was stated correctly in
Table III. Inadvertently
the pages to be inserted in the Trigger Price Manual incorrectly stated the base price during the Fourth Quarter. Correct numbers will appear
in Federal Register Notice of the November 9, 1978 announcement.
Page #
Corrected 4th Quarter Bsse
Trigger Price
Product Description
Corrected 1st Quarter
Base Trigger Price
$460
12-1 Cold Finished Carbon Steel
Round Bar, AISI 1008 through
1029, 19.05 mm
(Correct as published
11-9-78)
12 2 Cold Finished Round Steel $521
Bar (Free Cutting SteelSulphur) AISI 1212 through
1215
(Correct as published
11-9-78)
12 3 Cold Finished Round Steel $544
Bar (Free Cutting Steel
Lead AISI 12L14 and 12L15
19.05 mm (3/4")
(Correct as published
11-9 78)
$325
Table Hot Rolled Carbon Steel Strip (Correct as published
III, P.b Produced on Bar Mills, Cut
11-9 78)
Product
Lengths
29 3
Um
Krrata
October 10, 1978
Trigger Price Manual
Cert «iin size extras for Wide Flange Beams which had been previously published were
left out- of the October 10 Third Quarter,Fourth Quarter Manual. They should be reinserted .is shown below.
Wide Flange Beams
Kxt.ra Table
Size
Series
Lbs,Ft
$, MT
30 x 1(V,
99 to 132
Ni 1
14 x lu
b05
82
t
FOR IMMEDIATE RELEASE
November 17, 1978
Contact:
Robert E. Nipp
202/566-5328
TREASURY-FEDERAL RESERVE TEAM
TO GERMANY AND SWITZERLAND
The Treasury Department today announced that a Treasury
and Federal Reserve fact-finding team will leave Washington
Sunday to return to Germany and Switzerland for further
consultations with the authorities of those countries and to
obtain technical advice from the private investment community
concerning the sale of U.S. Treasury securities in German
deutschemarks and Swiss francs. The team will be headed by
Roger C. Altman, Assistant Secretary of the Treasury for
Domestic Finance. Team members are Richard M. Kelly,
Treasury Deputy Assistant Secretary for Debt Management, and
David Heleniak, Treasury Assistant General Counsel, Edwin
Truman, Director of International Finance, Board of Governors,
Federal Reserve System and Irwin Sandburg, Assistant Vice
President, Federal Reserve Bank of New York.
Further decisions with respect to the issuance of U.S.
Treasury securities denominated in deutschemarks and francs,
including decisions on such questions as methods, terms and
conditions of sale and amounts to be sold, will await the
report of the fact-finding team when it returns from its
second trip late Wednesday.
A Treasury-Federal Reserve fact-finding team had previously
visited Frankfurt and Zurich November 6-11.
o 0 o
B-1271
FOR IMMEDIATE RELEASE
November 17, 1978
Contact: John Plum
202-5662615
TREASURY GUARANTEES NEW YORK CITY BONDS
Secretary of the Treasury W..Michael Blumenthal today
issued guarantees of $200 million bf 15-year New York City
serial bonds. The bonds were sold by the City to one New
York State and four New York City pension funds as part of an
overall $4.5 billion financing plan to help the City achieve
biidget balance and to return to the credit markets without
Federal assistance by 1982.
Under the New York City Loan Guarantee Act of 1978 the
Secretary of the Treasury is authorized to issue Federal guarantees
on a maximum of $1.65 billion of New York City obligations. This
$200 million represents the first installment of the potential
$1.65 billion that may be issued over a four year period if the
City makes substantial progress towards balancing its budget and
meets certain other standards prescribed in the Act.
The bonds guaranteed today are serial bonds that bear an
interest rate of 8.9 percent. The first repayment of principal
is due November 1, 1979, with equal annual repayments thereafter
through 1993. The guarantee lapses upon resale by the pension
funds. The bonds are issued under an agreement with New York
City which requires the City to pay to the Treasury Department
annually a guarantee fee of 1/2 of one percent on the amount of
bonds outstanding. Among other conditions, the agreement
requires the City to balance its budget over the next four years
and to seek access to the public credit markets before that time.
The bonds, which are guaranteed as to both principal and
interest, are general obligations of the City and are secured
by the full faith and credit of the City. The Guarantee Act also
provides that the Secretary can withhold Federal transfer payments
from the City or the State, if so needed, to offset payments to
the pension funds if the City fails to meet interest or principal
payments on the bonds when done.
The guarantees were issued in conjunction with the completion
today of an agreement among the City, the Municipal Assistance
Corporation, union pension funds, and various financial institutions
in New York City, pursuant to which the City will receive, if all
B-1272
- 2
conditions are met, an aggregate of $4.5 billion from the sale
of securities in the four-year period ending in 1982.
The guarantee of the City bonds represents the first
extension of aid to the City under the Loan Guarantee Act. The
Secretary has remaining authority to guarantee up to an additional
$1.45 billion in City debt through City FY 1982. The financing
agreements call for an aggregate of $750 million (including the
$200 million guaranteed today) in guaranteed bonds to be issued
in FY 1979 and FY 1980 as part of the total financing required
by the City.
In addition to the $200 million in guaranteed City bonds,
the Municipal Assistance Corporation today sold $401 million
of its bonds to both the City pension funds and nearly 60 financial
institutions as well as $250 million to underwriters for offering
to the public. The financing agreements commit the parties to
provide additional financing as part of the $4.5 billion package
in the future.
*
*
*
Missing Press Release
FEDERAL FINANCING BANK ACTIVITY
-
11/20/78
«toftheTREA$URY Ii
TELEPHONE 566-2041
,D.C. 20220
November 20, 1978
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,800 million of 13-week Treasury bills and for $2,901 million
of 26-week Treasury bills, both series to be issued on November 24, 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 February 22. 1979
Price
High
Low
Average
Discount
Rate
97.874a/ 8.504%
97.807
8.772%
97.826
8.696%
26-week bills
maturing May 24. 1979
Investment
Rate 1/
Price
8.81%
9.09%
9.01%
95.490 8.970%
95.472
9.006%
95.477
8.996%
Discount
Rate
Investment
Rate 1/
9.52%
9.56%
9.55%
a/ Excepting 2 tenders totaling $210,000
Tenders at the low price for the 13-week bills were allotted 72%.
Tenders at the low price for the 26-week bills were allotted 23%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
Accepted
Received
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$
26,125,000
3,588,615,000
20,640,000
24,670,000
19,935,000
26,920,000
331,215,000
31,295,000
20,275,000
23,685,000
13,310,000
172,000,000
$
26,125,000
2,215,145,000
20,640,000
24,670,000
19,935,000
26,920,000
256,215,000
24,295,000
20,275,000
23,685,000
13,310,000
122,000,000
$
20,625,000
4,643,365,000
11,955,000
31,455,000
17,890,000
52,455,000
356,080,000
41,640,000
29,045,000
32,480,000
11,895,000
239,450,000
6,825,000
6,825,000
Treasury
TOTALS
$4,305,510,000
12,175,000
$2,800,040,000b/: $5,500,510,000
^/Includes $355,755,000 noncompetitive tenders from the public.
^/Includes $279,045,000 noncompetitive tenders from the public.
1/Equivalent coupon-issue yield.
B-1274
Accepted
$
20,625,000
2,639,465,000
11,955,000
21,455,000
16,390,000
28,605,000
32,230,000
20,140,000
25,965,000
32,480,000
11,595,000
27,450,000
12,175,000
$2,900,530,000£/
FOR RELEASE AT 4:00 P.M.
November 21, 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 November 30, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,709 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
August 31, 1978,
and to mature March 1, 1979
(CUSIP No.
912793 X2 7), originally issued in the amount of $3,404 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $2,900 million to be dated
November 30, 1978, and to mature May 31, 1979
(CUSIP No.
912793 Y7 5).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing November 30, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,137
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, November 27, 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.
B-1275
-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 November 30, 1978, in cash or
other immediately available funds or in Treasury bills maturing
November 30, 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
November 21, 1978
RESULTS OF AUCTION OF 2-YEAR NOTES
The Department of the Treasury has accepted $2,692 million of
$4,963 million of tenders received from the public for the 2-year
notes, Series V-1980, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 9.33% 1/
Highest yield
Average yield
9.37%
9.36%
The interest rate on the notes will be 9-1/4%. At the 9-1/4% rate,
the above yields result in the following prices:
Low-yield price 99.857
High-yield price
Average-yield price
99.786
99.804
The $2,692 million of accepted tenders includes $650 million of
noncompetitive tenders and $1,867 million of competitive tenders from
private investors, including 60% of the amount of notes bid for at
the high yield. It also includes $175 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 to the $2,692 million of tenders accepted in the
auction process, $250 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, 1978, and $210
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 7 tenders totaling $1,055,000
B-1276
FOR IMMEDIATE RELEASE
November 21, 1978
Contact:
Robert E. Nipp
202/566-5328
TREASURY ANNOUNCES RESULTS OF
GOLD SALE
The Department of the Treasury announced that 750,000 troy
ounces of fine gold were sold today to 17 successful bidders at
prices from $197.00 to $201.30 per ounce, yielding an average
price of $199.05 per ounce.
Gross proceeds from this sale were $149.3 million. Of the
proceeds,$31.7 million will be used to retire Gold Certificates
held by Federal Reserve banks. The remaining $117.6 million
will be deposited into the Treasury as a miscellaneous receipt.
A total of 110 bids were submitted by 24 bidders for a
total amount of 911,600 ounces at prices ranging from $12.50
to $201.30 per ounce.
The General Services Administration will release additional
information, including the list of successful bidders and the
amounts of gold awarded to each, after those bidders have been
notified that their bids have been accepted.
The current sale was the seventh in a series of monthly
auctions being conducted by the General Services Administration
on behalf of the Department of the Treasury. The next sale,
at which 1,500,000 ounces will be offered, will be held on
December 19. This sale will be the first in a program
announced on November 1 of monthly offerings of at least
1,500,000 ounces. The actual amount to be offered at each
sale will be announced about four weeks in advance.
The fine gold content of the bars to be offered in
December will be 99.95 percent or more. At the January 16
sale, 500,000 ounces will be offered in bars whose fine gold
content is close to 90 percent, with the remainder in bars
containing no less than 99.5 percent fine gold. The Treasury
expects to include approximately the same amount of such gold
bars at each subsequent auction. Sale of these types of bars
are being made because they constitute a large portion of the
gold stock of the United States.
o 0 o
B-1277
ipartmtntoftheJREASURY
ROOM 5004
FOR IMMEDIATE RELEASE
November 22, 1978
Contact: ' Alvin M. Hattal
TRt:.AoU,n otfATiMMW 566-8381
TREASURY MAKES PRELIMINARY DETERMINATION
THAT NON-RUBBER FOOTWEAR FROM INDIA
IS NOT BEING SUBSIDIZED
The Treasury Department today announced a preliminary
decision that exports to the United States of non-rubber
footwear from India are not being subsidized.
The Treasury found that certain practices of the
Government of India with respect to the manufacture or
exportation of this merchandise do constitute a subsidy
but that the benefits received are legally de minimis,
or so insignificant in size that they do not warrant the
assessment of countervailing duties.
Treasury's investigation was begun after a petition
was received on March 10, 1978, from the American Footwear
Industries Association. A final decision in this case must
be made by March 10, 1979.
Notice of this action will appear in the Federal Register
on November 24, 1978.
Imports of non-rubber footwear from India amounted to
approximately $10 million during calendar year 1977.
B-1278
FOR IMMEDIATE RELEASE
November 22, 1978
Contact:
Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT FINDS STEEL WIRE ROPE
FROM KOREA IS NOT BEING "DUMPED"
The Treasury Department today announced its final
determination that steel wire rope from the Republic of Korea
is not being sold in the United States at less than fair
value.
"Sales at less than fair value" generally occur when
merchandise is sold in the United States for less than in
the home market or to third countries. In this case, the
petitioner alleged the possibility of sales in the home
market, or to third countries, at prices below the cost of
producing steel wire rope in Korea. Under the law, if sales
below cost are found and insufficient sales remain at prices
above the cost of producing the merchandise, the "fair value"
is based upon the "constructed value" of the merchandise.
Treasury found no sales below cost in this case and therefore
made its determination based on comparisons of prices in the
home market and the United States.
Notice of this action will appear in the Federal Register
of November 27, 1978.
Imports of steel wire rope from the Republic of Korea
were valued at $9.7 million during the period investigated,
May-October 1977.
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B-1279
FOR IMMEDIATE RELEASE
November 24, 1978
Contact: Charles Arnold
202/566-2041
UNITED STATES/FRANCE TAX TREATIES SIGNED
The Treasury Department announced the signing today of
an estate and gift tax treaty and a protocol to the income
tax treaty between the United States and France. The two
treaties were signed in Washington by the Assistant Secretary
of State for European Affairs, George S. Vest, and the
Ambassador of France, Francois de Laboulaye. Both the estate
and gift tax treaty and the protocol to the income tax treaty
must be approved by the U. S. Senate before entering into
effect.
The new estate and gift tax treaty will replace the
existing estate tax treaty between the "two countries, which
has been in effect since 1949. It will apply in the United
States to the Federal estate tax, the Federal gift tax, and
the Federal tax on generation-skipping transfers, and in
France to the duty on gifts and the duty levied on succession.
The treaty is similar in principle to the U. S. estate tax
treaty with the Netherlands, which entered into force in 1971,
and to the U. S. "model" estate and gift tax treaty published
by the Treasury Department on March 16, 1977.
The general principle underlying the estate and gift tax
treaty is to grant to the country of domicile the right to
tax estates and transfers on a worldwide basis. The treaty
also permits the other country to tax certain property on the
basis of its location there a»d provides for a credit for tax
paid to the other country in these circumstances. The treaty
provides rules for resolving the issue of domicile.
Under the new treaty a U. S. citizen who maintains a
domicile in the United States but is temproarily resident in
France does not become subject to French tax jurisdiction
unless he has lived there for five of the seven years preceding
his death or the making of a gift. (This rule applies
B-1280
reciprocally).
'(MORE)
- 2 -
The estate and gift tax treaty will enter into force on
the first day of the second month following the month in
which instruments of ratification are exchanged, and will
remain in force until terminated by one of the Contracting
States. It may not be terminated for five years after it
enters into force.
The new protocol modifies the income tax treaty of 1967,
as amended in 1970. Its principal purpose is to avoid double
taxation of U. S. citizens residing in France.
A change in French law effective in 1979 will subject
U. S. citizens residing in France to French tax on their
worldwide income on the same basis as other French residents,
bringing to an end the former special exemption of U. S.
citizens. Under French law, a foreign tax credit for U. S.
tax paid on U. S. source investment income would extend only
to the amount of tax which the treaty authorizes for French
residents who are not U. S. citizens. Since the U. S. tax
on U. S. citizens is not subject to treaty limitation, the
French credit could be inadequate to avoid double taxation.
Under the protocol, the two countries agree to share the
responsibility for avoiding double taxation of U. S. citizens
residing in France. France will exempt from tax their U. S.
source business and employment income, and the United States
will credit French tax on their U. S. source investment income
in excess of the French credit by treating the corresponding
portion of this income as having a French source.
The protocol and an accompanying exchange of letters
clarify the French tax treatment of partnership income, pension contributions and benefits, and other matter of concern
to U. S. citizens residing in France.
In addition, the protocol'1 provides for reciprocal exemption at source of interest on i>ank loans, and it amends the
income tax treaty in several other respects to bring it more
into line with recent tax treaties.
The protocol will enter into force one month after the
exchange of instruments of ratification and will take effect
for taxable years beginning on or after January 1, 1979. It
will remain in force as long as the income tax treaty of 1967,
as amended in 1970, remains in force.
A copy of the estate and gift tax treaty and of the protocol to the income tax treaty is attached.
o
0
o
CONVENTION BETWEEN
THE UNITED STATES OF AMERICA
AND THE FRENCH REPUBLIC
FOR THE AVOIDANCE OF DOUBLE TAXATION
AND THE PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES
ON ESTATES, INHERITANCES, AND GIFTS
The President of the United States of America and the
President of the French Republic, desiring to conclude a
convention for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on
estates, inheritances, and gifts, have appointed for that
purpose as their respective plenipotentiaries:
The President of the United States of America: The Honorable
George S. Vest, Assistant Secretary of State for European
Affairs,
The President of the French Republic: His Excellency
Franjois de Laboulaye, Ambassador of France,
who having communicated to each other their full powers,
found in good and due form, have agreed upon the following
provisions.
CHAPTER I
SCOPE OF THE CONVENTION
Article 1
Estates and Gifts Covered
(1) This Convention shall apply to estates of decedents
whose domicile at death was in France and to estates of
decedents which are subject to the taxing jurisidiction of
the United States by reason of the decedent's domicile
therein or citizenship thereof at death.
(2) This Convention shall also apply to gifts of donors
whose domicile at the time of making a gift was in France,
and to gifts which are subject to the taxing jurisdiction of
the United States by reason of the donor's domicile therein
or citizenship thereof at the time of making of a gift.
(3) A person who at the time of death or the making of
a gift was a resident of a possession of the United States
and who acquired United States citizenship solely by reason
of (a) his being e citizen of such possession, or (b) his
birth or residence within such possession, shall be
considered as having been neither domiciled in nor a citizen
of the United States for purposes of this Convention.
Article 2
Taxes Covered
(1) This Convention shall apply to:
%
(a) In the case of the United States: the Federal
gift tax and the Federal estate tax, including the tax
i
on generation-skipping transfers; and
(b)
In the case of France:
the duty on gifts and
the duty levied on succession.
(2)
This Convention shall also apply to any identical
or substantially similar taxes on estates, inheritances, and
gifts which are subsequently imposed by a Contracting State
in addition to, or in place of, the existing taxes.
(3)
The competent authorities of the Contracting States
shall notify each other of any substantial changes which
have been made in their respective laws relating to taxes on
estates, inheritances, and gifts.
CHAPTER II
DEFINITIONS
Article 3
General Definitions
(1)
In this Convention:
(a)
The terms "Contracting State" and "other
Contracting State" mean the United States or France, as
the context requires.
(b)
The term "United.States" means the United
States of America and, when used in a geographical
sense, means the states thereof and the District of
Columbia.
Such term also includes any area outside the
States and the District of Columbia which is, in
accordance with international law, an area within which
the United States may exercise rights with respect to
the natural resources ;of the seabed and sub-soil.
(c)
The term "France" means the French Republic
and, when used in a geographical sense, means the
European and Overseas departments of the French
Republic.
Such term also includes any area outside
those departments which is, in accordance with
international law, an area within which France may
exercise rights with respect to the natural resources of
the seabed and sub-soil.
(d)
The term "enterprise" means a commercial or
industrial enterprise carried on by an individual
domiciled in a Contracting State.
(e)
Except where expressly stated to the contrary,
the term "tax" means the tax or taxes referred to in
Article 2 which are imposed by the Contracting State (or
Contracting States) as indicated by the context of the
term's usage.
(f)
The term "competent authority" means:
(i)
In the case of the United States, the
Secretary of the Treasury or his delegate, and
(ii)
In the case-of France, the Minister of
Budget or his delegate.
(2)
Any term not otherwise defined in this Convention
shall, unless the context otherwise requires, have the
meaning which it has under the tax laws of the Contracting
State whose tax is being determined.
However, if the
meaning of such a term under the laws of one of the
Contracting States is different from the meaning of the term
under the laws of the other Contracting State, the
Contracting States may, in order to prevent double taxation
or to further any other purpose of this Convention,
establish a common meaning of the term for purposes of this
Convention.
Article 4
Fiscal Domicile
(1)
For the purpose of this Convention, the question
whether an individual was domiciled in one of the
Contracting States shall be determined according to the law
of that State.
(2)
Where by reason of the provisions of paragraph (1)
an individual was domiciled in both Contracting States, then
this case shall be determined in accordance with the
following rules:
(a)
He shall be deemed to have been domiciled in
the Contracting State in which he maintained his
permanent home;
(b)
If he had a permanent home in both Contracting
States or in neither of the Contracting States, his
domicile shall be deemed to be in the Contracting State
with which his personal relations were closest (center
of vital interests);
(c)
If the Contracting State in which he had his
center of vital interests cannot be determined, his
domicile shall be deemed to be in the Contracting State
in which he had an habitual abode;
(d)
If he had an habitual abode in both
Contracting States or in neither of the Contracting
States, his domicile shall be deemed to be in the
Contracting State of which he was a citizen; or
(e)
If he was a citizen of both Contracting States
or of neither of them, the competent authorities of the
Contracting States shall determine the Contracting State
of his domicile by mutual agreement.
(3)
(a)
Notwithstanding the provisions of
paragraph (2), an individual who at the time of his
death or the making of a gift was a citizen of one of
the Contracting States without being a citizen of the
other Contracting State, and who would be considered
under paragraph (1) as having been domiciled in both
Contracting States, shall be deemed to have been
domiciled only in the Contracting State of which he was
a citizen, if he had a clear intention to retain his
domicile in that Contracting State and if he was
domiciled in the other Contracting Sta%te in the
aggregate less than 5 years during the 7-year period
ending with the year of his death or the making of a
gift.
(b)
Nothwithstanding the provisions of
paragraph (2) or of subparagraph (a) of this paragraph,
an individual who at the time of his death or the making
of a gift was a citizen of one of the Contracting States
without being a citizen of the other Contracting State,
and who would be considered under paragraph (1) as
having been domiciled in both Contracting States, shall
be deemed to have been domiciled only in the Contracting
State of which he was a citizen if:
(i)
He was domiciled in the other Contracting
State in the aggregate less than 5 years during the
7-year period ending with the year of his death or
the making of a gift, provided that he was in that
other Contracting State by reason of an assignment
of employment or as the spouse or other dependent
(personne a charge) of a person present in that
other Contracting State for such a purpose; or
(ii)
He was domiciled in the other Contracting
State in the aggregate less than 7 years during the
10-year period ending with the year of his death or
the making of a gift, provided that he was in that
other Contracting State by reason of a renewal of
an assignment of employment or as tine spouse or
other dependent (personne a charge) of a person
present in that other Contracting State for such a
purpose.
I
CHAPTER III
TAXING RULES
Article 5
Immovable (Real) Property
(1) Immovable (real) property may be taxed by a
Contracting State if such property is situated in that
State.
(2) The term "immovable (real) property" shall be
defined in accordance with the tax laws of the Contracting
State in which such property is situated. Mortgages or
other claims secured by immovable (real) property shall not
be regarded as immovable (real) property.
(3) The provisions of paragraphs (1) and (2) shall also
apply to immovable (real) property which forms part of the
business property of a permanent establishment or is used
for the performance of professional services or other
independent activities of a similar character.
Article 6
Business Property of a Permanent Establishment
and Assets Pertaining tp a Fixed Base Used for
the Performance of Professional Services
(1) Except as provided in Article 5, assets (other than
ships and aircraft operated in international traffic and
movable property pertaining to the operation of such ships
and aircraft) used in or held for use in the conduct of the
business of a permanent establishment may be taxed by a
Contracting State if the permanent establishment is situated
therein.
(2)
For purposes of this Convention, the term
"permanent establishment" means a fixed place of business
through which the business of an enterprise is wholly or
partly carried on.
If an individual is a member of a
partnership or other association that is not a corporation
which is engaged in industrial or commercial activity
through a fixed place of business, he shall be deemed to
have been so engaged to the extent of his interest therein.
(3)
The term "permanent establishment" shall include
especially:
(a)
A seat of management;
(b)
A branch;
(c)
An office;
(d)
A factory;
(e)
A workshop;
(f)
A warehouse;
(g)
A mine, quarry, or other place of extraction
of natural resources; and
(h)
A building site or a construction or assembly
project which exists for mcfre than 12 months.
(4)
Notwithstanding the provisions of paragraphs (2)
and (3), the term "permanent establishment" shall not be
deemed to include:
(a)
The use of facilities solely for the purpose
of storage, display, or delivery of goods or merchandise
belonging to the enterprise;
(b)
The maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the
purpose of storage, display, or delivery;
(c) The maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the
purpose of processing by another person;
(d) The maintenance of a fixed place of business
solely for the purpose of purchasing goods or
merchandise, or the collection of information, for the
enterprise;
(e) The maintenance of a fixed place of business
solely for the purpose of advertising, supplying
information, conducting scientific research, or similar
activities which have a preparatory or auxiliary
character, for the enterprise; or
(f) The maintenance of a fixed place of business
solely for investment purposes (and not for purposes of
engaging in industrial or commercial activity) of an
individual, whether by the individual or his employees
or through a broker or other agent.
(5) A person who was acting in a Contracting State on
behalf of an enterprise—other than an agent to whom
paragraph (4)(f) or (6) applies--shall be deemed to have
been a permanent establishment of the enterprise in that
State if such person had, and habitually exercised in that
State, an authority to conqlude contracts in the name of the
enterprise, unless the exercise of such authority was
limited to the purchase of goods or merchandise for the
enterprise.
(6) An enterprise shall not be deemed to have had a
permanent establishment in a Contracting State merely
because the enterprise engaged in industrial or commercial
activity in that State through a broker, general commission
agent, or any other agent of an independent status acting in
the ordinary course of his business.
(7) The fact that an enterprise controlled a
corporation which engaged in industrial or commercial
activity in a Contracting State (whether through a permanent
establishment or otherwise) shall not be taken into account
in determining whether the enterprise had a permanent
establishment in that State.
(8) Except as provided in Article 5, assets pertaining
to a fixed base used for the performance of professional
services or other independent activities of a similar
character may be taxed by a Contracting State if the fixed
base is situated in that State.
*
•
'
Article 7
Tangible Movable Property
(1) Tangible movable property other than currency may
be taxed by a Contracting State if such property is situate*
in that State and is not taxable by the other Contracting
State pursuant to Article 6.
For this purpose, tangible
movable property which is in transit shall be considered
situated at the place of destination.
(2)
Notwithstanding the provisions of paragraph (1),
tangible movable property owned by an individual referred to
in paragraph (3) of Article 4 and used for his normal
personal use or that of his family may be taxed only by the
Contracting State in which the individual was domiciled.
(3)
Notwithstanding the provisions of paragraph (1),
ships and aircraft operated in international traffic, and
movable property pertaining to the operation of such ships
and aircraft, may be taxed by a Contracting State if such
ships and aircraft are registered in that Contracting State.
Other ships and aircraft may be taxed by a Contracting State
if the harbors and airports most frequently used by such
ships and aircraft are situated in that State.
Article 8
Taxation Other than Pursuant to Articles 5, 6, and 7
Except as provided in Articles 5, 6, and 7, property,
including shares or stock in a corporation, debt obligations
(whether or not there is written evidence thereof), other
intangible property, and currency may be taxed by a
Contracting State only if the decedent or donor was a
citizen of or was domiciled in that State aj: the time of
death or the making of a gift, and if taxable by that State
under its laws.
Article 9
Deduction of Debts
(1) Debts, to the extent they would be deductible
according to the internal law of a Contracting State, shall
be deducted from the gross value of the property which may
be taxed by that State in the proportion that such gross
value bears to the gross value of the entire property
wherever situated.
(2) Notwithstanding the provisions of paragraph (1), for
purposes of determining the French tax:
(a) Debts pertaining to a permanent establishment
or to a fixed base used for the performance of
professional services or other independent activities of
a similar character shall be deducted from the value of
assets referred to in Article 6.
(b) Debts pertaining to ships and aircraft
operated in international traffic and to movable
property related to the operation of such ships and
aircraft shall be deducted .^from the value of these
assets.
Article 10
Charitable Exemptions and Deductions
(1) A transfer to a legal entity created or organized
in a Contracting State shall be exempt from tax, or fully
deductible from the gross value liable to tax, in the other
Contracting State with respect to its taxes referred to in
Article 2, provided the transfer would be eligible for such
exemption or deduction if the legal entity had been created
or organized in that other Contracting State.
(2) The provisions of paragraph (1) shall apply only if
the legal entity:
(a) Has a tax-exempt status in the first
Contracting State by reason of which transfers to such
legal entity are exempt or fully deductible;
(b) Is organized and operated exclusively for
religious, charitable, scientific, literary, or
educational purposes; and
(c) Receives a substantial part of its support
from contributions from the public or governmental
funds.
(3) This Article shall not apply to transfers to a
Contracting State or a political or administrative
subdivision thereof unless specifically limited to a purpose
described in paragraph (2)(b).
ArticLe 11
Community Property and Marital Deduction
(1) Property (other than community property) which was
acquired during marriage for consideration by an individual
who at the time of death or the making of *a gift was
domiciled in, or a citizen of, the United States and which
passes to the spouse of such individual shall, for the
purposes of determining the French tax, be treated as if it
were community property, unless the spouses expressly
elected to have a treatment other than community property
treatment provided by French civil law.
(2) In the case of an individual who was domiciled in
France there shall, for purpose of determining the United
States tax, be allowed the same marital deduction in effect
on the date of signature of this Convention, as if such
individual were domiciled in the United States, and in such
a case the tax rates applicable if the decedent or donor had
been domiciled in the United States shall apply. If the tax
determined without regard to the preceding provision of this
paragraph is lower than that computed under the preceding
provision, the lower tax shall apply.
(3) In the event the laws of either Contracting State
are changed substantially to reduce the tax benefits of the
marital deduction or community property, the competent
authorities of the Contracting States shall consult to
determine whether this Article shall be modified or shall
cease to have effect. +
CHAPTER IV
RELIEF FROM DOUBLE TAXATION
Article 12
Exemptions and Credits
(1) Except as otherwise provided in this Convention,
each Contracting State shall impose its tax, and shall allow
exemptions, deductions, credits, and other allowances, in
accordance with its laws.
(2)
Double taxation shall be avoided in the following
manner:
(a) In determining the French tax where property
may be taxed by the United States in accordance with
Article 5, 6, or 7, such property shall be exempt from
the French tax. However, French tax with respect to
property which is taxable by France in accordance with
this Convention shall be computed at the rate
appropriate to the total of property taxable under
French law.
(b) In determining the United States tax:
(i) Where both Contracting States impose tax
with respect to property which is taxable by France
in accordance with Article 5, 6, or 7, the United
States shall allow a credit equal to the amount of
the tax imposed by France with respect to such
property.
(ii) Notwithstanding the provisions of
subparagraph (i), the total amount of all credits
m*
allowed by the United ^States pursuant to this
Article or pursuant to its laws or other
conventions with respect to all property in respect
of which a credit is allowable under subparagraph
(i) shall not exceed that part o£ the tax of the
United States which is attributable to such
property.
(iii)
Any credits for tax imposed by France
allowable under this Article are in lieu of, and
not in addition to, any such credits allowed by the
laws of the United States.
(3)
If the decedent or donor was a citizen of the
United States at the time of death or the making of a gift
and would be considered under Article 4 as having been
domiciled in France at such time, the United State shall
allow a credit equal to the amount of the tax imposed by
France .
(4)
Exemption and credits under this Article shall be
tentatively allowed by the United States on the basis of
statements made in the tax return as to the amount of any
tax paid or payable to France.
However, such exemptions and
credits shall not be finally allowed until any such tax for
which the exemption or credit is allowable has been paid.
(5)
The provisions of this Convention shall not result
in an increase in the amount of the tax imposed by either
Contracting State under its domestic laws.
A reduction in
the credit allowed against United States tax for the tax
paid to France which results from the application of this
Convention shall not be construed as an increase in tax.
CHAPTER V
SPECIAL PROVISIONS
Article 13
Time Limitations on Claims for Credit or Refund
(1)
Any claim for credit or for refund of tax founded
on the provisions of this Convention shall be made before
the expiration of the latest of:
(a)
The time for the making of a claim for refund
of tax under the laws of the Contracting State to which
the claim for credit or refund is made;
(b)
Five years from the date of death* of the
decedent, or from the making of a gift with respect to
which the claim is made; or
(c)
One year after final determination
(administrative or judicial) and payment of tax for
which any credit under Article 12 is claimed, provided
that the determination and payment are made within 10
years of the date of death of the decedent or of the
making of a gift.
(2)
Any refund based on th§ provisions of this
Convention shall be made without payment of interest on the
amount so refunded.
Article 14
Mutual Agreement Procedure
(1)
Any person who considers that the actions of one or
both of the Contracting States result or will result for him
in taxation not in accordance with this Convention may,
notwithstanding the remedies provided by the laws of those
States, present his case to the competent authority of
either Contracting State. Such presentation must be made
within the period of time prescribed for the filing of a
claim for credit or refund under Article 13. Should the
person's claim be considered to have merit by the competent
authority of the Contracting State to which the claim is
made, it shall seek agreement with the competent authority
of the other Contracting State with a view to the avoidance
of taxation contrary to the provisions of this Convention.
(2) The competent authorities of the Contracting States
shall resolve by mutual agreement any difficulties or doubts
arising as to the application of this Convention.
(3) The competent authorities of the Contracting States
may communicate with each other directly for the purpose of
reaching an agreement in the sense of this Article. When it
seems advisable for the purpose of reaching an agreement,
the competent authorities may meet together for an oral
exchange of opinions. >
(4) When the competent authorities reach such an
agreement, taxes shall be imposed, and refund or credit of
taxes shall be allowed by the Contracting States in
accordance with such agreement, notwithstanding any
procedural rule (including the statute of limitations)
applicable under the laws of either Contracting State.
(5)
The competent authority of each Contracting State
may prescribe such regulations and forms as may be necessary
or appropriate to give effect to and implement the
provisions of this Convention.
Article 15
Filing of Returns and Exchange of Information
(1) (a) The provisions of Articles 5, 6, 7, or 8,
which change the taxability or situs of property or the
amount of tax which would have been due in the absence
of this Convention, shall not change:
(i) The requirements of the respective tax
laws of the Contracting States relating to
information or tax returns or notices, transfer
certificates or maintenance of records, and
(ii) The applicability and amount of any
sanctions of such laws with respect to the
requirements referred to in subparagraph (i).
(b) As concerns the United States, notwithstanding
the provisions of paragraph (a), the requirements or
sanctions found to be unnecessary for the prevention of
fraud or fiscal evasion with respect to taxes to which
this Convention applies may be eliminated or modified
(but not made more burdensome) by regulations prescribed
pursuant to paragraph (5) of Article 14.
(2)
The competent authority of each Contracting State
shall furnish the competent authority of the other
Contracting State such information as is pertinent to:
(a)
Carrying out the provisions of this Convention
or the laws of such other Contracting State concerning
its tax insofar as the taxation thereunder is in
accordance with this Convention, or
(b) Preventing fraud or fiscal evasion in relation
to the taxes which are the subject of this Convention
(including information with respect to property exempted
from the tax of the first-mentioned Contracting State by
reason of Article 8 ) .
However, this paragraph shall not require the competent
authority of a Contracting State to furnish information not
in the possession of that Contracting State with respect to
property exempted from its tax by reason of Article 8.
Any
information furnished shall be treated as secret and shall
not be disclosed to any persons other than those (including
a court or administrative body) concerned with assessment,
collection, enforcement, or prosecution in respect of the
taxes which are the subject of this Convention.
(3)
In no case shall the provisions of paragraph (2) be
construed so as to impose on one of the Contracting States
the obligation:
(a)
*
To carry out administrative measures at
variance with the laws or the administrative practice of
that or of the other Contracting State;
(b)
To supply particulars which are not obtainable
under the laws or in the normal course of the
administration of that or of the other Contracting
State;
(c)
To supply information which would disclose any
trade, business, industrial, commercial, or professional
secret or trade process, or information the disclosure
of which would be contrary to public policy.
(4)
The furnishing of information shall be either on a
routine basis or on request with reference to particular
cases.
The competent authorities of the Contracting States
shall agree on the list of information which shall be
furnished on a routine basis.
Article 16
Assistance in Collection
(1)
The two Contracting States undertake to lend
assistance and support to each other in the collection of
the taxes to which this Convention relates, together with
interest, costs, and additions to the taxes and fines not
being of a penal character according to the laws of the
State requested, in cases where the taxes are definitively
due according to the laws of the State making the
application.
(2)
In the case of an application fof enforcement of
taxes, revenue claims of each of the Contracting States
which have been finally determined will be accepted for
enforcement by the State to which application is made and
collected in that State in accordance with the laws
applicable to the enforcement and collection of its own
taxes.
(3)
The application will be accompanied by such
documents as are required by the laws of the State making
the application to establish that the taxes have been
finally determined.
(4)
If the revenue claim has not been finally
determined, the State to which application is made will tak
such measures of conservancy (including measures with
respect to transfer of property belonging to nonresident
aliens) as are authorized by its laws for the enforcement o
its own taxes.
(5)
The assistance provided for in this Article shall
not be accorded with respect to estates of citizens of the
Contracting State to which application is made.
Article 17
Diplomatic and Consular Officials
(1)
Nothing in this Convention shall affect the fiscal
privileges of diplomatic or consular officials under the
general rules of international law or under the provisions
of special agreements.
(2)
Insofar as such privileges prevent the imposition
of tax in the receiving Contracting State, the right to tax
shall be reserved to the Contracting State in whose service
the persons concerned exercised their functions and,
nothwithstanding any other provisions of this Convention,
such persons shall not be deemed to have been domiciled in
the receiving Contracting State.
Article 18
Territorial Extension
(1) This Convention may be extended, either in its
entirety or with necessary modifications, to all or any of
the Overseas Territories of the French Republic or the
territories for whose international relations the United
States is responsible, if such territories impose taxes
substantially similar in character to those referred to in
Article 2. Any such extension shall take effect from such
date and subject to such modifications and conditions as may
be specified and agreed between the Contracting States in
notes to be exchanged through diplomatic channels or in any
other manner in accordance with their constitutional
procedure. In the case of the United States, such procedure
shall be that set forth in Article II, Section 2, of the
Constitution of the United States (advice'and consent of the
Senate).
(2)
At any time after the expiration of a period of one
year from the effective date of an extension made by virtue
of paragraph (1) either of the Contracting States may, by a
written notice of termination given to the other Contracting
State through diplomatic channels, terminate the application
of the provisions in respect of any territory to which this
Convention has been extended, in which case the provisions
of the Convention shall cease to be applicable to such
territory on and after the first day of January following
the date of such notice.
(3) Unless otherwise agreed by both Contracting States,
the termination of the Convention by one of the Contracting
States under Article 20 shall also terminate the application
of the Convention to any territory to which it has been
extended under this Article.
CHAPTER VI
FINAL PROVISIONS
Article 19
Entry into Force
(1) This Convention shall'be ratified and the
instruments of ratification shall be exchanged at Paris as
soon as possible.
(2) This Convention shall enter into force the first
day of the second month following the month in which the
exchange of the instruments of ratification takes place.
Its provisions shall apply to estates of persons dying and
to gifts made on or after'that date.
(3) The Convention of October 18, 1946, as modified by
the Protocol of May 17, 1948, and the Convention of June 22,
1956, shall be terminated on, and shall cease to have effect
from, the date on which the present Convention enters into
force according to paragraph (2) .
Article 20
Termination
(1) This Convention shall remain in force until
terminated by one of the Contracting States. However, not
earlier than the fifth year following the year in which this
Convention entered into force, either Contracting State may,
between the first of January and the thirtieth of June, give
written notice of termination through diplomatic channels,
with effect from the end of the calendar year in which such
notice is given. In such an event, its provisions shall not
apply to estates of persons dying or to gifts made after the
end of the calendar year with respect to the end of which
this Convention has been terminated.
(2) Notwithstanding the provisions of paragraph (1), if
the effects of this Convention^are substantially altered as
a result of changes made in the tax law of either
Contracting State, either Contracting State may, through
diplomatic channels, give a written notice of termination
with effect not earlier than 6 months afber such notice is
given. In such an event, its provisions shall not apply to
estates of persons dying or to gifts made on or after the
effective date of the termination.
IN WITNESS WHEREOF, the plenipotentiaries of the two
Contracting States have signed this Convention and affixed
thereto their seals.
DONE at Washington, in duplicate, in the English and
French languages, each text being equally authentic, this
24th day of November 1978.
For the President of the For the President of the
United States of America:
French Republic:
^(Si— — } / .. .
*~
George S. Vest Francois de Laboulaye
Assistant Secretary of
Ambassador of France
State for European
Affairs
PROTOCOL
TO THE CONVENTION BETWEEN
THE UNITED STATES OF AMERICA
AND THE FRENCH REPUBLIC
WITH RESPECT TO TAXES ON INCOME AND PROPERTY
OF JULY 28, 1967, AS AMENDED
BY THE PROTOCOL OF OCTOBER 12, 1970
The President of the United States of America and the
President of the French Republic, desiring to amend the
Convention between the United States of America and the
French Republic with respect to taxes on income and property
of July 28, 1967, as amended by the Protocol of October 12,
1970, have appointed for that purpose as their respective
plenipotentiaries:
The President of the United States of America: The
Honorable George S. Vest, Assistant Secretary of State for
European Affairs, and
The President of the French Republic: His Excellency
Francois de Laboulaye, Ambassador of France,
who have agreed upon the following provisions.
ARTICLE 1
1.
In Article 1, paragraph (1) is replaced by the
following:
"(1) The taxes which are the subject of the present
Convention are:
(a) In the case of the United States, the Federal
income taxes imposed by the Internal Revenue Code and
the excise tax on insurance premiums paid to foreign
insurers. The excise tax imposed on insurance premiums
paid to foreign insurers, however, is covered only to
the extent that the foreign insurer does not reinsure
such risks with a person not entitled to exemption from
such tax under this or another convention.
(b) In the case of France:
(i) the income tax, the corporation tax,
including any withholding tax,
prepayment (precompte) or advance
payment with respect to the aforesaid
taxes; and
(ii) the tax on Stock Exchange
transactions."
2. Article 2 is amended as follows:
(1) Subparagraph (l)(a) of Article 2 is replaced by:
"(a) The term 'United States' means the United
States of America and, when used in a geographical
sense, includes the States thereof and the District
of Columbia. Such term also includes any area
outside the States and the District of Columbia
which is, in accordance with international law, an
area within which the United States may exercise
rights with respect to the natural resources of the
seabed and sub-soil.
The term 'France' means the French Republic
and, when used in a geographical sense, means the
European and Overseas departments of the French
Republic. Such term also includes any area outside
those departments which is, in accordance with
international law, an area within which France may
exercise rights with respect to the natural
resources of the seabed and sub-soil."
(2) A new subparagraph (1)(e) is added> and the present
subparagraph (1)(e) is renumbered (l)(f):
"(e) the term 'international traffic' means any
transport by a ship or aircraft, except where such
transport is solely between places in the other
Contracting State.*
3.
Article 6 is amended by introducing the following new
paragraph (4), the current paragraphs (4) and (5) becoming
the new paragraphs (5) and (6):
"(4) A partner shall be considered to have
realized income or incurred deductions to the extent
of his ratable share of the profits or losses of the
partnership. For this purpose, the character of any
item of income or deduction accruing to a partner
shall be determined as if it were realized or
incurred from the same source and in the same manner
as realized or incurred by the partnership. A
partner will be considered to have realized or
incurred a proportionate share of each item of
income and deduction of the partnership, except to
the extent that his share of the profits depends on
the source of the income."
4. Article 7 is replaced by the following article:
"ARTICLE 7
Shipping and Air Transport
(1) Notwithstanding Articles 6 and 12:
(a) Where a resident of the United States
derives income from the operation in
international traffic of ships or aircraft, or
gains from the sale, exchange or other
disposition of ships or aircraft used in
international traffic by such resident, such
income or gains shall be taxable only in the
United States.
(b) Where a resident of France derives income from
the operation in international traffic of ships
or aircraft, or gains from the sale, exchange or
other disposition o£ ships or aircraft used in
international traffic by such resident, such
income or gains shall be taxable only in France.
(2) The provisions of this Article shall also apply to
the proportionate share of income derived by a
resident of a Contracting State from participation
in a pool, a joint business or an international
operating agency. The proportionate share shall be
treated as derived directly from the operation in
international traffic of ships or aircraft.
In the case of a corporation, the provisions of
paragraphs (1) and (2) shall apply only if more than
50 percent of the capital of such corporation is
owned, directly or indirectly:
(a) by individuals who are residents of the
Contracting State in which such corporation is
resident or of a State with which the other
Contracting State has a convention which exempts
such income; or
(b) by such Contracting State.
However, if more than 50 percent in value of the
shares of a corporation or of its parent are listed
on one or more recognized securities exchanges in a
Contracting State, and there is substantial trading
activity in those shares on such exchange or
exchanges, then the provisions1* of paragraphs (1) and
(2) shall apply if it can be shown that 20 percent
or more of the capital of such corporation is owned,
directly oi; indirectly, by individuals and the
Contracting State specified ifw£his paragraph.
For the purposes of this Article, income derived
from the operation in international traffic of ships
or aircraft includes:
(a) profits derived from the rental on a full or
bareboat basis of ships or aircraft if operated
in international traffic by the lessee or if
such rental profits are incidental to other
profits described in paragraph (1), or
(b) profits of a resident of a Contracting State
from the use or maintenance of containers
(including trailers, barges and related
equipment for the transport of containers) used
for the transport in international traffic of
goods or merchandise if such income is
incidental to other profits described in
paragraph (1)."
"(9)
the provisions
of paragraphs
cle 10Notwithstanding
is amended by adding
a new paragraph
(9) as
and (3), and subject to the provisions of paragraph
interest on any loan of whatever kind granted by a
shall be exempt in the State in which such interest
its source."
Article 14 is amended by adding a new paragraph (4) as
lows:
"(4) Article 6, paragraph (4), shall apply by
analogy. In no event, however, shall that provision
result in France exempting under Article 23 more than
50 percent of the earned income from a partnership
accruing to a United States citizen who is a resident of
France. The amount of such a partner's income which is
not exempt under Article 23 solely by reason of the
preceding sentence shall reduce the amount of
partnership earned income from sources within France on
which France can tax partners who are not residents of
France."
In Article 15, paragraph (3) shall be amended as
follows:
"(3) Remuneration received by an individual for
personal services performed aboard ships or aircraft
operated by a resident of a Contracting State shall be
exempt from tax by the other Contracting State if the
income from the operation of the ship or aircraft is
exempt from tax in the other Contracting State under
Article 7 and such individual is a member of the regular
complement of the ship or aircraft."
Article 20 is amended to read as follows:
"Article 20
Social Security Payments
Social security payments (whether representing
employee or employer contributions or accretions
thereto) paid by one of the Contracting States to an
individual who is a resident of the other Contracting
State or a citizen of the United States shall be taxable
only in the former Contracting State."
In Article 22, paragraph (4)(a) is amended by adding the
owing sentence immediately after the%first sentence:
"For this purpose the term 'citizen' shall include a
former citizen whose loss of citizenship had as one of
its principal purposes the avoidance of income tax, but
only for a period of 10 years following such loss."
6.
Article 14 is amended by adding a new paragraph (4) as
follows:
"(4) Article 6, paragraph (4), shall apply by
analogy. In no event, however, shall that provision
result in France exempting under Article 23 more than
50 percent of the earned income from a partnership
accruing to a United States citizen who is a resident of
France. The amount of such a partner's income which is
not exempt under Article 23 solely by reason of the
preceding sentence shall reduce the amount of
partnership earned income from sources within France on
which France can tax partners who are not residents of
France."
7. In Article 15, paragraph (3) shall be amended as
follows:
"(3) Remuneration received by an individual for
personal services performed aboard ships or aircraft
operated by a resident of a Contracting State shall be
exempt from tax by the other Contracting State if the
income from the operation of the ship or aircraft is
exempt from tax in the other Contracting State under
Article 7 and such individual is a member of the regular
complement of the ship or aircraft."
8. Article 20 is amended to read as follows:
"Article 20
Social Security Payments
Social security payments (whether representing
employee or employer contributions or accretions
thereto) paid by one of ttfe Contracting States to an
individual who is a resident of the other Contracting
State or a citizen of the United States shall be taxable
only in the former Contracting State."
9. In Article 22, paragraph (4)(a) is amended by adding the
following sentence immediately after the%first sentence:
"For this purpose the term 'citizen' shall include a
former citizen whose loss of citizenship had as one of
its principal purposes the avoidance of income tax, but
only for a period of 10 years following such loss."
10.
Article 23 shall be replaced by the following new
"Article 23
Relief from Double Taxation
Double taxation of income shall be avoided in the
following manner:
(1) In the case of the United States: In accordance
with the provisions and subject to the
limitations of the law of the United States (as
it may be amended from time to time without
changing the general principle hereof) the
United States shall allow to a citizen,
resident or corporation of the United States as
a credit against its tax specified in paragraph
(1)(a) of Article 1 the appropriate amount of
income taxes paid to France. Such appropriate
amount shall be based upon the amount of French
tax paid but shall not exceed that portion of
the United States tax which net income from
sources within France bears to the entire net
income.
(2) In the case of France:
(a) income referred to below derived by a
resident of France shall be exempt from the
French taxes mentioned in subparagraph
(1)(b)(i) of Article 1:
(i) income (other than income referred
to in paragraph (2)(b) of this
Article) which is taxable in the
United States under this Convention
other than by reason of the
citizenship of the taxpayer; and
(ii) in the case of an individual who is
a citizen of the United States,
(a) income dealt with in Articles
14 or 15 to the extent the
services are performed in the
United States;
(b) income which would be exempt
from United States tax under
Articles 17 or 18 if the
recipient were not an
individual who is a citizen of
the United States;
(c) income dealt with in paragraph
(1) of Article 19, to the
extent attributable to
services performed while his
principal place of employment
was in the United States.
(b) As regards income taxable in the United
States under Articles 9, 10, 11 or 12 and
income to which paragraph (4)(b) of Article
22 applies, France shall allow to a
resident of France a tax credit
corresponding to the amount of tax levied
by the United States under this Convention
other than by reason of citizenship. Such
tax credit, not to exceed the amount of
French tax levied on such income, shall be
allowed against taxes mentioned in
subparagraph (l)(b)(i) of Article 1 of the
Convention in the bases of which such
income is included.
(c) Notwithstanding the provisions of
subparagraphs (a) and (b), French tax may
be computed on income chargeable in France
by virtue of this Convention at the rate
appropriate to the total of the income
chargeable in accordance with French law.
In the case of an individual who is both a
resident of France and a citizen of the United
States:
(a) the amount of the tax credit referred to in
subparagraph (b) of paragraph (2) shall be
equal to the amount of tax which the United
States would be entitled to levy in respect
of the item of income if the individual
deriving the income were not a citizen of
the United States, but shall not exceed the
amount of French ^tax levied on such item of
income;
*
(b) the United States, in determining the
amount of credit allowable for foreign
taxes, shall consider as income from
sources within the United States only that
portion of each item of income referred to
in subparagraph (b) of paragraph (2) which
is equal to the ratio of X where:
Y %
(i) United
X
is the
rate
of
which
thethe to
levy
income
ifwere
States,
States
the
not
individual
would
and
a tax
citizen
be
deriving
entitled
of
the
(ii) Y is the effective rate of tax
(before reduction by investment tax
credit or foreign tax credit) which
the United States levies for the
year on the individual's gross income.
The proportion of each item of income which
is not considered as from sources within
the United States under this subparagraph
shall be considered as from sources within
France. The provision of this subparagraph
shall apply only to the extent that an item
of income is included in gross income for
purposes of determining French tax.
(c) If for any taxable year a partnership of
which an individual member is both a
resident of France and a citizen of the
United States so elects, for United States
tax purposes,
(i) any income which solely by reason of
paragraph (4) of Article 14 is not
exempt from French tax under this
Article shall be considered income
from sources within France; and
(ii) the amount of income to which
subparagraph (i) applies shall
reduce (but not below zero) the
amount of partnership earned income
from sources outside the United
States which would otherwise be
allocated to partners who are not
residents of France. For this
purpose the reduction shall apply
first to income from sources within
France and then to other income from
sources outside the United States.
This provision shall not result in a
reduction of United States tax below that
which the taxpayer would have incurred
without the benefit of deductions or
exclusions available solely by reason of
his presence or residence outside the
United States.
A resident of a Contracting State who maintains
one or several abodes in the territory of the
other Contracting State shall not be subject in
that other State to an income tax according to
an "imputed" income based on the rental value
of that or other abodes."
ARTICLE 2
This Protocol shall be ratified and instruments of
ratification shall be exchanged at Paris. It shall enter
into force one month after the date of exchange of the
instruments of ratification.
Its provisions shall for the first time have effect with
respect to taxable years beginning on or after January 1,
1979.
ARTICLE 3
This Protocol shall remain in force as long as the
Convention between the United States of America and the
French Republic with respect to taxes on income and property
of July 28, 1967, as amended by the Protocol of October 12,
1970, shall remain in force.
IN WITNESS WHEREOF, the respective plenipotentiaries
have signed the present Protocol and affixed thereto their
seals.
DONE at Washington in duplicate, in the English and
French languages, both texts being equally authoritative,
this 24th day of November
f
1978.
For the President of the
United States of America:
For the President of the
French Republic:
George S. Vest
Assistant Secretary of State
for European Affairs
Francois de Laboulaye
Ambassador of France
DEPARTMENT OF STATE
WASHINGTON
Excellency:
In connection with the Protocol signed today, I should
like to state our understanding with respect to two
important unresolved issues and certain other matters
concerning the application of the Protocol.
1. The United States takes the position that the tax
credit (avoir fiscal) available to French investors in
French corporations should extend on a nondiscriminatory
basis to United States investors in French corporations.
Under the terms of the Protocol signed in 1970 to the income
tax convention between our two countries, the avoir fiscal
is extended to United States portfolio investors. But in
the absence of a similar extension to United States direct
investors, the United States Government considers that the
French tax credit system discriminates against investments
made in France through the intermediary of a United States
parent corporation, as compared to investments made by a
French parent corporation.
We recognize the revenue concerns of France with respect
to this issue and are prepared to accept, in the case of
dividends from French subsidiaries to United States parent
corporations, one half of the credit available to French
shareholders less the 5 percent withholding tax at source
allowed by the treaty (Article 9 ) .
We are very concerned that the Government of France is
not able to agree at this time -to extend one half of the
avoir fiscal to United States direct investors. We have
agreed to conclude the Protocol without such a provision
only because the change in French tax law which takes effect
January 1, 1979 would otherwise subject United States
citizens residing in France to double taxation, and we do
not want them to be so penalized. We appreciate, however,
that the Government of France will continue considering this
issue and agrees to reopen discussions on %the subject of the
avoir fiscal as soon as feasible, and in any event if the
credit is extended in full or in part to direct investors of
other countries.
His Excellency
Francois H P
T.ahnnl^v^
2. It is the position of the Government of France that the
so-called "unitary apportionment" method used by certain
states of the United States to allocate income to the United
States offices or subsidiaries of French corporations, results in inequitable taxation and imposes excessive administrative burdens on French corporations doing business in
those states. Under that method the profit of a French
company on its United States business is not determined on
the basis of arm's length relations but is derived from a
formula taking account of the income of the French company
and its worldwide subsidiaries as well as the assets,
payroll, and sales of all such companies.
For a French multinational corporation with many subsidiaries in different countries to have to submit its books
and records for all of these corporations to a United States
state, in English, imposes a costly burden.
It is understood that the Senate of the United States
has not consented to any limitation on the taxing jurisdiction of the states by treaty and that a provision which
would have restricted the use of unitary apportionment in
the case of United Kingdom corporations was recently
rejected by the Senate. The Government of France continues
to be concerned about this issue as it affects French multinationals. If an acceptable provision on this subject can
be devised, the United States agrees to reopen discussions
with France on this subject.
3. The Explanatory Note issued by the French and
American Governments will cease to have effect for periods
to which this Protocol applies. With respect to the taxation of American residents in France under this Convention,
the two governments have agreed that:
a. Contributions to pension, profit-sharing, and
other retirement plans which qualify under the United States
Internal Revenue Code will not be considered income to an
employee and will be deductible from the income of a selfemployed individual, to the extent that such contributions
are required by the terms of the plan and are comparable to
similar French arrangements;
*
b. Payments received by the beneficiary in respect
of the plans referred to in (a) will be included in income
for French tax purposes, to the extent not exempt under
subparagraph (2)(a)(ii)(c) of Article 23 of the Convention,
at the time when, and to the extent that, such payments are
considered gross income under the Internal Revenue Code;
c. Benefits received by reason of exercise of stock
options will be considered compensation for French tax
purposes at the time and to the extent the exercise of the
option or disposition of stock gives rise to ordinary income
for United States tax purposes;
d. United States state and local income taxes imposed in respect of income from personal services and any
other business income (except income which is exempt from
e. The French Government will attempt to reach a
reasonable solution with American residents of France
regarding the taxation of employer-provided benefits which
are not considered income by the United States;
f. In applying the provisions of French law referred to by paragraph 2(c) of Article 23, the French
Government clarified how the exemption with progression provision applies. The tax due is that proportion of the tax
on total income which taxable (non-exempt) income bears to
total (exempt plus taxable) income. For example, if a taxpayer has a total income of $20,000 of which by reason of
this Convention only $12,000 is taxable by France, the
French tax will be 60 percent (12,000/20,000) of the tax
computed on a total income of $20,000.
If this is in accord with your understanding, I would
appreciate a confirmation from you to this effect.
Accept, Excellency, the renewed assurances of my highest
consideration.
George S. Vest
Assistant Secretary
for European Affairs
ortmentoftheTREASURY
INGTON,D.C. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
November 27, 1978
Contact:
John P. Plum
202/566-2615
TREASURY ISSUES THIRD PROTOTYPE
CONSOLIDATED FINANCIAL STATEMENT
The Treasury Department today issued the third
prototype consolidated financial statement of the Federal
government.
The report presents government financial data on
the accrual basis. This is not an official financial
statement of the U.S. Government, but rather a part of
continuing experimental efforts aimed at stimulating new
thinking on government accounting procedures.
o 0 o
B-1281
FOR IMMEDIATE RELEASE
November 27, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES PRELIMINARY DETERMINATION THAT
AMPICILLIN TRIHYDRATE FROM SPAIN IS BEING SUBSIDIZED
The Treasury Department today announced its preliminary determination that the Government of Spain is
subsidizing exports of ampicillin trihydrate to the
United States. This product is a semi-synthetic form
of penicillin.
The countervailing duty law requires the Treasury to
assess an additional duty equal to the amount of the
"bounty or grant" (subsidy) paid on imported merchandise.
Treasury must make a final decision in this case no later
than March 23, 1979.
Treasury's preliminary investigation showed that certain payments made as a result of the operation of the
"Desgravacion Fiscal" system of remitting or rebating
certain elements of the Spanish turnover tax appear to be
subject to countervailing duties. As indicated in the
August 29, 1978, issue of the Federal Register (43 FR 38658),
Treasury's policy regarding the Spanish tax system is
currently under review.
Notice of the present action will appear in the
Federal Register of November 28, 1978.
Imports of ampicillin trihydrate from Spain in 1977
are estimated to have been valued at $13,000.
o
B-1282
0
o
FOR IMMEDIATE RELEASE
November 27, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES PRELIMINARY DETERMINATION THAT
OLEORESINS FROM INDIA ARE BEING SUBSIDIZED
The Treasury Department today announced its preliminary determination that the Government of India is
subsidizing exports of oleoresins to the United States.
This product is a thick, liquid extract of the flavor
of a spice used primarily as a seasoning in the food
industry.
The countervailing duty law requires the Treasury
to assess an additional duty equal to the amount of the
"bounty or grant" (subsidy) paid on imported merchandise.
Treasury must make a final decision in this case
no later than March 21, 1979.
Treasury's preliminary investigation showed that
certain payments made as a result of the operation of
the "Export Cash Assistance Program" appear subject to
countervailing duties. Treasury has preliminarily determined that the grant by India of import permits for
materials required for the manufacture of oleoresins
does not constitute a subsidy.
Notice of this action will appear in the Federal
Register of November 28, 1978.
Imports of oleoresins from India in 1977 were
valued at approximately $1.5 million.
o
B-1283
0
o
FOR RELEASE AT 4:00 P.M.
November 28, 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 $ 5,600 million, to be issued December 7, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,612 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,700
million, representing an additional amount of bills dated
September 7, 1978, and to mature March 8, 1979
(CUSIP No.
912793 X3 5), originally issued in the amount of $ 3,408 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $2,900 million to be dated
December 7, 1978,
and to mature June 7, 1979
(CUSIP No.
912793 Y8 3).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing December 7, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,392
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 4, 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.
B-1284
-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 7, 1978,
in cash or
other immediately available funds or in Treasury bills maturing
December 7, 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.
tfartmentoftheTREASURY
|
TELEPHONE 566-2041
SH!NGTONrD.C. 20220
FOR IMMEDIATE RELEASE
November 27, 1978
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,801 million of 13-week Treasury bills and for $2,900 million
of 26-week Treasury bills, both series to be issued on November 30, 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 March 1. 1979
Price
High
Low
Average
Discount
Rate
97.689a/ 9.142%
97.678
9.186%
97.683
9.166%
Investment
Rate 1/
9.49%
9.53%
9.51%
26-week bills
maturing May 31. 1979
Price
Discount
Rate
95.299b/ 9.299%
95.273
9.350%
95.283
9.330%
Investment
Rate 1/
9.89%
9.95%
9.93%
£/ Excepting 1 tender of $410,000
b/ Excepting 1 tender of $10,000
Tenders at the low price for the 13-week bills were allotted 14%.
Tenders at the low price for the 26-week bills were allotted 98%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
Accepted
Received
Accepted
Boston
$
22,485,000
New York
4,360,800,000
Philadelphia
18,645,000
Cleveland
27,565,000
Richmond
18,900,000
Atlanta
27,800,000
Chicago
376,045,000
St. Louis
40,350,000
Minneapolis
3,380,000
Kansas City
22,600,000
Dallas
10,670,000
San Francisco
233,620,000
$
22,485,000
2,474,800,000
18,645,000
27,565,000
16,900,000
25,800,000
68,810,000
26,920,000
3,380,000
18,515,000
10,500,000
79,620,000
$
24,630,000
3,924,065,000
7,060,000
13,990,000
13,615,000
17,470,000
271,195,000
29,815,000
4,360,000
14,550,000
5,740,000
186,970,000
$
24,630,000
2,617,365,000
7,060,000
13,990,000
13,615,000
17,470,000
110,845,000
17,815,000
4,360,000
14,550,000
5,740,000
43,870,000
Treasury
7,060,000
TOTALS
7,060,000
$5,169,920,000
9,090,000
$2,801,000,000c/ $4,522,550,000
^/includes $314,360,000 noncompetitive tenders from the public.
^/Includes $183,805,000 noncompetitive tenders from the public.
i/Equivalent coupon-issue yield.
B-1285
9,090,000
$2,900,400,00i)d/
November 29, 1978
Statement by
* U.S. Secretary of the Treasury W. Michael Blumenthal
Preliminary analysis of the trade figures just released
indicates continued progress toward the improved trade
configurations we have been anticipating. Imports held
steady, continuing at essentially the September level. Exports
declined by $415 million, but a substantial part of the decline
is accounted for by a reduction in exports of gold; physical
exports of gold (which have been very erratic) were unusually
high in September. Exports continued to hold along the much
improved trend that has been evident in recent months.
Importantly, our balance of trade in the area of manufactured
goods and industrial materials is continuing to show substantial improvement.
The October trade deficit appears to be consistent with,
if not below, our expectations for the fourtn quarter. We
continue to anticipate a current account deficit for 1978 of
about $17 billion. And we expect the current account deficit
to be less than half that amount in 1979.
It should be noted that the $1 billion advance payment
from Japanese utility companies for the purchase of uraniuiv.
enrichment services which we received in October did not
affect the October export data. It will affect our trade
statistics only as the enriched uranium is exported over a
period of several years.
entoftheTREASURY
, DX. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
November 29, 1978
Contact:
Robert E . Nipp
202/566-5328
SECRETARY BLUMENTHAL TO LEAD U . S . DELEGATION TO JOINT
U«$ f -U,S,StR» COMMERCTAL COMMISSION IN MOSCOW
Secretary of the Treasury W. Michael Blumenthal leaves
this weekend for Moscow to participate, together with
Secretary of Commerce Juanita M. K r e p s , in the Seventh Session of
the Joint U.S.-U.S.S.R. Commercial Commission and to discuss
bilateral issues including trade relations and economic cooperation. The Secretary also will join with U.S.S.R. Minister of
Foreign Trade Nikolai Patolichev in addressing a meeting of the
U.S.-U.S.S.R. Trade and Economic Council.
Secretary Blumenthal and his party depart Washington
Saturday, December 2, returning Friday, December 8. Following
discussions in Moscow, Secretary Blumenthal will stop overnight
in Bonn for informal talks with Chancellor Schmidt and Finance
Minister Matthoefer.
The Moscow sessions, designed to foster the expansion of
mutually beneficial trade and economic cooperation between the
United States and the Soviet Union, will center on discussions
of Soviet-American economic relations; measures for fostering
industrial cooperation; and facilitation of business activities.
Secretary Blumenthal will carry with him a message to the
Soviets from President Carter noting that closer economic ties
can contribute to world peace.
The Joint Commercial Commission was established in 1972 by
agreement between the United States and the Soviet Union to
improve commercial relations between the two countries. It
meets alternately in Washington and Moscow. Its last session
was in June 1977.
The U.S.-U.S.S.R. Trade and Economic Council, a binational
organization whose membership includes hundreds of U.S. companies
and their Soviet counterparts, was created in 1973 to facilitate
and broaden business transactions between members in both
countries. It has offices in New York and Moscow.
The Treasury delegation includes Under Secretary Anthony M.
Solomon and General Counsel Robert H. Mundheim, both Commission
Members, and Assistant Secretaries Daniel H. Brill and Joseph
Lciitin. Other officials of the Departments of State, Agriculture
and Commerce will also participate in the Joint U.S.-U.S.S.R.
Commercial Commission and Trade and Economic Council sessions in
Moscow.
0 0 o
B_1286
FOR RELEASE AT 4:00 P.M.
November 30, 1978
TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites tenders for
$3,838 million, or thereabouts, of 364-day Treasury bills to be dated
December 12., 1978, and to mature December 11, 1979 (CUSIP No. 912793 Z9 0).
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 12, 1978.
This issue will not provide new money for the Treasury as the maturing
issue is outstanding in the amount of $3,838 million, of which $1,753 million is
held by the public and $2,085 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
Standard time, Wednesday, December 6, 1978.
20226, up to 1:30 p.m., Eastern
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. Tenders over $10,000 must
°e 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.
(OVER)
B-1287
-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 12, 1978, in cash or other immediately avail-
able funds or in Treasury bills maturing December 12, 1978.
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.
[|NGTON,DX. 20220
FOR IMMEDIATE RELEASE
December 4, 1978
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,701 million of 13-week Treasury bills and for $2,900 million
of 26-week Treasury bills, both series to be issued on December 7, 1978,
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 8. 1979
26-week bills
maturing June 7. 1979
Price
Discount
Rate
Investment
Rate 1/
Price
97.734
97.727
97.729
8.964%
8.992%
8.984%
9.30%
9.33%
9.32%
95.349 9.200%
95.330
9.237%
95.339
9.220%
Discount
Rate
Investment
Rate 1/
9.78%
9.82%
9.80%
Tenders at the low price for the 13-week bills were allotted 61%.
Tenders at the low price for the 26-week bills were allotted 54% .
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTSAND TREASURY:
Accepted
Received
Accepted
Boston
$
30,515,000
New York
4,666,960,000
Philadelphia
20,730,000
Cleveland
34,870,000
Richmond
36,410,000
Atlanta
36,650,000
Chicago
218,200,000
St. Louis
31,725,000
Minneapolis
12,820,000
Kansas City
25,960,000
Dallas
11,770,000
San Francisco
262,605,000
$
25,515,000
2,379,240,000
20,380,000
33,050,000
25,825,000
34,025,000
35,235,000
17,725,000
4,820,000
23,560,000
11,770,000
80,025,000
$
34,905,000
4,309,340,000
9,570,000
39,915,000
27,715,000
29,355,000
213,700,000
28,515,000
11,685,000
22,215,000
6,945,000
258,585,000
$
34,865,000
2,510,540,000
9,570,000
39,915,000
27,715,000
27,355,000
63,700,000
15,595,000
9,845,000
21,235,000
6,945,000
118,585,000
Treasury
9,650,000
9,650,000
14,140,000
14,140,000
TOTALS
$5,398,865,000
$2,700,820,000a/: $5,006,585,000
Location
Received
includes $390,055,000 noncompetitive tenders from the public.
Mncludes $257,700,000 noncompetitive tenders from the public.
i/Equivalent coupon-issue yield.
B-1288
$2,900,005,00CV
FOR RELEASE AT 4:00 P.M.
December 5, 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 December 14, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $ 5,719 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
September 14, 1978, and to mature March 15, 1979
(CUSIP No.
912793 X4 3), originally issued in the amount of $3,395 million,
the additional and original bills to be.freely interchangeable.
182-day bills for approximately $2,900 million to be dated
December 14, 1978, and to mature June 14, 1979
(CUSIP No.
912793 Y 9 i).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing December 14, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,097
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 11, 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.
B-1289
-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 14, 1978, in cash or
other immediately available funds or in Treasury bills maturing
December 14, 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 RELEASE UPON DELIVERY
EXPECTED AT 2 P.M.
Thursday, December 7, 1978
STATEMENT OF DAVID J. SHAKOW
ATTORNEY-ADVISOR, OFFICE OF TAX LEGISLATIVE COUNSEL
DEPARTMENT OF THE TREASURY
BEFORE THE
HOUSE COMMITTEE ON MERCHANT MARINE AND FISHERIES
Mr. Chairman and members of the Committee:
I am pleased to have the opportunity to inform you of
the status of the Treasury Department's implementation of the
Outer Continental Shelf Lands Act Amendments of 1978 ("OCS
Amendments"). The Treasury Department is concerned with the
Offshore Oil Pollution Compensation Fund created by section
302(a) of the Act and collection of the fees which are
deposited in the Fund. The Act also authorizes the establishment in the Treasury of a Fisherman's Contingency Fund.
I. Creation of Offshore Pollution Compensation Fund and Its
Administration.
The Offshore Oil Pollution Compensation Fund will be
established on the books of the Treasury- Payments into the
Fund will, in accordance with the deposit requirement of oil
owners for other excise taxes, be made semimonthly on an
estimated basis. Adjustments will be made to reflect actual
amounts due after the quarterly returns are tabulated. Payments from the Fund will be made under a standard procedure
which involves our writing checks to payees as directed by the
certifying officer in the Department of Transportation.
B-1290
- 2 Under section 302(e)(2) of the OCS Amendments, the
Secretary of the Treasury may invest excess balances in the
Fund (as determined by the Secretary of Transportation) in
interest-bearing special obligations of the United States.
Such special obligations may be redeemed in accordance with
the terms of the issue and in accordance with Treasury
regulations.
In investment authorizations such as this, the Treasury
acts as a fiscal intermediary, purchasing and selling securities
at the request of, and as recommended by, the program agency.
In this instance, the Secretary of Transportation will determine the sums to be invested and will select the maturity
ranges of the obligations. The Treasury will invest all such
sums in market-based special issues, which are book-entry
Treasury securities identical in every respect (except transferability) to a specific outstanding marketable note, bond,
or bill. The mechanics of purchase and sale of these issues
will be covered by agreements between the Treasury and the
Department of Transportation, which can be consummated at any
time following commencement of operation of the Fund.
II. Collection of Fees Deposited in Offshore Pollution
Compensation Fund.
The task of collecting the fee imposed by section 302 of
the OCS Amendments will be delegated to the Internal Revenue
Service, which already collects several taxes on finished
petroleum products. Some of those liable for the new production fee already are paying one or more of these taxes, and
audit and other enforcement activities for the fee then could
be coordinated with auditing of the other petroleum excises.
Since the prescribed fee is similar to an excise tax, we
propose to adapt our collection procedure for the manufacturers
and retailers excise taxes to the collection of the fee. A
copy of the Form 720, which is already used for those excise
taxes, is attached as an exhibit to my testimony.
The excise collection system has two phases: the deposit
of the taxes and the filing of the return. If the taxpayer
had liability of $2,000 or more for all excises included on
Form 720 for the prior quarter, amounts due for each semimonthly calendar period must be deposited in an approved
depository by nine days after the end of the semimonthly period.
- 3 The semimonthly deposit need not be the exact amount due.*
Any deficiency for a quarter must be deposited by the end
of the quarter. At the end of the quarter, a return is filed
summarizing the deposits and any balance due remitted with
the return. If full deposits are made as specified in the
instructions, the return may be filed by the tenth day of the
second month following the end of the quarter. Less elaborate
rules are prescribed for those not required to make semimonthly deposits.
The tax law has a panoply of specific rules and penalties
(civil and criminal) for failure to file and pay a tax, late
filing, underpayment, and fraud. The new fee substitutes its
own self-contained penalty provisions. Failure to collect or
pay the required fee can result in a civil penalty assessed
by the Secretary of the Treasury of not over $10,000 plus the
interest on the unpaid fee that would have been earned if
paid when due and invested in the special Treasury securities
which are to be purchased by the Fund. Since the special
obligations will bear differing rates of interest, the computation of the rate of interest to be levied on underpayment
of fees will have to be based on the interest rate of securities
last purchased prior to the time each underpayment occurred.
One problem that always arises where a new levy is imposed
is informing all those required to pay of their obligation to
do so. All oil produced on the Outer Continental Shelf is
already subject to a royalty payment made to the Department
of the Interior. Payment is made for all the owners by the
lease operators, which we understand number less than 50.
Aside from the publicity which trade publications will give
to the fee, we can obtain the names and addresses of the
lease operators from the Interior Department and request the
operators to notify the other owners of the oil of their
liability.
The great number of changes in the tax law which are
contained in the Revenue Act of 1978 and the Energy Tax Act
of 1978, many of which will go into effect this month or
in January, require the IRS to promulgate many significant
*The
tolerance
are two
setmonths.
forth inAs
the
central column
regulations
in rules
the next
a result,
the IRSof
page four of Form 720.
- 4 may not be able to complete regulations on the instant fee.
However, we believe the instructions which will be appended
to the fee payment form will provide sufficient guidance for
those required to pay the fee. The form will be available
in adequate time for the making of the first required deposit.
One final comment. Since the three cent fee will bring
in roughly $8 million a year at present levels of production,
and the law prescribed keeping the minimum level of the Fund
at $100 million, there is little likelihood in the foreseeable
future of any need to exercise the discretionary power granted
in section 302(d)(2) of the OCS Amendments to reduce the fee.
III. Creation of Fisherman's Contingency Fund and Its
Administration.
The Fisherman's Contingency Fund provided for by section
402(a) of the OCS Amendments will be established on the books
of the Treasury at the request of the Secretary of Commerce.
Amounts to be paid by Outer Continental Shelf leaseholders are
to be determined by the Secretary of Commerce, collected by
the Secretary of the Interior, and deposited by the latter
in the Fund. The detailed transactions of the Fund will,
however, be reflected in the administrative accounts of the
Department of Commerce. Treasury will report only summary
transactions as it does for other appropriation, fund, and
receipt accounts of the Government.
o 0 o
Attachment
Department of the Traatury
,.m 720
(RtV.
Use to report Excise
Taxes for 1978
Quarterly Federal Excise Tax Return
March 1978)
Facilities and Services
Rata
Toil ttlaphone service . . .
Ttlttypewritar axchanga sarvica
Local telephone sarvica . . .
Transportation of parsons by air
U M of intarnational air travel facilities
Transportation of property by air . .
policies issued by foraign insurers .
4%
Tax
IRS
He.
22
8%
26
S3.00
27
5%
28
30
C)
mined
(9 500 par ton . .
b Underground
mined
® 2 % of prica par
ton
e Surface mined
@
25< per ton. . . .
Manufacturers—Con.
Rata
Fishing rods. ate., and artificial lures, ate.
10%
11%
10%
11%
11%
B o w s and arrows
Manufacturers
Coal:
a Underground
Intarnal Ravanua Sendee
C)
39
Pistols and revolvers
Firearms
Shells and cartridges
10%
tractors
Parts or accessories for trucks, ate. . . . 8 %
Diesel fuel and special motor fuels . .
C)
Gasoline (manufacturers tax).
40 gal.
Fuel used
in noncommercial
aviation
Lubricating oil
. . .
'See instructions on page 2.
32
46
49
61
62
Fuel other
than gasoline ... . 70 gal.
Gasoline (retailers tax) 30 gal.
60 gal.
highway vehicle type.
laminated . . . .
other
Inner tubas . . . .
Tread rubber (camelback)
33
48
IRS
No.
41
44
Products and Commodities
69
14
63
100 lb.
10 Ib.
50 1b.
100 Ib.
50 1b.
Tires
d Surface mined @ 2%
of price per ton . .
Truck, bus. and trailer chassis and bodies;
Tax
66
67
68
TOTAL TAX (Enter hare and in Item 1 below.)
•See instructions on page 2.
1 Total tax. (Before making entries in itams 1 to 9, complete your total tax above,)
2 Adjustments. (See instructions. Attach statamant axplainlng adjustmants.) . .
3 Tax as adjusted. (Itam 1 plus or minus itam 2.)
4 (a) Record of Tax Liability. (Sea instructions on page 4.)
5
6
7
8
(b) Record of Federal Tax Deposits
Amount
(d) Final deposit m a d e for quarter (sat note under itam 7 )
(a) Total deposits for quarter (including final deposit m a d e for quarter) . . .
Overpayment from previous quarter
Total deposits (item 4(e) plus item 5 )
Undeposited taxes due (itam 3 lass itam 6; this should ba $100 or lass). Pay to Internet Revenue Service .
hate: If undeposited taxes d u e at the end of the quarter are m o r a than $100. the antra balance
must be deposited. This deposit must ba entered in the deposit schedule above in item 4(d).
If item 6 is more then item 3. enter excess here p> S
and check If you want it Q applied to your next return, or Q refunded to you.
end return this form to your Internal Revenue Service Center.
9 If not liable for returns in succeeding quarters, write "FINAL" here p>
pasying scnodulas ana statamants, and to tea bast of my know ladga and baliaf, it is trua, corract and com plate.
Una* pMiitiM of panury, I daciare that I have esamioad this rtturn. incJodiaf
Title (Owner, ate.) s» Data e»
Sifnatara *»
PlMMtflter
Wnasjs,
Hdrtn,
teptoytf
ifatHicatiM
lumbar, and
eilndir k
Qurttrof k
nrtura, if V
not printed.
(If not
PXTttOW
printed,
*»n.)
r
Quarter sadiax
1
Employer idaatificatloo iramber
L
J
mm%m*mmmmm%lmm
Please return this form to your Internal Revenue Service Center
(See last item of instructions, "Where to File")
FF
FD
FP
If your address Is now
different from previous
return, check here p> Q
Form
720
(Rev. 3-78)
-J5BJ
deducting the actual amount paid or incurred
for such expenses. For the circumstances under which adjustments m a y be m a d e and
Additional information on excise taxes is conabout the evidence required to support such
tained in Publication 510 available free from any
adjustments, consult your District Director or
the applicable regulations. Adjustment of the
Internal Revenue Service office.
manufacturer's sale price m a y also be made
Name, address, and employer identification
for
discounts, rebates, and other similar alnumber.—After you first file Form 720, a prelowances
granted to the purchaser. But such
addressed return will be mailed to you every
discounts,
etc., m a y not be anticipated. Adthree months. Please use the preaddressed
justments m a y only be m a d e if the purchaser
form. If it is lost, request another. Unless alhas taken advantage of the discount, etc., beready shown on the preaddressed form, enter Facilities and Services
fore the return is required to be filed.
at the right of the space provided for the taxIn determining the amounts paid for communiIf the adjustments are m a d e or the repayer's name, the ending month and year of
cations
services,
do
not
include
the
amount
of
quired
evidence is obtained after the return is
the calendar quarter for which the return is
filed,
the
amount of tax involved m a y be confiled. If you must use a non-preaddressed
State or local taxes imposed on these services, if
sidered
an
overpayment and you m a y then
form, type or print your name, address, and the amount is separately stated in the bill to the
take
a
credit
for that amount on a later return,
employer identification number exactly as
customer.
or
file
a
refund
claim.
shown on previous returns. Do not use an emPolicies
issued
by
foreign
insurers.—The
Tax shall be computed on a price estabpioyer identification number assigned to a
rates of tax not shown on the face of the lished by the Commissioner of Internal Rev*
prior owner.
form are:
enue if an article is sold by the manufacturer
You must file a return for each quarter
(1) Casualty insurance and indemnity or producer at retail, on consignment, or
whether or not you incurred any liability. If you
have no tax to report enter " N o n e " in item 3. bonds.-—Four cents on each dollar, or frac- otherwise than through an arm's-length transtional part thereof, of the premium paid on action at less than the fair market price, or if
Adjustments.—Generally, an adjustment
m a y oe allowed for all the taxes reported on the policy of casualty insurance or the the article is used by the manufacturer or producer in a manner subject to tax.
Form 720 to correct mathematical errors or indemnity bond.
(2)
Lite
insurance,
sickness
and
accident
A tax of 11 percent is imposed upon the
to adjust payments of tax on transactions,
policies,
and
annuity
contracts.—One
cent
sale
by the manufacturer, producer or imcharges, or processing that are entitled to be
on
each
dollar,
or
fractional
part
thereof,
of
the
porter of any b o w with a draw weight of 10
m a d e tax free.
Enter in item 2 the total of any adjustments premium paid on the policy of life, sickness pounds or more, and of any arrow which
measures 18 inches or more in overall length.
claimed. If you claim an adjustment, attach a or accident insurance, or annuity contract
Included in this category are any parts or acstatement explaining the basis for it and state (3) Reinsurance.—One cent on eech dollar,
or
fractional
part
thereof,
of
the
premium
cessories
suitable for inclusion in, or attachthat you have the required supporting evipaid
on
the
policy
of
reinsurance
covering
any
ment
to.
a taxable b o w or arrow, and any
dence. You must identify the IRS Numbers
of
the
contract
taxable
under
(1)
or
(2).
quiver
suitable
for use with such arrows.
being adjusted, the amount of adjustment
claimed for each, and the period in which the Manufacturers
Products and Commodities
tax liability was previously reported.
Effective April 1, 1978, a new tax is imposed These taxes apply to the retail sale or use of
Exemptions.-—Some transactions are exon the sale of coal by the producer. The tax is diesei fuel, special motor fuels and fuel used
empt from tax. As an illustration, certain exin noncommercial aviation; the sale of gasoemptions are provided for export transactions 150 per ton for underground mined coal and $.25 line, tread rubber, or the sale or lease of tires
and for transactions involving States, political per ton for surface mined coal. The tax per ton or inner tubes, by their manufacturer, prosubdivisions, certain nonprofit educational may not exceed 2 % of the price at which a ton ducer, or importer; and the sale of lubricating
organizations, and certain aircraft m u s e u m s .
oils by their manufacturer or producer. These
of coal in each category is sold. See Notice 476 taxes
Records.—Keep on file at your principal
m a y also apply to one part of an otherplace of business or s o m e other convenient for further information.
wise untaxable item, such as tires on imported
location, duplicate copies of your return and Ught-duty Trucks.—The 8 percent tax on
vehicles.
'
accurate records and accounts of all trans- truck parts and accessories is to be refunded The rates of tax not shown on the face of
actions. They must contain sufficient informa- or credited to the manufacturer if the part the form are as follows:
tion to indicate whether the correct amount of or accessory is sold on, or in connection with, Diesel fuel and special motor fuels:
tax has been computed and paid. Also, keep the first retail sale of a light-duty truck (gross
(a) Four cents a gallon if sold for use or
records and information in support of all ad- vehicle weight of 10,000 pounds or less.)
used as a fuel in a highway vehicle, except.
justments claimed and all exemptions. In the The resale of an article taxable as the
that the tax is 2 cents a gallon if sold for use I
case of most taxes reportable on Form 720, chassis or body of a truck, truck tractor, or or used in a highway vehicle which (A) at the;
keep your records at least four years from the truck-trailer is not subject to additional manu- time of sale or use, is not registered and is'
date: (1) the tax becomes due, (2) the tax is facturers tax, it before the resale the chassis not required to be registered for highway use |
paid. (3) an adjustment is claimed, or (4) a or body was merely combined with certain
under the laws of any State or foreign country,
claim for refund is filed, whichever is later. If named items such as a fifth wheel, wrecker or (B) in the case of a highway vehicle owned'
required, your records must be available for crane, or loading and unloading equipment
by the United States, is not used on the,
inspection by the Internal Revenue Service. For full list of such items, see section 4063. highway.
These taxes apply to the sale or use by the
(b) If fuel is sold subject to tax at the 2
Penalties and Interest
manufacturer, producer, or importer of the cents a gallon rate, an additional tax of 2
Avoid penalties and interest by correctly
cents a gallon is imposed on the user if the
filing, depositing and paying tax when due. articles listed.
Basis
for
tax
and
adjustments.—Generally,
fuel
is used in a highway vehicle which (A),
The law provides a penalty of from 5 percent
the
tax
is
computed
on
the
price
for
which
the
at
the
time of use, is registered or is required,
to 25 percent of the tax for late filing unless
taxable
article
is
sold
or
leased.
If
a
taxable
to
be
registered for highway use under the*
reasonable cause is shown for the delay. If
article
is
sold
or
leased
under
a
conditional
laws
of
any State or foreign country, or (B)J
you are late filing a return or depositing tax,
sales
contract
installment
payment
contract
in
the
case
of a highway vehicle owned by the
send a full explanation with the return. Penalor
chattel
mortgage
arrangement,
compute
United States, is used on the highway.
i
ties are provided for willful failure to collect
(c) T w o cents a gallon on special motor
and pay tax, keep records, file returns, and for and pay tax on each payment received during
the quarter covered by the return. For ex- fuels sold for use or used as a fuel in a motor
filing false or fraudulent returns.
clusion from the sale price of finance charges, boat or other vehicle that is not a highway
Penalties are also provided for late payment of tax and for not depositing the proper and local advertising charges, consult your vehicle.
amount of tax when due. Neither penalty ap- District Director. There are also special rules Aviation fuel.—A tax is imposed on aviation
fuel sold for use or used in noncommercial
plies it you can show reasonable cause for that apply to the lease of any article.
If
charges
for
transportation,
delivery,
inaviation. The retailers tax on aviation gasoline
failure to pay or deposit when due.
surance,
installation,
and
dealer
prepaTaxes
rmf
continues.
alty
without
5 percent
2fornotregard
failure
of
deposited
thetoamount
hmoawkwhen
elong
deposits
ofdue.—The
the
the underpayment,
underpayment
when
pen-due is turer's
ration sale
costs
price,
are you
included
m a yretail
adjust
in the
themanufacprice
by (Instructions
was
the
but
is intax
subsequently
taxed
addition
on the
on to
user
its
continued
the
sale
itwould
manufacturers
isasused
on
be
a special
page
the
as difference
aviation
4.)motor
tax. Iffuel,
fuel
be*
Instructions
Taxes not paid when d u e . — T h e penalty for
failure to pay taxes when due is l/2 of 1 percent of the unpaid amount for each month
or part of a month it remains u n p a i d — u p to
2 5 percent of the unpaid a m o u n t The penalty
applies to any unpaid tax shown on a return.
It also applies to any portion of additional tax
shown on a bill if it is not paid within 10 days
from the date of the bill.
These penalties are in addition to the Interest charge on late payments.
720
Department of the Treasury—Internal Revenue Service
Form
(Rev. March 1978)
Facilities and Services
Use of international air travel facilities
Transportation of property by air . .
IRS
No.
22
Tex
Rate
Toll telephone service
Ttlatypawriter exchange service .
Local telephone sarvica
Transportation of persons by air . .
4%
Rate
Fishing rods, etc, and artificial lures, etc.
8%
26
Pistols and revolvers
$3.00
per
paraoe
27
Firearms . .
28
30
Shells and cartridges
5%
Manufacturers
C)
mined
(9 500 per ton . .
b Underground
mined
® 2 % of price per
ton
e Surface mined (9
25* per ton. . . .
Manufacturers—Con.
B o w s and arrows
Policies issued by foreign insurers .
Coal:
a Underground
Use to report Excise
Taxes for 1978
Quarterly Federal Excise Tax Return
C)
39
Diesel fuel and special motor fuels . . C)
Gasoline (manufacturers tax). . . . 4* gal.
Fuel used
f - . ..
in noncomFuel other
7* gal.
mercial
then gasoline . . .
aviation
Gasoline (retailers tax) U gal.
Lubricating oil
6* gal.
highway vehicle type.
laminated . . . .
other
Inner tubes
Tread rubber (camelback)
of price per ton . .
Truck, bus, and trailer chassis and bodies:
tractors . . . . . . . . . . . 10%
Parts or accessories for trucks, ate. . . . 8 %
33
48
•See instructions on page 2.
10%
11%
10%
11%
11%
IRS
Re.
41
44
32
46
49
Products and Commodities
Tires
d Surface mined <9 2 %
Tax
10* lb.]
U lb.
5* Ib.)
10* Ib.
|5e_lh
61
62
69
14
63
66
67
68
TOTAL TAX (Enter hare and in Itam 1 below.)
•See instructions on page 2,
1 Total tax. (Before making antrias in items 1 to 9. complete your total tax above.)
2 Adjustments. (See instntctions. Attach statement explaining adiustments.) . .
3 Tax as adjusted. (Itam 1 plus or minus itam 2.)
4 (a) Record of Tax Liability. (Saa instructions on page 4.)
Period
1st-15th day
First
Month
Second
Month
Third
Montn
Amount of Liability
(b) Record of Federal Tax Deposits
Amount
16th-last day
Total for month
lst-15th day
16th-last day
Total for month
lst-15th day
16th-J est day
Total for month
(c) Total Liability for Quarter
(d) Final deposit m a d e for quarter (see note under item 7 )
(a) Total deposits for quarter (including final deposit m a d e for quarter)
5 Overpayment from previous quarter
* Total deposits (itam 4(e) plus item 5)
7 Undeposited taxes due (itam 3 lass itam 6; this should ba $100 or lass). Pay to Internet Revenue Service .
note: If undeposited taxes due at the end of the quarter are mora than $100. the entire balance
must be deposited. This deposit must be entered in the deposit schedule above in itam 4(d).
8 If item 6 is more than item 3. enter excess here p> $
and check if you want it Q applied to your next return, or Q refunded to you.
9 If not liable for returns in succeeding quarters, write "FINAL" here •
and return this form to your Interne! Revenue Service Center.
uaotr oaitb** «« p*T"T, » *—>"- •—* | i»— —?•»••.* th,« whwi iweiudinf •eeiMnQmvifli acttoaulaa aao atttai—on. end to the bast of m knowladsa and tmift. it n trut. corract and comptata.
Simatwa
Data
TKla (Ownar, ate.)
YOU
©FY
Type or print in this space your name, address, and employer identification number
as shown on original.
Return for calendar quarter ending
(Enter month and year as on original)
(C) If the amount is for taxes other than
those described above in (A) or (B), deposit
It on or before the ninth day following the
tween the 7 cents rate and the 4 cents or 2
cents rate previously paid on the sale of the semimonthly period for which it is reportable.
You meet the semimonthly deposit requirefuel to the user.
ments If the amount you deposit for the semiDepositary Method of Payment
monthly period is:
,
1 Not less than 9 0 % of the total tax colIf you are liable in any calendar quarter
lected during (or reportable for) the
for more than $100 of excise taxes, you are
semimonthly period;
required to m a k e semimonthly, monthly or
2. Not less than 4 5 % of the total tax colquarterly deposits with an authorized finanlected during (or reportable for) the
cial institution or a Federal Reserve bank, in
- month;
accordance with specific instructions on the
3. Not less than 5 0 % of the total tax colback of the Federal Tax Deposit Form.
lected during (or reportable for) the
If you are liable for $100 or less of taxes
second preceding month (first preceding
for a calendar quarter (or your total liability
month for air transportation and comfor a calendar quarter, less any deposits for
munications taxes); or
the quarter, is $100 or less), you must either
4. For manufacturer's and retailer's taxes
pay the taxes with your quarterly return or
only—in the case of an amount you dedeposit them with an authorizedfinancialinposit for the second semimonthly period
stitution or Federal Reserve bank.
in the month, when added to the deDeposit Requirements
posit for the first semimonthly period,
Record of deposits and liabilities.—If you
not less than 9 0 % of the total taxes
are required to m a k e semimonthly deposits,
reportable for the month.
as discussed below, you must also record your
In addition, if the semimonthly period is in
semimonthly tax liabilities in item 4, unless either of the first two months of the quarter,
you c o m e within the exceptions discussed in you must deposit the underpayment for the
the section below headed "Important Notes." month by the following date:
!f you c o m e within these exceptions, or are
(a) The first day of the second month folliable only for monthly deposits, you m a y
lowing such month in the case of tax
record your liabilities in the monthly totals.
on foreign insurance policies;
Monthly deposits.—If you are liable in any
(b) The ninth day of the second month
month (except the last month of a calendar
following such month in the case of
quarter), for more than $100 of taxes remanufacturer's and retailer's taxes;
portable on Form 720 and you are not reand
quired to make semimonthly deposits, you
(c) The last day of the following month
must deposit the amount on or before the
in the case of air transportation or
last day of the next month. In the case of air
communications taxes.
transportation and communications taxes, the Important Notes:
tax computed on the basis of amounts billed
(1) If you use option 2, 3, or 4 to meet
(communications) or tickets sold (air trans- semimonthly deposit requirements, you m a y
- portattotT) for a monthly-period is-considered not be required to keep books and records
as collected during the succeeding monthly (except as to deposits) on a semimonthly
period.
basis or record your tax liability on a semiSemimonthly deposits.—If you had more
monthly basis in item 4, (See Sec. 48.6302
than $2,000 in excise tax liability for any (c)-l and S e c 49.6302(c)-l of the Regulamonth of a calendar quarter, you must deposit tions.)
taxes for the following calendar quarter (re- (2) You may not use option 2 or 3 if you
gardless of amount) on a semimonthly basis collect more than 75 percent of the air transas follows:
portation or communications taxes or if you
(A) If the amount is for air transportation
incur more than 75 percent of the monthly
or communications taxes and the tax is com- liability for other taxes in the first semiputed on the basis of amounts billed (com- monthly period in each month.
munications) or tickets sold (air transportaQuarterly deposits.—If your excise tax liation), the tax computed for a semimonthly bility for a quarter (reduced by any monthly
period is considered, as collected during the or semimonthly deposits for the quarter) is
second succeeding semimonthly period. De- more than $100, you must deposit the unposit the tax on air transportation or compaid balance on or before the last day of the
munications services within three banking
first month following the quarter. If however.
days after the close of the semimonthly the unpaid balance is for communications or
period for which it is considered collected or air transportation taxes only, deposit the unfor which it actually is collected. A "semi- paid balance on or before the last day of the
monthly period" m e a n s the first 15 days of a second month following the quarter. You m a y
calendar month or that part of the month m a k e deposits of $100 or less, but are not
after the 15th day.
required to do so.
(B) If the amount is for tax on policies
This provision does not extend the time for
issued by foreign insurers, deposit it
depositing the taxes for the last semimonthly
a. On or before the first day of the next
period of the quarter, nor relieve you of penmonth if the tax is for the first semi- alties for failure to m a k e other required timely
monthly period of a month; or
deposits.
b. On or before the 15th day of the next
Federal Tax Deposit Form 504.—You must
Page 4 month if the tax is for the second
deposit all excise taxes reportable on Form
semimonthly period of a month.
720, in an authorized financial institution or a
Federal Reserve bank, as explained on the
Instructions (Continued)
back of Federal Tax Deposit Form 504, unless
the total liability for any calendar quarter less
the amount of taxes previously deposited, is
$100 or less.
If you are paying a tax for thefirsttimeor
need additional forms, contact the District
Director or the Director of a Service Center
(see "Where to File" below) in time to make
required deposits. Any tax due and not deposited must accompany the return.
Overpayment—-If you deposited more than
the correct amount of taxes for a quarter, you
m a y elect to have the overpayment applied to
your next return or refunded to you. Show the
appropriate amount in the space provided in
item 8. Any amount you elect to have applied
to your next return should be entered in item
5 of your next return.
When to File
A return must be filed for each quarter of
the Quarter
calendar year as follows:
or before
January. Febmery.
March.
April, May, Juno
Jury, Aufuat.
September.
October. November,
December.
April 30.
July 3 1 .
May 31
Attfust31
October 31.
Novombar 30
January 31
Fabruary 28
For all excise taxes other than those on
air transportation and communications, you
are allowed an additional 10 days for filing
your return if it shows timely deposits in full
payment of the taxes due for the quarter.
Where
to File
year priodpol
if
v afoncy, or lefsJ
residence in taw case of o>
IndividuoJ, is located ie
Now Jarsay.
Now York City and counties
of Nassau. Rockland.
Suffolk,
Now Yorkand
(oJlWestchester
other counties).
Use this
Internal Revenue Service
Center
Holtsvilie. NY 00501
Internal Revenue Service
Center
Andover. M A 05501
Connecticut. Maine.
Massachusetts. New Hampshire.
Island. Vermont
0(strictRhode
of Columbie,
Delaware. Maryland,
Pennsylvania
Internal Revenue Service
Center
Philadelphia. PA 19255
Alabama. Florida.
Georgia. Mississippi,
South Carolina
Michigan, Ohio
Internal Revenue Service
Center
Atlanta. GA 31101
Internal Revenue Service
Arkansas. Kansas.
Louisiana, New Mexico.
Oklahoma. Texas
Alaska, Arizona. Colorado,
Idaho. Minnesota. Montana,
Nebraska. Nevada. North
Dakota. Oregon. South
Dakota. Utah. Washington.
Wyoming
Illinois. Iowa.
Missouri, Wisconsin
Cincinnati. OH 45999
internal Revenue Service
Center
Austin. TX 73301
Internal Revenue Service
Center
Ogden. UT 84201
Internal Revenue Service
Center
Kansas City. M 0 64999
California, Hawaii
Internal Revenue Service
Center
Fresno. CA 93888
Indiana. Kentucky,
Internal Revenue Service
North Carolina. Tennessee,
Center
Virginia. West Virginia
Memphis. TN 37501
If y o u h a v e n o legal residence, principel place of
business or principal office or a g e n c y in a n y Internal
R e v e n u e district file your return with the Internal
R e v e n u e Service Center, Philadelphia. P A 19255.
FOR IMMEDIATE RELEASE
December 5, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY DECIDES NOT TO IMPOSE COUNTERVAILING
DUTIES ON BROMINE AND BROMINATED COMPOUNDS FROM ISRAEL
The Treasury Department today announced its final
determination not to impose countervailing duties on
imports of bromine and brominated compounds from Israel.
Treasury's investigation involved Dead Sea Bromine
Company, Ltd., the sole Israeli manufacturer of bromine,
and Bromine Compounds, Ltd., the sole Israeli manufacturer
of brominated compounds.
The investigation revealed that each of these firms
received benefits in the form of property tax rebates
given by the Israeli Government to manufacturers whose
products are exported but that the size of the benefits
received by each firm, 0.06 percent for Dead Sea and 0.12
percent for Bromine Compounds, is de minimis, or too
inconsequential to have any impact on the value of imports.
Imports of bromine and brominated compounds from '
Israel during fiscal year 1978 were valued at approximately
$2 million.
This decision was published in the Federal Register
of December 4, 1978.
o
B-1291
0
o
Public offer of Deutsche Mark Schuldscheine (DM denominated
Treasury Notes) of the United States of America on fixed terms
The United States of America, acting by and through the Secretary
of the Treasury, is offering for its account through the Deutsche
Bundesbank, acting as its agent, Schuldscheine denominated in
Deutsche Mark (for text, see the Annex) against the extension of
corresponding loans to the United States of America, on the
following conditions:
(1) Designation:
Schuldscheindarlehen (DM denominated Treasury Notes)
(2) Borrower:
United States of America
(2) Volume:
Approximately DM 2.5 to DM 3 billion in aggregate 'amount
and allocated at the discretion of the borrowe.r between the two
maturities being offered. The exact amount will be determined
after receipt of the subscriptions. The borrower reserves the
right to.allot more or less than the aggregate amounts set forth
above and to accept or to reject any or all subscriptions in whol<
or in part.
(4) Maturities:
Subscriptions will be received for each of the following
maturities (with respect to each maturity, the "maturity date"):
(a) 3 years, due December 15, 1931
(b) 4 years, due December 14, 1982.
Subject to the provisions of section 247 of the Civil Code of
the Federal Republic of Germany, the Schuldscheindarlehen shall
- 2 -
The purpose of the borrowing is to raise a portion of
foreign currencies which the Treasury and the Federal Reserve
System are mobilizing in amounts up to $30 billion to support
intervention by the United States in the foreign exchange
markets as announced on November 1".
The Department of the Treasury is also planning a Swiss
franc denominated offering in the Swiss credit markets in
January, 1979. This borrowing will be restricted to Swiss
residents, and the offering will be made through the Swiss
National Bank acting as agent on behalf of the United States.
The Treasury is also giving consideration to a yen
denominated borrowing in Japan in 1979.
o 0o
IMMEDIATE RELEASE
December 5, 1978
Contact:
Robert E. Nipp
202/566-5328
TREASURY ANNOUNCES DM NOTE SALE
The Department of the,Treasury today announced that on
Tuesday, December 12, 1978, it will offer notes denominated
in Deutsche marks in an aggregate amount of approximately
2.5 to 3.0 billion DM.
The notes will have maturities of three and four years
and will be allocated between those maturities at the
discretion of the Treasury. This offering represents the
first DM-denominated borrowing pursuant to the joint Treasury
and Federal Reserve Board announcement on November 1, 1978,
concerning measures to strengthen the dollar.
The notes are being offered exclusively to, and may be
owned only by, residents of the Federal Republic of Germany.
The notes will be registered with the Bundesbank and may be
transferred among German residents up to four times in
amounts of 500,000 DM or multiples thereof.
The offering will be made exclusively in Germany through
the Deutsche Bundesbank (German Central Bank) acting as agent
on behalf of the United States. The notes will be offered at
par, and the interest rates for both the three-year and fouryear notes will be determined and announced no later than
9:00 A.M. Frankfurt time on December 12, 1978. Subscriptions
will be received by offices of the Bundesbank until 12:00 noon
on December 13. For each maturity, subscriptions must be for
amounts of 500,000 DM or multiples thereof. Payment for and
issuance of the notes will be on December 15, 1978. They will
not be listed, and it is not expected that prices of the
notes will be publicly quoted.
Under the Double Taxation Agreement between the Federal
Republic of Germany and the United States of America, natural
persons resident in the Federal Republic of Germany and
German companies within the meaning of this Agreement are not
subject to the withholding tax on interest income payable
under U.S. law.
B-1292
FOR IMMEDIATE RELEASE
December 6, 1978
Contact:
Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT FINDS
SILICON METAL FROM CANADA SOLD
HERE AT LESS THAN FAIR VALUE
The Treasury Department today announced it has
determined that silicon metal imported from Canada is
being sold in the United States at "less than fair
value." 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 decision of the Commission is affirmative,
dumping duties will be collected on sales found to be
at less than fair value.
Appraisement has been withheld since the tentative decision issued on August 29, 19 78. The weighted
average margin of sales at less than fair value in
this case was 2.7 percent computed on all sales.
Interested persons were offered the opportunity
to present oral and written views prior to this determination.
Sales at less than fair value generally occur when
imported merchandise is sold in the United States for
less than in the home market.
Imports of silicon metal from Canada during the
period January 1-October 31, 19 77, were valued at approximately $7 million.
Notice of this determination will appear in the
Federal Register of December 7, 19 78.
o
B-1293
0
o
FOR IMMEDIATE RELEASE
December 6, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES FINAL DISCONTINUANCE OF
ANTIDUMPING CASE REGARDING CUMENE FROM ITALY
The Treasury Department announced today a final
discontinuance, of its investigation concerning imports
of cumene from Italy.
Under the Antidumping Act, a final discontinuance
may be granted if the dumping margins involved are
minimal in relation to the volume of exports and if
appropriate assurances are received that future sales
will not be made at "less than fair value."
Cumene is a white, liquid chemical used in the
manufacture of other chemicals from which various
types of blotters, adhesives, plastics, solvents and
pharmaceutical products are produced.
Sales at "less than fair value" generally occur
when imported merchandise is sold in the United States
for less than in the home market or to third countries.
Notice of this action will appear in the Federal
Register of December 7, 1978.
Imports of cumene from Italy were valued at $10
million during the period investigated, September
1977 through February 1978.
o
B-1294
0
o
FOR IMMEDIATE RELEASE
December 6, 1978
Contact:
Alvin M. Hattal
202/566-8381
, TREASURY FINDS CUMENE
FROM THE NETHERLANDS
IS NOT BEING "DUMPED"
The Treasury Department today announced its final
determination under the Antidumping Act that cumene
imported from the Netherlands is not being sold in the
United States at "less than fair value."
Cumene is a white, liquid chemical used in the
manufacture of other chemicals from which various
types of blotters, adhesives, plastics, solvents and
pharmaceutical products are produced.
Sales at "less than fair value*1 generally occur
when imported merchandise is sold in the United States
for less than in the home market or to third countries.
Notice of this action will appear in the Federal
Register of December 7, 1978.
Imports of cumene from the Netherlands were
valued at $16.7 million during the period investigatedr
September 1977 through February 1978.
o
B-1295
0
o
fee i n *
FOR IMMEDIATE RELEASE
December 6, 1978
-^ ASlitV. i^Cdritact:
Robert E. Nipp
202/566-5328
MEMORANDUM TO CORRESPONDENTS
Attached for your information is the Joint Communique
on the Fourth Session of the U.S. - Saudi Arabian Joint
Commission on Economic Cooperation.
The Joint Commission was
co-chaired by Secretary of the Treasury W. Michael Blumenthal
and Saudi Arabian Minister of Finance and National Economy
Muhammad Ali Abalkhail in Jidda, Saudi Arabia on November 18 19, 1978.
o 0 o
B-1297
JOINT COMMUNIQUE
ON THE FOURTH SESSION OF THE U.S.-SAUDI ARABIAN
JOINT COMMISSION ON ECONOMIC COOPERATION
JIDDA, SAUDI ARABIA
NOVEMBER
18-19, 1978
The United States-Saudi Arabian Joint Commission on
Economic Cooperation concluded its fourth formal session
today with both sides expressing satisfaction at the
significant progress of joint efforts in carrying out a
wide variety of economic and social development programs.
Saudi Arabia and the United States agreed that the Joint
Commission should expand its role in the development of
key sectors of the Saudi economy at the same time that
both sides were promoting increased mutual trade and
private business activities.
The Joint Commission delegations evaluated the progress
made on the 17 major projects being implemented under the
aegis of the Joint Commission, involving the active
cooperation of ten U. S. Government agencies. At the
meeting, three new technical cooperation agreements were
signed, in the areas of transportation, agriculture bank
operations, and executive management development. Special
attention was given to program objectives and how these
goals might best be met.
The United States-Saudi Arabian Joint Commission on
Economic Cooperation was established in accordance with
the Joint Statement issued by Crown Prince Fahd and former
Secretary of State Kissinger on June 8, 1974. The Joint
Commission meeting, held in Jidda, November 18-19, 1978,
was chaired by Minister of Finance and National Economy
Muhammad Al-Ali Abalkhail. Secretary of the Treasury
W. Michael Blumenthal, the U. S. Joint Commission Co-Chairman,
led the United States delegation. Ambassador West, the
American Ambassador to Saudi Arabia, also participated in
the meeting. A list of the two delegations is attached as
an annex.
- 2 The American delegation held meetings outside the
framework of the Joint Commission with Saudi Ministry of
Finance and National Economy officials, and calls were
paid by Secretary of the Treasury Blumenthal on several
senior Saudi Government officials. These meetings provided
fine ouportunities to review the multiple aspects of
bilateral relations, as well as to hold comprehensive
discussions on the global economic and financial situation.
The congressional members of the delegation appreciated
the opportunity to visit Saudi Arabia and to have frank
talks with key officials of the Saudi Arabian Government.
It was agreed that these sessions served to strengthen^
the already strong feelings of friendship and cooperation
between the two countries.
The two delegations noted the impressive progress
which has been made since the last meeting in implementing
existing technical cooperation agreements and in undertaking
new project activities. Presently there are 135 American
professionals working on Joint Commission projects in the
Kingdom. These experts are involved in five major program
areas: Agriculture and Water Resources, Science and
Technology, Manpower and Education, Information and
Administration, and Industrialization and Infrastructure.
Tl ^ financing of these projects is accomplished through
a Saudi Arabian Trust Account in the U.S. Department of
the Treasury.
The representatives of seven U. S. firms participating
in Joint Comnission programs were present at the opening and
closing ceremonies of the Fourth Session.
1. Specialists in Agriculture and Water
Work continues to move ahead in all areas with special
emphasis this next year on the following project activities:
conducting detailed soil surveys in agricultural development
areas; preparation of a base map depicting general soil
conditions for the entire Kingdom; implementing a land
allocation and record-keeping system for the Kingdom;
activating native range and grazing improvement projects;
installing a computerized water data base; overseeing the
collection and analysis of water supply and demand data for
a national water plan.
The first phase of activating the Ministry's Agriculture
and Water Research Center was completed with the replacement
of the American Technical Director by a Saudi national. This
is one of the first steps in achieving a major Joint Commission
goal of institution building.
- 32.
Asir National Park
Progress continues on the development of the seven park
sites in the Asir Province. The construction tender was
advertised in September and bid openings are scheduled for
late November. The construction phase will take about two
years. The U.S. National Park Service will continue to
assist the Ministry of Agriculture and Water in establishing
this first national park in Saudi Arabia.
3. National Center for, Science and Technology
During the past year the Saudi Arabian National Center
for Science and Technology (SANCST) project has made significant
progress in developing an institutional framework for the
national development of the Kingdom's scientific potential
and utilization of research results in a coordinated endeavor
for social and economic betterment. Specifically, the SANCST
project with NSF initiated work in major areas which will lay
the groundwork for future activities at the Center. Within
the next year SANCST intends to build upon these efforts by
accomplishing the following:
Inventory of science and technology resources
--To complete the inventory analysis and evaluation of
S&T activities in the Kingdom and to code the data
for automated data processing.
Science and Technology Information Center
—To initiate work establishing and maintaining a Saudi
Arabian science and technology base.
--To implement on-line searching of U.S. science and
technology data bases.
Science and Technology Research Plan
--To complete work on a comprehensive plan for applied
science and technology in the Kingdom.
The achievement of the above major objectives together
with work on the institutional development of SANCST will
constitute a major step in optimizing the science and technology
contributions to the development of the Kingdom.
- 4-
4•
Solar Energy Research
Progress under the agreement on technical cooperation in solar energy has concentrated on projects that
will have a demonstrable utility in the Saudi Arabian
context in that they meet the needs of the people of
Saudi Arabia even as they advance the development and
application of solar technology in the United States.
This will ensure that the goals are attainable within
the framework of available resources; that the results
of solar energy technology are readily transferable for
widespread application to address the energy needs of
U. S. and Saudi Arabian economies and those of developing
countries throughout the world.
In the above framework, five initial programs have
been selected fcrr implementation:
--The application of photovoltaic electricity
generation for a remote Saudi Arabian village.
--A study of the energy needs of the village to
help determine the optimum mix of solar energy
technologies.
--Development of a solar radiation map of the
Kingdom through establishment and operation of
a network of solar insolation measurement
stations.
--Establishment of experimental test facilities for
urban cooling systems at Saudi Arabian Universities
and a parallel effort in the United States involving
innovative cooling systems in areas with similar
climatic conditions to those of Saudi Arabia.
-- Initiation of research and development in solar
desalination technology.
- 5 -
5.
Desalination Technology
Work is progressing on the two projects under the Desalination Agreement: 1) the establishment of a desalination
research, development., and training center; 2) the establishment of a technology development program which will produce
designs and specifications for a new generation of largescale flash desalting plants. The ongoing study to assess
the requirements for the center will be completed this year,
while the near-term objectives for the technology development
project include the awarding of three concurrent contracts
for conceptual designs and the development and implementation
of an intermediate stage test program.
6. Vocational Training and Construction
Over 40 specialists from the U.S. Department of Labor
are currently working with the Saudi Ministry of Labor and
Social Affairs to improve vocational training programs in
the Kingdom. In addition, through an inter-service agreement
with the Department of Labor, five specialists from the U.S.
General Services Administration are in Riyadh providing
engineering oversight services for the project. The construction of 10 new Saudi vocational training centers and
the expansion of 15 existing centers is planned with work
on master plans and designs for these facilities now underway
and actual construction expected to start early next year.
The Department of Labor is also working with the Saudi
education mission in Houston to monitor skill-upgrading
programs being held for instructors from the Ministry's
vocational training centers. Forty Saudi instructors
currently are in the U.S. participating in this type of
training.
7. Consumer Protection
A five-man U.S. team currently is providing technical
expertise in the area of food quality control. It also
has been working with the Ministry to expand capabilities
in three presently operational laboratories and at the
newly built laboratory in Riyadh. Graduate-level educational programs for a number of Ministry employees in
chemistry, microbiology, and food science are underway
in the U.S.
- 6 8. Customs
Members of a four-man team of experts .from#the U.S.
Customs Service will begin arriving in Riyadh m January
to work with the Ministry of Finance and National Economy s
customs Department in expanding its overall capabilities.
A major training program for up to 95 Saudi customs inspectors
a year is also scheduled to begin in the U.S. early next year.
9. Financial Information Services
There are now seven U.S. professionals working in the
Financial Information Center. Private sector firms are ^
carrying out the design and construction of the Ministry s
new ?24 million multi-media financial information center
in Riyadh which is expected to be completed in April 1980.
This center will provide the Ministry with expanded library
facilities, will give it printing and many audio-visual
production capabilities, and will give it on-line access
to major bibliographic and economic data bases in the U.S.
through a dedicated communication link. About 30 Saudis,
under the guidance of this staff, now are planning to attend
universities in the U.S.--both at undergraduate and graduate
levels--in order to manage and operate the new center.
10. Statistics and Data Processing
The project under which the U.S. Bureau of the Census
is working with the Saudi Ministry of Finance's Central
Department of Statistics and National Computer Center to
achieve an effective statistics and data processing capacity
is now entering its fourth year. Twenty U.S. project personnel
are now permanently stationed in Riyadh with two more expected
within the next two months.
Major project accomplishments in conjunction with the
Central Department of Statistics include completion of the
1976 census of establishments, initiation of an integrated
economic survey program, significant improvement in the timely
release of foreign trade statistics and the initiation of a
continuing household survey program which is collecting a
variety of social and economic data on the population. Project
work in conjunction with the National Computer Center has
included improvement in management and overall capacity
to process an ever-increasing volume of work, and execution
of a continuing program to provide selected Saudi officials
with mid-career professional training at the Bureau of the
Census in Washington, D. C.
- 711.
Central Procurement
The U.S. General Services Administration will have a*
four-man team of procurement and supply specialists working
in the Ministry of Finance and National Economy shortly to
improve its procurement capabilities. Efforts are no;:
underway to enroll Saudis in appropriate GSA training
courses in the U. S.
12. Audit Management Specialists
The first of four U.S. experts assigned to work with
the Saudi General Control Board will arrive in Riyadh
early in December. In addition to the assistance to be
provided by the team, provision has been made for training
a number of Saudis in the Kingdom and in the United States.
13. Electrical Services Projects
A comprehensive 25-year electrification plan for the
entire Kingdom has been completed and will be formally
presented to the Ministry of Industry and Electricity in
Riyadh late in November. Projects in the electrical
field have also provided extensive advisory services and
procurement assistance to the Ministry of Industry and
Electricity, the Riyadh Electric Company, and the
Nasseriah Power Station of the Ministry of Finance and
National Economy. After completion of nearly all elements
of the electrical procurement and installation project, a
contract has been signed for substantial additional work
at the Nasseriah Power Station.
14. National Highway Program
Seven U.S. professionals from the Department of
Transportation Federal Highway Administration are now in
Riyadh working with the Ministry of Communications in
transportation-related areas such as highway design and
maintenance, traffic safety, bridge structure and maintenance, and overall highway planning. Five additional
team members are expected to arrive before the end of the
year, bringing the total team size to 12.
15. New Projects
New project agreements were signed in the following
areas:
1- Technical Cooperation in Transportation
A project agreement signed at the Joint Commission
meeting provides for technical cooperation between the U.S.
- 8Department of Transportation and the Saudi Ministry of
Communications in the transportation field
A team
composed of eight Department of Transportation specialists
will be assignid to work with the Ministry of Communications
to develop a strong organization capable of guiding and
monitoring the creation of a national system of public
transportation.
2. Agricultural Bank
A second project agreement signed at the meeting
provides for technical cooperation in assisting the Saudi
Arabian Agricultural Bank to modernize irs administrative
and operational functions. It was agreed that nine
American professionals would be assigned to work with
bank officials and that a number of bank employees would
be sent to the United States for training.
3. Executive Management Development
A third agreement establishes a new program under
which selected senior Saudi Government administrators will
participate in a management development program in the United
States. The program will provide an opportunity for American
and Saudi public service administrators to meet and exchange
views on professional issues of mutual interest.
16. New Areas for Cooperation
1. Health Manpower Development
An initial team of U. S. specialists in the public
health area is expected to go to Riyadh in the near future
for discussions with representatives from the Ministries of
Health, Planning and Higher Education.
2. Assistance to King Faisal University
A four-man team of educational specialists met
with King Faisal University officials to assess University
curricular and physical plant plans in the areas of
agriculture, veterinary science, and medicine. The team
is completing a report recommending the establishment of
appropriate programs in these disciplines at new university
campuses planned at Dammam and Hofuf. The report also will
cover longer term assistance in the areas of planning and
administration.
17.
U.S.-Saudi Arabian Business Cooperation
The United States and Saudi Arabia agreed, during a
meeting between Minister of Commerce Solaim and Secretary
of the Treasury Blumenthal, to expand their already close
bi-lateral trade and business ties through increasing the
flow of information between both countries on the requirements of the Saudi economy, on appropriate U.S. suppliers
of goods and services, and on mutual trade problems and
policies. It was further agreed that the interests of both
governments lie in encouraging and facilitating private
sector contacts in both countries through expanded trade
promotional efforts and by the exchange of information and
views through trade associations in both countries.
OVERALL ASSESSMENT
The Commission considered the forth session, with its
accent on future objectives rather than past accomplishments,
to have been the most successful to date. The three new
agreements signed during the session bring the number of
active project agreements to 20. It was noted that these
programs represent positive contributions to the ever closer
U.S.-Saudi Arabian bilateral economic and commercial relationships.
The Commission thanked all participating Saudi Arabian
ministries and American departments and agencies, as well as
the private sectors in both countries, for their outstanding
efforts and directed them to continue mutually to explore
possible new areas of cooperation.
The co-chairmen agreed to hold the next Joint Commission
meeting in Washington, D.C. in 1979.
Jidda, Saudi Arabia
November 19, 1978
ANNEX
List of Delegations
SAUDI ARABIAN DELEGATION
U.S.-SAUDI ARABIAN JOINT COMMISSION
ON ECONOMIC COOPERATION
FOURTH SESSION
NOVEMBER 18-19, 1978
Muhammad al Ali Abalkhail, Minister of Finance and
National Economy and Co-Chairman of the Joint
Economic Commission
Rida Obaid, Chairman and Director of the Saudi Arabian
National Center for Science and Technology
Mansoor Al Turki, Deputy Minister, Ministry of Finance
and National Economy, and Joint Economic Commission
Coordinator
Mohammad Al Fayez, Deputy Minister, Ministry of Labor
and Social Affairs
Nasser Al Salloum, Deputy Minister, Ministry of
Communications
Ahmad Twaijri, Deputy Minister, Ministry of Industry
and Electricity
Faisal Al Bashir, Deputy Minister, Ministry of Planning
Abdallah Al Gholaikah, Deputy Minister, Ministry of
Agriculture and Water
Abdallah Muhammad Alireza, Deputy Minister, Ministry
of Foreign Affairs
Tawfiq L. Tawfiq, Deputy Minister for Supplies, Ministry
of Commerce
Mohammad Dhalaan, Director General of Training,
Ministry of Labor and Social Affairs
ANNEX II
U. S. DELEGATION
U.S.-SAUDI ARABIAN JOINT COMMISSION
FOR ECONOMIC COOPERATION
FOURTH SESSION
NOVEMBER 18-19, 19 78
Treasury Department
W. Michael Blumenthal, Secretary of the Treasury and
Co-Chairman of the Joint Economic Commission
C. Fred Bergsten, Assistant Secretary for International
Affairs and Joint Economic Commission Coordinator
Lewis W. Bowden, Deputy for Saudi Arabian Affairs
Bonnie Pounds, Director, Office of Saudi Arabian
Affairs
Department of State
Joseph W. Twinam, Country Director for Arabian
Peninsula
Department of Interior
Guy R. Martin, Assistant Secretary, Land and Water
Resources
Department of Agriculture
Quentin West, Special Assistant for International
Scientific Technical Cooperation
Department of Commerce
Census Bureau
Martin J. McMahon, Chief, Overseas Consultation
and Technical Services
- 2 -
Department of Labor
Howard Samuel, Deputy Under Secretary for International Affairs
Department of Transportation
Chester Davenport, Assistant Secretary for Policy,
Plans and International Affairs
Department of Energy
Eric Willis, Deputy Assistant Secretary for Energy
Technology
General Services Administration
Paul Goulding, Acting Deputy Administrator
National Science Foundation
Harvey Averch, Assistant Director, Scientific,
Technological and International Directorate
American Embassy
John C. West, U.S. Ambassador to Saudi Arabia
E. Gordon Daniels, Deputy Chief of Mission
USREP/JECOR
Wallace M. Riley, Director
Theodore A. Wahl, Deputy Director
ADMINISTRATION STATEMENT
The United States believes the new European
arrangements announced on December 5 for closer monetary
cooperation within the European Community represent an
important step toward the integration of Europe, which
we have long supported. We believe that the new arrangements will be implemented in a way which will contribute
to sustainable growth in the world economy and a stable
international monetary system. The U. S., Germany,
Switzerland and Japan will continue to cooperate in a
forceful and coordinated way to assure stability in
exchange markets. The United States looks forward to
continued close consultations with its European trading
partners as these arrangements evolve.
December 6, 1978
Contact: Robert E. Nipp
202/566-5328
FOR IMMEDIATE RELEASE
EXPECTED AT 10:00 A.M., EST
THURSDAY, DECEMBER 7, 1978
STATEMENT BY THE HONORABLE C. FRED BERGSTEN
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT
INSTITUTIONS AND FINANCE
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
UNITED STATES PARTICIPATION IN THE MULTILATERAL DEVELOPMENT
BANKS IN 1979
Mr. Chairman, I am very pleased to appear before this
Subcommittee today to consult with you regarding amounts and
shares of U.S. participation in prospective replenishments
of several of the multilateral development banks (MDBs).
You will recall that we consulted with you and many other
individual members of Congress last April concerning
replenishment of the Asian Development Fund and the African
Development Fund, including for the first time in such
consultations a formal hearing — before this Subcommittee.
We subsequently concluded those negotiations on terms fully
consistent with the consultations, from which we benefitted
enormously.
B-1298
- 2 -
Since that time, we have held discussions with other
countries concerning an increase in resources for the
Inter-American Development Bank (IDB); a General Capital
Increase (GCI) for the World Bank; and the opening of
membership in the African Development Bank to non-regional
countries. We have already discussed these issues informally
with a number of individual Congressmen, but we want to
consult on them in some detail with the Subcommittee so
that we can have the benefit of your views before concluding
these negotiations. I will place the individual replenishments
in the context of overall U.S. participation in the MDBs,
so that they can be seen in proper perspective.
As you know, it is our firm view that vital U.S. national
interests are inextricably linked to the future of the
developing world. Those interests range from avoiding
nuclear proliferation and preventing outbreaks of conventional conflicts to securing essential supplies of raw
materials and promoting our most rapidly expanding export
markets. The non-oil developing countries now account
for about one-quarter of our total exports — more than
the entire European Community.
One of our most effective instruments in promoting LDC
growth and stability, and hence U.S. interests vis a vis the
developing world, is the multilateral development banks. As
their share of lending to developing countries has increased,
the MDBs are increasingly able to effectively encourage sound
- 3 development projects and programs in recipient countries.
Their policy advice is readily accepted by developing nations
due to their multilateral, apolitical character. The banks
are able to respond promptly to important new international
needs as they arise; for example, the World Bank is currently
providing greatly expanded support for energy production in
LDCs.
Moreover, the MDBs offer an extremely cost-effective means
to advance U.S. interests in the developing world. On the one
hand, the MDBs1 borrowings in private capital markets enable
every $1 of U.S. budget outlay to result in $20 in actual
lending by the World Bank and the hard windows of the regional
banks. On the other hand, more than two and a half dollars
have been returned to the United States in bank expenditures
for every dollar we have contributed to the banks over their
lifetimes.
There is of course a tradeoff inherent in our participation in the MDBs: because of their multilateral character,
we cannot dictate their policies. Nevertheless, because our
view of the fundamental objectives of these institutions is
shared by most other member governments, and because we have
a major voice in each of the banks, we have obtained positive,
cooperative responses from other members and the banks' managements
for our policy priorities.
In this regard, I am extremely pleased to report that
major progress is being made on a number of concerns about
- 4 -
the banks which are shared by the Congress and the Administration: reaching the poor more effectively, enhancing human
rights, achieving greater and more equitable burden-sharing
among donor countries, graduating countries from concessional
assistance as their economic status improves and establishing
a more objective focus for setting compensation levels.
I would be pleased to discuss any of these issues in detail,
and will illustrate several of them in discussing the
specific replenishments later in my statement.
I would stress, at the outset, that in all cases we have
had in mind the critical need to limit and, where possible,
reduce U.S. budgetary outlays. The proper focus of both
the President and the Congress on fighting inflation requires
this program, like all others, to make its contribution to
budget stringency:
— Our FY 80 budget request for the MDBs will result
in significantly smaller paid-in contributions than our
FY 79 request of a year ago.
— The IDB replenishment to be described shortly
calls for smaller annual U.S. paid-in contributions over
its four-year life (1979-1982) than the U.S. pledge to
the previous IDB funding (1975-1978).
— In expanding the capital of the World Bank, we
will seek to avoid budget outlays entirely by relying
wholly on callable capital; in any event, we expect to
- 5 minimize paid-in amounts by relying to the maximum extent
on callable capital.
Upcoming Legislation for the MDBs
We thus sincerely believe that we can effectively
pursue U.S. policy goals in the banks while avoiding any
rise in budget costs. To demonstrate this, and before
going into detail on prospective replenishments, I would
like to take a few moments to present the outlines of
possible Administration requests for the MDBs over the
next three years. My objective is to provide an overall
framework within which you can better judge the merit of our
individual proposals.
For FY 1980, the Administration's request for MDB
appropriations can be expected to be about the same as
requested for FY 1979 — $3.5 billion — even though
FY 1980 will be the first year of new replenishments in
four MDB windows. Fully one-half of the FY 80 proposal
will be for callable capital so the eventual budget outlays
emerging from it, at about $1.8 billion, would be well
short of those called for in our FY 79 request (about $2.1
billion). As in all recent years, the FY 1980 budget proposal
will include two components: current U.S. obligations to
the banks (about $2.6 billion) and prior obligations not
yet funded (about $1 billion). Final determination of
the precise level of the budget request for the MDBs will
be made by the President for his FY 1980 Budget Presentation.
- 6 -
During the course of 1979, we will also be coming to
the Congress —
the Senate —
via this Subcommittee and its counterpart in
for authorization of the latest replenishments:
for both the capital and concessional lending window of
the IDB, and for the concessional lending programs of the
Asian Development Fund and African Development Fund.
Unlike
1978, we will thus have both authorizing and appropriating
legislation in 1979.
During 1979, we will also have to complete negotiations
for two major MDBs which will not require legislation until
later.
For reasons to be explained later, agreement is
needed early next year on increasing the capital of the
World Bank although Congressional authorization will not be
needed until 1981 and appropriation until FY 1982 or even
FY 1983.
By late 1979, we also will need to reach agreement
on the sixth replenishment of the International Development
Association (IDA VI) as a basis for both authorizing and
appropriating bills in 1980.
We of course do not know how these latter negotiations
will turn out.
If the arrearages can be dealt with this
year, however, it appears that the Administration's request
for the MDB's in FY 1981 would fall to the range of
$2.5-2.6 billion —
a drop of 25-30 percent from the levels
requested in FY 1979 and FY 1980, because of the fouryear plateau in current contributions on which we are now
resting.
- 7 For FY 1982-1984, the request can be expected to settle
on a new plateau somewhere around $4 billion, depending
primarily on the size of any General Capital Increase for the
World Bank. However, the paid-in amounts would be no higher
than for FY 1978-1981 because all or most of the GCI will
be financed by callable capital. Even in terms of budget
authority, such an outcome would imply that the Administration's
request for the MDBs would have grown only by 7-9 percent per
annum in nominal terms from FY 1978, when the request was
$2.6 billion, to FY 1984; this growth rate is virtually
nil real terms. Excluding callable capital, the growth rate
for paid-in amounts from FY 1978 through FY 1984 would be
under 2 percent in nominal terms — a sharp decline in real
terms. The program is thus fully consistent with the
stringent requirements of our own budgetary situation,
while permitting significant continued growth of the lending
of the banks.
This, then, is the overall MDB agenda as we see it, and
on which we seek your views. Let me turn now to the specific
issues of greatest immediacy.
The Inter-American Development Bank (IDB)
The impressive development of most of Latin America has
moved it far ahead of the poor regions of Africa and South
Asia. Economic progress is visible on a broad spectrum of
indicators — growth rates, international trade, investment,
and GNP. However, Latin America still suffers from many of
the problems of the developing world — pockets of poverty even
- 8 within the more advanced countries, low levels of development
in some countries and inadequate capital, to mention a few.
These considerations, along with concerns mentioned
previously by this Subcommittee and others in the Congress,
have governed our approach to the latest replenishment
of the IDB.
We have had a series of meetings since April
of this year with other member countries concerning the
Bank's lending program for 1979-1982. A general understanding
has now emerged which has substantial advantages for the
United States:
—
Increased emphasis on lending to poor countries
and to poor people in all recipient countries
—
Increased burden-sharing by both developed
and developing countries
—
Reduced paid-in contributions by the United States.
The lending program of the Bank will undergo a significant
restructuring as a result of this replenishment negotiation,
based on the principle of graduation as economic conditions
warrant.
Indeed, three clear stages of graduation are
recognized in this restructuring.
First, a number of countries have progressed sufficiently so that they no longer need to borrow at all from the
concessional window of the Bank, the Fund for Special
Operations (FSO).
In addition to the five countries which had already
volunteered not to tap the FSO for convertible currencies
during the last replenishment period, Chile and Uruguay
will no longer do so.
The financing requirements of the
- 9 Bahamas and one or two others might also now be met wholly
through the Bank's conventional resources.
Due to this impressive extent to which Latin American
countries no longer need concessional resources, the annual
size of the FSO replenishment can be smaller than the last
replenishment. We are proud of the fact that this is one
foreign assistance program which, because of the economic
progress of its recipient countries, can be — indeed, by
agreement should be — allowed to decline.
Moreover, the FSO's concessional funds will be devoted
increasingly to the poorest and least developed countries in
the hemisphere. During the first two years of the replenishment
period, at least 75 percent of convertible FSO resources
would go to them. During the second half of the period,
this minimum allocation level would rise to 80 percent.
All countries outside this poorest and least developed
group, which will continue to tap the FSO at all, agree to
limit their borrowing from it to projects which directly
benefit poor people within their borders. Thus, under the
terms of the proposed replenishment, scarce concessional
funds would be focused much more sharply on both the poorest
countries and on the poorest people than has been the case
in the past.
The second graduation step is that, in the capital window
of the Bank, the largest and more prosperous Latin countries —
Argentina, Brazil and Mexico — would receive no increase in
- 10 borrowing in light of their widespread access to private
capital markets. Thus they will sharply reduce their percentage share of IDB lending, although retaining sizable amounts
in absolute terms. The Bank will help them adjust to this
change by arranging an increased amount of co-financing for
them with IDB projects, improving still further their access
to private capital.
This constructive step by the advanced developing countries
(ADCs) of Latin America permits the third phase of graduation.
In it, the poorer countries will attain a five percent annual
increase in their real rate of borrowing to help cushion their
moving from primary reliance on the concessional funds of
the FSO to the harder lending terms of the capital window.
Three clear categories of Latin American borrowers thus emerge:
the poorest, who will borrow most of the funds of the FSO;
the most advanced, who will limit their total borrowing from
the Bank to recent levels; and the middle group, who will
draw on most of the growth in capital lending as they move
away from reliance on the FSO.
Venezuela and Trinidad and
Tobago will not borrow at all during this replenishment period.
Another important feature of the replenishment agreement
is that the Bank will take action to better target its
hard window loans to poorer people in recipient countries.
It
is agreed that fifty percent of all lending from the IDB during
the replenishment period would directly benefit the poorest
people in recipient countries, compared with thirty-seven percent
- 11 at present. This is a major step forward in achieving
a key goal shared by the Administration and the Congress:
targeting MDB lending on the poorest people in recipient
countr ies.
More equitable burden-sharing by both developed and
developing countries is a major objective for the United
States in all of the multilateral development banks.
In the current IDB replenishment, we have made major
progress in achieving that objective:
-- The developed non-regional members of the Bank
(Europe and Japan) will bring their cummulative
share of IDB capital from 4.4 percent to 7.2
percent, by taking 11 percent of this replenishment.
— Two-thirds of the paid-in capital subscriptions
of Latin American and Caribbean members will be
provided on a fully convertible basis; in previous
replenishments, only one-half was in convertible
currencies.
— The ADCs of Latin America — Argentina, Brazil,
and Mexico — will triple the convertible
proportion of their contributions to the Fund
for Special Operations, from 25 percent to
the equivalent of 75 percent.
These major changes in the IDB lending program and burdensharing arrangements will permit a reduction in United States
paid-in contributions which is fully consistent with the Bank's
- 12 continuing to play its proper role in development in Latin
America. To implement the lending program, the overall replenishment levels would amount to $1,750 million for the FSO
and slightly more than $8 billion for the increase in
capital for the four-year period 1979-1982. The U.S. shares
would be those called for by the Sense of the Congress
resolution attached to the FY 1979 appropriation bill —
40 percent for the FSO and 34.5 percent for IDB capital.
In the FSO, the United States would thus contribute
$175 million per year. This is an absolute reduction of
twelve and one-half percent from the $200 million annual
contribution which the United States agreed to make under
the current replenishment.
Seven and one-half percent of the capital is to be
paid in, down from ten percent under the current replenishment.
This means that $635.8 million of our annual subscription
of $862.3 million would be in callable capital, requiring
budgetary authority but rio actual paid-in amounts. The
amount paid in for each year's capital subscription would
be $51.5 million.
The sum of these FSO contributions and paid-in capital
subscriptions means that budgetary obligations for the
United States would be limited to $226.5 million for each
year of the replenishment period. This is an absolute
reduction of $13.5 million from the annual obligations
required for the last replenishment, which was negotiated
- 13 -
in 1976.
The reduction in real terms is, of course, much
more substantial. For both capital and concessional funds,
the actual budgetary outlays would as always be spread
over a number of years because drawdowns are made only
as needed to cover actual disbursements by the Bank or
on the basis of an agreed schedule.
In our view, this package meets a number of key U.S.
policy goals and deserves strong support: it increases lending
to the poorest people and countries of Latin America, with
reduced budget costs for the United States and with larger
shares taken by other donors. The Board of Governors of
the Bank will meet before the end of the year to approve
the proposed replenishment. Any pledge by the United
States would of course be made subsequent to the necessary
legislative actions, and we would return to Congress for
authorization and appropriation early next year.
The World Bank
The World Bank Group is the most important source of
development resources in the world. In FY 1978, the IBRD,
IDA and the International Finance Corporation (IFC) combined
committed over $9 billion to the world's developing nations.
Two-thirds was from the IBRD alone. The Group also plays
a leadership role in international economic efforts, chairing
consultative groups or aid consortia in about 20 countries
and participating in several more. The development expertise
- 14 of the World Bank provides valuable policy guidance for
the development efforts which members undertake themselves,
as well.
The World Bank has been an invaluable instrument for
promoting equitable burdensharing of development assistance
with other donors, sustainable levels of private financial
flows, efficiency in the use of resources, international
cooperation, and an open world economy.
These are all
objectives that the United States itself has sought to
achieve.
And the price has been right:
since 1947, the
IBRD has made loans totaling $45 billion yet the United
States has paid in only $840 million - less than two percent
of the loan total.
Most IBRD lending is financed by bond
sales, largely in private capital markets.
If the IBRD is to maintain its vital place in the world
economy, a General Capital Increase (GCI) will be required
in the 1980s. Agreement on such an increase must be reached
soon, although the capital would not start to be needed
until FY 82 or FY 83, or else the IBRD would have to trim
its lending plans almost immediately to avoid a sharp fall-o
in future years.
Failure to approve a GCI would mean that Bank lending
would level off at the present rate of about $6 billion
annually, and decline in real terms.
The results would
be extremely negative for world development prospects, for
overall North-South relations and for a wide range of U.S.
- 15 interests.
It is in the interest of the United States
to support continued growth and development in the LDCs,
and one of the most cost-effective ways to do so is a
major increase in the IBRD's capital.
As a result, President Carter announced U.S. support
for a GCI at the Annual Meeting of the Board of Governors
of the Bank and Fund this past September — as did all
participants in the Bonn Summit last July. Most of the
discussion has centered on proposals for an increase of
$30-$40 billion. This would provide the Bank with lending
capability for five to six additional years, until the
late 1980s.
The U.S. share, again in keeping with the Sense of
the Congress resolution in the FY 79 appropriation bill,
would be no more than 24 percent — perhaps less, if other
countries are willing to raise their shares as may well be
the case. Hence the amount of U.S. contribution would
range between $7.2 billion and $9.6 billion, to be made
available over a five or six-year period.
The subscription might be made entirely in callable
capital, entailing no budgetary outlay at all. However,
some argue that there should continue to be some paid-in
capital to promote financial market confidence in the
Bank. At this point, we see no need for paid-in provided
the GCI is of adequate size to demonstrate donor confidence
in the IBRD. This will be an important topic of discussion
- 16 in the coming months, along with the total size of the
GCI and country shares in it,
IDA
Talks are at a much earlier stage on the sixth
replenishment of the International Development Association
(IDA VI), which provides concessional assistance for the
World Bank Group. About 90 percent of IDA loans go to
the poorest countries, with GNP per capita below $295.
Country contributions to IDA are paid in three-year
cycles, and the current cycle will be complete in June
1980.
At the Bonn Summit, the President and his colleagues
pledged support for a replenishment of IDA that would allow
it to increase its lending in real terms over the three
years beginning July 1980. At the first replenishment meeting
on December 11, we will primarily be seeking to learn the
views of other countries on the proper size of IDA VI, and
stressing the need for further reductions in the U.S. share.
We will consult closely with the Congress before adopting
any positions on the size or U.S. share of the IDA VI replenishment.
The African Development Bank
Finally, I would like to mention briefly the opening
of membership in the African Development Bank (AFDB) to
non-regional members.
- 17 -
This Bank is unique among the MDBs in that its membership has been drawn entirely from regional developing nations
since its establishment in 1964.
It has no members from
the ranks of the industrial countries.
loans on non-concessional terms.
The Bank makes
Its subscribed capital
is currently $957 million and its cumulative loans total
$662 million.
Although the Bank's membership is entirely African,
it has established a concessional lending affiliate
the African Development Fund —
participate.
—
in which industrial nations
The United States and other industrial countries
have made $450 million available for lending on concessional
terms to some of the world's poorest countries in Africa,
and for projects designed to benefit some of the world's
most disadvantaged people.
At the May 1978 annual meeting, the Governors of the
Bank authorized the beginning of negotiations on nonAfrican membership in the Bank itself.
The Administration
strongly supports the efforts of the African Development
Bank to expand its base of resources.
Although it is too
early to develop a specific position on U.S. participation
in the Bank, we have participated positively and constructively
in discussions with other non-African countries considering
membership.
U.S. membership in the African Development Bank would
help promote our relations with the countries of Africa.
- 18 -
The crucial importance of Africa to the global management
of international political and economic affairs is now wellrecognized.
Our support for the African Development Fund
reflects the strong commitment which the Administration
and Congress share in supporting the aspirations of African
peoples for a better life.
We would welcome your views on
possible U.S. participation in the Bank as the Administration develops a more specific position on this issue.
Conclusion
Mr. Chairman, in this testimony I have attempted to
lay out the current thinking of the Administration toward
the multilateral development banks —
including both
overall U.S. participation levels and the U.S. role in
the specific replenishment discussions which are current.
We now seek your reactions, and those of your colleagues
in the Congress.
I believe that we have made every effort
to proceed on these matters only on the basis of the fullest
possible consultations with the Congress, and I assure you
that we will continue that approach.
We deeply appreciate
the opportunity to participate in these hearings, and look
forward to working with you actively during the 96th Congress.
artment of the TREASURY
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
December 7, 1978
Contact: Charles Arnold
(202) 566-2041
PUBLIC MEETING ON
UNITED STATES-CANADA TAX TREATY ISSUES
The Treasury Department today announced that the
December 13, 1978, public meeting on United States-Canada
tax treaty issues will be held at 2:00 p.m. in the Cash
Room on the Second Floor of the Main Treasury Building,
15th Street and Pennsylvania Avenue, N.W., Washington,
D.C.
The public meeting was announced in a Treasury Press
Release B-1221, dated October 19, 1978. That announcement
ot the meeting appeared in the Federal Register of
October 24, 1978.
0O0
B-1299
EMBARGOED FOR RELEASE
EXPECTED AT 2:00 P.M.
Thursday, November 7, 1978
REMARKS BY DEPUTY ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL MONETARY AFFAIRS
F. LISLE WIDMAN
BEFORE THE INTERNATIONAL BUSINESS CONFERENCE
PACE UNIVERSITY GRADUATE SCHOOL OF BUSINESS
NEW YORK, DECEMBER 7, 1978
The So-Called "Dollar Overhang"
When Dr. Parks invited me to address the group today,
he very courteously offered me a free choice of topics. In
response, I undertook to advise him of my choice in time for
inclusion in the conference announcement. You can guess what
happened.
What I would like to do today is to focus quite directly
on the central theme of this conference — "World Money and
Capital Markets." The last few months have witnessed a revival
of talk about a so-called "dollar overhang". I'd like to
examine that concept and its implications.
The concept of dollar overhang is usually not defined, but
the connotation is that all of the dollars involved are being
held with at least some reluctance. Thus all of these dollars,
it is implied, "overhang" the foreign exchange market. It is
asserted that if this "overhang" of unwanted dollars, this
"vast atomic cloud" as it has been called, could only be frozen
in some way or rendered illiquid, that the pressure on the dollar
would be eliminated and the world monetary system could be
saved.
OaJ^on
- 2 I have a lot of difficulty with the "overhang" image.
I think it embodies a number of misconceptions which can lead
to erroneous conclusions and divert the attention of policy
makers away from more fundamental problems. Obviously,
this is a very comlex subject and I do not pretend to have
all the answers. But I want to cast doubt on several
popular conceptions and suggest the need for further
thinking abut the implications for policy makers of the
existence of a large stock of dollars in foreign hands.
My first problem arises out of the tendency to link
the amount of this so-called overhang with the Eurodollar
market. Too many of those who speak about an overhang
seem to assume that all the dollars deposited with banks
outside the U.S. — the Eurodollars -- are unwanted dollars.
By implication, dollars placed with head offices of U.S. banks
in the U.S. which are not included in the Euro-dollar figures
must be "wanted" dollars. Obviously this distinction
between the Eurodollar market and the domestic U.S. market
makes no sense whatsoever.
Nevertheless, some people measure the amount of dollar
overhang by just this approach — referring to the amount of
the dollar liabilities of Eurodollar banks as the amount of
overhang. Some use the $500 billion figure which Morgan
Guaranty uses as the "gross size" of the Eurodollar market
at the end of 1977. Some are content with a smaller figure
- 3 of around $300 billion which could be arrived at by
deducting from the $500 billion figure an estimate of the
liabilities of the reporting banks to other reporting banks
— which could be viewed as double counting.
Others who talk about dollar overhang have used a
figure of $600 billion which they may derive by adding the
foreign dollar claims on banks in the U.S. to the gross
Eurodollar figure. But whatever the figure used, and
whatever the derivation, it has no underlying logic. This
is simply no way to quantify the so-called "dollar-overhang."
Whether a particular dollar holder considers his dollar
assets insufficient, appropriate, or excessive will vary
from time to time and circumstance to circumstance. For
the private bank, firm or individual, the appropriateness
of his dollar claims will be related to such factors as
his preference for goods over financial assets, the relative
return on dollar investments and investments denominated
in other currencies, the desired maturity structure of his
holdings, the prospect of gain or loss on capital value in
relation to the currency of his own country, etc. Dollars are
still the principal currency used in international trade; a
private trader needs working balances in dollars. The dollar money
and capital markets (those in the U.S. and in the Euro market)
are still the largest, most open, most flexible and most diversified in the world. There are clearly some advantages in
having dollar assets.
- 4 For years something over 80 percent of the total foreign
exchange reserve of the world's central banks has been held
in dollars.
There are excellent investment facilities for
the dollar; foreign exchange markets operate primarily using
the dollar as a vehicle currency.
If the dollar holdings of a
particular central bank have grown large it is because that
central bank chose to accumulate foreign currencies as an
alternative to an appreciation of the country's currency, and
the dollar was the currency in which to operate.
The point is that whether dollar holdings are excessive
or scarce depends on the preference of the individual holder
among the investment choices available to him. It does not
depend on the absolute amount which the holder has.
At the
same time that some holders may have more dollars than they
feel are necessary, others may consider themselves short.
Holdings which might be considered excessive under one set
of conditions may be highly valued under others. There certainly
was no talk about "dollar overhang" in the aftermath of the
oil price increase at the end of 1973. Thus, to assume that
all the dollar claims on banks outside the United States are
at all times unwanted and "overhang" the market is, therefore,
fallacious and seriously misleading.
Another common misconception about the so-called dollar
overhang is that these dollars were forced on their present
non-resident holders by an undisciplined America which was
a profligate wastrel of the world's resources, piling up
- 5 deficits on current account. This is simply not in accord
with the facts. True, the United States has had a current
account deficit for the last two years -- a deficit
which has been much too large. But between 1960 and mid-1978
there have been only 3 1/2 years of current account deficits.
Over that period the U.S. has had a cumulative surplus of
$34 billion.
Actually, the dollar denominated claims of foreigners are
the outgrowth of a money and capital market which functions as
a world market, mobilizing savings from throughout the world
and providing the credit that enables the world economy to
grow and prosper.
Initially, the market operated basically out of the
continental United States. But, in the mid-sixties when
the U.S. current account weakened and the gross outflow of
capital was large and exchange rate change was not available
as an adjustment mechanism, central banks of major surplus
nations asked the U.S. to act to slow down the capital outflow.
The United States imposed restraints. One result was that
the intermediary function came increasingly to be performed
offshore, partly by foreign banks and partly by branches
of American banks. Although the volume of transactions in
some foreign currencies has been increasing, most of the
intermediation has continued to be denominated in dollars.
The most spectacular illustration of this intermediation
came in the aftermath of the oil crisis of 1973/74.
- 6_OPEC invested a large part of their receipts in dollar
denominated assets, partly in U.S. government securities,
partly in time deposits in banks here and in the Euro dollar
markets, partly in other instruments.
Oil-importing nations
simultaneously faced sharp increases in their need for external
finance, especially to pay for their oil bills and to cover
their large overall current account deficits.
U.S. and Euro-
dollar markets provided the bulk of the intermediation function
of exchanging OPEC deposits for foreign loans.
They saved the
world from collapse of the open trade and payments system.
If these funds were frozen, wouldn't countries desperate for
finance simply come back to the U.S. money market for new credit?
It is no more difficult for a foreigner to get credit in the
U.S. th$n for an,American.
Thiis intermediation role produced, in a statistical sense,
a sharp rise in the dollar asset holdings of foreigners and
a sharp increase in claims by:U.S. or Euro-banks on foreigners.
The allegations about the so-called dollar overhang typically
look only at the gross amount of foreign claims denominated
in dollars without reference to foreign liabilities denominated
in dollars— as though none of the claims constituted cover for
dollar denominated liabilities.
As of last December, United States residents had gross
claims on foreigners of $381 billion, whereas total liabilities
of U.S. residents to foreigners were only $311 billion.
(It is worth noting that the figures used for dollar-denominated
- 7 liabilities of banks outside the United states —
with or
without the double-counting — substantially overstate the
total amount of their lending to U.S. residents. Many of
the bank loans are claims on other foreigners.)
It is appropriate to keep in mind the different maturity
structure of U.S. external claims and liabilities. Of the
$381 billion of U.S. claims on foreigners, the major components
are: $149 billion in the form of direct investments; $48 billion
in government loans, $49 billion in securities, some $18 billion
in bank and non-bank long-term claims, and $96 billion in
short-term form. In contrast, of the $311 billion total of
foreign claims on the United States, $143 billion is held by
foreign official institutions primarily in U.S. Government
securities, $66 billion is in short-term claims of private
foreigners reported by banks, and only $34 billion in direct
investment. In other words, about 70 percent of our liabilities
were short-term while 70 percent of our claims were longerterm in form. One should keep in mind, however, that the
form of the claim instrument is not necessarily correlated
with volatility. Most of the holdings of official institutions
are not truly volatile.
It is also valid to note that foreign claims on the
United States tend to be held by countries in strong
financial condition, those which tend to run current account
surpluses with the world. A relatively high percentage of U.S.
claims on foreigners, on the other hand, tends to be held against
.
- 8 -
weaker countries or developing nations which are traditionally
net importers of capital.
One could contend that the quality
of the U.S. portfolio of claims on others was somewhat less than
the quality of claims on the U.S.
A few strong surplus nations have accumulated quite large
claims on the U.S.
If their current accounts continue to
be in surplus they will be seeking outlets for the additional
surpluses as well as reinvesting maturing claims. Their problem
is one of seeking the most desirable outlets for their funds
in day-to-day market conditions. Some may feel that world
markets are too liquid and that they have more dollars than
they need.
This may occur at the same time as other nations
face current account deficits or the need to refinance debt
and are approaching the U.S. capital market for additional
dollar credits.
They may feel that there aren't enough dollars
in international markets.
The demand for dollars is a result of the various
functions which the dollar has come to serve throughout the
world.
There is a built-in increase in the demand for
dollars —
in the form of working balances, trade finance
and increases in desired official reserves —
economy and world trade grow.
as the world
There is also a private
investment demand for dollars as wealth grows and savings
are available for investment.
- 9 To the extent that alternatives to dollars exist, the
decision to hold dollars for all these purposes will be affected
by cost (e.g., the possibility of exchange rate changes which
impose losses) less the rate of return on dollars relative to
to other assets, and relative convenience. These, in turn,
are influenced by such factors as the relative tightness of
U.S. monetary policy (especially the level of U.S. interest
rates), and the performance and prospects for U.S. growth
and inflation compared with prospects for other economies.
These are what we call the nfundamentals"; they apply to U.S.
as well as foreign dollar holders.
The supply of dollars to foreigners is also a function of
a range of factors, including the U.S. current account position
and the relative monetary and credit demand situations in
the U.S. and abroad that determine the movement of capital
into and out of dollar capital markets.
In the circumstances of recent months when the U.S.
current account was in substantial deficit and U.S. inflation
was relatively high, the supply of dollars to private foreigners
has been increasing via both current and capital account
transactions. Foreign demand was eroded by inflation expectations
and the range of other factors affecting the prospects for
a reduction in the U.S. current account. Pressure on the dollar
exchanges rate developed.
The change in supply-demand relationships, which may lead
to attempts to dispose of current dollar earnings, may be magnified
- 10 by the existence of a stock of dollar assets in foreign hands.
But the same conditions might also lead U.S. residents to
reduce their dollar asset holdings. Freezing dollars already
held by foreigners could not be relied on to remove pressure
on the exchange rate if the fundamentals are not right. We
must remember that there is no wall between the U.S. domestic
money market and either the Euro-dollar market or the credit
demands of other nations.
Private foreigners were not only willing, but anxious to
to hold a very large stock of dollars —and add to it
—
as recently as 1975-76. What is the difference today?
Is there
some sort of mystical "point of no return" in terms of the
acceptable volume of dollars in private hands?
There is a much more logical, plausible answer, in the
factors affecting the demand for and supply of U.S. dollars.
We can see this clearly by looking at the events of the past
year or so.
Recall the previous episode of dollar weakness, which
covered the fourth quarter of 1977 and the first quarter of
this year.
As of early September —
the dollar exchange rate
was several percentage points above its level of late 1974,
despite a substantial deterioration in the U.S. current
account.
The appearance in September of projections of
a continuing large U.S. current account deficit for 1978,
- 11 plus delays in implementing the President's energy program,
triggered a slide which ended in April 1978, with the
President's action on energy and exports. The swings on
capital account during this period were truly massive —
official foreign dollar holdings increased by over $30 billion
between September, 1977, and April, 1978, but fell nearly
$5 billion in the second quarter.
What was the cause of the difference? A perception of a
U.S. policy stance which would improve our performance on
the "fundamentals" — energy, growth and inflation, export
performance.
The emergence of renewed inflationary pressures in the
U.S., the persistence of the U.S. current account deficit
though at a reduced rate, and a growing fear that U.S.
policies were not adequate to deal with the "fundamentals",
touched off a severe bout of dollar weakness in October;
this one threatened to get completely out of hand.
Our analysis was, and is, that this recent episode
was not justified by the "fundamentals". It was time to
put a stop to the decline and we did, taking firm action
to strengthen the dollar both at home and abroad, joining
with others to correct the excessive decline of the dollar.
- 12 The changes in relative supply of and demand for dollars
which will flow from the coming improvement in the fundamentals
will strengthen the dollar on the exchange markets without any
action to freeze the stock of dollars now in foreign hands.
SUMMARY
(1)
The numbers popularly cited as measuring the
"overhang" have no validity as a measure of the amount of
foreign-held dollars which are considered "excess" at any
point in time.
At times, some foreigners will actively
seek to increase their holdings of dollars while others
believe there are too many dollars.
At other times, the
potential amount of "excess" dollars, (dollars which holders
want to exchange for other assets) can include not only a
portion of foreign holdings but also some portion of dollar
assets held by Americans.
(2)
—
An approach which looks at the level of gross
or net —
sense.
Euro dollar liabilities is misleading in another
So long as growth continues in the world economy
one should expect growth on both sides of the balance sheet.
Any attempt to stop that growth would cut-off the world's
single most important capital market. Attempts to control
the market on only one side of the ledger —
size of dollar liabilities to foreigners —
to limit the
would be to reduce
investment opportunities and an important source of financial
capital to the global economy.
There is no way to make dollars
- 13 -
"scarce as hens' teeth" to the major surplus countries of the
world without starving the weak deficit countries to the
point of economic and social disaster — a disaster which
would inevitably affect us all.
(3) Foreign-held dollar balances do not constitute
an independent source of dollar instability. Foreign holders
of dollars respond to the same factors as domestic holders of
dollars, or holders of DM, or pounds, or any other currency.
These factors are what we refer to as the "fundamentals" —
performance and nrospects for growth, inflation, relative
interest rates, trade and current account, etc.
(4) Performance, and prospects, are the result of
policies — monetary and fiscal, wage and price, energy,
export promotion. We now have a set of policies directed
at each of these areas:
-- we are drastically reducing the budget deficit;
— we are tightening the availability of credit
and allowing interest rates to rise;
— we are attacking inflation directly through
wage-price guidelines;
-- we are reducing our dependence on imported oil;
— we are embarked on a long-term campaign to
promote exports;
- 14 The outlook is clearly moving the right direction:
— the competitiveness of our industry has been
significantly enhanced by past exchange rate
movements.
-- The relative growth picture has turned around
>
completely.
For the first time since 1974, U.S.
growth will be lower than that of our major
trading partners in 1979.
-- Our current account outlook is much improved;
— The major surplus countries, sharing this
assessment, have joined in a coordinated program of
intervention in the foreign exchange markets to correct
the excessive decline of the dollar. We are mobilizng
up to $30 billion for our share in this joint effort.
We are pleased with the market response to the November 1
measures. We intend to perservere. We are confident that
we will see a continuation of the more recent, favorable tone
of the market and the dollar. As this happens, I would anticipate
much less talk about the so-called "dollar overhang".
FOR RELEASE UPON DELIVERY
Expected At 10:00 a.m., C.S.T.
Monday, December 11, 1978
STATEMENT OF EMIL M. SUNLEY,
DEPUTY ASSISTANT SECRETARY OF THE TREASURY (TAX ANALYSIS)
BEFORE THE SUBCOMMITTEE ON OVERSIGHT OF
THE HOUSE WAYS AND MEANS COMMITTEE
ON FEDERAL TAX INCENTIVES TO ENCOURAGE HISTORIC PRESERVATION
ST. LOUIS, MISSOURI
I am pleased to appear before you to discuss the impact
of provisions in the Federal income tax designed to encourage
historic preservation. These incentives represent one way in
which the income tax affects economic activity in urban
areas. Before discussing their specific impact, I would like
to place these provisions in an overall perspective by
reviewing briefly the effects of the Federal income tax on
cities. My introductory discussion will focus particularly
on the important urban tax incentives proposed by the
Administration in 1978 and enacted, in somewhat altered form,
by the Congress.
In general, the Federal income tax appears to have
neither a pro-urban nor an anti-urban bias. Unlike other
Federal programs such as revenue sharing and many grant
programs, the Federal income tax, as of last year, did not
include any provisions specifically tied to geographic
location. The President, as part of the Administration's
urban program, proposed geographical targeting of Federal tax
incentives in 1978.
Of course, even in the absence of explicit geographical
targeting, tax incentives can have differential impacts by
region. Provisions of the tax code that provide incentives
for expansion of some industries or provide tax relief for
some individuals obviously provide relatively greater
B-1301
-2assistance to those regions in which subsidized industries or
favored individuals are located. Some provisions of the
income tax such as more rapid depreciation for low income
rental housing, probably aid central cities because cities
have a large share of low-income multifamily housing. Other
provisions, such as the tax benefits to homeownership, may
provide relatively greater assistance to suburbs, even though
they are also available to homeowners in central cities.
While such examples, and more, may be cited, most incentives
in the tax code are not designed specifically to affect the
geographical location of economic activity, and in many cases
the net impact on cities, when all direct and indirect
effects are accounted for, is difficult to assess.
Regardless of the net impact of the entire income tax on
cities, one way of altering the pattern of economic activity
is to enact new tax incentives specifically designed to
benefit distressed urban areas. The Administration's 1978
urban tax initiatives were aimed in that direction. Though
modified by the Congress, the urban proposals enacted as part
of the Revenue Act of 1978 will be beneficial to urban areas
such as St. Louis.
The Administration's urban tax initiatives included
three proposals: 1) a targeted employment tax credit to
replace the new jobs credit enacted in 1977, 2) an increase
in the limit on tax-exempt small issue industrial development
bonds (IDBs), combined with a restriction of such tax-exempt
borrowing to economically distressed areas, and 3) a
differential investment tax credit to be made available to
some projects in economically distressed areas.
1) Targeted Jobs Credit
The employment tax credit proposed by the
Administration, and enacted in slightly modified form by the
Congress, was not targeted as such to particular geographical
areas. However, the definition of employees eligible for the
credit assures that a large share of the benefit from the
credit will be used to stimulate employment of youth and
minorities in central cities.
Under the Administration's proposal, a credit would be
paid to employers of certain eligible employees. As modified
by the Congress, the credit will equal one-half of the first
$6,000 of an eligible employee's wages, up to a maximum of
$3,000 in the first year and 25 percent of such wages, up to
a maximum of $1,500, in the second year. Wages eligible for
the credit will be limited to 30 percent of all FUTA wages
paid by an employer.
-3The Administration proposed that the credit be available
for employment of young persons aged 18-24 from low income
households and handicapped individuals referred by vocational
rehabilitation programs. Local agencies designated by the
Department of Labor would certify eligibility. The Congress
broadened the definition of eligibility to include additional
disadvantaged groups.
2) Industrial Development Bonds (IDBs)
The Administration proposed to limit tax-exempt "small
issue" IDBs solely to the acquisition or construction of land
or depreciable property in "distressed" areas, but to
increase the size of projects that may be financed with
tax-exempt IDBs from a maximum of $5 million to $20 million.
A set of criteria for defining a "distressed" area was
developed at the Treasury Department, and a preliminary
computer listing of eligible areas was released. These
eligible areas, which encompassed approximately one-third of
the Nation's population, included almost all central cities
in the Northeast and Midwest, including St. Louis and
Cincinnati.
Instead of limiting "small issue" IDBs to distressed
areas, Congress increased the small issue limit from $5
million to $10 million without any geographical restriction.
In addition, Congress increased the capital expenditure
limitation to $20 million for projects which have received an
Urban Development Action Grant (UDAG). This supplemental
provision introduced a targeting feature similar to the one
proposed by the Administration. Most of the older central
cities in the Northeast and Midwest are included among cities
eligible to apply for UDAG.
The Department of Housing and Urban Development has
recently approved a $10.5 million Federal grant to St. Louis
under the UDAG program. This grant, which includes $8.0
million for a downtown commercial mall and $2.5 million for a
housing development at Columbus Square, is one of the largest
awards in the past year under the UDAG program. If the
project materializes as planned, a private participant would
be able to borrow up to $10 million in tax-exempt small issue
IDBs so long as the total capital expenditures on the project
do not exceed $20 million .
Many other cities will benefit from this provision. For
example, Cincinnati has received approval for these UDAG
grants in 1978, amounting to over $15 million of Federal
assistance. For these projects, also, private participants
will benefit from the increase in the capital expenditure
limit for small issue IDBs.
-43) Differential Investment Tax Credit
The Administration also proposed an additional
investment credit of 5 percent, beyond the 10 percent credit
of current law, for certain investments in distressed areas.
The additional credit was to be allowed only for those
projects for which the Department of Commerce issued a
"certificate of necessity." Certificates would be limited in
1979 and 1980 to $400 million of additional credits for
eligible investments.
Congress did not enact the differential investment
credit. However, the Revenue Act of 1978 did expand the
investment credit in a manner that is likely, on balance, to
aid older central cities. The 10 percent investment credit
was extended to rehabilitation of commercial and industrial
buildings which have been in use for at least 20 years. New
buildings are still not eligible for the investment credit.
A significant portion of the tax relief under the
rehabilitation credit will directly benefit investments in
older central cities. Although the credit will also be
available for rehabilitation of older structures in suburbs
and in growing cities, it will provide some relative
advantage to cities such as St. Louis.
4) Incentives for Historic Preservation
Apart from these new initiatives, the Code, through
existing tax incentives designed to foster historic
preservation, provides additional encouragement to the
preservation and restoration of our cities. While these
incentives are not confined to urban areas, and while many
historic structures exist outside of urban locations, there
is doubtless a high concentration of structures of historic
significance in older urban areas.
The principal incentives, brought into the Code with the
Tax Reform Act of 1976, are sections 191 and 167(o). Under
section 191 the costs of a "certified rehabilitation" of a
"certified historic structure" may be amortized, in lieu of
depreciation, over 60 months. (Normal depreciation is
permitted for the portion of the taxpayer's basis not
attributable to the certified rehabilitation.) As an
alternative, section 167(o) permits a taxpayer to depreciate
the cost of a "certified historic structure" that has been
"substantially" rehabilitated as though original use of the
property had commenced with the taxpayer. Treating the
taxpayer as the original user permits depreciation using the
-5150 percent declining balance method (rather than the
straight-line method) if the property is not residential
property, and permits use of the double declining balance
method (rather than the 125 percent declining balance method)
if the structure is residential rental property.
These provisions, particularly section 191, are similar
to provisions by which Congress has sought to use the tax
system to subsidize (and thereby encourage) certain
activities. For example, the cost of rehabilitating low and
moderate income housing may be amortized over 60 months
(section 167 (k)); similar treatment is available for the cost
of pollution abatement facilities retrofitted to plants
subjected to new pollution emission requirements after the
plant had been placed in service (section 169). In the case
of low and moderate income housing, the statute requires only
that the dwellings be held for occupancy by low and moderate
income individuals; in the case of eligible pollution
abatement facilities the taxpayer is required only to obtain
certification that the facility is in compliance with
applicable pollution abatement programs.
The Department of the Interior is heavily involved in
determining eligibility for the benefits of sections 191 and
167(o). Structures eligible for "certified rehabilitation"
include those listed in the National Register and those
located in either a Federally or state certified historic
district. If the district is a state or local district, it
must be designed under a statute that has been approved by
the Secretary of the Interior; and, designation of the
district itself must be approved by the Secretary.
Regardless of whether the structure is located in a Federal
or state (or local) district the building, to be eligible,
must also be certified by the Secretary of the Interior as
being of historic significance to the district. Finally, in
all cases, the Secretary of the Interior must certify the
proposed rehabilitation as "being consistent with the
historic character of such property or the district in which
such property is located." Through these measures, the
Department of the Interior maintains close control over the
availability of the benefits of either section 191 or section
167(o). The tax system is used solely to pay the subsidy.
As you know, these provisions have been in effect for
only two years. Consequently, it is far too early to tell
to what extent they will provide an effective incentive for
the rehabilitation of historic structures, and whether the
controls that have been vested in the Secretary of the
-6Interior will be sufficient to insure that the benefits to
historic preservation outweigh the potential tax shelter
abuse.
The 1976 amendments to the Code also provide
disincentives to the demolition or substantial alteration of
historic structures. Generally, the cost of demolishing an
historic, structure must be capitalized and added to the value
of the land on which the structure was located (section
280B). Depreciation of any building subsequently constructed
on the site of such a structure is limited to the
straight-line method (section 167(n)). The Revenue Act of
1978 modified these provisions to permit the Secretary of the
Interior to certify after the beginning of demolition or
alteration that the structure was not an historic structure
and not of significance to the historic district where it was
located, in which event the disincentives do not apply.
We understand that concerns have been expressed over
the discouraging effect these disincentives may have on
commercial land development and redevelopment. This effect,
we are told, stems from the fact that the designation of an
area as an historic district may subject developers to the
risk of inadvertently running afoul of sections 167(n) and
280B and thereby may inhibit needed development of the
district. Alternatively, it is possible that in the interest
of development, a state or local government may decline to
designate as historic an otherwise eligible district for fear
of discouraging commercial development.
While one may speculate about possible effects, it is
too early to tell to what extent designation of areas as
>
historic districts in fact will inhibit commercial
development or vice versa. The ameliorating provisions of
the Revenue Act of 1978 are designed to, and may have the
effect of, minimizing the possibility that innocent
developers will be penalized by reason of inadvertent acts.
Of course, to the extent that developers are inhibited from
land development, not by the risks of inadvertently
demolishing an historic structure, but rather because the
land they wish to develop is occupied by a structure of
genuine historical interest, then the disincentives would be
accomplishing precisely the goal for which they were
designed.
In any event, however, I think it is important to point
out that divining the proper balance to be struck between
preserving our architectural heritage, on the one hand, and
-7not inhibiting commercial land redevelopment, on the other,
is not one of the traditional institutional concerns of the
Treasury. It is more properly an area in which the
Department of the Interior has both an institutional
expertise and concern. It is only because these goals have
been sought to be accomplished through the tax system that
the Treasury has been drawn into this issue.
I must therefore confess that a resolution of just where
the appropriate balance should be struck is a matter on which
I must defer to the Department of the Interior. For the
Treasury, I can say that our principal concern is that, if
disincentives of this sort are to be preserved in the Code,
they be preserved in an administrable form. I say this
because these provisions may present problems of enforcement
that the Internal Revenue Service does not normally
encounter. For example, the Service will have no automatic
source of information that would permit it to conclude that
either section 280B or section 167(n) applies. The burden of
ascertaining that a certified historic structure has been
demolished or altered, and of bringing that information to
the attention of the Service in a form that will permit it to
identify the taxpayers to be audited, will necessarily fall
to those whose prime interest is in historic preservation.
There is, as I noted, insufficient experience with these
disincentives to ascertain just how effective this will be.
We expect to review these provisions as we acquire
greater experience in their operation and impact. Should any
unexpected problems develop we will of course bring them to
the attention of this Committee.
o 0 o
pnmentoftheTREASURY
SHIN6T0N, D.C. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
December 11, 1978
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,800 million of 13-week Treasury bills and for. $2,901 million
of 26-week Treasury bills, both series to be issued on December 14, 1978,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
a/
13-week bills
maturing March 15. 1979
26-week bills
maturing June 14. 1979
Price
Discount
Rate
Investment
Rate 1/
Price
97.750
97.741
97.743
8.901%
8.937%
8.929%
9.23%
9.27%
9.26%
95.326^7
95.314
95.317
Discount
Rate
Investment
Rate 1/
9.245% 9.83%
9.269%
9.86%
9.263%
9.85%
Excepting 1 tender of $500,000
Tenders at the low price for the 13-week bills were allotted 32%.
Tenders at the low price for the 26-week bills were allotted 84%.
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
$
41,905,000
4,279,670,000
19,065,000
41,155,000
24,685,000
31,845,000
266,255,000
45,010,000
15,615,000
36,330,000
15,955,000
161,665,000
$
Treasury
10,610,000
10,610,000
TOTALS
$4,989,765,000
$2,800,085,000b/
Accepted
31,905,000
2,324,290,000
18,625,000
30,135,000
17,300,000
29,750,000
181,275,000
30,010,000
15,615,000
32,950,000
15,955,000
61,665,000
Received
Accepted
$
38,605,000
4,113,600,000
10,025,000
82,810,000
34,375,000
27,865,000
300,770,000
38,275,000
13,225,000
20,125,000
9,005,000
207,125,000
$
11,065,000
$4,906,870,000
b/Includes $390,350,000 noncompetitive tenders from the public.
c/lncludes $252,475,000 noncompetitive tenders from the public.
J7Equivalent coupon-issue yield.
B-1302
18,605,000
2,375,300,000
10,025,000
50,710,000
34,375,000
27,275,000
226,770,000
17,275,000
10,225,000
20,125,000
9,005,000.
90,115,0001
11,065,0Q|
$2,900,870,000c/
FOR IMMEDIATE RELEASE
December 11, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT DISCONTINUES
ANTIDUMPING INVESTIGATION ON VISCOSE
RAYON STAPLE FIBER FROM AUSTRIA
The Treasury Department today announced that it is
discontinuing its antidumping investigation of viscose
rayon staple fiber from Austria.
The case involved the reopening in March 19 78 of a
previously discontinued antidumping investigation involving
this product. The original investigation had been discontinued in January 1978 after the Austrian manufacturer,
Chemiefaser Lenzing AG, had eliminated all price differentials between viscose rayon staple fiber exported to the
U. S. and viscose rayon staple fiber sold in Austria and
after assurances had been filed that no future sales at
less than fair value would be made.
The investigation was reopened to determine whether
Lenzing was selling the product in the home market for less
than the cost of production. Such sales would have been
an improper basis for determining that no differentials
existed between prices in the home market and prices on
exports to the U. S. The investigation revealed that no
sales in the home market were being made at prices below
the cost of production and that the assurances of no future
sales at less than fair value were being adhered to. Based
on these facts, Treasury has discontinued the investigation.
Publication of this action appears in the Federal
Register of December 11, 1978.
Imports of this merchandise from Austria in the first
eight months of 19 78 were valued at approximately $5 million.
o
0
o
B-1303
FOR IMMEDIATE RELEASE
December 12, 1978
Contact;
Robert E. Nipp
202/566-5328
TREASURY ANNOUNCES INTEREST RATES ON DM NOTES
The Department of the Treasury today announced
that the interest rates on its 3-year and 4-year notes
denominated in DM are 5.95 percent and 6.20 percent,
respectively. Interest shall be paid annually.
As announced earlier, the Treasury is offering
notes denominated in DM in an aggregate amount of approx
imately 2.5 billion to 3.0 billion DM. The notes are
being offered exclusively to, and may be owned only by,
residents of the Federal Republic of Germany. Subscriptions will be received by the German Bundesbank,
acting as agent on behalf of the United States, until
12:00 noon, Frankfurt time, on Wednesdayf December 13,
1978.
o
B-1304
0
o
FOR RELEASE AT 4:00 P.M.
December 12, 197 8
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 21, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $ 5,608 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,700
million, representing an additional amount of bills dated
September 21, 1978, and to mature March 22, 1979
(CUSIP No.
912793 x5 0)» originally issued in the amount of $3,403 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $ 2,.900 million to be dated
December 21, 1978, and to mature June 21, 1979
(CUSIF No.
912793 Z2 5 ) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing December 21, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,222
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 18, 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.
B-1305
-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 21, 1978, in cash or
other immediately available funds or in Treasury bills maturing
December 21, 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 RELEASE AT 4:00 P.M.
December 13, 1978
TREASURY TO AUCTION 2-YEAR AND 4-YEAR NOTES
TOTALING $5,000 MILLION
The Department of the Treasury will auction $2,500
million of 2-year notes and $2,500 million of 4-year notes
to refund approximately the same amount of notes maturing
December 31, 1978. The $5,006 million of maturing notes are
those held by the public, including $1,006 million currently
held by Federal Reserve Banks as agents for foreign and
international monetary authorities.
In addition to the public holdings. Government accounts
and Federal Reserve Banks, for their own accounts, hold
$887 million of the maturing securities that may be refunded
by issuing additional amounts of the new notes at the
average prices of accepted competitive tenders. Additional
amounts of the new securities may also be issued at the
average prices, for new cash only, to Federal Reserve Banks
as agents for foreign and international monetary authorities.
Details about each of the new securities are given in
the attached highlights of the offering and in the official
offering circulars.
oOo
Attachment
B-1306
(over)
HIGHLIGHTS OF TREASURY
OFFERINGS TO THE PUBLIC
OF 2-YEAR AND 4-YEAR NOTES
TO BE ISSUED JANUARY 2, 1979
Amount Offered:
To the public
Description of Security:
Term and type of security
Series and CUSIP designation
Maturity date
Call date
Interest coupon rate
Investment yield
Premium or discount
Interest payment dates
Minimum denomination available
Terms of Sale:
Method of sale
Accrued interest payable by
investor
Preferred allotment
Deposit requirement
Deposit guarantee by designated
institutions
Key Dates: , «•,«
Deadline for receipt of tenders
December 13, 1978
$2,500 million
$2,500 million
2-year notes
Series W-1980
(CUSIP No. 912827 JG 8)
December 31, 1980
No provision
To be determined based on
the average of accepted bids
To be determined at auction
To be determined after auction
June 30 and December 31
$5,000
4-year notes
Series L-1982
(CUSIP No. 912827 JH 6)
December 31, 1982
No provision
To be determined based on
the average of accepted bids
To be determined at auction
To be determined after auction
June 30 and December 31
$1,000
Yield Auction
Yield Auction
None
Noncompetitive bid for
$1,000,000 or less
5% of face amount
Acceptable
None
Noncompetitive bid for
$1,000,000 or less
5% of face amount
Acceptable
Wednesday, December 20, 1978,
by 1:30 p.m., EST
Tuesday, December 19, 1978,
by 1:30 p.m., EST
Tuesday, January 2, 1979
Settlement date (final payment due)
a) cash or Federal funds
Tuesday, January 2, 1979
b) check drawn on bank within
FRB district where submitted....Wednesday, December 27, 1978
c) check drawn on bank outside
FRB district where submitted
Tuesday, December 26, 1978
Delivery date for coupon securities...Friday, January 5, 1979
Wednesday, December 27, 1978
Tuesday, December 26, 1978
Friday, January 5, 1979
FOR RELEASE ON DELIVERY
Expected at 9:30 AM EST
December 14, 1978
STATEMENT BY THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL ECONOMICS
OF THE JOINT ECONOMIC COMMITTEE
Introduction
Mr. Chairman, it is a particular pleasure to appear here today to discuss
the actions announced by the President, Chairman Miller and myself on November
1. 1978 to strengthen the dollar at home and abroad. The actions were taken
in the context of persisting inflation and financial market conditions —
domestic and international — which reflected doubts about the determination
of this Administration to stop inflation and defend the value of the dollar.
Our actions should allay these doubts. We have committed the major tools
of economic policy to the task of unwinding the inflation that has plagued us
for the past decade. Let there be no mistaking our determination: there will
be no waffling and no wavering. We intend to persist because controlling
inflation is absolutely essential to the achievement of the social and
economic goals which are at the core of President Carter's policies.
Obviously, the dramatic circumstances in which the November actions were
taken should not overshadow the very important measures taken earlier to deal
with our fundamental economic problems. Each of these measures must be seen
as part of an integrated array of policies. Any one of them alone is not
sufficient, but together I believe they do the job.
The Economic Situation We Faced in October
Even with the full force of economic policies addressing the inflation
problem, it will not be an easy or a painless task to reduce inflationary
pressures. Inflation has become deeply ingrained in our society, and in the
expectation on which private sector decisions are based. And as inflation has
persisted and accelerated, there is the threat of adding demand-pull pressures
to the worst elements of cost-push forces.
In the early stages of recovery from the 1974 75 recession, the
persistence of a high underlying rate of inflation, despite significant slack
in resource utilization, reflected largely a pattern or wages-chasing-priceschasing-wages. As the recovery from the recession continued, and as inflation
persisted, an overall environment of inflationary expectations was fostered,
with the expectation of further inflation distorting costs, prices, the
structure of production, and decisions on saving and investment.
B-1307
-2To the intensifying expectation of further inflation have been added some
signs that real pressures on resource availability may be emerging —
scattered signs to be sure, but still troublesome. The economy has maintained
strong momentum since the winter lull of 1977; real growth has averaged close
to a 4 percent annual rate this year, and in some sectors of the labor market
and in some industries, demands have begun to press on available resources.
While the overall unemployment rate has remained close to 6 percent during
much of the year, unemployment among skilled workers and others characterized
as part of the "prime labor force" has declined. For example, the
unemployment rate for married men, at 2.5 percent, is not far above the rate
during most previous periods of peak labor demand. Non-union wages have been
rising more rapidly this year than union wages, reflecting both the strength
of demand factors in the labor market and the increased minimum wage. The
employment rate (the ratio of people employed to the working age population)
continues to rise.
While industrial capacity utilization overall has remained in the area of
85 p e r c e n t — leaving some margin for expansion — capacity limits are
approaching for some industries. Moreover, the official statistics may be
overstating the extent of spare capacity that can be utilized in a costeffective manner.
It.has become increasingly clear that, in recent months, the economy has
entered the zone of resource utilization within which demand pressures are
more easily translated into rising prices. Thus, there is a danger of adding
demand-pull to the existing cost pressures.
Moreover, the inflation has incorporated a new "feedback" mechanism: as
the rise in domestic prices weakened the dollar, this has resulted in higher
prices for imported goods and. through an "umbrella effect", in higher prices
for many domestic products competing with imports. Perhaps as much as one
full percentage point of inflation this year reflects the effects of the
depreciation of the dollar, and this has given the inflationary spiral a
further turn.
The combination of inflationary expectations, emerging demand pressures
and the domestic price effects of a weakening dollar have been reflected in an
acceleration in the underlying rate of inflation. Over the past three months,
wholesale prices rose at about 10-1/2 percent annual rate; even excluding
food, the rate was near 8 percent. Consumer prices rose at nearly a 9 percent
rate in the last three months, at a 9-1/2 percent annual rate excluding food.
The growing pessimism about inflationary prospects was reflected in financial
markets. Stock prices fell precipitously in the last two weeks of October,
and prices of long-term debt instruments also declined.
In the foreign exchange market, severe and persistent disorder and
excessive declines in the dollar were undermining our efforts to control
inflation and were adversely affecting the climate for continued investment
and growth in the United States. In the month of October the dollar declined
sharply against virtually all major currencies. The dollar fell against the
Swiss franc by 6 percent, the Japanese yen by 7 percent, and the German mark
by 12 percent. The trade-weighted dollar fell by 8 percent. All told, in the
13 months preceding the November 1 initiative the dollar had fallen 38 percent
against the Swiss franc, 34 percent against the yen and 26 percent against the
DM.
-3As November approached, it became clear that -the market was failing to
take account of the improvements that were being made in the underlying
conditions that determing the dollar's value. The Administration had
inherited a budget deficit of over $66 billion in 1976 or roughly 4.4 percent
of GNP; it was paring the budget for 1980 to $30 billion or below, roughly 1
percent of GNP. Energy legislation had been passed which would result in
savings of at least 500,000 barrels per day by 1979 from levels that might
otherwise be expected. The volume of trade flows had begun to reflect
improvements in our competitive position. The trade balance of the United
States had receded to a $31 billion annual rate in the second and third
quarters of the year from a $45 billion rate in the first and was heading
further down. The nation's surplus on investment income and other service
transactions had grown sharply. The outlook for the current account was
dramatically improved, allowing us to predict with confidence that it would
drop by 50 to 60 percent from the $17 billion in 1978 to as little as $6
billion in 1979. And to reinforce these trends the President had instituted a
determined anti-inflation program and an enhanced national export effort. Yet
the dollar continued to be sold. The psychology of the market during the
month of October was such that these favorable developments in underlying
economic conditions, and Administration statements reaffirming its
determination to follow through on our anti-inflation program, were unable to
halt a wave of pessimism about the prospects for the dollar.
The consequences of a continued deterioration of the dollar were grim.
The preciptious decline of the dollar threatened to erode our anti-inflation
effort. Foreign official and private portfolio managers were already showing
signs of selling off U.S. securities and would have been tempted to sell more,
further disrupting the stock and bond markets. Dollar holders abroad would
have been encouraged to sell more of their outstanding dollar holdings for
assets denominated in other currencies. The OPEC countries would have been
pressured to substantially raise oil prices to recoup excessive dollar losses.
The world economy — indeed, the whole world financial system — would have
been impaired — and with it, the economy of the United States. The
leadership of this nation in world affairs, political as well as economic,
would have been severely damaged.
We could not tolerate this situation. Firm action was needed to
strengthen the dollar both at home and abroad.
Our November 1 Actions
Thus, on November 1 we took the direct and forceful measures that were
needed. You are familiar with the specific measures announced on that date.
They entailed:
a $3 billion increase in reserve requirements on large certificates
of deposit and a rise in the discount rate by a full 1 percent;
an increase in Treasury's monthly sales of gold to at least 1-1/2
million ounces per month, starting with this month's auction;
a decision to join with Germany, Switzerland and Japan in closely
coordinated exchange market intervention;
-4
the mobilization of $30 billion in DM, Swiss francs and yen to
finance that portion of the intervention undertaken by U.S.
authorities.
The U.S. financing involves an approximate doubling of Federal Reserve
swap lines with the central banks of Japan, Germany and Switzerland, to a
total of $15 billion; U.S. drawings on the IMF of $3 billion; U.S. sales of
about $2 billion of Special Drawing Rights; and issuance by the Treasury of
foreign currency denominated securities in amounts up to $10 billion.
Most of the foreign currency resources-have already been mobilized. The
increase in the central bank swap lines took effect immediately on
announcement. Drawings on the IMF in Deutsche Marks and Japanese yen
amounting to the equivalent of $2 billion and $1 billion were made on November
6 and 9. We sold about $1.4 billion equivalent in SDR's for Deutsche Marks
and yen on November 24. The first tranche of DM-denominated securities, about
$1-1/4 to 1-1/2 billion will be issued tomorrow.
By so massing a sizeable and broad reaching pool of resources, we intend
to signal to the world that the dollar had been pushed too far and that the
U.S. authorities were determined to correct the situation.
The Results of Our Measures
Mr. Chairman, reaction to our measures has been good. I believe there is
a realization among governments and in the financial community as well as in
the general public, that the U.S. government is determined to deal effectively
and decisively with our economic problems — that we will act to bring
inflation under control; that we will strengthen the dollar at home and abroad.
This regeneration of confidence in the dollar rests on the measures
announced November 1 and on the reaffirmation by the President of his
determination to exercise fiscal austerity. Let me repeat that the President
intends his 1980 budget to be tight, with a deficit of $30 billion or less. A
balanced budget is now a realistic goal for the years thereafter.
Coordinated with this thrust on the fiscal side is the increasing
restraint being exercised by monetary policy. Monetary policy is the
responsibility of the Federal Reserve and it should stay that way. But the
Administration has a view as to how it should be managed. Let me make clear
our view. It is that monetary policy has to dovetail with tight fiscal
policy. Monetary policy must be kept tight until inflation has been brought
under control. In concert, the major tools of economic stabilization will be
used in support of the President's wage-price deceleration program to attack
the causes, not just the symptoms of inflation.
It is too early, of course, to see a reflection of recent policy actions
in the statistics on inflation. But we have seen a change in the confidence
exhibited in financial market behavior. The stock market has recovered some
of its October losses, as have the prices of long-term securities. In fact,
though some short term rates have risen nearly a full percentage point since
the November 1 announcement, interest rates on long term instruments have
remained relatively unchanged. This suggests an improvement in inflationary
expectations over the longer term.
-5Some apprehension is being expressed that the program may become too
effective and throw the economy into recession. There are risks to be sure —
economic forecasting is at best an imprecise art — but certainly the risks of
recession with the program are far less than the certainty of recession if
inflation were allowed to accelerate unchecked. Indeed, the program we have
launched is the best guarantee for avoiding recession.
Although recent inflation rates have been in, or near, the double-digit
range, the economy retains fundamental strength and good balance. Real
economic growth so far this year has been almost 4 percent and there are few
distortions in the composition of output. Employment continues to grow at an
exceptionally strong rate. The most recent data on retail sales show that
consumers are still in a buying mood. Inventories remain in good balance with
sales. The flow of new orders for durable goods — particularly for
nondefense capital goods — is high and order backlogs are rising. Housing
activity continues at a high rate of over 2 million new starts; the
introduction of a new financial instrument — the money market certificate —
has enabled thrift institutions to compete for funds and maintain the supply
of funds in mortgage markets. Our exports, particularly of manufactured
goods, have been rising substantially while our imports — other than of
petroleum — have risen more slowly.
These are not the symptoms of a sick economy, unable to sustain momentum
under the weight of fiscal and monetary restraint. Rather, these are signs of
a strong economy approaching the realistic limits of resource capacity which
needs and can afford some moderation in pace.
The President intends to bring inflation down and keep it down. He
realizes that this is the only sure way to maintain and increase the standard
of living for all Americans, especially the poor and the elderly who depend on
fixed incomes. We cannot at this stage in the economy opt for growth at the
expense of inflation. Restraint on the monetary and fiscal fronts now must be
pursued to assure real growth later. Fortunately the economy is strong and
able to withstand the discipline that is required.
It is apparent that this commitment to responsible economic management is
beginning to take hold. We are beginning to see a change in tone, a
modification in expectations in the foreign exchange and domestic money
markets. As the full realization of the extent of our measures and the degree
of our determination to persevere spreads, I believe we will see further
dollar strength in the markets.
In summary, Mr. Chairman, the response here and abroad to the measures
announced November 1 has been very encouraging. The announcement has been
interpreted rightfully as a signal that we are determined to deal effectively
and decisively with the inflation which is our primary economic problem and to
maintaining the strength of the dollar. That interpretation is correct. We
are fully committed. We will persist as long as is necessary to control
inflation. We will exercise tight budgetary restraint, maintain responsible
domestic monetary policies, implement effective wage-price guidelines, and
work for stable, orderly conditions in the foreign exchange markets. This is
the right way, and the only way, to achieve our basic economic goals.
Mr. Chairman, let me now turn to addressing some specific concerns.
-6The first involves our intervention objectives.
The shift in intervention practices announced on November 1 was aimed at
correcting a particular situation. Our objective is to restore order and a
climate in the exchange markets in which rates can respond to the economic
fundamentals, in this case to the improved outlook for the fundamentals that
underpin the dollar's value. We are not attempting to peg exchange rates or
establish targets or push the dollar beyond levels which reflect the
fundamental economic and financial realities.
On the subject of the competitive position of U.S. exports, let me make
one thing absolutely clear. There are those who feel that continuing decline
in the dollar is good for trade. This is a dangerous misconception. The
United States does not need to pursue dollar depreciation to buy market
position. To have argued on October 30 or to argue now for more dollar
depreciation as a way of correcting our trade deficit is a simplistic and
nonsensical view that could force a collapse of an open capital and trading
system. The Administration firmly rejects such tactics.
Second, Mr. Chairman, you ask in the press release that announce these
hearings why differentials in interest rates between the U.S. and other strong
countries would be any more effective now than before in attracting capital.
The answer lies in investor expectations about the future. The key to
attracting investment is to offer investors a real rate of return. While
nominal interest rates have been high in the United States, inflation has
rendered them negative in real terms. If investors are being offered the
promise of less inflation and a real return on their investments, it should be
easier to attract the capital needed to finance our current account deficit.
Third, your staff has questioned the Treasury decision to issue $10
billion of foreign currency denominated bonds.
To reiterate, the Treasury did announce its intention to issue up to $10
billion in securities denominated in foreign currencies. The first of these
issues — for 2-1/2 to 3 billion DM ~ will be issued tomorrow. We plan a
Swiss franc issue in January and we are also giving consideration to a yen
denominated borrowing in Japan in 1979.
It is important to realize that these securities are being issued only
for the purpose of acquiring foreign currencies for the intervention effort.
They are not intended as an effort to "mop up" unwanted dollars. They are
being sold only to residents of the country issuing the currency in which the
securities are denominated. We are seeking to minimize the extent to which
purchasers switch out of dollars to effect these purchases.
There were important reasons for including foreign currency denominated
securities in our package. The issuance of securities with, in case of DM,
three to four year maturities, provides us with additional foreign currency
resources, for a longer time period, and gives assurance to the market that
the United States will not be pressured to reverse its intervention operations
too soon because of its need to accumulate the foreign currencies needed to
repay swaps. In addition, the issuance of these securities demonstrates that
we are firmly committed to strengthening of the dollar over time and that we
will use all means at our disposal.
-7With the issuance of foreign currency-denominated notes, there is the
potential for exchange rate gains and losses. The calculation of the total
"cost" of such borrowing must take into account the interest rate differential
between domestic and foreign markets, as well as possible gains and losses
because of exchange rate changes. Of course there is a risk. But the
alternative cost to the economy of failing to move with adequate and
comprehensive measures constituted an even greater risk. If you will permit
me Mr. Chairman, this is a case of being pennywise rather than pound-foolish.
The importance of assembling a comprehensive and credible package to
strengthen the dollar justifies the lesser risk we have assumed.
Finally, there is the question of the role played by the IMF in our
November decision. The actions we took on November 1 were fully in keeping
with our obligation "to assure orderly exchange arrangement and to promote a
stable system of exchange rate . . ."by "fostering orderly economic growth
with reasonable price.stability." Since part of the November 1 package
consisted of a reserve tranche drawing from the IMF and sales of SDRs, we of
course discussed these plans ith the Fund management prior to the
announcement. The U.S. program was also explained subsequently to the IMF
Executive Board in connection with activation of the General Arrangements to
Borrow (GAB) for financing part of the U.S. drawing. The proposal was
supported by the IMF and the GAB participants. On December 13 the Board
discussed the U.S. program in more detail, under IMF surveillance procedures,
and expressed support for the U.S. action.
Mr. Chairman, you have also asked whether the IMF has undertaken to
reduce the' key currency status of the dollar. And questions have been raised
as to whether reduction or elimination of the dollar's role as a reserve
currency would remove pressure on the exchange rate and make domestic
restraint less necessary.
Let me make two points. First, any such fundamental change in the
international monetary system would have far-reaching effects on other parts
of the system and could not be considered in isolation. Nor could such a
restructuring of the system be simply mandated by the IMF — it would require
detailed study and negotiation, looking toward arrangements that would be
acceptable to all countries. We would need to know what system we would be
moving to before dismantling the one we have. There were extensive studies of
possible changes in the monetary system earlier in this decade, many of which
would have meant a sharply reduced reserve role for the dollar. Ultimately,
none of these changes appeared practical or widely desired. I stress this
point not because we are unwilling to consider change but because the full
implications of such change need to be recognized and assessed.
Second, the U.S. is going to be in difficulty if it continues to run an
inflationary economy, regardless of the reserve role of the dollar, and no
reform of the system can obviate the need for us to pursue policies of
restraint to counter inflation, or to maintain a reasonably strong external
position.
As international economic and financial relationships evolve, the role of
the dollar can be expected to evolve to reflect changes in underlying economic
realities. There is widespread agreement on progressive development of the
SDR's role in the system, and other currencies may also take on a larger role.
-8But such changes will come about gradually over an extended period of time and
they must come about in an orderly manner. As a practical matter, the dollar
will continue to play an important role in international monetary
relationships for the foreseeable future if the world is to continue to
achieve growth and progress. Accordingly, it is our duty to manage the dollar
in a manner which befits its central role in the system. This is precisely
what President Carter, Chairman Miller and I intend to do.
0OO0
I
For Immediate Release
December 13, 1978
Contact:
Bob Nipp
566-5328
!
TREASURY ANNOUNCES RESULTS OF DM NOTE SALE
The Department of the Treasury today announced that
it is accepting a total of DM 3,038 million in
subscriptions for its issues of three-year and four-year
notes denominated in Deutsche marks. A total amount of
DM 8,687 million in subscriptions for these issues was
received.
The Treasury accepted DM 1,774 million in subscriptions for its three-year notes. Total subscriptions
received for this issue were DM 5,564 million. In the
case of the four-year notes, the Treasury accepted
DM 1,265 million in subscriptions. Total subscriptions
received for this issue were DM 3,124 million. This
represents an acceptance to subscription ratio of 31
percent for the three-year notes and 40 percent for the
four-year maturity. In each of the two maturities,
allotments are being made on a pro rata basis, except that
individual subscriptions are being rounded up to the
nearest DM 500,000.
The sale of these notes represents the first sale of
foreign currency denominated securities, potentially
totaling up to the equivalent of $10 billion, pursuant to
the program announced on November 1, 1978.
It is expected that the disposition of the proceeds
of these notes will reduce U.S. domestic borrowing needs
by an equivalent amount.
The next U.S. Treasury borrowing of foreign currencies
is expected to be made in Switzerland in Swiss francs in
early 1979.
oo 00 oo
B-1308
IMMEDIATE RELEASE
December 1i\, 1978
CONTACT- Alvin Hattal
202/566-8381
TREASURY PUBLISHES PROPOSED REGULATIONS
REQUIRING DEPOSIT OF ESTIMATED DUMPING DUTIES
The Treasury Department today published proposed regulations that
would require importers to deposit estimated dumping duties at the
time goods subject to a dumping finding are imported. At present,
importers may provide bonds to cover estimated dumping duties.
Public comments on the proposal are invited through February 15,
1979- The proposed regulations will better assure that the amounts of
dumping duties ultimately assessed will be collected promptly.
The Customs Service will initially estimate dumping duties based
on the dumping margin calculated during the investigation which led to
the Finding of Dumping. For a manufacturer or exporter which was not
investigated, the deposit will be based on the weighted average margin
for all the manufacturers that were investigated. Thereafter, the
deposit will be equal to the average dumping margins found during the
most recent period of assessment.
The proposed regulations also include a procedure under which
deposits for certain manufacturers or exporters can be calculated on
an expedited basis
This procedure will apply to manufacturers or
exporters whose weighted average margins were greater than 10 percent.
The proposed regulations wi]l not change present requirements for
the posting of bonds adequate to cover possible dumping duties during
the time between the publication of a withholding of appraisement
notice and the issue of a Finding of Dumping following an injury
determination by the International Trade Commission.
oOOo
B-1309
FOR RELEASE AT 12:00 NOON
December 15, 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 December 28, 1978.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,707 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
September 28, 1978, and to mature March 29, 1979
(CUSIP No.
912793 X6 8), originally issued in the amount of $ 3,400 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $2,900 million to be dated
December 28, 1978, and to mature June 28, 1979
(CUSIP No.
912793 Z3 3).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing December 28, 1978.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,038
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 22, 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 £he Treasury.
B-1310
-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 28, 1978, in cash or
other immediately available funds or in Treasury bills maturing
December 28, 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
December 15, 1978
Contact:
Alvin M. Hattal
202/566-8381
TREASURY INVITES COMMENTS ON TREATY DISCUSSIONS
WITH FEDERAL REPUBLIC OF GERMANY
The Treasury Department today invited interested parties
to submit comments in connection with the ongoing income tax
treaty discussions between the United States and the Federal
Republic of Germany.
Negotiators for the two countries met most recently in
Bonn November 28-30, after which the following statement was
issued:
"A Delegation of the Federal Republic of Germany, headed
by Parlamentarischer Staatssekretar Dr. Rolf Boehme beim
Bundesminister der Finanzen, and a Delegation of the United
States of America, headed by Assistant Secretary of the
Treasury Donald C Lubick, met at Bonn November 28-30, 1978,
for a further round of negotiations with a view to amending
the Convention between the Federal Republic of Germany and the
United States of America for the avoidance of double taxation
with respect to taxes on income and to certain other taxes
(July 11, 1954/September 17, 1965).
"The discussions covering some main aspects of the taxation of dividends and other matters, including questions of
thin capitalization, took place in a frank and friendly atmosphere. Both sides discussed in depth the situation which was
created in Germany due to the Corporation Tax Reform of 1977.
Discussions led to a better understanding of the different
positions and to possible approaches to accommodate each
other's point of view.
"It was agreed to continue negotiations in the near future in Washington."
Comments should be in writing and should be submitted by
January 31 to H. David Rosenbloom, International Tax Counsel,
Room 3064, U. S. Treasury Department, Washington, D. C 20220.
This notice will appear in the Federal Register on
December 20, 1978.
B-1311
o
0
o
FOR IMMEDIATE RELEASE
December 15, 1978
Contact:
Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT WITHHOLDS APPRAISEMENT
OF METHYL ALCOHOL FROM CANADA
The Treasury Department today announced that it is withholding appraisement on imports of methyl alcohol (methanol)
from Canada. The withholding action, based on a tentative
determination that they are being sold in the United States
at less than fair value, will not exceed six months. A
Final Determination will be issued in three months.
Under the Antidumping Act, the Secretary of the Treasury
is required to withhold appraisement when he has reason to
believe or suspect that sales at less than fair value are
taking place. Sales at less than fair value generally occur
when imported merchandise is sold in the United States for
less than in the home market or to third countries.
Withholding of appraisement means that the valuation for
Customs duty purposes of goods imported after the date of the
tentative determination is suspended until completion of the
investigation. This permits assessment of any dumping duties
that are ultimately imposed on those imports.
Cases in which a final determination of sales at less
than fair value is issued are referred to the U. S. International Trade Commission to determine whether an American industry
is being or is likely to be injured by such sales. Both sales
at less than fair value and injury must be found to exist
before a dumping finding is reached.
Notice of this action will appear in the Federal Register
of December 19, 1978.
Imports of methyl alcohol from Canada during 1977 were
valued at approximately $14.7 million.
o
B-1312
0
o
FOR IMMEDIATE RELEASE
December 18, 1978
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,707 million of 13-week Treasury bills and for $2,901 million
of 26-week Treasury bills, both series to be issued on December 21, 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 March 22. 1979
Price
Discount
Rate
a/
97.667 9.229%
97.665
9.237%
97.665
9.237%
High
Low
Average
a/ Excepting 1
b/ Excepting 1
Tenders at
Tenders at
26-week bills
maturing June 21. 1979
Investment
Rate 1/
Price
9.58%
9.59%
9.59%
95.193^ 9.508%
9.540%
95.177
9.524%
95.185
Discount
Rate
Investment
Rate 1/
10.13%
10.16%
10.14%
tender of $10,000
tender of $10,000
the low price for the 13-week bills were allotted 71%.
the low price for the 26-week bills were allotted 64%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTSAND TREASURY:
Location
Received
Accepted
Received
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
$
22,565,000
5,172,250,000
20,235,000
29,450,000
19,320,000
25,170,000
197,375,000
30,255,000
42,950,000
36,620,000
10,450,000
172,555,000
8,085,000
$
22,475,000
2,487,050,000
16,530,000
27,295,000
18,620,000
22,170,000
28,330,000
16,255,000
4,950,000
18,125,000
10,450,000
26,455,000
8,085,000
$
16,2QQ,QQ0
4,504,125,000
8 ,065,000
12 ,540,000
11 ,570,000
19 ,660,000
255 ,940,000
41 ,345,000
19 ,945,000
22,100,000
7 ,200,000
249 ,050,000
10,030,000
TOTALS
$5,787,280,000
$2,706,790,000c/; $5,177,770,000
c/Includes $325,810,000 noncompetitive tenders from the public.
d/Includes $225,130,000 noncompetitive tenders from the public.
^/Equivalent coupon-issue yield.
B-1313
Accepted
$
16,200,000
2,613,305,000
8,065,000
12,540,000
11,570,000
19,160,000
80,940,000
21,905,000
9,945,000
18,880,000
7,200,000
71,050,000
10,030,000
$2,900,790,000^/
FOR IMMEDIATE RELEASE
December 19, 1978
RESULTS OF AUCTION OF 2-YEAR NOTES
The Department of the Treasury has accepted $2,510 million of
$5,315 million of tenders received from the public for the 2-year
notes, Series W-1980, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 9.97%!'
Highest yield
Average yield
10.00%
9.99%
The interest rate on the notes will be 9-7/8%. At the 9-7/8% rate,
the above yields result in the following prices:
Low-yield price 99.832
High-yield price
Average-yield price
99,779
99.797
The $2,510 million of accepted tenders includes $655 million of
noncompetitive tenders and $1,755 million of competitive tenders from
private investors, including 54% of the amount of notes bid for at
the high yield. It also includes $100 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 to the $2,510 million of tenders accepted in the
auction process, $450 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, 1978, and $535
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 6 tenders totaling $2,840,000
B-1314
TREASURY NOTES OF SERIES W-1980
DISTRICT
BOSTON $ 73,640,000
NEW YORK
PHILADELPHIA
CLEVELAND
RICHMOND
ATLANTA
CHICAGO
ST. LOUIS
MINNEAPOLIS
KANSAS CITY
DALLAS
SAN FRANCISCO
TREASURY
TOTAL
ACCEPTED
1,524,110,000
37,055,000
112,045,000
32,410,000
60,370,000
332,035,000
51,970,000
69,435,000
55,7 60,000
30,270,000
125,300,000
5,170,000
$2,509,570,000
FOR IMMEDIATE RELEASE
December 20, 1978
RESULTS OF AUCTION OF 4-YEAR NOTES
The Department of the Treasury has accepted $2,507 million of
$5,851 million of tenders received from the public for the 4-year
notes, Series L-1982, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield
Highest yield
Average yield
9.43% 1/
9.47%
9.45%
The interest rate on the notes will be 9-3/8%.
the above yields result in the following prices:
At the 9-3/8% rate,
Low-yield price 99.820
High-yield price
Average-yield price
99.690
99.755
The $2,507 million of accepted tenders includes $ 740 million of
noncompetitive tenders and $1,667 million of competitive tenders from
private investors, including 11% of the amount of notes bid for at
the high yield. It also includes $ 100 million of tenders at the
average price from Federal Reserve Banks as agents for foreign and
international monetary authorities in exchange for maturing_s£g"j;:LtjU
L-1982
TREASURY NOTES OF SERIES
In addition
auction process, j
price from Governi
account in exchanl
DATE. December 20, 1978
million of tenders
Reserve Banks as &
for new cash.
LAST ISSUE:
1/ Excepting 4 te HIGHEST SINCE:
WT6 oyci^
V.y//£
TODAY:
LOWEST SINCE:
B-1315
? 3/s X /9, ys~ &
TREASURY NOTES OF SERIES W-1980
DISTRICT
BOSTON $ 73,640,000
NEW YORK
PHILADELPHIA
CLEVELAND
RICHMOND
ATLANTA
CHICAGO
ST. LOUIS
MINNEAPOLIS
KANSAS CITY
DALLAS
SANTOTAL
FRANCISCO
TREASURY
ACCEPTED
1,524,110,000
37,055,000
112,045,000
32,410,000
60,370,000
332,035,000
51,970,000
69,435,000
55,760,000
30,270,000
125,300,000
$2,509,570,000
5,170,000
FOR IMMEDIATE RELEASE
December 20, 1978
RESULTS OF AUCTION OF 4-YEAR NOTES
The Department of the Treasury has accepted $2,507 million of
$5,851 million of tenders received from the public for the 4-year
notes, Series L-1982, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 9.43% 1/
Highest yield
Average yield
9.47%
9.45%
The interest rate on the notes will be 9-3/8%. At the 9-3/8% rate,
the above yields result in the following prices:
Low-yield price 99.820
High-yield price
Average-yield price
99.690
99.755
The $2,507 million of accepted tenders includes $ 740 million of
noncompetitive tenders and $1,667 million of competitive tenders from
private investors, including 11% of the amount of notes bid for at
the high yield. It also includes $ 100 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 to the $2,507 million of tenders accepted in the
auction process, $ 437 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, 1978, and $200
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 4 tenders totaling $154,000
B-1315
FOR IMMEDIATE RELEASE
December 20, 1978
Contact:
Robert E. Nipp
202/566-5328^
TREASURY ANNOUNCES RESULTS OF
GOLD SALE
The Department of the Treasury announced that 1,500,000
troy ounces of fine gold were sold yesterday to 16 successful
bidders at prices from $211.50 to $217.50 per ounce, yielding
an average price of $214.17 per ounce.
Gross proceeds from this sale were $321.2 million. Of
the proceeds, $63.3 million will be used to retire Gold
Certificates held by Federal Reserve Banks. The remaining
$257.9 million will be deposited into the Treasury as a
miscellaneous receipt.
A total of 261 bids were submitted by 29 bidders for a
total amount of 2.7 million ounces at prices ranging from
$99.78 to $217.50 per ounce.
The General Services Administration will release a
list of successful bidders and the amounts of gold awarded
to each, after those bidders have been notified that their
bids have been accepted.
The current sale was the eighth in a series of monthly
auctions being conducted by the General Services Administration on behalf of the Department of the Treasury. The next
sale, at which 1,500,000 ounces will be offered will be
held on January 16, 1979. At this sale 1,000,000 fine troy
ounces will be offered in bars whose fine gold content is
99.50% to 99.y4%. The minimum bid for these bars will be
for 400 fine troy ounces. A total of 500,000 ounces will be
offered in bars whose fine gold content is 89.9% to 90.1%.
The minimum bid for these bars will be 300 fine troy ounces.
Bids for bars in each fineness category will be evaluated
separately.
o 0 o
B-1316
THE DEPUTY SECRETARY OF THE TREASURY
•WASHINGTON. D.C. 20220
December 19, 1978
Dear Mr. Chairman:
Last year you brought to the attention of the
Secretary certain allegations of improper procedures
at the U.S. Assay Office in New York. These allegations were withdrawn, a cursory investigation revealed
no improprieties and you were so advised.
Subsequently, we pursued other questions that had
been raised about the New York Assay Office, which is
part of the Bureau of the Mint, and I must now inform
you that there have been significant irregularities in
accounting and management procedures in the New York
Assay Office that appear to go back a number of years.
In particular, the Bureau of the Mint's internal auditors
have concluded that there was an unrecognized loss of an
aggregate of perhaps 5200 fine troy ounces of gold from
1973 through 1977, and possibly beyond. More than half
of these indicated losses may have been incurred as part
of the normal melting and refining processes of the Assay
Office; an additional percentage may be recovered at such
time as the building is dismantled and equipment purged.
(Hpwever, we cannot eliminate the possibility that theft
may have accounted for some part of the loss. The full
truth may never be known because of the inadequate records
kept over the years.
0
Obviously, this is a situation which requires immediate and positive action. We have taken the following
steps to ensure there will be no further unexplained
losses or irregularities in the New York Assay Office:
1. The U.S. Secret Service has completed a
security survey of the Office and the
recommendations of that survey are being
implemented under the direction of
Stella B. Hackel, Director of the Mint,
who assumed her office in November, 1977.
2. The newly appointed Superintendent of the
New York Assay Office,. Manuel Sanchez,
has assumed direct responsibility, with
technical support from the Secret Service,
for security, accounting and related
matters at the Office.
3. The Director of Security of the Bureau
of the Mint has been temporarily detailed
to the Office to assist Mr. Sanchez in
the security area.
4. Ms. Hackel and Mr. Sanchez are making
management changes to ensure the efficient and secure operation of the Office.
In addition, the Secret Service is continuing its
investigations to establish whether any violations of law
or regulations of the Bureau of the Mint were committed by
present or former employees of that Bureau. Should such
violations be established, they will be referred for
prosecution or appropriate personnel action taken by the
Department.
I should also note that earlier this year, an employee
at the New York Assay Office was apprehended attempting to
leave the premises with gold concealed on his person; he is
now in prison. Immediately after the employee was apprehended, Ms. Hackel ordered an extended shutdown of refining
operations until an inventory of operations was completed
and security tightened. This was accomplished by the end
(
of July. At that time I directed the Secret Service to
reassess the entire security situation at the Office and
the possibility of other thefts. When the Office of
Inspector General was established in the Treasury Department three months ago, I directed Leon Wigrizer, on the
day he was appointed to the post, to oversee the investigations involving the Assay Office, and report directly
to me.
The possible loss of a significant amount of gold in
the New York Assay Office is a very serious matter. You
should understand, however, that all indicated losses have
taken place not in a storage area but in the melting and
refining division, where a "normal" operating loss occurs
when unrefined and impure gold is converted to finished
gold bars. Any gold melting and refining operation
necessarily incurs losses through oxidization and other
chemical and/or metallurgical reactions. Such "normal'^
losses were not accurately accounted for by the procedures
of the Office, and they account for a significant portion
of the shortfall. Permanent storage or vault areas are
not involved in these irregularities.
- 3 We will keep you advised of any developments in
this situation, and appreciate your earlier drawing
it to the Department's attention.
I am sending copies of this letter, for their
information, to Senators Javits and Moynihan and
Representative Murphy, in whose district the New York
Assay Office is located, and to the Chairman of the
Treasury Appropriations Subcommittees in both the
Senate and the House.
Sincerely,
Robert Carswell
The Honorable
William Proxmire
United States Senate
Washington, D.C. 20510
FOR IMMEDIATE RELEASE
December 21, 1978
BRADFORD L. FERGUSON IS APPOINTED
ASSOCIATE TAX LEGISLATIVE COUNSEL AT TREASURY
Secretary of the Treasury W. Michael Blumenthal today
announced the appointment of Bradford L. Ferguson as
Associate Tax Legislative Counsel.
Mr. Ferguson, 31, has been Special Assistant to the
Assistant Secretary (Tax Policy) since April 10, 1977.
Before joining Treasury, he served as Legislative Assistant
to then Senator Walter F. Mondale. Mr. Ferguson was an
associate at the Minneapolis law firm of Dorsey, Windhorst,
Hannaford, Whitney & Halladay from 1972 through 1975.
As Associate Tax Legislative Counsel, Mr. Ferguson will
assist the Tax Legislative Counsel in heading a staff of
lawyers and accountants who provide assistance and advice to
the Assistant Secretary of the Treasury for Tax Policy. The
Office of Tax Legislative Counsel participates in the
preparation of Treasury Department recommendations for
Federal tax legislation and also helps develop and review
tax regulations and rulings.
A native of Ottumwa, Iowa, Mr. Ferguson was graduated
from Drake University in 1969 with a B.A. degree. He
received a J.D. degree cum laude from Harvard Law School in
1972.
° 0 °
B-1317
FOR RELEASE AT 12:00 NOON
December 22, 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 4, 1979.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,706 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
October 5, 1978,
and to mature April 5, 197 9
(CUSIP No.
912793 X7 6), originally issued in the amount of $3,405 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $2,900 million to be dated
January 4, 1979,
and to mature July 5, 1979
(CUSIP No.
912793 2A 3) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing January 4, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,387
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. 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 29, 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.
B-1318
-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 bookentry records of Federal Reserve Banks and Branches. 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
must be made or completed at the Federal Reserve Bank or Branch
or at the Bureau of the Public Debt on January 4, 1979,
in cash
or other immediately available funds or in Treasury bills maturing
January 4, 1979.
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, 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.
kpartmentofthe
SHINGTQN,D.C2022
FOR IMMEDIATE RELEASE
December 22, 1978
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,801 million of 13-week Treasury bills and for $2,902 million
of 26-week Treasury bills, both series to be issued on December 28, 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 March 29, 1979
Price
High
Low
Average
a/
hi
Discount
Rate
97.645*/ 9.316%
97.633
9.364%
97.640
9.336%
26-week bills
maturing June 28, 1979
Investment
Rate 1/
Price
9.67%
9.72%
9.69%
95.159i/ 9.576%
95.144
9.605%
95.157
9.580%
Discount
Rate
Investment
Rate 1/
10.20%
10.24%
10.21%
Excepting 1 tender of $1,050,000
Excepting 1 tender of $500,000
Tenders at the low price for the 13-week bills were allotted 41%.
Tenders at the low price for the 26-week bills were allotted 51%.
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
$
Treasury
TOTALS
22,180,000
4,191,290,000
21,155,000
25,185,000
19,190,000
35,665,000
277,455,000
28,170,000
67,465,000
17,690,000
12,750,000
207,735,000
8,730,000
$4, 934,660,000
Accepted
$
22,180,000
2,379,840,000
21,155,000
25,185,000
17,190,000
34,315,000
107,655,000
18,170,000
15,455,000
17,145,000
11,450,000
122,735,000
: Received
:
8,730,000 '
$
14,260,000
4,290,345,000
57,370,000
50,275,000
9,575,000
19,035,000
794,800,000
25,350,000
30,680,000
16,875,000
4,975,000
906,180,000
8,525,000
$2,801,205,000c/' $6,228,245,000
c/Includes $ 328,800,000 noncompetitive tenders from the public.
d/Includes $191,730,000 noncompetitive tenders from the public.
^/Equivalent coupon-issue yield.
B-1319
Accepted
$
14,260,000
1 ,570,705,000
27,470,000
11,400,000
9,575,000
18,535,000
439,050,000
13,350,000
2,680,000
14,985,000
4,975,000
766,180,000
8,525,000
$2 ,901,690,000d/
mttmentoftheJREASURY
GTON,D.C. 20220
TELEPHONE 566-2041
-
FOR RELEASE AT 4:00
P.M.
December 27, 1978
TREASURY TO AUCTION $1,500 MILLION OF 15-YEAR 1-MONTH BONDS
The 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
competitive tenders.
Details about the new security are given in the
attached highlights of the offering and in the official
offering circular.
oOo
Attachment
B-l^E)
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 15-YEAR 1-MONTH BONDS
TO BE ISSUED JANUARY 11, 1979
December 27, 1978
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 1994
(CUSIP No. 912810 CF 3)
Maturity date February 15, 1994
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, 1979
Minimum denomination available $1,000
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
Thursday, January 4, 1979,
by 1:30 p.m., EST
Thursday, January 11, 1979
Tuesday, January 9, 1979
Monday, January 8, 1979
Tuesday, January 16, 1979
FOR IMMEDIATE RELEASE
December 28, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT ANNOUNCES FINAL ANTIDUMPING
DETERMINATIONS ON IMPORTS OF BICYCLE TIRES AND
TUBES FROM KOREA AND TAIWAN
The Treasury Department today said it has determined
that bicycle tires and tubes imported from the Republic of
Korea are being sold in the United States at "less than fair
value" but that those from Taiwan are not.
(Sales at less than fair value generally occur when imj
ported merchandise is sold in the United States for less
than in the home market.)
1!
The Korean 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 decision of the Commission is affirmative,
dumping duties will be collected on Korean merchandise sold
at less than fair value. Appraisement has been withheld on
Korean bicycle tires and tubes since the tentative decision
was issued on September 18, 19 78.
The weighted-average margins of sales at less than fair
value for the three Korean manufacturers investigated were
7.2, 5.3 and 3.4 percent, respectively.
Interested persons were offered the opportunity to
present oral and written views before these determinations.
Notice of these actions will appear in the Federal
Register of December 29, 19 78.
Imports of bicycle tires and tubes from Korea and
Taiwan during calendar year 1977 were valued at $14.5 million and $15.3 million, respectively.
o
B-1321
0
o
FOR IMMEDIATE RELEASE
December 28, ig78
Contact:
Alvin M. Hattal
(202)566-8381
TREASURY ANNOUNCES AUDITS AND
OTHER ENFORCEMENT-RELATED ACTIONS
UNDER THE STEEL TRIGGER PRICE MECHANISM
The Treasury Department announced today it will supplement
its informal inquiries into steel import transactions by comprehensive audits of selected "related-party" steel importing
companies to further assure that monitoring under the steel
trigger price mechanism is effective.
The audits will be directed toward "related parties" -that is, where exporter and importer are related by corporate
ownership. Customs Service monitoring of steel imports indicates
that, within the past 6 months, related party steel tonnage has
grown from 40 percent to about 60 percent of imported steel.
The audits will examine, among other things:
(1) resales of imported steel to assure that such resales
are occurring above the applicable trigger price by a large
enough margin to cover the importer's full costs, including any
storage, capital, or additional processing costs;
(2) claims by buyers for rebates from the importer
because steel is of "secondary" quality;
(3) credit terms allowed in actual resale transactions;
(4-) costs incurred by importers (including costs for
storage, selling, processing, or inland freight) and whether
they are borne by the importer or passed through in the resale
price.
Several companies will be audited, but selection of a
company for audit does not imply it has failed to comply with
applicable trigger price procedures.
The Department reiterated that the international transaction price — even if between related parties — may be
regarded, if below trigger, as a sufficient basis for initiating a fast-track antidumping case. Additional procedures are
being developed to facilitate the collection of information
concerning foreign acquisition and domestic resale prices.
B-1322
- 2 The Department also made the following observations about
the just-released November steel import figures. The 2.02
million tons imported in November represent an increase of
301,000 net tons over October 1978 steel imports. The higher
November numbers are accounted for by a 155,000 net ton
increase by Japanese producers and by significant increases
by producers from countries other than Japan and the European
Community.
Japanese exports for 1978 year-to-date are 6.07 million
net tons and represent a 16 percent decline from a comparable
period in 1977. A portion of the remaining increase results
from sharply higher imports of steel plate from Poland. These
plate imports may be related to anticipated withholding of
appraisement in the antidumping investigation which Treasury
commenced with respect to Polish steel plate in October 1978.
Treasury officials indicated that increased shipments under
these circumstances may constitute appropriate grounds to apply
retroactively any withholding remedy ultimately imposed.
Shipments from the European Community declined slightly
from October levels, but remained over 700,000 tons for November. An antidumping complaint filed by a U.S. producer with
respect to carbon steel plate from five European countries
was separately announced today.
*
*
*
*
FOR IMMEDIATE RELEASE
December 28, 1978
'
Contact:
Alvin M. Hattal
(202)566-8381
ANTIDUMPING PETITION ON CARBON STEEL PLATE
The Treasury Department today announced it is initiating
a formal investigation under the Antidumping Act with respect
to imports of carbon steel plate from five European countries.
An antidumping complaint in proper form was received
from the Lukens Steel Company of Coatesville, Pennsylvania.
It alleges that carbon steel plate from Belgium, France,
Germany, Italy and the United Kingdom is being sold in the
United States cat "less than fair value". Generally, "fair
value" represents the price at which such products are offered
for sale in the home market of the exporter.
The Lukens complaint alleges that sales to the United
States are at prices below the "guidance prices" established
by the Commission of the European Economic Community for the
sale of carbon steel plate within the European Community. It
does not allege that the sales are below the producers' costs
of production-.
The complaint indicates that for July 1978 the prices
of carbon plate imports from the five countries fall below
European Commission "guidance prices" by amounts ranging
from 6 percent for steel plate from West Germany to 20
percent for Italian plate. The petition also claims that
the domestic steel industry is losing sales to producers in
the five named European countries by being substantially
undersold on carbon plate products. During the past year,
carbon steel plate imports have substantially increased as
a share of U.S. carbon steel plate consumption and, according
to the complaint, now account for more than a quarter of that
market.
During 1978, sales of" carbon steel plate from the European
Community have increased particularly sharply, rising from
814,550 net tons in 1977 (38.5 percent of plate imports) to
1,219,985 net tons so far in 1978 (43.7 percent of plate imports).
Carbon steel plate from Japan is subject to a formal finding
of dumping that was announced in January 1978. Since that time,
imports of carbon plate from Japan have dropped from 525,996
net tons in 1977 to 197,485 net tons during the first 11 months
of 1978 or from 24.8percent to about - 7.4 percent of plate
B-1323
imports.
- 2 The Lukens complaint is not based on claims that the
EC producers have sold plate below "trigger prices". The
Treasury has previously initiated three proceedings concerning carbon steel plate based on sales below trigger prices.
One of these has since been terminated, while the investigations relating to plate from Taiwan and Poland are proceeding.
Imports of plate from the five countries named in Lukens'
complaint are valued at $150.8 million for the first nine
months of 1978.
******
4810-22
DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
CARBON STEEL PLATE FROM BELGIUM, FRANCE,
THE FEDERAL REPUBLIC OF GERMANY, ITALY, AND ;THE UNITED KINGDOM
AGENCY: U.S. Treasury Department
ACTION: Initiation of Antidumping Investigations
SUMMARY:
This notice is to advise the public that a petition in
proper form has been received and antidumping investigations
are being initiated for the purpose of determining whether
imports of carbon steel plate from Belgium, France, the
Federal Republic of Germany, Italy, and the United Kingdom
are being, or are likely to be, sold at less than fair value
within the meaning of the Antidumping Act of 1921, as amended.
Sales at less than fair value generally occur when the prices
of the merchandise sold for exportation to the United States
are less than the prices in the home market.
EFFECTIVE DATE:
(Date of publication in the Federal Register).
FOR FURTHER INFORMATION CONTACT:
John R. Kugelman, Operations Officer, U.S. Customs Service,
Office of Operations, Duty Assessment Division, Technical Branch,
1301 Constitution Avenue, N.W., Washington, D.C. 20220 (202)455-5492.
SUPPLEMENTARY INFORMATION:
On December 26, 1978, information was received in proper
form pursuant to sections 153.26 and 153.27', Customs Regulations
-2(19 CFR 153.26, 153,27), from counsel on behalf of Lukens
Steel Company indicating the possibility that carbon steel
plate from Belgium, France, The Federal Republic of Germany (FRG) ,
Italy, and the United Kingdom 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 seg.).
The carbon steel plate under consideration is provided
for in item number 608.8415 of the Tariff Schedules of the
United States Annotated (TSUSA).
Margins of dumping are alleged which, if based on a
comparison with prices in the home markets, are approximately
13.0 percent for Belgium, 10.0 percent for France, 6 percent
for the FRG, 20.0 percent for Italy and 18.0 percent for the
United Kingdom. These margins have been computed using
"guidance prices" as of July 1, 1978, established under the
"Davignon Plan" of t^ie European Community as home market
prices. To the extent the investigation to be undertaken
reveals that actual sales prices in the home markets have
been at other than such established prices, the margins, if
any, will be computed on the basis of such actual transactions.
There is evidence on record concerning injury or likelihood
of injury to the U.S. carbon steel plate industry from the
alleged less than fair vaiue imports. Although domestic
shipments increased in 1977 compared to 1976 and in the
first 8 months of 1978 compared to the same period in 1977,
-3total imports, and particularly imports from the countries
covered by this petition, have increased even more sharply.
The market share of all carbon steel plate imports was 18.8
percent in 1976; by July 1978, plate imports accounted for
22 percent. Data available to the Treasury Department
indicates that this trend has continued with total carbon
steel plate imports accounting for 26 percent of domestic
consumption and imports from these five European countries
accounting for 55 percent of total imports by October 1978.
These five countries increased their share of total carbon
steel plate imports from 17 percent in 1976 to 45 percent
in the first 7 months of 19 78. During the same time frame,
the share of imports held by imports of carbon steel plate
from Japan, already subject to a "Finding of Dumping"
(43 FR 22937) has declined from 52 percent to 7 percent.
In addition to the information regarding increased
import penetration by the allegedly "less than fair value"
imports, evidence has been submitted showing declining
employment by the petitioner and the carbon steel plate
sector, lost sales by the petitioner as a result of the
allegedly dumped imports and significant underselling of
U.S. prices by imports from these countries.
In assessing the injury caused by the alleged sales
at less than fair value from these five countries of the
European Community, it has been considered appropriate to
cumulate the shares of the market held by imports from each
-4of the countries named.
The product is fungible.
Under
such circumstances, it would be unrealistic to attempt to
differentiate the alleged injury caused by imports frdm
one country rather than another when it is the cumulative
effect of all, occurring within a discrete time frame, that
creates the problem. .._?..,
Having conducted a summary investigation as required
by section 153.29 of the Customs Regulations (19 CFR 153.29
and having determined as a result thereof that there are
grounds for so doing, the United States Customs Service is
instituting inquiries to verify the information submitted
and to obtain the facts necessary to enable the Secretary
of the Treasury to reach a determination as to the fact or
likelihood of sales at less than fair value.
This notice is published pursuant to section 153.30
of the Customs Regulations (19 CFR 153.30).
FOR RELEASE AT 4:00 P.M.
December 28, 1978
TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for approximately $3,200 million, of 364-day
Treasury bills to be dated January 9, 1979,
and to mature
January 8, 1980
(CUSIP No. 912793 3C 8). This issue will not
provide new cash for the Treasury as the maturing issue is
outstanding in the amount of $3,205 million. Additional amounts
of the bills may be issued to Federal Reserve Banks as agents of
foreign and international monetary authorities.
The bills will be issued for cash and in exchange for
Treasury bills maturing January 9, 1979.
The public holds
$1,701 million of the maturing issue and $1,504 million is held
by Federal Reserve Banks for themselves and as agents of foreign
and international monetary authorities. Tenders from Federal
Reserve Banks for themselves and as agents of foreign and international monetary authorities will be accepted at the weighted
average price 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. This 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,
Wednesday, January 3, 1979.
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. 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.
B-1324
%,
-2Banking 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 bookentry records of Federal Reserve Banks and Branches. 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
$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.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on January 9, 1979,
in cash or other immediately available
funds or in Treasury bills maturing January 9, 1979.
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.
-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, 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 29, 1978
Contact:
Alvin M. Hattal
202/566-8381
TREASURY WILL SUSPEND LIQUIDATION
OF DUTIES UPON EXPIRATION OF
COUNTERVAILING DUTY WAIVER AUTHORITY
The Treasury today said that,starting January 3, 19 79,
it would suspend liquidation of duties on all imports that
have been the subject of countervailing duty waivers. Bonds
posted with the Customs Service by importers may be used in
lieu of a deposit of the estimated duty to cover any liability that might eventually result from a countervailing duty.
The amounts of such bonds will be based on Treasury Department
estimates of the net amount of the subsidies.
By suspending liquidation, Customs authorities delay the
requirement of actual payment of duties on imported merchandise until the final amount is determined.
The countervailing duty law requires the Secretary of
the Treasury to impose an additional Customs duty on imported
merchandise that is equal to any net "bounty or grant"
(subsidy) paid in the exporting country.
The Trade Act of 1974 authorized the Secretary to waive
countervailing duties on merchandise imported during the
four-year period that started January 3, 19 75, if certain
criteria are met. When that period expires on January 3,
1979, merchandise granted waivers would ordinarily be subject
to the assessment of countervailing duties.
The waiver provision was added to the countervailing
duty law to give the Secretary limited discretion to refrain
from imposing countervailing duties during the period of the
Multilateral Trade Negotiations (MTN) that were in progress
in Geneva. In these negotiations, which are now nearing
completion, one of the major aims of the United States has
been the conclusion of an international code concerning
subsidy and countervailing duty practices.
Both Houses of Congress passed separate bills at the
end of the 95th Congress that would have extended both the
outstanding waivers and the authority to continue to grant
waivers pending Congressional review of the results of the
MTN, including the proposed code. However, the bills did
B-1325
(MORE)
- 2-
not become law for reasons unrelated to the merits of the
waiver. Since the Administration will seek comparable
legislation at the start of the next session of Congress,
retroactive to January 3, 19 79, it is uncertain at this
time whether countervailing duties on the waived merchandise
will be imposed. For this reason, the Treasury decided it
would be premature to impose countervailing duties when the
waiver authority expires.
Notice of this action will appear in the Federal
Register of January 2, 19 79.
Approximately $600 million in imports were affected
by the initial countervailing duty orders that were waived.
o
0
o
partmentoftheTREASURY
TELEPHONE 566-2041
INGTON,D.C. 20220
FOR IMMEDIATE RELEASE
December 29, 1978
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $ 2,800 million of 13-week Treasury bills and for $2,901 million
of 26-week Treasury bills, both series to be issued on January 4, 1979,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
a/
13-week bills
maturing April 5, 1979
Price
Discount
Rate
Investment
Rate 1/
97.639
97.613
97.627
9.340%
9.443%
9.388%
9.70%
9.81%
9.75%
26-week bills
maturing July 5, 1979
Price
Discount
Rate
95.184-/ 9.526%
95.169
9.556%
95.172
9.550%
Investment
Rate 1/
10.15%
10.18%
10.17%
Excepting 1 tender of $600,000
Tenders at the low price for the 13-week bills were allotted 79%
Tenders at the low price for the 26-week bills were allotted 34%,
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
Accepted
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$
33,020,000
4,008,075,000
22,770,000
33,885,00.0
23,185,000
34,710,000
293,270,000
30,840,000
4,900,000
23,605,000
15,590,000
164,415,000
$
33,020,000
2,244,425,000
22,770,000
33,885,000
23,185,000
34,710,000
218,270,000
28,840,000
4,900,000
23,605,000
15,590,000
104,415,000
Treasury
12,400,000
TOTALS
$4,700,665,000
12,400,000
Received
$
16,545,000
5,426,095,000
11,745,000
45,090,000
13,995,000
51,640,000
599,020,000
37,530,000
3,490,000
18,165,000
8,665,000
184,675,000
$
15,045,000
2,685,410,000
11,745,000
14,590,000
11,495,000
23,105,000
56,620,000
10,530,000
3,490,000
18,165,000
8,665,000
24,675,000
17,115,000
17,115,000
$2,800, 015, 000b/: $6,433,770,000
b/lncludes $ 398,115,000 noncompetitive tenders from the public
c/Lncludes $243,350,000 noncompetitive tenders from the public
^/Equivalent coupon-issue yield.
B-1326
Accepted
$2,900,650,000c/
federal financing bank
.E *o
</> 9
</> C M
WASHINGTON, D.C. 20220
O o
n" CM
FOR IMMEDIATE RELEASE
January 2, 1979
FEDERAL FINANCING BANK ACTIVITY
Roland H. Cook, Secretary, Federal Financing Bank (FFB),
announced the following activity for November 1-30, 1978.
Department of Transportation (DOT)-Guaranteed Lending
The FFB advanced the following funds to the National
Railroad Passenger Corp. (Amtrak) under Note #17, which matures
February 16, 1979.
Interest
Date
Amount
Rate
11/17
$3,500,000
8.635%
11/20
5,000,000
8.435%
11/27
4,000,000
9.305%
11/28
2,000,000
9.355%
11/30
2,500,000
9.435%
FFB advanced funds to the following railroads under notes
guaranteed by DOT under Section 511 of the Railroad Revitalization and Regulatory Reform Act:
Date
Chicago $ North Western Trans.
Missouri-Kansas-Texas RR
Trustee of the Milwaukee Road
Trustee of Chicago, Rock Island
Amount
Maturity
Interest Rate
11/1
11/3
11/8
11/13
$1,336,004
3/1/89 9.435% annually
663,961 11/15/97 8.808% quarterly
1,035,223 11/15/91 9.231% annually
313,096 12/10/93 9.259% annually
On November 17, FFB advanced $750,000 to the United States
Railway Association at an interest rate of 8.125%. This advance
was made against Note #13, which matures December 26, 1990.
Other Guaranteed Lending Programs
During November, FFB purchased the following General
Services Administration Participation Certificates:
Series
Date
Amount
M-039 11/9 $7,540,730.23
L-048
11/15
1,159,152.20
B-1327
Maturity
7/51/03
11/15/04
Interest Rate
8.964%
8.951%
- 2 On November 22, FFB purchased a total of $7,230,000
in debentures issued by 10 small business investment
companies. These debentures are guaranteed by the Small
Business Administration, and mature in 3, 5, 7, and 10 years.
The 3-year rate is 9.025%, the 5-year rate is 8.915%, and
the 7-year and 10-year rate is 9.025%.
FFB provided Western Union Space Communications, Inc.,
with the following advances, which mature October 1, 1989
and carry annual interest rates.
Interest
Date
Amount
Rate
11/1 $5,900,000 9.474%
11/20
7,900,000
9.124%
11/30
1,700,000
9.317%
These advances are part of FFB's $687 million financing of
a satellite tracking system to be constructed by Western Union
and used by the National Aeronautics and Space Administration,
which guarantees repayment of these advances.
Under notes guaranteed by the Rural Electrification
Administration, FFB advanced a total of $82,614,565.00 to
22 rural electric and telephone systems. Details of individual advances are included in the attached activity table.
FFB made 30 advances on existing loans to 18 governments
totalling $108,912,770.55 under the foreign military sales
program. These advances are guaranteed by the Department of
Defense.
Agency Issues
The Tennessee Valley Authority sold FFB a $45 million
note on November 15, and a $640 million note on November 30.
The notes mature February 28, 1979, and carry rates of
9.201% and 9.452%, respectively. Of the total $685 million
financed, $555 million refunded maturing securities, and $130
million raised new cash.
In its weekly short-term FFB borrowings, the Student
Loan Marketing Association (SLMAJ, a Federally-chartered
private corporation which borrows under a Department of
Health, Education and Welfare guarantee, raised $60 million
in new cash, and refunded $240 million in maturing securities
FFB holdings of SLMA notes now total $835 million.
FFB Holdings
As of November 30, FFB holdings totalled $49.6 billion.
FFB Holdings and Activity Tables are attached.
FEDERAL FINANCING
BANK
November 1978 Activity
BORROWER
DATE :
AMOUNT
OF ADVANCE
:
:INTEREST: INTEREST
RATE
: MATURITY : RATE :
(other than s/a)
Department of Defense
$
450,000.00
11/1
8,071,011.00
11/1
62,535.73
11/1
1,060,216.00
11/1
275,377.00
11/2
605,094.08
11/3
86,734.50
11/6
82,268.68
11/6
16,401,800.00
11/6
320,298.00
11/8
439,494.50
11/8
96,624.39
11/9
3,067,775.00
11/9
469,539.55
11/9
77,723.73
11/14
47,841,278.66
11/14
2,689,920.17
11/15
991,800.00
11/15
4,400,000.00
11/15
726,187.00
11/15
1,303,292.00
11/21
941,531.00
11/21
569,658.24
11/22
177,291.98
11/27
540,138.00
11/27
62,962.98
11/27
15,912,033.61
11/27
641,664.75
11/29
346,020.00
11/30
202,500.00
11/30
9/20/84
5/3/88
6/30/83
4/10/84
11/26/85
6/30/83
10/7/82
3/20/84
9/10/86
9/20/84
8/1/85
12/31/86
9/15/88
6/30/83
9/20/86
1/12/08
8/25/84
12/31/86
12/15/87
10/1/85
9/20/84
6/10/87
4/1/84
6/30/83
11/26/85
12/31/86
9/15/88
4/1/84
9/20/84
3/12/83
9.443%
9.271%
9.531%
9.478%
9.074%
9.298%
9.454%
9.252%
9.106%
9.221%
9.173%
9.109%
9.078%
9.356%
9.126%
8.956%
9.196%
9.097%
9.072%
9.141%
9.044%
8.973%
9.111%
9.44%
9.245%
9.203%
9.124%
9.36%
9.294%
9.432%
1-1/15
1,159,152.20
7/31/03
11/15/04
8.964%
8.951%
11/17
11/20
11/27
11/28
11/30
3,500,000.00
5,000,000.00
4,000,000.00
2,000,000.00
2,500,000.00
2/16/79
2/16/79
2/16/79
2/16/79
2/16/79
8.635%
8.435%
9.305%
9.355%
9.435%
11/1
United Power Assn. #6
11/1
United Power Assn. #67
11/3
Basin Elect. Pwr. Coop. #87
11/3
Tri-State Gen. $ Trans. #89
11/6
Southern Illinois Pwr. #38
11/6
Tri-State Gen. $ Trans. #37
11/6
United Power Assn. #86
11/6
United Power Assn. #122
Hillsborough $ Montgomery Tele .#48 11/8
11/8
Central Iowa Power #51
11/9
Sierra Telephone Co. #59
11/9
Gulf Telephone Co. #50
11/9
Allegheny Elect. Coop. #93
11/9
Wabash Valley Power #104
11/13
Murraysville Tele. Co. #24
11/13
Wolverine Electric Coop. #100
11/13
Northern Michigan Elect. #101
11/15
Arizona Electric Power #60
11/15
Arizona Electric Power #103
11/16
#6
3,000,000.00
4,500,000.00
17,300,000.00
9,308,000.00
855,000.00
90,000.00
1,100,000.00
1,300,000.00
213,000.00
932,000.00
120,000.00
120,000.00
2,459,000.00
501,000.00
1,177,065.00
1,305,000.00
1,668,000.00
1,476,000.00
1,824,000.00
3,000,000.00
12/31/12
12/31/12
11/3/80
12/31/80
11/6/80
12/31/80
12/31/12
12/31/12
12/31/12
12/31/12
11/9/80
12/31/12
12/31/12
12/31/12
11/13/80
11/13/80
11/13/85
12/31/12
12/31/12
12/31/12
9.062%
9.062%
9.595%
9.495%
9.665%
9.585%
8.951%
8.951%
8.978%
8.978%
9.665%
8.983%
8.983%
8.983%
9.635%
9.635%
8.995%
8.936%
8.936%
8.871%
Colombia #2
Greece #9
Liberia #2
Peru #3
Jordan #2
Colombia #1
Honduras #2
Malaysia #3
Morocco #4
Colombia #2
Ecuador #3
Korea #8
Spain #2
Thailand #2
Indonesia #3
Israel #6
Ecuador #2
Jordan #3
Kenya #5
Tunisia #4
Colombia #2
Spain #1
Peru #2
Colombia #1
Jordan #2
Jordan #3
Spain #2
Peru #2
Colombia #2
Haiti #1
General Services Administration
Series M-039 11/9 7,540,730.23
Series L-048
National Railroad Passenger Corp. (Amtrak)
Note
Note
Note
Note
Note
#17
#17
#17
#17
#17
Rural Electrification Administration
8.962% quarterly
8.962%
9.483%
9.385%
9.551%
9.473%
8.853%
8.853%
8.879%
8.879%
9.551%
8.884%
8.884%
8.884%
9.522%
9.522%
8.896%
8.838%
8.838%
8.775%
On November 22, FFB purchased a total of $7,230,000
in debentures issued by 10 small business investment
companies. These debentures are guaranteed by the Small
Business Administration, and mature in 3, 5, 7, and 10 years.
The 3-year rate is 9.025%, the 5-year rate is 8.915%, and
the 7-year and 10-year rate is 9.025%.
FFB provided Western Union Space Communications, Inc.,
with the following advances, which mature October 1, 1989
and carry annual interest rates.
Interest
Date
Amount
Rate
11/1 $5,900,000 9.474%
11/20
7,900,000
9.124%
11/30
1,700,000
9.317%
These advances are part of FFB's $687 million financing of
a satellite tracking system to be constructed by Western Union
and used by the National Aeronautics and Space Administration,
which guarantees repayment of these advances.
Under notes guaranteed by the Rural Electrification
Administration, FFB advanced a total of $82,614,565.00 to
22 rural electric and telephone systems. Details of individual advances are included in the attached activity table.
FFB made 30 advances on existing loans to 18 governments
totalling $108,912,770.55 under the foreign military sales
program. These advances are guaranteed by the Department of
Defense.
Agency Issues
The Tennessee Valley Authority sold FFB a $45 million
note on November 15, and a $640 million note on November 30.
The notes mature February 28, 1979, and carry rates of
9.201% and 9.452%, respectively. Of the total $685 million
financed, $555 million refunded maturing securities, and $130
million raised new cash.
In its weekly short-term FFB borrowings, the Student
Loan Marketing Association (SLMA), a Federally-chartered
private corporation which borrows under a Department of
Health, Education and Welfare guarantee, raised $60 million
in new cash, and refunded $240 million in maturing securities
FFB holdings of SLMA notes now total $835 million.
FFB Holdings
As of November 30, FFB holdings totalled $49.6 billion.
FFB Holdings and Activity Tables are attached.
FEDERAL FINANCING
BANK
November 1978 Activity
BORROWER
:
:
: DATE :
AMOUNT
OF ADVANCE
:
:INTEREST:
INTEREST
: MATURITY : RATE :
RATE
(other than s/a)
Department of Defense
Colombia #2
Greece #9
Liberia #2
Peru #3
Jordan #2
Colombia #1
Honduras #2
Malaysia #3
Morocco #4
Colombia #2
Ecuador #3
Korea #8
Spain #2
Thailand #2
Indonesia #3
Israel #6
Ecuador #2
Jordan #3
Kenya #5
Tunisia #4
Colombia #2
Spain #1
Peru #2
Colombia #1
Jordan #2
Jordan #3
Spain #2
Peru #2
Colombia #2
Haiti #1
450,000.00
11/1
$
8,071,011.00
11/1
62,535.73
11/1
1,060,216.00
11/1
275,377.00
11/2
605,094.08
11/3
86,734.50
11/6
82,268.68
11/6
16,401,800.00
11/6
320,298.00
11/8
439,494.50
11/8
96,624.39
11/9
3,067,775.00
11/9
469,539.55
11/9
77,723.73
11/14
47,841,278.66
11/14
2,689,920.17
11/15
991,800.00
11/15
4,400,000.00
11/15
726,187.00
11/15
1,303,292.00
11/21
941,531.00
11/21
569,658.24
11/22
177,291.98
11/27
540,138.00
11/27
11/27
62,962.98
15,912,033.61
11/27
641,664.75
11/29
346,020.00
11/30
202,500.00
11/30
9/20/84
5/3/88
6/30/83
4/10/84
11/26/85
6/30/83
10/7/82
3/20/84
9/10/86
9/20/84
8/1/85
12/31/86
9/15/88
6/30/83
9/20/86
1/12/08
8/25/84
12/31/86
12/15/87
10/1/85
9/20/84
6/10/87
4/1/84
6/30/83
11/26/85
12/31/86
9/15/88
4/1/84
9/20/84
3/12/83
9.443%
9.271%
,531%
.478%
.074%
.298%
.454%
,252%
9.106%
9.221%
9.173%
9.109%
9.078%
9.356%
9.126%
8.956%
9.196%
9.097%
9.072%
9.141%
9.044%
8.973%
9.111%
9.44%
9.245%
9.203%
9.124%
9.36%
9.294%
9.432%
7,540,730.23
1,159,152.20
7/31/03
11/15/04
8.964%
8.951%
3,500,000.00
5,000,000.00
4,000,000.00
2,000,000.00
2,500,000.00
2/16/79
2/16/79
2/16/79
2/16/79
2/16/79
8.635%
8.435%
9.305%
9.355%
9.435%
3,000 ,000.00
4,500 ,000.00
17,300 ,000.00
9,308 ,000.00
855 ,000.00
90 ,000.00
1,100 ,000.00
1,300 ,000.00
213 ,000.00
932 ,000.00
120 ,000.00
120 ,000.00
2,459 ,000.00
501 ,000.00
1,177 ,065.00
1,305 ,000.00
1,668 ,000.00
1,476 ,000.00
1,824 ,000.00
3,000 ,000.00
12/31/12
12/31/12
11/3/80
12/31/80
11/6/80
12/31/80
12/31/12
12/31/12
12/31/12
12/31/12
11/9/80
12/31/12
12/31/12
12/31/12
11/13/80
11/13/80
11/13/85
12/31/12
12/31/12
12/31/12
9.062%
9.062%
9.595%
9.495%
9.665%
9.585%
8.951%
8.951%
8.978%
8.978%
9.665%
8.983%
8.983%
8.983%
9.635%
9.635%
8.995%
8.936%
8.936%
8.871%
General Services Administration
Series M-039
Series L-048
11/9
11/15
National Railroad Passenger Corp. (AmtrakJ
Note
Note
Note
Note
Note
#17
#17
#17
#17
#17
11/17
11/20
11/27
11/28
11/30
Rural Electrification Administration
U/l
United Power Assn. #6
U/l
United Power Assn. #67
11/3
Basin Elect. Pwr. Coop. #87
11/3
Tri-State Gen. $ Trans. #89
11/6
Southern Illinois Pwr. #38
11/6
Tri-State Gen. S Trans. #37
11/6
United Power Assn. #86
11/6
United Power Assn. #122
Hillsborough $ Montgomery Tele .#48 11/8
11/8
Central Iowa Power #51
11/9
Sierra Telephone Co. #59
11/9
Gulf Telephone Co. #50
11/9
Allegheny Elect. Coop. #93
11/9
Wabash Valley Power #104
11/13
Murraysville Tele. Co. #24
11/13
Wolverine Electric Coop. #100
11/13
Northern Michigan Elect. #101
11/15
Arizona Electric Power #60
11/15
Arizona Electric Power #103
11/16
United Power Assn. #6
8.962% quarter]
8.962%
9.483%
9.385%
9.551%
9.473%
8.853%
8.853%
8.879%
8.879%
9.551%
8.884%
8.884%
8.884%
9.522%
9.522%
8.896%
8.838%
8.838%
8.775%
FEDERAL FINANCING BANK
November 1978 Activity
Page 2
BORROWER
AMOUNT
OF ADVANCE
: INTEREST: INTEREST
RATE
MATURITY : RATE :
(other than s/a)
11/17
11/20
11/20
11/20
11/21
11/21
11/22
11/22
11/22
11/22
11/27
11/30
11/30
1,160,000.00
1,584,000.00
4,340,000.00
3,780,000.00
181,000.00
33, 500.00
2,526,000.00
5,000,000.00
7,243,000.00
824,000.00
1,321,000.00
1,937,000.00
268,000.00
169,000.00
12/31/12
11/17/80
11/20/80
11/20/80
12/31/12
1/31/81
12/31/12
12/31/12
11/22/80
11/24/80
11/24/80
12/31/80
12/31/12
11/30/83
8.864%
9.385%
9.365%
9.365%
8.865%
9.235%
8.873%
8.885%
9.405%
9.405%
9.405%
9.725%
8.972%
9.105%
11/22
11/22
11/22
11/22
11/22
11/22
11/22
11/22
11/22
11/22
350,000.00
200,000.00
650,000.00
300,000.00
650,000.00
500,000.00
1,000,000.00
280,000.00
300,000.00
3,000,000.00
11/1/81
11/1/81
11/1/81
11/1/83
11/1/83
11/1/85
11/1/88
11/1/88
11/1/88
11/1/88
9.025%
9.025%
9.025%
8.915%
8.915%
8.895%
8.895%
8.895%
8.895%
8.895%
11/8
11/14
11/21
11/28
85,000,000.00
90,000,000.00
85,000,000.00
40,000,000.00
2/6/79
2/13/79
2/20/79
2/27/79
9.492%
9.03%
9.138%
9.639%
11/15
11/30
45,000,000.00
640,000,000.00
2/28/79
2/28/79
9.2011
9.4521
1,336,004.00
11/3
663,961.00
11/8
1,035,223.00
11/13
313,096.00
3/1/89
11/15/97
11/15/91
12/10/93
9.222%
8.905%
9.027%
9.054%
750,000.00
12/26/90
8.125%
5,900,000.00
7,900,000.00
1,700,000.00
10/1/89
10/1/89
10/1/89
9.26%
8.925%
9.11%
DATE
Rural Electrification Administration (cont.)
Colorado-Ute Electric #78 11/17 !
Western Illinois Power $99
Big River Electric #58
Big River Electric #91
Colorado-Ute Elect. #78
United Telephone Co. #25
Pacific Northwest Generating #118
Dairyland Power #36
East Kentucky Power #73
South Mississippi Elect. #4
South Mississippi Elect. #90
Tri-State Gen. § Trans. #79
Gulf Telephone Co. #50
Basin Electric Power #88
8.768% quarterly
9.277%
9.258%
9.258%
8.769%
9.131%
8.777%
8.788%
9.297%
9.297%
9.297%
9.61%
8.874%
9.004%
Small Business Investment Companies
Beneficial Capital Corp.
Capital for Terrebonne, Inc.
Greater Washington Investors, Inc
Diman Financial Corp.
Greater Washington Investors, Inc
First Idaho Investment Corp.
Builders Capital Corp.
Realty Growth Capital Corp.
Tamco Investors (SBIC), Inc.
Washington Capital Corp.
Student Loan Marketing Association
Note #169
Note #170
Note #171
Note #172
Tennessee Valley Authority
Note #86
Note #87
Department of Transportation
Chicago § North Western Trans. 11/1
Missouri-Kansas-Texas Railroad
The Milwaukee Road
Chicago, Rock Island5 Pacific RR
9.435%
8.808%
9.231%
9.259%
annually
quarterly
annually
annuallv
United States Railway Association
Note #13 11/17
Western Union Space Communications, Inc.
(NASA)
11/1
11/20
11/30
9.474% annually
9.124%
9.317%
FEDERAL FINANCING BANK HOLDINGS
(in millions of dollars)
November 30, 1978
Program
Net Change
(10/31/78-11/30/78)
Net Change-FY 1979
(10/1/78-11/31/78)
November 30. 1978
October 31. 1978
$ 5,500.0
6,568.3
$ 5,370.0
6,568.3
2,114.0
355.7
2,114.0
354.9
-0.8
-0-1.1
23,050.0
57.0
163.7
40.1
637.7
108.9
23,050.0
57.0
163.7
40.1
637.7
110.0
-0-0-0-0-0-1.1
775.0
-0-0-0-0-3.2
17.5
46.2
4,137.7
289.2
36.0
38.5
17.5
42.8
4,028.8
280.5
36.0
38.5
-03.3
108.9
8.7
-0-0-
-010.4
159.8
19.1
-0-0-
429.2
271.6
4,489.4
260.6
835.0
21.8
177.0
412.2
256.1
4,406.8
253.7
775.0
21.8
177.0
17.0
15.5
82.6
6.9
60.0
-0-0-
-105.2
35.1
297.8
10.0
90.0
-0-0-
$49,212.5*
$432.7*
$1 ,567.6*
On-Budget Agency Debt
Tennessee Valley Authority
Export-Import Bank
$
130.0
-0-
$
280.0
-0-
Off-Budget Agency Debt
U.S. Postal Service
U.S. Railway Association
Agency Assets
Farmers Home Administration
DHEW-Health Maintenance Org. Loans
DHEW-Medical Facility Loans
Overseas Private Investment Corp.
Rural Electrification Admin.-CBO
Small Business Administration
Government Guaranteed Loans
DOT-Emergency Rail Services Act
DOT-Title V, RRRR Act
DOD-Foreign Military Sales
General Services Administration
Guam
DHUD-New Communities Admin.
Nat'l. Railroad Passenger Corp.
(AMTRAK)
NASA
Rural Electrification Administration
Small Business Investment Companies
Student Loan Marketing Association
Virgin Islands
WMATA
TOTALS
$49,645.1*
Federal Financing Bank
^Totals do not add due to rounding.
December '
H, 1978
FOR RELEASE AT 4:00 P.M.
January 2, 1979
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 11, 1979.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,712 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
October 12, 1978,
and to mature
April 12, 1979
(CUSIP No.
912793 X8 4 ) , originally issued in the amount of $3,410 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $2,900 million to be dated
January 11, 1979,
and to mature
July 12, 1979
(CUSIP No.
912793 2B 1) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing January 11, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,287
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. 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, 8, 1979.
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-1328
-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 bookentry records of Federal Reserve Banks and Branches. 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
must be made or completed at the Federal Reserve Bank or Branch
or at the Bureau of the Public Debt on January 11, 1979, in cash
or other immediately available funds or in Treasury bills maturing
January 11, 1979.
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, 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.
RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $3,200 million of 52-week Treasury bills to be dated
January 9, 1979, and to mature January 8, 1980, were accepted at the
Federal Reserve Banks and Treasury today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS: (Excepting 2 tenders totaling $915,000)
Investment Rate
Price
Discount Rate
(Equivalent Coupon-Issue Yield)
High - 90.313 9.581% 10.48%
Low
- 90.261
9.632%
Average - 90.288
9.605%
10.54%
10.51%
Tenders at the low price were allotted 69%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Received
Accepted
$
23,290,000
4,631,925,000
2,815,000
40,990,000
18,195,000
22,115,000
338,130,000
35,615,000
17,240,000
36,405,000
10,060,000
166,630,000
$
23,290,000
2,801,625,000
2,815,000
30,990,000
18,195,000
18,805,000
158,130,000
21,615,000
17,240,000
31,405,000
10,060,000
60,630,000
Treasury
5,420,000
5,420,000
TOTAL
$5,348,830,000
$3,200,220,000
The $3,200 million of accepted tenders includes $178 million of
noncompetitive tenders from the public and $1,290 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 $ 498 million of the bills will be issued to Federal
Reserve Banks as agents of foreign and international monetary authorities
for new cash.
B-1329
FOR IMMEDIATE RELEASE
January 4, 1979
Contact:
Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES START OF ANTIDUMPING
INVESTIGATION OF ACRYLIC YARN FROM JAPAN
The Treasury Department today said that it will begin an
antidumping investigation on imports of acrylic yarn from
Japan.
Treasury's announcement followed a summary investigation
conducted by the U. S. Customs Service after receipt of a
petition on behalf of the American Yarn Spinners Association,
Gastonia, N. C , alleging that this merchandise is being
"dumped" in the United States.
The petition indicates that acrylic yarn imported from
Japan is being sold here for less than in the home market.
The petition also alleges that sales have occurred at prices
below the cost of production in Japan. If there are not
enough sales of the product in Japan at above cost to constitute a viable home market, the Treasury Department
investigation will use the prices at which the yarn is sold
to a third country. Should above-cost, third-country sales
also be inadequate, "fair value" will be constructed by using
cost-of-production information from Japan.
This product is the subject of a voluntary marketing
agreement with Japan (which expired as of December 1978 but
may be renewed), and imports did not exceed the ceilings in
the agreement. Nevertheless, Treasury noted that such agreements do not prevent the imposition of antidumping duties on
products sold at less than fair value if they injure or threaten
injury to a domestic industry.
The petition includes information that the U. S. industry
is being injured by the "less than fair value" imports. If
Treasury finds such sales, the U. S. International Trade
Commission will subsequently decide whether there is injury or
likelihood of injury to a domestic industry.
Notice of this action appears in the Federal Register
of January 4, 19 79.
Imports of this merchandise from Japan amounted to approximately $10,500,000 during calendar year 1977.
B-1330
o
0
o
FOR IMMEDIATE RELEASE
January 4, 1979
RESULTS OF AUCTION OF 15-YEAR 1-MONTH TREASURY BONDS
The Department of the Treasury has accepted $1,502 million of
$3,255 million 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 8.99%Highest yield
Average yield
9.01%
9.00%
The interest rate on the bonds will be 9%. At the 9% rate,
the above yields result in the following prices:
Low-yield price 100.045
High-yield price
Average-yield price
99.882
99.963
The $1,502 million of accepted tenders includes $351 million of
noncompetitive tenders and $1>151 million of competitive tenders from
private investors, including 43% of the amount of bonds bid for at the
high yield.
1/ Excepting 1 tender totaling $1,000
B-1331
CONTACT:
ROBERT W. OLTLDERS
(202) 634-5248
FOR IMMEDIATE RET .EASE January 8, 1979
REVENUE SHARING FUNDS DISTRIBUTED
The Department of Treasury's Office of Revenue Sharing
(ORS) distributed more than $1.7 billion in general revenue
sharing payments today to nearly 3£T,500 State and local governments.
Current legislation authorizes the Office of Revenue
Sharing to provide quarterly revenue shaping payments to State
and local governments through the end of Federal fiscal year
1980.
- 30 -
B-1332
<p»t»>"«°iti"TREA$URY
\rm,m*ttfll
TELEPHONE S68-2041
FOR IMMEDIATE RELEASE
January 5, 19 78
Contact:
Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT ANNOUNCES FINAL
COUNTERVAILING DUTY DECISION ON BICYCLE
TIRES AND TUBES FROM TAIWAN
The Treasury Department today announced its final
t T ? ^ 10 S t h ^ e x P ° r t e r s o f bicycle tires and tunes
n
fubsid
° r e c e i v e b e n efits that constitute a
The countervailing duty law requires the Secretary
of the Treasury to collect an additional duty equal to
any subsidy on merchandise exported to the United States.
Treasury found that certain Taiwanese manufacturers/
exporters did receive benefits on the manufacture or exportation of bicycle tires and tubes, but that those benefits
were so small that they were considered legally de minimis.
Notice of this determination will appear in the Federal
Register of January 8, 19 79.
Imports of bicycle tires and tubes from Taiwan amounted
to S15.3 million during calendar year 1977.
B-1333
^'TREASURY
, D.C. 20220
TELEPHONE 560-2O4T
FOR IMMEDIATE RELEASE
January 5, 1978
Contact:
Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES FINAL COUNTERVAILING
DUTY DECISION ON CERTAIN FISH FROM CANADA
The Treasury Department today announced its final determination that exporters of certain fish from Canada receive
benefits that constitute a subsidy. Both dutiable and dutyfree fish are included in this determination.
The countervailing duty law requires the Secretary of the
Treasury to collect an additional duty equal to any subsidy
paid on merchandise exported to the United States.
However, countervailing duties on the dutiable fish originating in the Atlantic regions of Canada (Newfoundland, Prince
Edward Island, Nova Scotia, New Brunswick, and Quebec) have been
waived because of actions by the Government of Canada to reduce
significantly the subsidy given fish exporters and because of
the importance of Canada in the Multilateral Trade Negotiations.
The case involving duty-free fish has been referred to the
U. S. International Trade Commission to determine whether the
subsidized imports are injuring or threatening to injure a U. S.
industry. If a negative determination is made, the case will be
closed; but even if an affirmative determination is made, the
Treasury has indicated it will waive duties if it then has the
authority to do so for the limited period needed for Congressional
consideration of the results of the Multilateral Trade Negotiations
Fish originating in the rest of Canada have been determined
to receive benefits that are de minimis, so no action will be
taken with respect to such imports.
Notice of this determination was published in the Federal
Register of January 5, 19 79.
In 19 77, imports of the duty-free groundfish under investigation were valued at $5.8 million and those of the shellfish
under investigation at $77.8 million. The import value of the
dutiable fish in 1977 was $150,000.
B-1334
mm
ymmentoftheTREASURY
BHINGTON,D.C. 20220
TELEPHONE 566-2041
FOR IMMEDIATE RELEASE
January 8, 1979
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,800 million of 13-week Treasury bills and for $2,900 million
of 26-week Treasury bills, both series to be issued on January 11, 1979,
were accepted at the Federal Reserve Banks and Treasury today. The details are
as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
High
Low
Average
a/
13-week bills
maturing April 12, 1979
26-week bills
maturing July 12, 1979
Price
Discount
Rate
Investment
Rate 1/
Price
97.651
97.643
97.645
9.293%
9.324%
9.316%
9.65%
9.68%
9.67%
95.240^ 9.415%
95.218
9.459%
95.226
9.443%
Discount
Rate
Investment
Rate 1/
10.02%
10.07%
10.05%
Excepting 1 tender of $25,000
Tenders at the low price for the 13-week bills were allotted 87%.
Tenders at the low price for the 26-week bills were allotted 71%.
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
Ac cepted
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$
35,970,000
4,527,655,000
23,495,000
38,230,000
33,685,000
57,105,000
258,560,000
37,215,000
13,350,000
43,865,000
17,425,000
182,250,000
$
Treasury
TOTALS
21,140,000
$5,289,945,000
34,955,000
2 ,378,620,000
23,495,000
34,990,000
33,685,000
53,950,000
62,055,000
19,215,000
4,350,000
41,865,000
17,425,000
74,550,000
: Received
'$
•
21,140,000 :
53,475,000
$
28,600,000
4 ,020,420,000
2 ,388,670,000
11,780,000
30,770,000
26,750,000
34,135,000
200,820,000
29,705,000
13,665,000
34,030,000
12,485,000
177,240,000
11,780,000
25,770,000
26,750,000
34,135,000
135,820,000
16,705,000
13,665,000
34,030,000
12,485,000
143,230,000
28,505,000
28,505,000
$2, 800,295,000b/ $4 ,673,780,000
b/lncludes $511,595,000 noncompetitive tenders from the public.
.9/Includes $375,050,000 noncompetitive tenders from the public.
^/Equivalent coupon-issue yield.
B-1335
Accepted
$2 ,900,145,000c
HOLD FOR RELEASE
2 PM - January 10, 1979
Contact:
Carolyn Johnston
(202) 634-5377
SAVINGS BONDS CHANGES ANNOUNCED BY SECRETARY BLUMENTHAL
Treasury Secretary W. Michael Blumenthal today
announced the introduction of new EE and HH U.S.
Savings Bonds to replace the current E and H bonds
effective January 2, 1980, a new exchange offering,
and a decision on further extensions for outstanding
bonds.
The announcement came at the annual Washington
luncheon of the U.S. Industrial Payroll Savings Committee,
a group of 60 major industrial leaders who volunteer
their support to the savings bonds program.
The Secretary said the program changes underline
the Treasury's interest in strengthening savings bonds
as a vital part of its debt management operations.
Bonds provide the Treasury with a stable source of
funds from millions of citizens, and also provide
Americans at all economic levels with an opportunity
to save in a safe and convenient manner.
B-1336 (more)
- 2 -
The present E and H bonds will continue to be sold
at banks and other savings institutions until December 31,
1979.
Payroll sales of E bonds will be converted to the
new series E in the period from January 2 to June 30, 1980.
SERIES EE BONDS
The series EE bond --so named because it will
double in value between its purchase and maturity
dates -- will have these new features:
-- the purchase price will be one-half the face
value, e.g., $25 will buy a $50 (face.value) bond.
-- the lowest available denomination will be
$50, face value.
Other denominations will be $75,
$100, $200, $500, $1,000, $5,000 and $10,000.
-- the interest rate of 6 percent (for 5 or
more years) remains, while the term to maturity will
be 11 years and 9 months.
-- the annual limitation on purchases will increase from the present $7,500 (issue amount) to
$15,000 (issue amount).
-- the new EE bonds will be eligible for
redemption six months after issue.
-- the requirement that a bond beneficiary must
consent to a change in the bond will be eliminated.
Although the familiar $25 savings bond ($18.75
purchase price) will no longer be available,
( more )
- 3-
the new series EE $50 bond can be purchased for $25,
an increase of only $6.25 in the minimum purchase price.
SERIES HH BONDS
The series HH bond will have these new features,
as compared to the present H bond:
-- interest payments will be a level 6 percent
from day of issue, rather than the present graduated
scale.
-- bonds purchased for cash (rather than through
exchange of other savings bonds and notes) will be
subject to an interest penalty if redeemed before
maturity.
-- the annual purchase limitation will be
increased from $10,000 (face amount) to $20,000 (face
amount.)
The new series HH bonds can be bought for cash
or obtained in exchange for the present series E bonds
or savings notes, singly or in combination, in multiples
of $500. The new HH bond will have the same maturity
period as the H bond --10 years -- and the same
denominations, which range from $500 to $10,000.
(more)
. 4 -
OUTSTANDING SERIES E AND H BONDS
Changes which affect owners of the present E and
H bonds are:
• -- the earliest E bonds -- bought between 1941
and April 1952 -- will not be extended again when they
fall due between 1981 and April 1992, after 40 years
of interest-bearing life.
-- all outstanding series E bonds and savings
notes bought after April 1952 will receive a further
10-year extension. The Treasury Department intends
this to be the final extension for bonds bought from
May 1952 through November 1965.
-- series H bonds bought from June 1952 through
May 1959 will receive no further extensions. These
bonds reach final maturity between February 1982 and
May 1989.
-- series H bonds bought after June 1959 will
receive another 10-year extension, for a total bond
life of 30 years. The Treasury Department intends this
to be the final extension for these bonds.
-- owners of E bonds and savings notes can exchange
them for the new HH bonds after they go on sale
January 2, 1980. This can be done up to a year after
final maturity of the old E bonds. This exchange carries
(more)
- 5-
the same tax-deferral privilege as the present E to H
bond exchange.
ROLE OF SAVINGS BONDS
Secretary Blumenthal said announcement of the
changes should dispel any uncertainty about the
Treasury's position on the final maturity of outstanding E and H bonds. Holders of the 1941-52
series E bonds will thus have the opportunity to
decide well in advance of their bonds' final maturities
whether to redeem them for cash or exchange them for
HH bonds.
Approximately one out of three American households now own savings bonds, and more than 16 million
people buy them yearly. About $80.7 billion in savings
bonds and savings notes are now outstanding. Bond
sales during 1978 exceeded $8 billion, for the highest
sales since World War II.
Detailed questions and answers on changes in the
savings bonds program are attached.
-- USSB --
THE ENCLOSED MATERIAL
ON UNITED STATES SAVINGS BONDS
COVERS QUESTIONS AND ANSWERS
IN FOUR SEPARATE AREAS OF INTEREST:
Series E and EE Savings Bonds
. E-l through E-ll
Series H and HH Savings Bonds H-l through H-6
The Exchange Offering EX-1 through EX-5
Extensions of E and H Bonds
and Savings Notes
EXT-1 through EXT-3
E-l
Q.
Is the Treasury planning to make any major changes in
the U. S. Savings Bond Program?
A. After a comprehensive review of the Program, the Secretary
has approved these changes:
1. A new accrual type bond, to be called "Series EE",
will be offered for sale, beginning January 2, 1980.
The Series E bond will be withdrawn from sale over-thecounter as of December 31, 1979, and on payroll issues
no later than June 30, 1980.
2.
A new current income bond, to be called "Series HH",
will be offered for sale, beginning January 2, 1980,
to replace the Series H bond, which will be withdrawn
from sale as of December 31, 1979.
3. A new exchange offering will be introduced on January 2,
1980, to permit owners of Series E bonds, savings notes
(Freedom Shares) and Series EE bonds to exchange their
securities in multiples of $500 for Series HH bonds.
The present E for H exchange offering will be terminated
as of December 31, 1979.
4.
Series E savings bonds with issue dates from May 1941
through April 1952 will not be extended again. This
group of bonds will reach final maturity over a period
of 11 years -- from May 1981 through April 1992 -exactly 40 years after their respective issue dates.
E-2
5.
Series H savings bonds with issue dates from June
1952 through May 1959 will not be extended again.
This group of bonds will reach final maturity over
a period of more than seven years -- from February
1982 through May 1989.
6.
An additional 10-year extension will be given to
unredeemed (i) Series E bonds issued after April
-1952; (ii) all U. S. Savings Notes (Freedom Shares);
and (iii)
Series H Bonds issued after May 1959.
How will the new Series EE Bond differ from the present
Series E Bond?
The new Series EE. Bond will have:
* a longer term to original maturity -- 11 years, 9 months
instead of 5 years
* a higher minimum denomination -- $50 instead of $25
* a more deeply discounted purchase price -- 507o of face
amount instead of 757o of face amount (for example a
$100 denomination bond will sell for $50 instead of $75)
* a longer minimum retention period during which the bond
may not be redeemed -- 6 months after issue instead of
2 months after issue
* a higher annual purchase limitation -- $15,000 issue
price instead of $7,500 issue price.
See page E-llfor a comparison char,t of the Terms and
Conditions of the two series.
E-3
Q.
Why does the Treasury wish to make changes in the Savings
Bonds Program?
Aren't the present Savings Bonds selling
well?
A.
They are selling very well.
The 1978 Savings Bond
sales were the highest since World War II. More than
4.3 billion Series E and H Bonds have been issued. About
706.5 million are still outstanding and their redemption
value exceeds $80 billion.
However, the Program has not been changed significantly
since 1941 and the administrative costs, particularly
for E Bonds have risen substantially.
The Department has
reviewed the Program to identify ways in which it might
be strengthened and ways in which costs might be reduced.
The changes which have been announced are designed to
make the Program more cost effective while retaining
or improving those features which have made savings bonds
attractive.
E-4
What changes will reduce the costs of the Savings Bonds
Program?
First, an increase in minimum denomination.
In the 38
years that the E bond has been on sale, the minimum
denomination has never been raised above $25, with an
issue price of $18.75, although
the cost of processing
each bond has risen considerably in that time.
An increase
in the minimum denomination for the Series EE bond will
reduce the number of bonds that must be issued in relation
to the dollars that are borrowed.
Second, the lengthening of the minimum retention period.
A relatively large number of Series E Bonds are redeemed
within the first five months after purchase.
This is
inconsistent with the Savings Bond Program's goals of
encouraging savings and producing stable, low-cost debt
financing.
A six-month retention period will encourage
the serious savers to buy and hold Series EE Bonds and
will help to reduce borrowing costs.
Third, the termination of further extensions for the
early issues of Series E and H bonds.
This will make
it possible for the Treasury to initiate a plan for a
systematic reduction in the 12 billion Series E and H
Bond records now maintained by the Bureau of the Public
Debt.
E-5
Q. What will the interest rate be for the new Series EE Bonds?
A. There will be no change from the present Series E Bond.
Both have a yield curve that is graduated to produce a
return of 4% after the first two months and 6% if held five
years.
On the Series EE Bonds, the rate will remain at a
straight 6%, compounded semiannually, for the remaining 6
years, 9 months, to maturity.
Q, Will the 6% interest rate on savings bonds go up in
future years?
A. We don't know.
The interest rates on Savings Bonds are
under continuous review and increases will depend on the
general interest rate picture and the economic outlook.
If the Secretary should conclude that a rise in the
interest rate is warranted,
be required.
Congressional approval will
E-b
The new EE Bonds will have a maturity date of 11 years
and 9 months.
Will there be any extensions to this?
No extension of the new Bonds is being promised at this
time.
As the EE bonds begin to approach maturity, the
Secretary will determine whether an extension is desirable.
What is the amount of Series EE Bonds that I can buy each
year?
A total of $15,000 (purchase price) per year. This is
double the current $7,500 limitation on Series E Bond
purchases.
The increase is consistent with increases in
the ceilings on Federally-insured savings in the private
sector.
E-7
How will I report interest from the new EE Bonds for
income tax purposes?
The same way you report interest on your current E
Bonds.
The interest on Savings Bonds is not subject to
state or local income taxes and Federal income tax
reporting can be deferred until the Bond is cashed or
reaches final maturity, whichever comes first.
If you
defer tax reporting until redemption or final maturity,
you must include in your Federal income tax return for
that yaar, the total amount of interest received, just
as you do with interest on sayings accounts.
The offering Circular, which will be published in the
Fall of 1979, will contain tables showing the amount of
interest earned.
Forms showing the redemption values
will be available from the Bureau of the Public Debt
or any Federal Reserve Bank or Branch.
Banks and other
financial institutions which pay bonds can also advise
Bond owners of the amount of interest included in the
redemption value of bonds that are cashed.
E-8
Q.
Will there be any changes in the forms of registration
authorized for savings bonds?
A.
No.
Series EE and HH may be registered in the same forms
as the Series E and H.
Bonds can be inscribed in the
name of two individuals as coowners.
can cash a bond.
Either coowner
If either dies, the bond becomes the
sole property of the surviving coowner.
Bonds can also be inscribed in the name of an individual
with another individual named as beneficiary.
owner can cash the bond during his lifetime.
Only the
If the
owner dies, the bond becomes the sole property of the
surviving beneficiary.
Bonds inscribed in the names of organizations or
fiduciaries must be in single ownership form without
a coowner or beneficiary.
Q. When and where can I buy the new Series EE Bonds?
A.
At banks and other financial institutions which are
qualified issuing agents for Savings Bonds.
However,
the Bonds do not go on sale over-the-counter until
January 2, 1980.
They will be available to payroll
savings purchasers sometime between January 2, 1980 and
June 30, 1980.
The exact time will depend upon when
the organization operating the payroll savings plan can
convert its system from Series E to Series EE.
will vary between organizations.
The time
E-9
Q.
Will the new EE Bonds look different from the current
E Bonds?
A.
The design and colors of the new bonds will be different,
but
the size and weight of the paper will remain
unchanged.
Q. What about buying U.S. Savings Bonds in 19 79?
A. The current Series E and H Savings Bonds will remain on
sale over-the-counter through December 31, 1979.
Series E bonds will be available to employees purchasing
through payroll plans until the employing organization
has been able to convert to the sale of Series EE bonds,
which must be accomplished no later than June 30, 1980.
Q-
Is there any advantage to me in postponing Bond purchases
during 1979 and waiting for the new Bonds that will be
offered in 1980?
A. No. The interest rate will be the same and you would
lose up to a year's interest on your savings by not
buying in 1979.
E-10
What are some advantages to buying U.S. Savings Bonds?
They are an absolutely secure form of investment -- bonds
that are lost, stolen or destroyed will be replaced upon
receipt and adjudication of a valid claim.
Locations for
purchasing and redeeming bonds are readily accessible
throughout the country.
guaranteed.
The return on Savings Bonds is
The interest is exempt from all state and
local taxes except inheritance, estate or gift taxes.
The reporting of interest on Series E and EE Bonds can be
deferred, for Federal income tax purposes, until the Bonds
reach final maturity, are redeemed or are otherwise disposed of.
The exchange offer for savings bonds permits owners to
exchange their accrual-type securities (Series E, EE and
savings notes) for current income bonds (Series H and HH)
and to continue to defer, for tax purposes, the reporting
of accrued interest until the Series H or HH bonds are
redeemed or reach final maturity.
This exchange offer
is especially attractive to Bond owners who want the
current income from semiannual interest checks to
supplement retirement income.
E-ll
COMPARISON OF TERMS AND CONDITIONS OF
SERIES E AND SERIES EE
ACCRUAL-TYPE SAVINGS BONDS
Series E Bonds
Series E E Bonds
Offering Date
Close over-the-counter sales
December 31,1979; close payroll
sales June 30,1980
Begin January 2, 1980; phase in
payroll sales through June 30, 1980
Denominations
$25, $50, $75, $100, $200, $500,
$1,000, $10,000, $100,000
$50, $75, $100, $200, $500, $1,000,
$5,000, $10,000
Issue Price
7 5 % of face amount
5 0 % of face amount
Maturity
5 years with guaranteed 10-year
extension
11 years and 9 months
Interest
Accrues through periodic increases in
redemption value to maturity
Same
Yield Curve
4 % after 2 months, 4.5% first year,
increases gradually thereafter to
yield 6 % if held 5 years
4 % after 2 months, 4.5% first year,
increases gradually thereafter to yield
6 % if held 5 or more years
Retention Period
Redeemable any time after 2 months
from issue date
Redeemable any time after 6 months
from issue date
Annual Limitation
$7,500 issue price
$15,000 issue price
Tax Status
Accruals subject to Federal income and
to estate, inheritance and gift taxes Federal and state - but exempt from all
other state and local taxes. Federal
income tax m a y be reported (1) as it
accrues, or (2) in year bond matures,
is redeemed or otherwise disposed.
Same
Registration
In names of individuals in single,
coownership or beneficiary form; in
names of fiduciaries or organizations
in single ownership only.
Same
Transferability
Not eligible for transfer or pledge as
collateral.
Same
Rights of Owners
Coownership: either owner m a y
redeem, both must join reissue request.
Beneficiary: only owner m a y redeem
during lifetime; both must join reissue
request.
Coownership: same.
Exchange Privilege
Eligible, alone or with savings notes, for
exchange for Series H bonds in multiples
of $500, with tax deferral privilege.
Beneficiary: same except that
consent of beneficiary to reissue
not required.
Eligible, alone or with Series E bonds
or savings notes, for exchange for
Series H H bonds in multiples of $500,
with tax deferral privilege.
H -1
How will the Series HH Bonds differ from the Series H
Bonds.
The Series HH will be similar to the Series H bond.
Both are current income bonds paying interest semiannually
by check. The term to maturity will be 10 years. The
denominations will be the same - $500, $1,000, $5,000
and $10,000. The HH bonds may also be purchased for
cash or in exchange for accrual bonds (E or EE) or savings
notes.
The major change will be in the payment of interest.
Series H bonds earn interest on a graduated scale which
starts at 4.2% and increases to provide an overall yield
of 6% if held to maturity. Series HH bond will pay
interest at a level 6%. However, bonds purchased for
cash will be paid at less than the face amount if they
are redeemed before maturity, and this will reduce the
overall yield. Bonds purchased on exchange will not be
discounted for early redemption.
Another significant change will be an increase in the
annual purchase limitation on Series HH bonds to
$20,000 (face amount), as compared with the $10,000
(face amount) limitation on Series H bonds.
See the chart on page H-6 for a comparison of the terms
and conditions of Series H and HH bonds.
H-2
Why is the yield structure being changed with the
new Series HH bonds?
The graduated interest scale that applies to Series H
bonds has generated many inquiries and complaints from
bondowners who do not understand that this scale
causes fluctuations in the amounts of their semiannual
interest checks. Series HH bondowners will receive
level interest payments.
A second reason for changing the yield structure is
that most bonds and notes being exchanged for current
income bonds are earning 6% at the time they are
exchanged. The level interest rate on the Series HH
bonds will permit bondowners to continue earning at
the 6% rate, rather than dropping back initially to
a lov/er yield.
H-3
Q.
Is there a difference between Series HH Bonds purchased
in exchange for accrual bonds and notes and HH Bonds
purchased for cash?
A.
Yes. Bonds issued oil exchange are excluded from the
annual purchase limitation'and they may carry a
notation that the purchase price includes accrued
interest on the bonds or notes exchanged.
They can also
be redeemed at face value at any time after six months
from the issue date. This insures a 6% return on the
Bonds through each semiannual interest period.
Bonds purchased for cash are subject to the annual
purchase limitation.
They can be redeemed at any time
after six months from the issue date; however, they will
be paid at less than the face amount if redeemed before
maturity (10 years).
The discount will constitute an
interest penalty that will reduce the overall yield on
the bonds.
H-4
Why are HH Bonds purchased for cash subject to an
interest penalty for redemption before maturity?
The interest rate on Savings Bonds has always been
graduated to discourage early redemption. In the case
of H Bonds, this was accomplished by adjusting the interest
payments. In the case of Series HH Bonds, interest payments will be a level 6%, so the interest adjustment for
early redemption will be made when the bonds are cashed.
Without the penalty HH bonds could be used by investors
to obtain a safe 6% interest return for as short a
period as six months, which would be unfair to similar
forms of savings offered by financial institutions.
»
The interest penalty will not be applied to HH Bonds
issued in exchange for other savings bonds and notes
because those securities have generally been held for
a number of years and are earning 6% when exchanged. The
HH Bonds are considered to be a continuation of the
original investment in savings bonds and notes and the
yield will not be reduced if they are redeemed before
maturity.
H-5
How do I report interest earned on HH Bonds for income
tax purposes?
Interest must be reported each year as it is paid, in
the same way interest on Series H bonds or bank deposits
is reported.
When I buy HH Bonds in exchange for E or EE Bonds or
savings notes, must I report the accrued interest on
the E or EE Bonds or notes, if I have deferred
reporting the amount on my Federal income tax returns?
No. If the HH Bond is bought in exchange for E or
EE Bonds or savings notes, the owner can continue to
defer reporting the accrued interest on those bonds
or notes for tax purposes until the HH Bonds finally
mature, are redeemed, or are otherwise disposed of.
When and where can I buy the new Series HH bonds?
Series HH bonds will be sold beginning January 2,
1980, by Federal Reserve Banks and Branches and by
the Bureau of the Public Debt. Applications may be
submitted in person or by mail. Most banks and other
financial institutions which now issue Series E bonds
will also forward Series HH bond applications to the
Federal Reserve Banks for issue.
H-6
COMPARISON OF TERMS AND CONDITIONS OF
SERIES H AND SERIES HH
CURRENT INCOME-TYPE SAVINGS BONDS
Series H Bonds
Series H H Bonds
Offering Date
Terminate December 31,1979
Begin January 2,1980
Denominations
$500, $1,000, $5,000, $10,000
Same
Issue Price
Face A m o u n t
Same
Maturity
10 years with guaranteed 10-year
extension
10 years
Interest
Payable semiannually by check
Same
Yield Curve
4.2% first 6 months, 5.8% next 4V*
years, 6.5% final 5 years to yield
6 % if held to maturity. During
extension, uniform payments based
on rate prevailing when bond enters
extended maturity.
Payments based on 6 % level rate,
however, bonds sold for cash will have
an interest penalty applied against
redemption value, if redeemed prior
to maturity. Bonds issued on
exchange will not be penalized for
early redemption.
Retention Period
Redeemable any time after 6 months
from issue date.
Same
Annual Limitation
$10,000 face amount
$20,000 face amount
Tax Status
Interest is subject to Federal income
tax reporting in year it is paid. Bonds
subject to estate, inheritance and gift
taxes - Federal and state - but exempt
from all other state and local taxes.
Same
Registration
In names of individuals in single,
coownership or beneficiary form; in
names of fiduciaries or organizations
in single ownership only.
Same
Transferability
Not eligible for transfer or pledge as
collateral.
Same
Rights of Owners
Coownership: either owner m a y
redeem; both must join reissue
request.
Beneficiary: only owner m a y redeem
during lifetime; both must join reissue
request.
Coownership: same.
Beneficiary: same except that
consent of beneficiary to reissue
not required.
Issuable on exchange from Series E
bonds and savings notes, in multiples
of $500, with continued tax deferral
privilege.
Issuable on exchange from Series E,
E E , and savings notes, in multiples
of $500, with continued tax deferral
privilege.
Exchange Privilege
EX-1
EXCHANGE OFFERING
Q. The Treasury is withdrawing the present Series E for
Series H exchange offering as of December 31, 19 79 and
introducing a new exchange offering on January 2, 1980.
Will there be any differences between the two offerings?
A. The present offering allows you to exchange Series E
bonds and savings notes (Freedom Shares) for Series H
bonds. The new offering will permit you to exchange
Series E bonds (until one year after final maturity),
Series EE bonds and savings notes for Series HH bonds.
Otherwise, the two offerings are the same. The new
exchange offering will carry the same tax-deferral
privilege as the present exchange. See the chart on
page EX-5 for a comparison of the terms and conditions
of the current and new exchange offering.
EX-2
Q.
Can you explain what the tax-deferral privilege means?
A. At the time you exchange securities for the new Series HH,
you may choose to continue deferring the reporting of
interest earned on the E and EE bonds or savings notes
for Federal income tax purposes.
The amount of deferred
interest will be entered on the face of the new HH bond.
When the Series HH bond is cashed or finally matures, you
must report the amount of deferred tax on your Federal
income tax return for that year.
The tax-deferral privilege only applies to interest earned
on Series E and EE bonds and savings notes.
You must report
each year for Federal income tax purposes, the amount of
interest earned in that year on Series H and HH bonds.
Q. Is there any limitation on the amount of Series E and
EE bonds and savings notes that can be exchanged for
Series HH.
A.
The redemption value of the securities being exchanged
must equal at least $500 (the minimum denomination for
Series HH). Beyond that, there is no limitation.
Q. Can I use a combination of bonds and notes to exchange
for a Series HH bond?
A.
Yes.
As long as all of the securities are still
eligible for exchange, you may use any combination of
Series E and EE bonds and savings notes to purchase a
Series HH bond.
EX-3
Q.
If the total redemption value of my Series E and EE bonds
and savings notes is almost $1,000, can I pay the
difference in cash to purchase a $1,000 Series HH bond?
A. Yes. You may add cash to the value of your accrual bonds
or notes to purchase HH Bonds, but the amount of cash
must be less than $500.
To buy a $1,000 HH Bond on
exchange, for example, your accrual bonds and notes must
be worth more than $500; to buy $2,500 in HH Bonds, the
value of the bonds and notes surrendered must exceed
$2,000.
Q. I have Series E bonds maturing in May 1981. Can I wait
until I retire in 1983 to exchange them for Series HH
bonds?
A.
No.
If you wish to exchange your E bonds}you must do
it no later than one year after maturity -- for your
bonds that would be May 1982. You may, of course, still
redeem your E bonds for cash after that time, but they
will not earn interest after their maturity date, May
1981.
Q. Can I exchange the Series H Bonds for new Series HH
Bonds?
A. No.
EX-4
Q.
Can I exchange Series E bonds or savings notes (Freedom
Shares) for the new Series EE bonds?
A. No.
Q, Where can I exchange E Bonds for H or HH Bonds?
A.
At Federal Reserve Banks or Branches or at the Bureau
of the Public Debt, Washington, D. C.
may be done by mail or in person.
20226. This
Commercial banks
cannot sell H or HH Bonds, but they may help their
customers prepare the exchange applications and forward
them to a Federal Reserve Bank.
Q. The present E and H Bonds will continue to be sold
through 1979. Under what conditions can E Bonds be
exchanged for H Bonds?
A.
Until December 31, 1979, E Bonds can be exchanged for H
Bonds, and the purchaser can defer reporting the E Bond
interest for Federal income tax purposes until the H
bonds are redeemed or finally mature.
The purchaser
must, of course, report interest earned on H bonds for
tax purposes in the year in which the interest is paid.
EX-5
COMPARISON OF THE TERMS AND CONDITIONS OF
CURRENT INCOME BOND EXCHANGE OFFERINGS
Series H Exchange
Series H H Exchange
Offering Date
Terminate December 31,1979
Begin January 2,1980
Eligible Securities
Series E Bonds and Savings Notes,
singly or in combination.
Series E Bonds, Savings Notes,
and Series E E Bonds, singly or in
combination; E Bonds must be
received no later than one year
following their final maturity date.
Minimum A m o u n t
$ 5 0 0 current redemption value of
accrual-type securities
Same
Annual Purchase
Limitation
Exempt
Same
Exchange Security
Series H Bonds including all terms
and conditions thereof.
Eligible Owners
Registered owners, coowners and
persons entitled as surviving beneficiaries or next of kin or legatees of
deceased owners.
Series H H Bonds, including all terms
and conditions thereof except that
bonds redeemed prior to maturity
will not be subject to the interest
penalty.
Same
Tax Treatment
Accrued interest on retired securities
m a y be (1) reported on Federal income
tax return for year of exchange (or
maturity, if earlier), or (2) deferred to
the taxable year in which the current
income bonds are redeemed, disposed
of or mature. A m o u n t of deferred
accruals will be shown on face of n e w
bonds.
Tax deferred: N e w bonds will be in
n a m e of owner and in same forms as
securities submitted except that
principal coowner, as defined in
Circular, m a y change, add or eliminate
coowner or beneficiary.
Non-tax deferred: A n y authorized form.
If securities submitted for exchange
have current value which is not an even
multiple of $500, subscriber m a y add
cash to reach next highest multiple or
receive payment of amount in excess
of next lower multiple. In the latter
case, amount of refund must be reported
currently for Federal income tax
purposes.
Registration of
Bonds Issued on
Exchange
Cash Adjustments
Same
Same
Same
EXT-1
EXTENSIONS, E AND H BONDS, SAVINGS NOTES
Series E Savings Bonds bought between May 1941 and
April 1952 will reach final maturity -- after 40 years -between May 1981 and April 1992. How many Savings Bonds
are we talking about?
Of the 1.4 billion E Bonds bought during those 11 years,
about 45 million are still outstanding. This is about 3%
of the bonds that were issued between May 1941 and April
1952.
EXT-2
Q. Will Savings Bonds and Savings Notes bought after May
1952 receive another extension to final maturity?
A. All outstanding E Bonds sold after May 1, 1952 will
receive another 10-year extension.
All outstanding H bonds bought after June 1959 will
receive another 10-year extension. H Bonds bought
earlier than June 1959 will not be extended beyond their
present second 10-year extension.
All Savings Notes (Freedom Shares) will receive another
10-year extension.
SERIES E EXTENDED MATURITIES
Date "of Issue
May
May
Feb.
June
Dec.
June
Dec.
1941-Apr.
1952-Jan.
1957-May
1959-Nov.
1965-May
1969-Nov.
1973-Dec.
1952
1957
1959
1965
1969
1973
1979
Date of Maturity
(including new extension)
May
Jan.
Jan.
Mar.
Dec.
Apr.
Dec.
1981- Apr.
1992- •Sept.
1996- •Apr.
1997- •Aug.
1992- •May
1995- •Sept.
1998- •Dec.
1992
1996
1998
2003
1996
1999
2004
Life of Bond
40
39
38
37
27
25
25
years
years,
years,
years,
years
years,
years
8 mos,
11 mos,
9 mos,
10 mos,
SERIES H EXTENDED MATURITIES
Date of Issue
June 1952-Jan. 1957
Feb. 1957-May 1959
June 1959-Dec. 1979
Date of Maturity
(including new extension)
Feb. 1982-Sept. 1986
Feb. 1987-May
1989
June 1989-Dec. 2009
Life of Bond
29 years,
30 years
30 years
8 mos,
SAVINGS NOTES EXTENDED MATURITIES
Date of Issue
May
1967-Oct. 1970
Date of Maturity
(including new extension)
Nov. 1991-Apr.
1995
Life of Note
24 years, 6 mos,
EXT-3
For example -- I bought E bonds in 1967.
Will I have
to cash them in, or will they stop earning interest in
1980?
No. Although the Series E bonds will be taken off sale on
December
31, 1979, your E-1967 bonds have a guaranteed
extension to 1994.
See the chart on page EXT-2 for the
guaranteed lifetime of all E bonds.
Is there any advantage to holding Series E or H bonds
beyond their final maturity dates?
No. Series E bonds will be eligible for exchange for
Series HH bonds until one year after the final maturity
date of the E bonds.
However, this provision was made as
a convenience to bondowners.
There is no financial
benefit to holding bonds beyond maturity since the bonds
cease to earn interest as of the maturity date and
interest is reportable for Federal income tax purposes
in the year in which the bonds mature, even if the bonds
are not redeemed.
FOR IMMEDIATE RELEASE
January 8, 1979
Contact:
Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES FINAL COUNTERVAILING
DUTY DETERMINATION ON OPTIC LIQUID LEVEL
SENSING SYSTEMS FROM CANADA
The Treasury Department today announced its final determination that Honeywell, Ltd., receives benefits that constitute a
subsidy on optic liquid level sensing systems exported from
Canada.
(Optic liquid level sensing systems are used primarily in
the petroleum industry to prevent the overfilling of storage
tanks and oil delivery trucks.)
The countervailing duty law requires the Secretary of the
Treasury to collect an additional duty equal to any "bounty or
grant" paid on merchandise exported to the United States. An
affirmative "Preliminary Countervailing Duty Determination" was
published in the Federal Register on June 13, 1978.
The Treasury Department determined that a portion of the
grants made to Honeywell, Ltd., by the Canadian Government under
its Program for the Advancement of Industrial Technology (PAIT)
constituted a subsidy that contributed to Honeywell's ability to
introduce the optic liquid level sensing system commercially.
The investigation revealed that the funds in question were
used between 19 75 and 1977 to finance commercial-feasibility
studies, prototype production, and the adaptation of prototype
production to full-scale production. Honeywell had previously
developed the concepts for such a device and had applied in
1973 for a patent covering its essential components.
In view of this, it was determined that the funding provided by PAIT constituted a subsidy on the production and export
of this product.
This determination does not address the question of how
government-assisted research and development of a more general
nature and more remote from commercial production would be
treated under the countervailing duty law. The ad valorem subsidy in this case was calculated at 9 percent of the dutiable
value of the imports.
Notice of the action was published in the Federal Register
of January 8, 19 79.
No public statistics regarding imports of optic liquid
level sensing systems manufactured by Honeywell, Ltd., are available.
B-1337______ -.,v
o
0
o
Apartment of the
IINGTON.O.C. 20220
TREASURY
TELEPHONE 566-2041
FOR RELEASE AT 4:00 P.M.
January 9, 1979
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 18, 1979.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,709 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
October 19, 1978,
and to mature April 19, 1979
(CUSIP No.
912793 X9 2 ) , originally issued in the amount of $3,394 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $2,900 million to be dated
January 18, 1979,
and to mature July 19, 1979
(CUSIP No.
912793 2C 9).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing January 18, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,413
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. 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 15, 1979.
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-1338
-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 bookentry records of Federal Reserve Banks and Branches. 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
must be made or completed at the Federal Reserve Bank or Branch
or at the Bureau of the Public Debt on January 18, 1979, in cash
or other immediately available funds or in Treasury bills maturing
January 18, 1979.
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, 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 10, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY TO IMPOSE COUNTERVAILING
DUTY ON CERTAIN BICYCLE TIRES AND
TUBE§ FROM KOREA
The Treasury Department today issued a final determination
that the Republic of Korea is subsidizing exports of bicycle
tires and tubes to the United States. As a result of the finding, Treasury will impose a countervailing duty on imports
manufactured by one company, Korea Inoue Kasel. The subsidies
received by the other Korean companies are de minimis, or so
inconsequential in size that they do not warrant the assessment
of countervailing duties.
(The Countervailing Duty Law requires the Treasury to
assess an additional customs duty equal to the amount of any
subsidy paid on imported merchandise.)
A preliminary determination was issued in this case on
July 28, 1978. The final determination was based upon all
information provided since the preliminary action.
Notice of this action will appear in the Federal Register
of January 12, 1979.
Imports of bicycle tires and tubes from the Republic of
Korea amounted to $14.5 million during calendar year 1977.
o
B-1339
0
o
FOR IMMEDIATE RELEASE: 10:00 a.m.
January 11, 1979
Contact:
Robert E. Nipp
202/566-5328
TREASURY ANNOUNCES SWISS FRANC NOTE SALE
The Department of the Treasury today announced that on Wednesday, January 17, 19 79, it will offer notes denominated in Swiss
francs in an aggregate amount of approximately 2.0 billion SF.
The notes will have maturities of two and one-half years and
four years and will be allocated between those maturities at the
discretion of the Treasury. This offering represents the first SFdenominated borrowing pursuant to the joint Treasury and Federal
Reserve Board announcement on November 1, 1978, concerning measures
to strengthen the dollar. On December 12, 1978, the Treasury
offered notes in Germany denominated in Deutsche marks totaling
approximately 3.0 billion DM.
The notes are being offered exclusively to, and may be owned
only by, Swiss residents. The notes, which are non transferable,
will be registered with the Swiss National Bank.
The offering will be made exclusively in Switzerland through
the Swiss National Bank (Swiss Central Bank) acting as agent on
behalf of the United States. The price and the interest rates for
both the two and one-half year and four year notes will be determined and announced no later than 5:00 p.m. Zurich time on January 16,
1979. Subscriptions will be received by the Swiss National Bank
in Zurich until 12:00 Noon on January 18. For each maturity,
subscriptions must be for amounts of 500,000 SF or multiples
thereof. Payment for and issuance of the notes will be on January 26,
1979. They will not be listed, and it is not expected that prices
of the notes will be publicly quoted.
Under the Double Taxation Agreement between the Swiss Confederation and the United States of America, individuals who are
residents in Switzerland and Swiss corporations within the meaning
of this Agreement are subject to a 5 percent withholding tax on
interest income payable under U. S. law.
The purpose of the borrowing is to raise a portion of foreign
currencies which the Treasury and the Federal Reserve System are
mobilizing to support intervention by the United States in the
foreign exchange markets as announced on November 1.
o
0
o
B-1340
FOR IMMEDIATE RELEASE
January 11 , 1979
Contact: Alvin M. Hattal
202/566-8381
UNITED STATES AND NIGERIA TO DISCUSS INCOME TAX TREATY
Representatives of the United States and Nigeria will meet
in Washington in late January to begin discussions on a new
income tax treaty between the two countries, the Treasury Department announced today.
The current treaty between the United States and Nigeria
(as a result of the 1959 extension of the United States/United
Kingdom income tax treaty of 1945 to Nigeria) is being terminated
by Nigeria, effective January 1, 19 79, for United States tax
purposes and April 1, 19 79, for Nigerian tax purposes.
The proposed treaty is intended to prevent double taxation
and to facilitate trade and investment between the two countries.
It will be concerned with the taxation of income from business,
investment, and personal services and with procedures for administering the provisions of the treaty.
The new treaty is expected to take into account the 19 77
Model Income Tax Convention of the Organization for Economic
Cooperation and Development,. the May 17, 1977, United States
model income tax convention, and recent treaties entered into by
the United States.
The Treasury Department invited comments or suggestions
concerning the forthcoming discussions. They should be in writing and be submitted as soon as possible to H. David Rosenbloom,
International Tax Counsel, Room 3064, Treasury Department,
Washington, D. C. 20220. Since the negotiations are likely to
take some time, even those comments received after the late
January meetings will be considered.
This notice will appear in the Federal Register of
January 16, 19 78.
o
B-1341
0
o
FOR IMMEDIATE RELEASE
REMARKS OF THE HONORABLE ANTHONY M. SOLOMON
UNDER SECRETARY FOR MONETARY AFFAIRS
UNITED STATES TREASURY
AT THE ROYAL INSTITUTE OF INTERNATIONAL AFFAIRS
LONDON
JANUARY 12, 1979
The Evolving International Monetary System
Much of the past year was characterized by major
international monetary unrest. Continuing large payments
imbalances among the industrial countries were accompanied
by serious exchange market disorders which ultimately
required forceful and internationally coordinated
counteraction. These disturbances have given rise to a
widespread feeling that our monetary mechanisms are not
working as well as they should. Various ideas for change
have been advanced. The year also saw major modification
of the formal structure of the monetary system, with implementation of amended IMF Articles of Agreement and
the move toward new monetary arrangements within the
European Community. The new IMF provisions, and the
Community's efforts to develop closer monetary cooperation and greater economic stability, offer substantial promise
for a more smoothly operating international monetary system
in the future.
Today I would like to discuss these developments and
suggest some implications for the future evolution of the
system.
My starting point is an appreciation that the international economic imbalances and tensions of today stem in
large part from the successes of the post World War II
decision — a brilliant and far-reaching decision -- to work
toward creation of an open and liberal system of international
trade and payments. Catalyzed by progressive trade liberalization and lubricated by international capital flows, the postwar global economy brought rapid and sustained increases in
the wealth and living standards of the industrialized countries
B-1342
- 2 and progress in the developing countries. A further
result of movement toward an open system of trade and
capital was an increasing and unprecedented degree of
international economic interdependence, particularly
among the industrial countries, whose industrial and
agricultural structures are now heavily dependent on
sources and markets abroad. And this increasingly
complicates management of the system.
Toward the end of the 1960fs and during the 1970,s,
the great post war record of growth, employment and
prosperity ran into trouble. We are all too familiar
with the acceleration of inflation as the United States
escalated and poured more resources into the Vietnam War; with
the shocks to the system associated with the multilateral
exchange rate realignments of the early 1970's; with the
simultaneous boom in the industrial countries feeding rapid
increases in commodity prices worldwide; with the oil embargo
and massive increases in oil prices of 1973/74; and with
severe world recession of 1974-75.
We have been living for much of this decade not only
with destructively high levels of inflation worldwide but
with sharply divergent rates of inflation and real growth
among the industrial countries. Because of the major
reduction of trade barriers and the greater ease with which
capital can move across international boundaries, differences
among the industrial countries in growth and inflation can
now have not only a much larger potential effect, but also
a much more immediate effect, on the direction and magnitude
of trade and financial flows — and on the exchange markets.
Our greatly increased interdependence has brought all of us
greater wealth and a higher standard of living than would
have been possible otherwise. But these gains have not been
without some cost. We have had to pay a price --we are all
far more vulnerable now than in the past to developments
abroad and to the operations of the international economic
system0
The developments of 1978 pointed up this vulnerability
with great clarity, and posed challenges in two closely
related but distinguishable areas. First, we should consider
whether changes in our existing monetary arrangements are
practical and desirable. Second, and more fundamentally, we
must develop better ways of bringing our economic policies and
performance into greater harmony, in an effort to reduce or
avoid the internationally disruptive impacts of sharp divergences
in domestic economic performance.
- 3 The international monetary system, and the exchange
market in particular, is a principal focal point for the
pressures arising from our interdependent world economy.
Understandably, international monetary arrangements
have also become a focal point for proposals to alleviate
those pressures. Some have proposed that targets or zones
for exchange rates be established and pursued by monetary
authorities. Others have proposed limitations on international capital flows as a means of attaining greater
monetary and exchange rate stability. Still others see
the major role of the dollar in international reserves as
a principal source of international monetary difficulty
and have suggested that steps be taken to reduce the reserve
role of the dollar. Let me comment on these three separate
but not necessarily independent questions.
Exchange market developments over the past year or
so have unquestionably posed serious problems. We have
seen that when there is uncertainty about the validity
of basic economic policies of major countries, the exchange
markets, left to themselves, can generate a psychological
atmosphere in which rates may be carried beyond what can
be justified by any objective standard. But does that
fact — and I believe it is widely accepted as a fact — mean
that the world now can or should move to a much more highly
structured set of arrangements for exchange market intervention?
In the case of the United States, the decline of the
dollar under disturbed and disorderly conditions last fall
threatened to undermine our anti-inflation efforts and to
damage the climate for sustained investment and growth in
the U.S. and abroad. Our action on November 1, jointly with
Germany, Japan and Switzerland, to embark on a major program
of coordinated intervention, was specifically a response to
what was and had been happening in the exchange markets.
But in order to be successful, that response had to fit into
a broader context — a context composed of comprehensive
U.S. policy measures to correct its domestic economic problems,
and clear prospects for a very strong improvement in the
U.S. external position between 1978 and 1979.
The United States is now acting forcefully to deal with
its inflation problem. Fiscal policy has turned decisively
toward restraint. As will be affirmed in the next few days,
- 4 -
the President is tightening even further in the fiscal
1980 budget, with a deficit of under $30 billion or barely
more than 1 percent of GNP — which compares with deficits
currently averaging about 4% percent of GNP in the other
major industrial countries. Monetary policy is complementing
fiscal restraint, as evidenced by a further pronounced rise
in interest rates and welcome slowdown in growth of the
principal monetary aggregates. And these measures of demand
restraint are being supplemented importantly by wage and
price standards, which are gaining a broad measure of
support and compliance on the part of the American people.
We anticipate a very sharp improvement in the U.S.
current account position between 1978 and 1979. It will
reflect the combined consequences of a number of factors,
including our rapidly improving export performance,
implementation of our energy program and slower growth in
the United States coupled with faster growth abroad. Even
with the recently announced oil price increase, we expect
the deficit to be reduced very substantially in 1979.
We recognize that our inflation problem is destructive
to our domestic performance and objectives as well as to our
external position. That problem did not arise overnight, and
it cannot be solved easily or painlessly. But overcoming it
is the policy of the United States Government, and the
President is determined to persevere and to succeed.
We were encouraged by the initial response to the
November 1 program, and we are encouraged by the better
balance in the markets that has emerged lately. We believe
that program will provide a framework of greater stability
and order, in which the markets can react positively to the
strengthening of the underlying U.S. position. In implementing
the international aspects of the program, we have greatly
intensified and deepened our consultations on exchange
market policy and operations with the other countries
involved. This process has been of great value to us in
analyzing and assessing exchange market developments, and we
look toward a continuation of the close consultations and
cooperation that have been engendered by this effort.
But important as that cooperative initiative was, we
knew that our intervention efforts could succeed only
if underlying conditions were moving in our favor, and if we
had the policies in place to assure they would continue to
move in our favor. Our judgment was that a bandwagon effect
was depressing the dollar excessively, well out of line with
- 5-
fundamental economic factors and without regard to the
fact that policies were in place to bring about a basic
improvement in our position. Timing was essential, and
I do not believe the intervention program would have
been warranted or successful if those pre-conditions
had not been met.
In short, large scale intervention can be useful and
effective under circumstances of serious disorder, when
the basic requirements for greater stability have been
met. But it would be a mistake to interpret the November 1
program as a departure from a policy of permitting exchange
rates to reflect fundamental factors in different economies -rates were not reflecting such factors. The November 1
initiative does not imply that such intervention can succeed
in holding exchange rates against fundamental trends or
that efforts to do so would be desirable. Rather, the
experience of the past several months reinforces our view
that appropriate economic and financial policies must be
in place if there is to be meaningful and lasting stability
in exchange markets. And I believe that is a view that is
fully appreciated and, indeed, frequently expressed, by
participants in the exchange markets themselves.
Second, the potential for very large international capital
flows, with their important implications for exchange rate
movements, has led some to feel that greater official control
over capital flows could provide a useful technique of
exchange market stabilization. Our own experience in the
United States with capital controls in the 1960's and early
1970fs does not provide any assurance that controls would
offer a feasible approach. Moreover, it seems to rne to be
an approach that removes a critical element of the foundation
of our open and interdependent global system, and that could
erode the tangible economic gains that have been achieved
over the past decade. Finally, it is an approach that
assumes capital flows should not be permitted to influence
exchange rates -- that only the movement of real goods and
services should affect rates. I have great difficulty in
accepting this idea.
I do feel that steps can be taken to expand and improve
information about world money markets, and perhaps to
strengthen official influence over those markets. Consideration can usefully be given to whether steps might be taken
- 6 to bring banks operating in the Euromarkets more completely
and explicitly under the regulations and supervision of^
national banking authorities. There is, I know, a feeling
on the part of some that the Euromarket is unanchored and unregulated. This is a considerable exaggeration. For example,
branches of U.S. banks operating abroad — a substantial
component of the Eurocurrency market -- are subject to U.S.
reporting requirements and bank examination procedures,
as are domestic operations of U.S. banks. Moreover, the
BIS is currently working to expand and improve its reporting
arrangements and data collection in an effort to provide a
basis for more complete understanding of the Euromarkets.
But there may well be further steps that could be taken to
strengthen bank supervision and mitigate the impression that
the market has explosive potential.
Finally, there is a view that the reserve role of the
dollar, and the very large volume of foreign official
holdings of dollars, constitute an important source of
instability in the international monetary system. This
view has led to various proposals — for funding or
consolidating dollar balances, for an increasing role in
the system for the SDR, and possibly for a European currency
unit or for greater use in reserves of other national
currencies such as the Deutsche mark and Japanese yen.
I personally have some doubts that the existence of
foreign-held dollar balances, official or private, represents
the major part of the problems and instability which have
affected the dollar. Certainly sudden changes in the level
of these balances can and at times do add to pressures in
the exchange markets, but there is ample scope for
capital movements and exchange market pressures
quite independent of the existing stock of foreign
balances.
While moves toward funding or consolidation of
foreign official dollar balances might have some positive
impact, it seems to me that they are not the root cause of
exchange market disorder or dollar instability.
Let me make clear that the United States has no interest
in artificially perpetuating a particular international role
for the dollar. The dollar's present role is itself the
product of an evolutionary process. We would expect the
dollar's role to continue to evolve with economic and
financial developments in the world economy, and a relative
reduction in that role in the future could be a natural
consequence.
- 7 At this juncture, it is difficult to predict just what
evolutionary changes may take place in the years ahead,
though we can foresee certain possibilities. Certainly we
would expect the SDR to take on a growing role in the system.
The world has recently taken important steps to increase the
role of this internationally created asset, by widening the
scope of operations in which it can be used, by strengthening
its financial characteristics, and by the decision to resume
allocations of SDR after a period of seven years in which no
allocations were made. We in the United States have great
hope for the progress of the SDR0 As experience with the
asset accumulates, as allocations continue over a period of
time, and as the usability of the instrument increases, we
believe it will fulfill the promise which its creators
foresaw and play and increasingly more valuable role.
Another possibility is that certain national currencies
will play an increasing role. Indeed an expansion of the
reserve roles of the Deutsche mark and Japanese yen has
occurred over the past decade in both absolute and relative
terms. I would note that the authorities of other countries
have generally tended to discourage use of their currencies
as reserves, largely because of concern about the implications
for domestic money supply and a fear that domestic financial
management will be made more difficult. Whether such
attitudes persist will presumably have an important bearing on
future developments, as will questions of size and accessibility
of non-dollar capital markets.
A new possibility for international monetary evolution
is posed by the EC's current efforts in the interntional
monetary area. At least in the initial phase, the focus of
these efforts is principally on arrangements for intervention
and settlement among participating EC countries. However,
there is the possibility that in time a European currency
unit may develop as a reserve instrument of broader interest
and use.
We are prepared to consider with an open mind these
and possibly other ideas for evolution of the reserve system.
Such ideas may offer potential for a reduction in the
relative role of the dollar, and that prospect is not in
itself troublesome to the United States. We do not live in
a static world, and we must adjust to changing circumstances.
We will not resist change, but rather will be concerned to
insure that any change be an improvement and that it be
accomplished smoothly and in a manner which strengthens
our open international trade and payments system.
- 8-
In each of these aspects of our international monetary
arrangements -- the exchange rate system, the international
capital markets, the reserve system -- the United States
is fully prepared to cooperate with others to consider
where improvements might be possible. But I do not believe
that possible action in any of these areas --or indeed in
all of them — will solve the fundamental problems facing
the system. As I see it, the basic problem is a different
one: how to coordinate better the economic performance
of the major countries, to reduce inflation rates and
inflation differentials, and to manage domestic growth
rates so as to bring about a better balance in global
economic relations.
This is not a short-run problem but a continuing one.
There is no magic, overnight solution, and the task of
international policy coordination ultimately can raise
highly sensitive issues of national sovereignty. Nonetheless,
I believe it is the real task we have to address, if we are
serious about maintaining our open system and about achieving
greater stability in international economic relations.
We do not lack institutional opportunities for pushing
ahead with this effort. The industrial countries meet
regularly in various bodies of the OECD, and heads of state
have met with increasing frequency to discuss common economic
problems. Most recently, the IMF, in its new Articles of
Agreement, has been given potentially important powers of
surveillance over the operations of the international
monetary system and the balance of payments adjustment process.
The basic problem facing the system is recognized clearly
in the new IMF provisions on surveillance, which stress that
the attainment of exchange market stability depends on
development of underlying economic and financial stability
in member countries„ These provisions equip the IMF with
major potential to address the problems of policy coordination
with a view to achieving a more sustainable pattern of payments
positions among its member nations and a more smoothly functioning international monetary system. The IMF's focus encompasses
not only exchange rate policy, narrowly defined, but also
domestic economic policies as they affect the balance of
payments adjustment process„ The IMF has enhanced capability
to advise not only countries in balance of payments difficulty,
but also countries in surplus, on the international implications of their policies and on approaches they might appropriately
symmetry of
functioning
follow
approach
system.
to correct
we believe
their is
payments
essential
imbalances
to an effectively
-- a
- 9Progress in implementing the IMF's new surveillance
role has been cautious and deliberate. This is understandable,
given the very short time these powers have existed. But
we believe the time has come for the IMF to move more
vigorously to fulfill its potential in this area, and we
intend to support it in that effort. I have no doubt that
the Fund's new provisions afford the international community
a framework for policy coordination that can be made
effective. The potential is there. The question is whether
governments will permit — indeed, help — that potential
to develop. If they are willing, the prospects for sustained
monetary stability and maintenance of our open, interdependent
system, are good.
We need, in effect, a new attitude --a recognition that
if nations want the benefits of an interdependent world with
freedom of trade and payments, they must be prepared to give
up some of the freedom they have enjoyed to manage their
domestic economies without full consideration of the
international environment. As part of an interdependent world
economy, each country must accept greater responsibilities
to exercise its economic management to coordinate better
its policies and performance with those of other countries.
Whatever the institutional arrangements, unless nations
are prepared to accept these responsibilities of interdependence, they cannot expect to continue to receive
its full benefits.
The potential role of the emerging European monetary
arrangements should be viewed against broader evolution of
the system. The European effort is inspired fundamentally
by an objective of ultimate political and economic unification,
and objective that is unlikely to be adopted on a global basis
for many years to come. Against the background of that
objective, the EC is making an ambitious and laudable move
to make progress in mamy of the areas I have touched on
today. Most importantly, participating EC nations are
attempting to achieve meaningful economic policy coordination,
in an effort to reduce imbalances within the Community and
create conditions for greater exchange market stability.
The EC's efforts on a regional level can make a major
contribution toward progress in the broader global effort to
manage international economic interdependence, and we offer
the EC every encouragement in attaining its objectives. ^We
have asked only that Europe bear in mind the interests of
non-members and of the broader system, particularly the
critical need to develop the role of the IMF in the system.
We have been assured that this will be the case.
-10-
In conclusion, I feel that the developments of the
past year point clearly to the need for improvement in
our international economic arrangements. We can and will
consider with others whether improvements are possible and
desirable in the more mechanical aspects of those arrangements. But improvements in our monetary mechanisms cannot
solve the more fundamental problem facing the system, the need
for governments to improve their international economic policy
coordination out of recognition of their own self-interest
in preserving our interdependent system. We believe this
must be the focal point of our efforts and offers the only
real prospect of lasting stability.
oo 00 oo
FOR IMMEDIATE RELEASE
January 12, 1979
Contact:
Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES PRELIMINARY
COUNTERVAILING DUTY ACTIONS ON
TEXTILE PRODUCTS FROM FIVE COUNTRIES
The Treasury -Department today announced its preliminary
countervailing duty determinations that Malaysia, Mexico and
Pakistan are subsidizing exports of textile mill products and
men *s and boys' apparel.
The countervailing duty law requires the Secretary of the
Treasury to collect an additional duty equal to any subsidy
on merchandise exported to the United States, once Treasury
has made a final determination that a subsidy is indeed being
granted. This final determination must be made no later than
July 5, 19 79.
Treasury's preliminary investigation, after the Amalgamated
Clothing and Textile Workers' Union filed petitions in July 1978,
disclosed a variety of subsidies subject to countervailing
duties, including preferential financing arrangements and tax
benefits for export enterprises. Some preliminary judgments
were made in the absence of detailed information from the
foreign governments concerned. Such information is necessary
to reach a definitive decision about whether certain programs
providing subsidies are used by that country's textile industry.
(MORE)
B
-1343
- 2-
Singapore was also found to be subsidizing its textile
and apparel exports, but the amounts paid are so small that
the assessment of countervailing duties would not be warranted.
Thailand was found not to be providing any benefits to
its textile or apparel industry.
Notices of these actions will appear in the Federal
Register of January 12, 19 79.
Imports of 19 77 of the subject merchandise from the five
countries investigated were valued at about $220 million.
o
0
o
FOR IMMEDIATE RELEASE
January 12, 1978
Contact: Alvin M. Hattal
202/566-8381
TREASURY DEPARTMENT ANNOUNCES REVISED BASES
FOR THE DETERMINATION OF COUNTERVAILING DUTIES
The Treasury Department today said that it has revised the
method by which it calculates countervailing duties on exports
from countries rebating "turnover-type taxes" on exports. Turnover taxes are collected on each sale of an article as it passes
through the various stages of the manufacturing process.
The amount of a subsidy granted under such a system will
henceforth be determined by subtracting from the total rebates
the estimated taxes paid by (1) the producers of the product and/
or (2) any producers of components or other prior-stage producers
on any components physically incorporated in the exported product
or its packaging (making normal allowance for waste). No other
taxes at prior stages of the production process will be accepted
as an offset against an export rebate.
Treasury, having reviewed its June 19 78 decision, has
determined that the appropriate test is the one proposed by the
United States in the multilateral trade negotiations for the
proposed code on subsidies and countervailing duties.
The decision necessitates recalculation of the countervailing duty rates applicable to chain or parts thereof from Italy,
certain textile and textile products from Colombia and India, and
zinc, bottled green olives, and non-rubber footwear from Spain.
Final determinations involving non-rubber footwear and leather
wearing apparel from Argentina have been made pursuant to the
revised method of computation. These will also be published
next week.
Decisions on all pending cases in which comparable issues
are being raised will be based on the standard adopted by the
Treasury with respect to the treatment of indirect taxes rebated
on the exported product.
A new rate of countervailing duty on imports of vitamin K
from Spain also has been established. A final determination
regarding vitamin K was published in the Federal Register of
November 16, 1976 (41 FR 50419). Based on new information, the
Treasury Department has determined that the amount of the subsidy
(MORE)
B-1344 paid on the manufacture,
being
production,
exportation
vitamin
K from Spain was overestimated.
A or
new,
lower dutyof
rate
- 2 -
of 3.07 percent ad valorem will now be assessed, rather than
the earlier established duty of 10.5 percent.
As a result of these decisions, the following rates of
countervailing duty will be applicable:
Old Rate
New Rate]
Country
Product
Argentina
non-rubber footwear
not applicable
leather wearing
apparel
not applicable
no countervailing duty
Colombia
certain textiles
and textile products
no countervailing
duty
no countervailing duty
India
certain textiles
and textile products
no countervailing
duty
no countervailing duty
Italy
chains and parts
thereof
Spain
unwrought zinc
1.29%
2.64%
bottled olives
1.14%
2.44%
.91%
2.27%
15 lira/kg
non-rubber footwear
o
0
o
.86%
6.88 lire/kg
DepartmentoftheTREASURY
.WASHINGTON, D.C. 20220
TELEPHONE §66-2041
REMARKS BY THE HONORABLE
W. MICHAEL BLUMENTHAL
U.S. SECRETARY OF THE TREASURY
AT THE
' ECONOMIC COUNCILS MEETING
DEPARTMENT OF STATE
JANUARY 15, 1979
I am extremely pleased to be here today before this unprecedented
gathering of American business leaders representing the promise of our
new economic ties with China and our continuing economic ties with
Taiwan.
It is particularly important to meet with you now. At this
historic time in our relationship with China, when we have normalized
our political relationship, we now have the equally challenging task
of normalizing our economic relationship. You have all heard
Secretary Vance's description of how these events unfolded and what it
means to us politically.
It is our task -- yours as businessmen and
mine as a government official — to complete this process on the
economic front.
China's ambitious economic goals to spur modernization, and her
recent liberalization of foreign trade and finance policies have
marked an "opening to the West" which has invited Western governments
and private industry alike to take advantage of its numerous
commercial opportunities. We have gotten off to a late start in this
game, but we now have the opportunity at least to begin making up los.t
ground .
Obviously we still have many obstacles to overcome. A normal
economic relationship between China and the United States is hindered
by such issues as the claims/assets problem, and absence of MFN and
credit facilities. In the coming weeks and months we will be
addressing the entire range of our bilateral economic relationship -not only the issues I have just mentioned but other important issues,
indeed the whole range of issues that form the basis of an economic
relationship between two nations.
These questions involve a whole host of complicated legal and
legislative issues. The settlement of the claims issue in particular
will require some time and careful consultation with the Congress as
well as the Chinese. Our goal is to accomplish appropriate
compensation for our claimants. This will take time and will require
patience. Nevertheless, I am encouraged by the responses I have met
so far and am optimistic of the eventual outcome.
B-1345
-2In striving for the normalization of trade with China, the
Administration realizes the need for balance in its relations with
others. The present legislation that governs the granting of Most
Favorite Nation status to all nations must be applied evenhandedly; we
cannot afford to improve relations with one trading partner at the
expense of a deterioration of relations with another. The United
States needs to expand its exports to all countries. We are striving
to reduce our balance of payments deficit and to fortify the U.S.
dollar. And to this end, we need your help. The American business
community needs trade; the Carter Administration wants it. We can
ill-afford to cast a blind-eye to the vast potential for exports
provided by the Chinese, the Soviet, or any other market, as long as
those exports take adequate account of our legitimate national
concerns.
It is to expedite the development of an economic relationship
with China — as well as to participate in the first official exchange
of ambassadors — that President Carter has asked me to lead a
delegation of our top finance and trade people to Peking in late
February.
My trip is part of a comprehensive and coordinated effort. Vice
Premier Teng visits the U.S. at the end of this month.
In providing
the opportunity to exchange preliminary views on our future economic
relationship, his visit here will form the basis for my trip. Hopefully this will lead to substantial progress towards a claims/assets
settlement and a dialogue on broader economic matters while I am in
China. We would anticipate continuing this dialogue after my trip.
Secretary Kreps, who will go to .China in late April, will pick up the
ball at that point, continuing and initiating new discussions on trade
and commercial matters.
While moving forward with our new economic ties with the People's
Repulic of China, I want to assure you that our commercial commitments
with Taiwan have had our highest priority. These are essential. The
Administration's fundamental aim is to ensure continuity, stability.
and growth in these economic ties, which now encompass over *500
million of U.S. private direct investment and roughly $7 billion in
two-way trade. The Presidential memorandum issued on December 30
provides for the continuation of all current programs, agreements and
arrangements with Taiwan, and we will introduce legislation to make
provision for the continuation of unofficial relations.
Taiwan is one of the most striking examples in the world today of
successful rapid economic development. This very impressive growth
has been achieved through the efforts of a strong private sector and
enlightened official policies. Thus, as other important trading
partners have shifted diplomatic recognition from Taipei to Peking,
trade and other commercial relations with Taiwan have continued to
flourish. There is every reason to expect economic relations between
the U.S. and Taiwan will continue to expand.
We are entering a dramatic and exciting new era in our China
relationship.
The opportunity is before us to create new and vital
economic ties with a China that is bent on entering the front ranks of
-3the world's economic powers by the end of the century — and at the
same time expand our commercial ties with the prosperous and thriving
economy of Taiwan. As long as we approach this opportunity
realistically, work together and help each other in support of common
goals, I am confident we will succeed.
Thank you.
0OO0
artmntoftheTREASURY
TELEPHONE 566-2041
GTON,D.C. 20220
January 15, 1979
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,800 million of 13-week Treasury bills and for $2,900 million
of 26-week Treasury bills, both series to be issued on January 18, 1979,
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 19, 1979
Price
High
Low
Average
Discount
Rate
97.631-/ 9.372%
97.616
9.431%
97.621
9.411%
26-week bills
maturing July 19, 1979
Investment
Rate 1/
Discount Investment
Price
Rate
Rate 1/
9.73%
9.80%
9.77%
95.197 9.500% 10.12%
95.173 9.548%
10.17%
95.180 9.534%
10.16%
a/ Excepting 2 tenders totaling $415,000
Tenders at the low price for the 13-week bills were allotted 9%
Tenders at the low price for the 26-week bills were allotted 37%
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
$
37,070,000
4,643,160,000
25,910,000
32,810,000
33,095,000
33,460,000
172,350,000
41,495,000
3,945,000
29,755,000
19,850,000
178,175,000
$
31,070,000
2,423,510,000
25,910,000
32,810,000
28,095,000
33,460,000
46,850,000
23,495,000
3,945,000
29,755,000
19,850,000
83,175,000
$
24,455,000
5,094,220,000
9,655,000
27,570,000
19,320,000
28,390,000
171,170,000
29,915,000
3,700,000
24,445,000
8,355,000
156,445,000
Treasury
18,425,000
18,425,000
22,420,000
$5,269,500,000
$2,800,350,000b/
$5,620,060,000
TOTALS
Accepted
Received
b/Includes $ 477,510,000 noncompetitive tenders from the public.
c/Includes $ 297,690,000 noncompetitive tenders from the /ublic.
1/Equivalent coupon-issue yield.
B-1346
Accepted
$
24,455,000
2,640,170,000
9,655,000
24,940,000
19,320,000
28,390,000
31,170,000
11,915,000
3,700,000
24,445,000
8,355,000
51,445,00(
22,420,00(
$2,900,380,000c/
REAL WAGE INSURANCE - IN BRIEF
What is RWI?
Real wage insurance (RWI) is an innovative antiinflation initiative which President Carter has proposed for
enactment by the Congress.
RWI would strike directly at the wage-price spiral by
encouraging widespread observance of the voluntary 7 percent
pay standard announced by the President in October, 1978.
RWI would work like this: If you belong to an employee
group that has an average pay increase of 7 percent or less,
you would qualify for a tax credit equal to your 1979
employment earnings times the amount by which the 1979
inflation rate exceeds 7 percent. For instance: Assume
that you belong to a complying group, that your 1979 earnings
are $15,000, and that the 1979 inflation rate is 8 percent.
You would receive an RWI tax credit of $150 — $15,000 times
1 percent (i.e., 8 percent minus 7 percent). This credit
would be shown on your Form W-2 and would serve either to
reduce your tax payment or to increase your tax refund. The
credit (like wages themselves) would be subject to income
tax.
The proposal would cover inflation up to 10 percent,
with the rate measured from October-November 1978 to OctoberNovember 1979, and would apply to the first $20,000 of your
pay from an employer.
What is the Purpose of RWI?
RWI is not a general tax cut or a device for indexing
the Tax Code to inflation. Inflation would actually be
worsened by such proposals, for they would enlarge the
B-1347
- 2 budget deficit without encouraging wage restraint. The sole
purpose of RWI is to encourage compliance with the 7 percent
pay standard.
RWI would accomplish this by greatly reducing the risk
that compliance would mean an erosion in real (i.e., inflation
adjusted) incomes. Workers understandably seek high pay
increases out of fear that inflation will be high. But high
pay increases produce higher labor costs and thus guarantee
the very increase in inflation that is feared. RWI is
designed to help break this vicious cycle. With real wage
insurance available, employee groups can limit their pay
increases to 7 percent without risking the loss in real
income that would otherwise occur if inflation exceeded 7
percent. RWI helps to protect workers who cooperate with
the pay standard from the non-cooperation of others and from
such other inflationary effects as abnormal food or energy
price increases.
How Much will RWI Help
in the Fight Against Inflation?
RWI will have its major impact on those employees who
might otherwise secure pay increases over 7 percent, but
have the ability to show restraint. If RWI helps to persuade
60 percent of these employees to comply with the 7 percent
standard, the 1979 inflation rate would be reduced by about
1/2 of a percentage point.
How Much Will RWI Cost in Federal Revenues?
A key advantage of RWI is that its revenue cost is
somewhat self-limiting: If many workers participate, that
brings down the inflation rate and thus reduces the RWI
payout; if few workers participate, the anti-inflation
effect is small, but so also is the RWI payout.
The Administration forecasts participation by about 47
million workers and an inflation rate of 7.5 percent for the
relevant period. This implies a revenue cost of $2.5
billion, which will be included in the Administration's
January budget.
- 3How Do I Qualify for RWI?
To qualify, you must belong to a qualified employee
group. The 7 percent pa£ standard applies to average pay in
employee groups, not to each individual's pay increase.
Thus, the system does not impose penalties against hard
work,.merit increases, or promotions for individuals.
There will be four types of employee groups: (1)
employees subject to collective bargaining agreements, (2)
low-wage workers (i.e., $4 per hour or less), (3) managerial
and supervisory employees, and (4) all others.
Your group would qualify for RWI if the average hourly
pay within the group rose by 7 percent or less between the
third quarter of 1978 and the third quarter of 1979.
Average hourly pay includes taxable wages, plus 25 percent
of bonuses or other irregular payments made in the preceding
year, plus 25 percent of the employer's annual cost of
improving fringe benefit programs. Your employer will make
these computations and, if your group qualifies, the amount
of your credit will appear on your W-2 Form.
If you are under a collective bargaining agreement,
that defines your group. New agreements of more than 15
months'duration, negotiated between October 24, 1978 and
October 1, 1979 will be assessed for qualification as of the
date of settlement. The contract must conform to the 7
percent pay standard on average over its entire life, but
the first year's increase can be as high as 8 percent and
still qualify. COLA provisions in the contract will be
costed out at an assumed 6 percent inflation rate.
The RWI program will not apply to the self-employed, to
non-residents, or to employees who own 10 percent or more of
their company's stock. Also, employers of 50 or fewer
workers need not participate in the program.
REAL WAGE INSURANCE
Legislative Proposal
Real Wage Insurance (RWI) will give a tax credit to
workers in groups receiving average pay increases of 7 percent or less, if inflation exceeds 7 percent in 1979. The
tax credit is computed as a percentage of the first $20,000
of an employee's 1979 wages. This percentage is the number
of percentage points, up to 3, by which inflation exceeds 7
percent.
I. Reasons for the Program
This proposal is an integral part of the anti-inflation
effort. It supplements the President's initiatives to limit
federal spending, cut the budget deficit, and reduce the
economic burdens of regulations. These actions will create
an environment in which a voluntary program of wage and
price restraint can be effective and lasting.
The essential purpose of real wage insurance is to
reinforce the voluntary pay standards by giving workers an
additional incentive to accept average pay increases of 7
percent or less. In times of inflation, employees often
believe that a large pay increase is their only defense
against a steady erosion of real income. Yet, higher labor
costs are quickly passed on in higher prices. The present
inflation clearly reflects the momentum of price and wage
increases that have become built into the economy in recent
years. Slowing this inflationary momentum is the most
important challenge of domestic economic policy.
Real wage insurance will help to break the cycle of
inflation by assuring groups of workers that they can
cooperate with the pay standard without the risk of being
penalized by an acceleration of inflation — from whatever
source. This point deserves emphasis: Unlike other antiinflation proposals that are often suggested, RWI hits at
the core of the wage-price spiral. Everyone involved in
that spiral knows that self-restraint will break the spiral —
if most of us exercise that self-restraint. But no one
wants to go first. If one employee group shows restraint,
but others do not, that group knows it will be penalized —
its wages will be restrained, but prices generally will keep
B-1348
- 2 on rising. So everyone avoids restraint, even though
everyone knows that this guarantees more inflation. RWI
offers a sensible remedy for this general frustration of the
general interest. RWI allows unions and other employee
groups to take the first step toward wage restraint without
risking adverse consequences if others do not similarly
cooperate or if other inflationary events occur.
RWI is the natural and logical complement of a voluntary
system of pay and price restraints. It rewards responsible
voluntary behavior. A voluntary system, fortified by RWI,
is far less intrusive and cumbersome and far more equitable
than a system of mandatory controls.
Real wage insurance is not a general tax cut, nor a
device to compensate all workers for the effects of inflation. It is an incentive for responsible pay behavior. To
cut taxes or provide general inflation relief without a
requirement of wage restraint would actually fuel inflation —
by adding to the budget deficit and by weakening employers'
resolve to restrain costs.
Real wage insurance is the opposite of indexing. It is
tax policy applied to retard inflation rather than to
accommodate inflation.
This program can help to reduce inflation. Based on
historical distributions of pay increases among various
groups of workers one can predict that a large percentage of
U.S. workers would receive pay increases in excess of 7 percent in 1979, in the absence of wage restraint. Many of
these workers are not yet "locked-in" by continuing contracts
or other mandated raises. If 6 0 percent of these are persuaded to accept 7 percent pay increases, the average
increase in pay for the country will be reduced by about
0.7 percentage points in 1979. This moderation of pay
increases will be passed through to reduce the rate of
price increases for most items. Overall, the rate of price
inflation (including food and fuel prices) will be reduced
by 0.5 percentage points as compared to what it would have
been in the absence of wage restraint. The pass-through of
wage deceleration into prices is specifically required for
compliance with the price standards and is shown by historical
relationships to be a normal response.
II. General Explanation
The proposal is designed for effectiveness in moderating the rate of increase in labor costs. Effectiveness
- 3 depends upon the link between wage performance and potential
rewards. Every employee group (except those of small
businesses choosing not to participate) is subject to a test
of pay-rate increases. In the case of new collective
bargaining agreements of more than 15 months' duration, this
test is a prospective evaluation under the pay standard
recently announced by the Council on Wage and Price Stability
(CWPS). In other cases, an end-of-the-year calculation of
the annual pay-rate increase will be made according to rules
set forth below. In either instance, RWI is available to an
employee group only if the average annual pay increase for
the group is 1_ percent or less.
The proposal combines effective incentives for wage
restraint with limited budget exposure. The objectives of
effectiveness and cost control are both served by insisting
that groups must hold pay increases to 7 percent or less to
receive wage insurance. A high rate of compliance will slow
inflation; slower inflation will reduce, and may eliminate,
the budget cost of real wage insurance. Budget risk is also
reduced by limiting the amount of covered wages from any one
job to $20,000 and by limiting the wage insurance rate to 3
percent, thereby protecting for inflation up to 10 percent.
Such limitations are prudent, fout not overly restrictive.
The $20,000 limit will allow full coverage of wages for
88 percent of employees, and will provide coverage for 8 7
percent of total wages for qualified workers. Similarly,
the 10 percent inflation limit will curtail payout of RWI
only if inflation substantially exceeds the range of professional forecasts for 1979.
The rules for real wage insurance are designed for
simplicity, to the extent possible, given other goals of the
program and the variety of pay practices used by businesses.
The amount of insurance is based entirely on pay as normally
reported for tax purposes. The rate of credit is the same
for everyone. RWI will add only one line to the individual
Federal income tax return. Payment would be made through
the regular process of Federal income tax refunds and
payments.
Employers will divide their employees into groups and
determine whether each employee group qualifies. The rules
for grouping and for qualification generally follow the
standards recently published by CWPS. However, the rules
for real wage insurance are somewhat simpler and have fewer
options and exceptions. The simplified rules are intended
- 4 to hold down the number of calculations and records required
of smaller businesses and to facilitate their verification
(when necessary) by the IRS.
Employers will not be required to report computations
of pay-rate increases to the government, although the
employer's determination will be subject to verification by
IRS. Small businesses with fewer than 50 employees may
choose to refuse RWI and thus avoid any calculation of
average pay increases.
Every member of every employee group meeting the test
of a 7 percent or smaller pay increase is qualified for wage
insurance whether or not the group is covered by the CWPS
standards. In other words, even those groups automatically
exempted from the CWPS standards (i.e., low-wage workers and
workers under continuing contracts) are eligible for RWI.
Groups of employees are disqualified only if they have wage
increases above 7 percent, or they are employees in small
businesses choosing not to participate, or they are in a
position to set their own wages (such as owner-managers of
corporations). To accommodate RWI to the collective bargaining process, special rules apply to collective bargaining
agreements of more than 15 months' duration negotiated
during the program year. These agreements are evaluated as
of the time of settlement so that the parties may be assured
in advance of RWI coverage. Average pay increases must be 7
percent or less over the life of the contract. For all
other groups, qualification is determined as of the close of
the program year.
A. Computation of RWI Credit
Employees who are members of qualifying employee groups
will receive a tax credit if inflation exceeds 7 percent.
The amount of this credit will be determined by multiplying
the employee's 1979 earnings from qualified employment by
the difference between the rate of inflation for the year
and 7 percent. For example, if the rate of inflation in
1979 is 8.0 percent, the amount of RWI credit reported to an
employee earning $10,000 of taxable wages in 1979 would be
$100. The amount of wages qualified for wage insurance is
limited to $20,000 from any one employer. The rate of
credit is the same for all qualified persons.
The rate of inflation for the year will be measured as
the percentage increase of the average Consumer Prict Index
(CPI) for October and November 197 9 over the average CPJ for
October and November 1978. This measurement period covers
- 5 calendar year 1979 as closely as possible while still allowing the government to announce the rate of RWI credit before
the end of December 1979, in time for employers to prepare
W-2 forms.
The rate of RWI credit will be limited to 3 percentage
points of inflation. Thus, qualified workers will be
insured against loss of real income due to inflation up to
10 percent in 1979.
The program may- also be extended to a second year. The
President must order the extension and may reduce the
target inflation rate for the second year by Executive Order
on or before December 1, 1979. Congress must then approve
the Executive Order by Joint Resolution within 30 legislative
days for the extention and new target rate to become effective.
Special procedures will facilitate Congressional action by
limiting the amount of time a committee may take to consider
a joint resolution, after which it will be brought to the
floor.
The RWI credit is intended to supplement wages for
those groups foregoing wage increases above 7 percent. In
general, the tax credit will be treated as if it were an
additional wage payment and, consequently, will be subject
to federal income tax as 1979 wages. However, RWI will not
be subject to FICA or FUTA taxes.
B. Qualification
Any employee receiving a W-2 form for earnings in 1979
is potentially eligible for RWI. This includes government
employees, domestic workers, and farm workers, but excludes
the self-employed. The only specific exclusions are for
wages reported by a company to an employee not a resident in
the United States or to one who owns 10 percent or more of
the company's stock. These latter earnings, like those of
the self-employed, are often hard to distinguish from
profits.
An individual obtains coverage by being a member of an
employee unit that qualifies. This rule of group qualification is very important. Like the voluntary CWPS pay standard,
the RWI program aims to restrain a company's average pay
increases. If the 7 percent standard and RWI applied on an
employee-by-employee basis, rather than a group basis, they
would not have a beneficial impact on the economy. First,
it is a company's average pay increase that affects its
- 6prices. If RWI operated on an individual basis, it would be
available even where average pay increases exceeded the 7
percent standard. Thus, RWI would not act as an effective
anti-inflation incentive for company-wide decisions about
the pay of its various union and nonunion employee groups.
Second, an individually based program would create perverse
incentives. Individual employees would be encouraged to
avoid promotions, overtime work, merit bonuses, and the
like. That is, the program would stifle productivity.
Third, an individually based program would interfere in
complex ways with each company's pay system. By contrast, a
group-based standard leaves each company and its employees
free to allocate pay among workers in the most efficient and
equitable, manner.
The group standard also greatly simplifies the administration of the program. For each group, it is necessary
only to divide pay by hours worked, information readily
available to employers. An individually based program would
require that pay-rate calculations be made for every job
held by every worker in the economy — about 140 million
separate calculations.
Employees of a company will be divided into four types
of employee units: (1) employees subject to collective
bargaining agreements, (2) low-wage workers, (3) management
and supervisory employees, and (4) all others. Employers
will determine the qualification, of each employee unit for
RWI.
To determine qualification, employers perform the
computations described below. These computations need not
be reported to the IRS, but must be available for possible
verification.
*
Step One: Separate employees into groups. The qualification of those under new collective bargaining agreements
is determined contract-wide as of the time the contract is
signed. All other groups are separately tested by the
employer after the end of the Program Year (October 1978 September 1979).
e iVe
bargaining units that sign new agreements of
mnrp ^u^ ^
more than 15 months' duration after October 24, 1978 and
before October 1, 1979 will qualify for RWI if annual pay
increases under such agreements average 7 percent or less
mfn?«
£ i t 0 ^ V U l u S f ° r n e w Elective bargaining agreements published by the Council on Wage and Price Stability
- 7 (CWPS). All employees covered by such agreements are qualified,
wherever they work. Other employees in the same company
whose pay maintains a historical tandem relationship with
such agreements are also qualified. Qualification will be
based upon the terms of the agreement evaluated prospectively
as of the date of the agreement. Thus, for example, agreements
that contain cost-of-living adjustments will not be subject
to reevaluation if later events reveal an inflation rate
different from the 6 percent rate specified in the CWPS
rules for evaluating agreements.
Step Two: Compute base quarter pay rate. For each
remaining group, the employer determines total taxable
straight-time wages for employees in the group for the third
calendar quarter in 1978. To this total amount is added 25
percent of bonuses and other irregular payments made during
the base year (October 1, 1977 to September 30, 1978). The
resulting sum is divided by the total straight-time hours
for which employees are paid in the quarter. The result is
the "base quarter pay rate."
Step Three: Compute program quarter pay rate. Next,
the employer makes the same calculation for the third
quarter 1979 including 25 percent of irregular payments in
the program year. If there have been changes in the structure of benefit plans, such as for pensions, medical insurance, and educational assistance, 25 percent of the change
in the annual cost of these benefits also is added to (or
subtracted from) taxable wages in calculating the "program
quarter pay rate." The benefit rule is necessary to avoid
an obvious loophole — the substitution of fringe benefits
for cash wages. An employer may also adjust the program
quarter pay rate for changes in hours of employment among
establishments within the company.
Step Four: Determine qualification for RWI. If the
program quarter pay rate for an employee group does not
exceed its base quarter pay rate by more than 7 percent, the
group qualifies for real wage insurance.
C. Payment of Real Wage Insurance
For each member of qualified groups, the employer will
add the real wage insurance credit to other amounts reported
as wages on the employee's Form W-2 and also report it in a
separate space on that form. The Federal income tax return
of an employee will have only one additional line — for the
amount of real wage insurance credit. This amount will
REAL WAGE INSURANCE
Technical Explanation
A.
Coverage of Individuals
Wages reported to an employee on any W-2 form are
covered, or not covered, depending upon whether the employee
is a member of a qualified group with respect to those
wages. A person who is paid wages by more than one employer
during the year may be qualified for wages paid by some
employers and not others. In every case, however, all wages
reported to one employee by a single employer (up to the
$20,000 limit) are either qualified or not qualified. Wages
are not apportioned even if the employee changes duties
within the company.
For purposes of determining coverage of wages for an
individual, membership of an employee in a group depends
upon the employee's position in the company on September 30,
1979. Group membership of an employee who leaves a company
before that date is determined by the employee's position on
the date of separation. (This rule applies even if the
employee is rehired after September 30, 1979.) An employee
first hired by the company after September 30, 1979 is
classified according to the position for which that employee
is hired.
Eligible persons include domestic workers and farm
workers who receive a Form W-2 and employees of governments,
whether or not withholding of income tax or social security
is required. However, persons who own directly or indirectly
10 percent or more of the value of the stock of a company or
who are not residents in the United States cannot qualify
for RWI. The determination of status as a shareholder or a
resident will be made as of the same dates that group membership is determined. It is the employer's responsibility to
determine which employees are entitled to coverage.
B. Types of Employee Groups
As indicated above, each employee is assigned to one
employee group and is entitled to coverage if that group
qualifies. However, for purposes of determining qualification of groups other than low-wage groups, the employer need
B-1349
- 8 either increase the taxpayer's refund or reduce taxes owed
in the same way as amounts withheld. The full amount of
refund will be paid even if it exceeds the employee s tax
liability or if the employee has no tax liability. The RWI
credit is included in taxable income, but this involves no
change in tax return preparation because it is included by
copying wage amounts from the W-2, as always.
Thus, real wage insurance involves a minimum amount of
additional effort for the individual taxpayer and only one
additional item for the IRS to check on an individual return.
If inflation exceeds 7 percent, those qualified for RWI will
receive RWI payments as part of the regular tax refund (or
payment) procedure.
The degree of simplicity provided for the individual
taxpayer can only be accomplished by specifying the wage
limit as $20,000 for each qualified job of an employee.
Other types of limitations, such as $20,000 of covered wages
for each person, would require more lines on the tax forms
and more computations for the taxpayer.
D. Small Employers
The cooperation of small businesses is important to the
anti-inflation effort and most will find the offer of real
wage insurance beneficial to them and to their employees.
However, to avoid imposing additional burdens upon those
with special recordkeeping problems, employers with 50 or
fewer employees may choose not to participate in the RWI
program (except to report RWI credits for union members
under qualified new agreements). Employers choosing not to
participate must clearly notify their employees of that
intention.
III. Revenue Cost
The revenue cost of Real Wage Insurance will depend
principally upon (1) the rate of compliance among employee
groups and (2) the rate of inflation as measured by the
change in CPI between October-November 1978 and OctoberNovember 1979. These factors are related. Higher compliance will result in reduced labor costs and a corresponding
reduction in inflation. Thus, the cost of real wage insurance is partly self-limiting, since high compliance can
reduce the payoff per qualified worker while low compliance
reduces the amount of insured wages.
- 9The Administration estimates a revenue cost of $2.5
billion for RWI in its FY 19 80 budget. This is based on a
forecast inflation rate of 7.5 percent for the relevant
period and qualification for RWI by about 47 million employees. About 87 million employees would technically be
eligible for RWI, but about 26 million of these will likely
be disqualified because existing pay agreements or legal
mandates assure them pay increases in excess of 7 percent.
The $2.5 billion revenue estimate for RWI assumes that 47
million of the remaining 61 million employees, about threefourths of them, will qualify.
Alternative assumptions are, of course, possible. For
example: if all 61 million realistically eligible employees
qualified for RWI, the forecast inflation rate would be
6.6 percent and there would be no revenue cost of RWI. If
only about 40 percent of these employees qualified, the
forecast inflation rate would be 8.0 percent, and the revenue
cost of RWI would be $2.7 billion. Revenue cost estimates
that associate very high participation rates with much
higher inflation rates are very improbable.
REAL WAGE INSURANCE
Technical Explanation
A.
Coverage of Individuals
Wages reported to an employee on any W-2 form are
covered, or not covered, depending upon whether the employee
is a member of a qualified group with respect to those
wages. A person who is paid wages by more than one employer
during the year may be qualified for wages paid by some
employers and not others. In every case, however, all wages
reported to one employee by a single employer (up to the
$20,000 limit) are either qualified or not qualified. Wages
are not apportioned even if the employee changes duties
within the company.
For purposes of determining coverage of wages for an
individual, membership of an employee in a group depends
upon the employee's position in the company on September 30,
1979. Group membership of an employee who leaves a company
before that date is determined by the employee's position on
the date of separation. (This rule applies even if the
employee is rehired after September 30, 1979.) An employee
first hired by the company after September 30, 1979 is
classified according to the position for which that employee
is hired.
Eligible persons include domestic workers and farm
workers who receive a Form W-2 and employees of governments,
whether or not withholding of income tax or social security
is required. However, persons who own directly or indirectly
10 percent or more of the value of the stock of a company or
who are not residents in the United States cannot qualify
for RWI. The determination of status as a shareholder or a
resident will be made as of the same dates that group membership is determined. It is the employer's responsibility to
determine which employees are entitled to coverage.
B. Types of Employee Groups
As indicated above, each employee is assigned to one
employee group and is entitled to coverage if that group
qualifies. However, for purposes of determining qualification of groups other than low-wage groups, the employer need
B-1349
- 2 not trace individual employees from Base Quarter to Program
Quarter. For example, wages paid for service in supervisory
positions during the Base Quarter are counted in calculating
the Base Quarter pay rate for supervisors and, similarly,
the Program Quarter calculation for that group includes
wages paid to supervisors during the program quarter.
There are four types of employee units:
1. Employees Subject to a Collective
Bargaining Agreement
Employees covered by each collective bargaining agreement to which an employer is a party constitute a separate
employee group. For any company, this group may at the
election of the company include employees within the company
whose pay rates have moved historically in a close tandem
relationship to pay rates of the collective bargaining unit
and who are granted pay rate increases parallel to those of
a "new collective bargaining agreement" in the Program Year.
A separate determination of qualification for RWI must be
made for each group governed by a collective bargaining
agreement.
2. Low-wage Workers
Low-wage workers are those earning straight-time wages
at a rate of $4.00 per hour or less as of the last pay
period in the Base Quarter, or at the time of hiring if
later. Low-wage workers covered by new collective bargaining agreements are covered if the agreement qualifies under
the CWPS rules. Other low-wage workers are a separate group
whenever they comprise (as of the last pay period in the
Base Quarter) at least 10 percent of the group to which they
would otherwise belong and there are at least 10 low-wage
workers in the group. Otherwise, low-wage workers are
included as part of the appropriate larger group, i.e., with
their collective bargaining unit or as part of "all others"
as the case may be. Thus, a company can have as many as one
low-wage worker group for each collective bargaining unit
not under a new agreement plus one such group for all other
employees.
3. Management and Supervisory Employees
All management and supervisory employees of a company
are one unit except those included in the above groups. The
designation of "management and supervisory employees" must
- 3 be made by the employer on a reasonable basis according to
the assignment of responsibilities within the company and
must be consistent between the Base Year and Program Year.
4. All Others
The "all others" category will usually include most of
the non-union employees of a company. This group is a
single unit and may not be subdivided or combined with
another group.
State and local government employees are divided
according to the same rules that apply to employees of
private companies. The "employer" in these cases is the
reporting unit for payroll purposes. Federal government
employees are a single employee group.
C. Qualification Rules for New Collective
Bargaining Agreements"
Employees subject to collective bargaining agreements
signed after October 24, 1978 and before October 1, 1979
that will be in effect for more than 15 months ("new collective bargaining agreements") will qualify for RWI if the
employers party to the agreement, or their bargaining agents,
determine that the agreement satisfies the 7 percent test
for new collective bargaining agreements. This determination
is to be made on the basis of the terms of the agreement
using the costing method published by CWPS. Employees
included with a collective bargaining unit because of a
historical tandem relationship will qualify for RWI if the
agreement qualifies. These determinations of qualification
and coverage of employees will be subject to subsequent
audit by the IRS.
In the case of an audit, the IRS may ask CWPS to certify
the determination of qualification and the existence of a
tandem pay relationship for any group not directly subject
to the agreement. The CWPS certifications may not be
overruled by the IRS. In the case of contracts involving
1,000 or more employees, the employer, employer group, or
the union may request that CWPS make a certification of
qualification at the time of signing. Employers (including
all small business employers) are responsible for identifying
employees under qualified contracts and must report the
amount of wage insurance due regardless of the status of
their other employees.
- 4 -
CWPS may rule a new collective bargaining agreement
having a pay increase of more than 7 percent to be exempt
under any of several exceptions to the pay standard (e.g.,
the tandem rule, the acute labor shortage exception, the
undue hardship exception, and the gross inequities exception) . Employee groups covered by these agreements do not
qualify for RWI. To qualify for RWI a contract must "cost
out" to an average increase over the contract life of 7
percent or less (after allowance for productivity-improving
work rule changes, if any) and have no more than an 8 percent increase in any one year.
D. Qualification Rules for all Employee
Units not Subject to New Collective
Bargaining Agreements
All employee groups not subject to the rules prescribed
above for new collective bargaining agreements will be
evaluated after the close of the Program Year. To qualify,
the pay rate of such units during the third calendar quarter
of 1979 (the Program Quarter Pay Rate) must not exceed the
pay rate of such unit during the third calendar quarter of
1978 (the Base Quarter Pay Rate) by more than 7 percent.
The definitions of terms used in this qualification rule are
as follows:
1. Base Quarter Pay Rate
The Base Quarter Pay Rate is Base Quarter Pay divided
by the number of straight-time hours in the Base Quarter.
In the case of bonuses, commissions and other payments not
made on a regular basis every pay period, 25 percent of such
payments made during the Base Year (i.e., October 1977
through September 1978) shall be included in Base Quarter
Pay.
2. Program Quarter Pay Rate
The Program Quarter Pay Rate is Program Quarter Pay
plus 25 percent of the Cost of Changes in Benefits divided
by the number of straight-time hours in the Program Quarter.
In the case of bonuses, commissions and other payments not
made on a regular basis every pay period, 25 percent of such
payments made during the Program Year (i.e., October 1978
through September 1979) shall be included in Program Quarter
Pay.
- 5 The employer may choose to compute a separate program
quarter pay-rate for group members in each establishment
(i.e., branch, office, factory, store, warehouse, or other
fixed place of business) in the company and then to compute
the weighted average pay rate for the group using the Base
Quarter percentage of total group hours for each establishment as weights. For example, if a company has two branch
offices (A & B) and its total hours in the Base Quarter for
the group in question was divided 4 0 percent for employees
at branch A and 60 percent for employees at branch B, its
Program Quarter Pay Rate for that group would be 40 percent
of the branch A pay rate for that quarter plus 60 percent of
the branch B pay rate regardless of the actual division of
hours between the branches in the Program Quarter.
3. Pay
Pay is the total amount, exclusive of overtime pay, of
W-2 earnings for Federal income tax purposes allocated to
the Base or Program Quarter (as the case may be). This
includes wages, salaries, commissions, vacation and sick
pay, deferred compensation and those employee benefits
reported as current income.
4. Straight-time Hours
Straight time hours are all hours worked, exclusive of
overtime hours, plus the numbers of hours of paid vacations
and other leave. Employers are to attribute a reasonable
number of hours to the efforts of salaried, commissioned,
piece and other workers not compensated on an hourly basis
in a manner consistently applied to the Base Quarter and
Program Quarter.
5. Costs of Changes in Benefits
Costs of Changes in Benefits are the costs attributable
to providing new types of benefits or to changes in the
benefit structure of those employee benefit plans or programs the contributions for which are not currently taxable
to employees. Such plans include qualified pension and
profit sharing plans, medical and health plans, group legal
plans, group term life insurance plans, employer provided
educational assistance plans, and supplemental unemployment
benefit plans.
Specific rules are as follows:
(a) benefits derived from third party payments (such
as insurance companies or trusts exempt under Section 501(c)
- 6 (9) of the Code) and benefits excluded from income (e.g.,
medical, group term life) are excluded from Costs of Changes
in Benefits if the benefit structure of the plan is not
amended. However, the cost of new plans or plan amendments
providing any increase or decrease in benefit levels is a
Cost of Changes in Benefits, unless the change is required
by law (e.g., paid pregnancy leave).
For example, if a pension plan is not amended, costs
attributable to the plan are excluded from the pay rate
calculation even if an increase in wages increases benefits.
Similarly, if a health insurance program is not changed,
costs attributable to the program are excluded whether the
cost has increased by more or less than 7 percent.
(b) The Cost of Changes in Benefits with respect to
these benefit plans and programs is computed by holding all
assumptions constant and comparing the cost of the plan or
program with and without the amendment. Thus, if an employer
changes the plan to provide for 5-year rather than 10-year
vesting, or to increase benefits 10 percent, all other
features of the plan and actuarial assumptions used are to
be held constant and the cost of the plan with and without
the change are to be compared to determine the Cost of
Changes in Benefits.
For example, suppose an employer using the entry age
normal funding method for purposes of the minimum funding
standard amends his plan in the program year to increase
benefits. Before the plan amendment the unfunded cost
allocated to past service (the accrued liability) was
$800,000 and the current year's cost (the normal cost) was
$80,000. After the plan amendment (using the same funding
method, actuarial assumptions, and census data) the accrued
liability was $900,000 and the normal cost was $90,000. The
increase in accrued liability as a result of the amendment
is $100,000 ($900,000 minus $800,000). The annual amount
necessary to amortize that $100,000 over 30 years is $6,195.
The increase in total costs attributable to the plan amendment
is $16,195 (the sum of the increased cost of funding the
increase in accrued liability over 30 years [$6,195] and the
increase in normal costs [$10,000]).
(c) There are two exceptions to these rules:
(i) Defined Benefit Qualified Plans:
If plan benefits or a component of benefits are a
flat amount not determined by reference to pay or
- 7 earnings, the flat rate of such benefits may be increased by up to 7 percent. Only the cost associated
with an increase in excess of 7 percent would be
unolr Tolan S£ °f °^e in Benefits' *or example,
under a plan that provides a benefit of $15 per month
tomll6Yofw^H ^iS8' thS bSnefit Coul* bePincreased
T L III
V ^ h o u t affecting the pay rate computation.
The actuarial cost of increasing the benefit above
$16.05 would be a Cost of Changes in Benefits. However, smaller increases do not create a "credit" for
the pay
rate
computation.
(ii)
Defined
Contribution Plans:
When plan contributions are discretionary or based
In tltitV
° 2 l Y t J e . a n o u n t ^tributable to the increase
in the rate of contribution as applied to Program Year
compensation would be a Cost of Changes in Benefits?
^ e ? a m £
'- s u P ? o s e t h e base period contribution to a
profit sharing plan is 5 percent of the employee's
compensation base of $400,000, or $20,000. During the
Program Year the contribution is raised to 6 percent of
the new compensation base of $500,000, or $30,000
in
such a case, Cost of Changes in Benefits is $5,000,
J:®;' T 2 e f ? e n t o f t h e compensation base in the Program
Year. If the rate of contribution had not increased the
E.
of RWI
Credit as zero.
cost Operation
change would
be counted
ln
on. i
<?ividual is entitled to RWI for wages paid by an
employer if that employer certifies the individual's eliP 1 ; ^ by entering the amount of RWI credit on Form W-2
ror j.37 9. The employer computes the amount of RWI for each
r ^ o i ^ e m p ^ e e by multiplying the amount of compensation
reported to that employee on the W-2 Form (up to $20,000)
• n i m ' ' ^ e r * te . announced by the IRS as the rate of inflation
in excess of 7 percent.
The employer will add the amount of RWI to other
b n v U ^ n S ^ n t S r e d i n . t h e " w a ^es, tips, and other compensation"
r^rZ* tu& ° r m W " 2 * I n addition, the employer will separately
report the amount of RWI in a new box on the Form W-2.
individual taxpayers will make only one additional tax
For those
ltn^nen^i
filing Form 1040, it will be in the
section of the 1040 return labeled "payments" and for those
wtiihli? l°rm 1 0 4 ° A ' lt W i l 1 b e a m o n 9 refundable credits and
withheld taxes on that form.
- 8 If an employee's Form W-2 shows no RWI credit, that
employee may not claim credit for wages paid by that employer
unless the IRS determines that the employer failed to report
RWI credits for members of a qualified group, or wrongfully
excluded the employee from membership in a qualified group.
In the case of a failure to certify a qualified group, the
employer will be required to issue revised Forms W-2 to all
members of the group. If the employees' collective bargaining agent or 50 employees (or 1/3 of employees in a group,
if smaller) petition the IRS claiming an improper failure to
certify their group, the IRS will review the employer's
computations, and the IRS resolution will not be subject to
judicial review.
Small companies with fewer than 50 employees for the
payroll period including March 12, 1979,* may choose not to
participate in the program without being subject to IRS
review. To exercise this option, the company must inform
the IRS and its employees of this intention.
F. Company
The entity responsible for determining eligibility is
the employer as defined for purposes of payroll tax reporting. The employer will make the division of employees among
the four types of employee units according to the rules
described above. Employees of different corporations in
affiliated groups will not be combined. Employees in a new
firm that is a successor to another company may be eligible
for RWI based on a comparison of the predecessor's pay rate
during the Base Quarter.
G. Anti-Abuse Provision
In any case where an employer manipulates normal pay
practices for the purpose of qualifying employees for RWI,
such changes shall be disregarded. For example, if it is
not the normal business practice for an employer's wage
rates to fluctuate during the year, an employer's reduction
of wage rates for the program quarter (with a corresponding
increase thereafter) will be disregarded in determining
group qualification.
* This date coincides with the date for reporting the number
of employees for census purposes.
- 9H.
Sanctions
Employers who willfully or negligently report RWI
credits for members of units that fail to satisfy the
qualification rules will be subject to sanctions consonant
with fraud and negligence penalties in the Internal Revenue
Code. No action will be taken to recover from employees in
such situations unless collusion existed between the employer and employees. Employers who willfully or negligently
fail to certify a qualified group will also be subject to
fraud or negligence penalties.
FOR IMMEDIATE RELEASE
JANUARY 16, 1979
Contact:
Robert E. Nipp
202/566-5328'
TREASURY ANNOUNCES INTEREST RATES ON SF NOTES
The Department of the Treasury today announced that
the interest rates oh its 2-1/2-year and 4-year notes
denominated in Swiss francs are 2.35 percent and 2.65
percent, respectively. Both issues are priced at par.
Interest shall be paid annually.
As announced earlier, the Treasury is offering notes
denominated in SF in an aggregate amount of approximately
2.0 billion SF. The notes are being offered exclusively
to, and may be owned only by, Swiss residents. Subscriptions
will be received by the Swiss National Bank, acting as agent
on behalf of the United States, until 12:00 noon, Zurich
time, on Thursday, January 18, 1979.
#
B-1350
FOR IMMEDIATE RELEASE
January 16, 1$79
Contact:
Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES ADDITIONAL TRIGGER
PRICE COVERAGE AND PRODUCT ADJUSTMENTS
The Treasury Department announced today (1) revised and new
trigger base prices and "extras" for a wide variety of stainless
steel wire products; (2) more complete coverage and additional
"extras" for carbon wire products; (3) an adjustment to the previously announced trigger price for continuous buttwelded pipe.
The actions result in an increase of $22 per ton in the
trigger price for continuous buttwelded standard pipe, much
broader trigger price coverage of stainless wire products, increases of varying amounts in trigger prices of stainless wire
products previously covered, and new coverage of carbon wire
products.
Listed below are the products affected by today's announcement:
Continuous buttwelded standard pipe.
Stainless steel wire covering a broad range of grades,
sizes, and tempers.
Upholstery steel wire, automatic coiling and knotting
type.
Mechanical spring wire.
Oil tempered spring wire.
Carbon steel valve spring wire.
Automotive tire bead wire.
Galvanized core wire for A.S.C.R.
Field fence.
Today's actions are the product of additional data submissions by the Japanese Ministry of International Trade and Industry
and extensive consultations and plant visits in Japan by a threeperson Treasury Department Task Force which visited Japan in
December.
Appropriate pages of the Steel Trigger Price Handbook are
being reissued and additional pages added to reflect these actions.
B-1351
o
0
o
DEPARTMENT OF THE TREASURY
OFFICE OF THE SECRETARY
Notice
New and Adjusted Trigger Prices and Extras
for Imported Steel Mill Products
I am hereby announcing (1) new trigger base prices and
"extras" for a wide variety of stainless steel wire products;
(2) more complete, coverage and additional "extras" for carbon
wire products; and (3) an adjustment to the previously
announced trigger price for continuous buttwelded pipe.
Accordingly, a number of pages in the Steel Trigger Price
Handbook are being reissued and additional pages added to
reflect these actions.
Description of the trigger price mechanism may be found
in the "background" to the final rulemaking which amended
regulations to require the filing of a Special Invoice (SSSI)
with all entries of imported steel mill products (43 F.R. 6065).
These base prices, extras, and adjustments are based upon
information made available to the Treasury Department by the
Japanese Ministry of International Trade and Industry, as
well as other information available to the Department.
All of the trigger prices announced here will be used by
the Customs Service to collect information at the time of entry
on all shipments of the products covered which are exported
after the date of publication of this notice. However, the
following rules will be applied to entries of these products
covered by contracts with fixed price terms concluded before
the publication of this notice.
1. Contracts with fixed price terms between unrelated
parties. If the exporter documents at or before the time of
entry that the shipment is being imported under such a contract
with an unrelated party, the entry will not trigger an investigation even if the sales price is below the trigger price,
provided that product is exported on or before February 28,
1979. However, failure to initiate an investigation will not
diminish the right of affected interested persons to file a
complaint with respect to such imports under the established
procedures of antidumping cases.
(MORE)
-22. Contracts between related parties. If the importer
documents at the time of entry that the shipment is to be
resold to an unrelated purchaser in the United States under a
contract with fixed price terms concluded before the publication of this notice, the entry will not trigger an investigation even if the sales price is below the trigger price,
provided the product is exported on or before February 28,
107 9.
While these "grace period" sales will not as a rule
trigger a self-initiated antidumping investigation, information
concerning such sales will be kept as a part of the information in the Customs Service monitoring system and will be
available in the event an antidumping petition is filed with
respect to such products sold by that producer or the Treasury
Department decides to self-initiate an antidumping investigation based on subsequent sales.
:
JAN 16 1978
TABLE OF PRODUCT ADDITIONS AND ADJUSTMENTS
Action
AISI Category/T.P. Handbook
14-6 Continuous Buttwelded
- 7 Standard Pipe
Base price revised upward $22 based on recent
Japanese submission including additional producers. Other Outside Diameter Weights and
other specifications have been revised, as
noted on page 14-7 (updated to First Quarter
1979).
Stainless Steel Wire
16 - g
10
11
12
13
14
15, A, B, C, D, E, F,
Complete revision of stainless steel wire trigger
prices based on most recent Japanese submissions.
Previous pages 16-9 through 16-15 are replaced.
4
LA
i
16 - 22
Upholstery spring wire
Automatic Coiling and
Knotting Type
New Coverage
16 - 23
Mechanical spring wire
ASTM A-227 and A-648
New Coverage
16 - 24
Oil tempered spring
wire ASTM A-229
New Coverage
16 - 25
Carbon steel valve spring
wire ASTM A-230
New Coverage
16 - 26
Automotive tire bead wire
New Coverage
New Coverage
16 - 27 Galvanized -core wire for
A.S.C.R. ASTM B-498 Class •A"
16 - 28
Field Fence ASTM A-116
New Coverage
14-6
REV. JAN 1979
Continuous Butt Welded Standard Pipe
2 3/8" P.E. Base
Category AISI
14
Tariff Schedule Number (s) 610.32 0.30/lb.
Base Price per Metric Ton $350 1st Quarter
irges to CIF
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
Ocean Freight
Handling
Interest
See Freight
Table
$7
5
4
4
$.6
8
8
10
Insurance 1% of base price + extras + ocean freight
Extras
A.
Outside Diameter/Wall Thickness, including Black or
Galvanized, Threaded and Coupled or Plain End.
Revised Jan, 1978
1st Quarter
14-7
BASE PRICE, INCLUDING O.D./WT., GALVANIZING, THREADED AND COUPLED EXTRAS
CONTINUOUS BUTT WELDED PIPE
AISI 14 TSUSA 610.32
DESCRIPTION NOM. (INCHES)
O.D. (INCHES)
1/2 3/4 1 1} li
2 3/8
2 7/8
3*
STD WEIGHT, BLK, PLAIN END 377 367 360 358 358
350
350
350
358
358
EX STRONG, BLK, PLAIN END 377 377 359 366 366
360
360
360
366
366
STD WEIGHT, GALV, PLAIN END 479 463 451 444 444
444
438
438
444
444
EX STRONG, GALV, PLAIN END 492 475 464 455 455
451
451
451
455
455
STD WEIGHT, BLK T AND C 418 405 390 387 387
380
380
380
392
392
EX STRONG, BLK T AND C 429 415 401 397 397
390
390
390
405
405
STD WEIGHT, GALV, T AND C 521 500 481 473 473
468
468
468
480
480
EX STRONG, GALV, T AND C 536 514 494 488 48B
481
481
481
493
493
SPRINKLER PIPE (SCH. 10) 393 394 377 374 374
368
368
368
374
374
4
*i
16-9
REV. JAN, 1979
STAINLESS STEEL WIRE T.P. SCHEDULES
CATEGORY A.I.S.I. 16
Tariff Schedule Numbers 609-4510 and 609-4540
10 1/2% + Additional Duties (See Headnote 4, T.S.U.S.)
Sequence Guide
1. Annealed Wire - Group I
A. Grades and Base
B. Size Extras by Grade Group
2. Hard/Spring Wire - Group II
A. Grades and Base
B. Size Extras by Grade Group
3. Soft/Intermediate Wire - Group III
A. Grades and Base
B. Size Extras by Grade Group
4. Coating Extras
5. Finish Extras
A. Centerless Ground
B. Centerless Ground and Polished
6. Tolerance Extras
7. Straightening and Cut to Length Extras
8. Packaging Extras
9. Schedule for ocean freight, handling, interest, and insurance
These pages replace 16-9 through 16-15 plus additional pages 16-15A through 16-15D
NOTE: All Stainless Steel Wire product trigger prices on
p. 16-9 through 16-15F are 1st Quarter 1979 prices.
16-10
REV. JAN, 1979
GROUP I - ANNEALED WIRE
Annealed:
The condition of soft wire in which there is no further
cold drawing after the last annealing treatment. Wire
of this temper is made by annealing in open fired
furnaces or molten salt followed by pickling, which
produces a clean gray matte finish. It is also made
with a bright finish by annealing wet, oil or grease
drawn wire in a protective atmosphere, and is sometimes
described as bright annealed wire.
Dollar per MT
Grades
Size Extras
301
302
303
304
305
310
314
316
316-L
317
317-L
304-L
17-4PH *
308
308-L
309
309-L
321
312
302 HQ(18-19LW)
347
384
15-5PH ***
409
410
416
420
430
430-F
434
434-A
446
2073
2018
2128
2073
2266
4057
4829
2734
2927
3286
3479
2266
2431
2238
2431
2845
3038
2431
Not Available
2211
2789
2734
Not Available
1588
1257
1224
1312
1312
1533
1422
1422
1918
* May also be designated as type 630 or as UNS 17400
** May also be designated as type 302 CU and as 306
*** May also be designated as type XM12 and UNS 15500
16-11
REV. JAN, 1979
GROUP I - ANNEALED WIRE (Continued)
Dollar per MT Size Extras
300 Series
17-7PH
400 Series
204
204
221
523
523
523
204
204
221
.499"- .375"
.3125" -.374"
.250"- .312"
239
256
343
523
523
523
239
256
343
.234"- .249"
.216"- .233"
.200"- .215"
389
442
610
523
563
610
389
442
610
.185"- .199"
.170"- .184"
.155"- .169"
627
644
656
639
668
697
627
644
656
.142"- .154"
.128"- .141"
.113"- .127"
674
703
784
825
953
1051
674
703
697
.099"- .112"
.086"- .098"
.076"- .085"
906
993
1051
1144
1214
1283
731
761
796
.067"- .075"
.058"-,.066"
.051"-,.057"
1109
1214
1266
1347
1394
1440
964
1126
1179
.044"-..050"
.038"-..043"
.033"-.,037"
1318
1434
1556
1487
1533
1707
1231
1347
1469
.030"-.,032"
.027"-. 029"
.024"-. 026"
1620
1777
1928
1823
Not Available
1620
1957
1928
021"-. 02 3"
019"-. 02 0"
018"
2079
2230
2375
017"
016"
015"
2410
2450
2566
Size*
.703"- •.574"
.693"- .501"
.500"
&
II
II
II
*A11 intermediate sizes to take next higher price.
17-4PH
15-5PH
2084
2230
2375
2410
2450
2566
16-12
REV. JAN, 1979
GROUP 1 - ANNEALED WIRE (Continued)
Dollar per MT Size Extras
300 Series
17-4PH
400 Series
& 17-7PH
15-5PH
Size*
.014"
.013"
.012"
2699
2815
2937
Not Available
.011"
.010"
.009"
3053
3332
3460
II
.008"
.0075"
.007"
3617
3779
3953
.0065"
.006"
.00575"
4360
4824
5288
n
.0055"
.00525"
.005"
5753
6682
6856
it
.00475"
.0045"
.00425"
6972
7204
7843
it
.004"
.00375"
.0035"
8423
17711
21136
.00325"
.003"
.0027"
24155
27173
28161
n
.0025"
.002"
29322
38029
n
n
II
•i
it
II
n
n
n
if
it
n
rt
n
it
*A11 intermediate sizes to take next higher price.
2699
2815
2937
3053
3332
3460
3617
3779
3953
4360
4824
5288
5753
6682
6856
6972
7204
7843
8423
17711
21136
24155
27173
28161
29322
38029
16-13
REV. JAN, 1979
GROUP II - HARD/SPRING WIRE
Hard/Spring: A condition of wire drawn several drafts as required
to produce the high tensile strengths required for
such products as spring wire.
Grades
301 2073
302
303
304
305
310 4057
314
316
316-L
317
317-L
321 2431
17-4PH *
17-7PH ****
330
308
308-L
309 2845
309-L
312
302 HQ(18-9LW)**
347
384
15-5PH *** Not Available
409
410
416
420
430
430-F
434 1422
434-A
446
Dollar per MT
Wire Base Price
2018
2128
2073
2266
4829
2734
2927
3286
3662
2431
3175
Not Available
2238
2431
3038
Not Available
2211
2789
2734
* May also be designated as Type
1588
1257
1224
1312
1312
1533
1422
1918
630 or as UNS 17400
** May also be designated as Type 302 CU and 306
*** May also be designated as Type XM-12 and UNS 15500
**** May also be designated as Type 631 and UNS-177O0
16-14
REV- JAN, 1979
GROUP II - HARD/SPRING WIRE (Continued)
Size*
Over
.375"
Not Available
Dollar per MT Size Extras
300 Series
& 17-7PH
400 Series
679
.3125"-.374"
.250"-.312"
679
679
.234"-.249"
.216"-.233"
.200"-.215"
679
679
679
.185"-.199"
.170"-.184"
.155"-.169"
679
679
679
.142"-.154"
.128"-.141"
.113"-.127"
656
656
656
.099"-.112"
.086"-.098"
.076"-.085"
691
766
824
.067"-.075"
.058"-.066"
.051"-.057"
894
993
1196
.044"-.050"
.038"-.043"
.033"-.037"
1376
1451
1591
.030"-.032"
.027"-.029"
.024"-.026"
1666
2009
2194
.021"-.023"
.019"-.020"
.018"
2415
2705
3268
.017"
.016"
.015"
3559
3646
3733
.014"
.013"
.012"
3907
4052
4342
*A11 intermediate sizes to take next higher prxce.
16-15
REV. JAN, 1979
GROUP II - HARD/SPRING WIRE (Continued)
Size*
.011"
.010"
.009"
.008"
.007"
Dollar per MT Size Extras
300 Series
~
& 17-7PH
400 Series
5556
5701
5933
Not Available
6130
Under Review
.0065"
.006"
.00575"
.0055"
.00525"
.005"
.00475"
.0045"
.00425"
.004"
.00375"
.0035"
.00325"
.003"
.0027"
Not Available
0025"
002"
*A11 intermediate sizes to take next higher price.
16-15A
REV. JAN, 1979
GROUP III - SOFT/INTERMEDIATE WIRE
Soft/Intermediate: A condition of wire drawn one or more drafts after
annealing as required to produce minimum strength
or hardness. The properties of such wire can be
varied between those of soft temper and those
approaching spring temper wire. Wire in this temper
is usually produced in a variety of dry drawn tempers.
Cold heading wire, by example, belongs in this group.
Grades
301
302
302(302HQ,18-9LW)
303
304
305
310
314
316
316-L
317
317-L
321
17-4PH *
330
308
308-L
309
309-L
312
347
384
15-5PH **
409
410
416
420
430
430-F
434
4 34-A
446
Dollar per MT
Wire Base Price
2073
2018
2211
2128
2073
2266
4057
4829
2734
2927
3286
3479
2431
2431
Not Available
2238
2431
2845
3038
Not Available
2789
2734
Not Available
1588
1257
1224
1312
1312
1533
1422
1422
1918
* May also be designated as Type 630 or as UNS 17400
** May also be designated as Type XM12 or as UNS 15500
16-lbD
REV. JAN, 1979
GROUP III - SOFT/INTERMEDIATE WIRE (Continued)
Size*
Dollar per MT Size Extras
300 Series
17-4PH &
& 17-7PH
400 Series
15-5PH
Over .375"
.3125"-.374"
.250"-.312"
.234"-.249"
.216"-.233"
459
459
459
459
459
319
319
331
354
377
459
459
459
459
459
.200"-.215"
.185"-.199"
.170"-.i84"
.155"-.169"
.142"-.154"
459
569
598
627
650
406
435
459
499
563
459
569
598
627
650
.128"-.141"
.113"-.127"
.099"-.112"
.086"-.098"
.076"-.085"
702
842
923
975
1086
673
749
853
882
935
702
842
923
975
1086
.067"-.075"
.058"-.066"
.051"-.057"
.044"-.050"
.038"-.043"
1196
1306
1353
1405
1527
1022
1242
1469
1515
1573
1196
1306
1353
1405
1527
.033"-.037"
.030"-.032"
.027"-.029"
.024"-.026"
.021"-.023"
.019"-.020"
1620
1730
1887
2038
2194
2339
1759
1875
Not Available
1620
1730
1887
2038
2194
2339
'
•t
n
n
•Intermediate sizes to take next higher price.
16-15C
REV. JAN, 1979
COATING EXTRAS
Material provided uncoated or coated with lime (or equivalent
to lime) and/or soap will carry no extra. Other coatings require
an appropriate extra where additional costs are involved.
Metallic coatings include copper, nickel and lead. Non-metallic
coatings include plastics, molybdedum disulfide, etc.
Type of Coating
Size Range
Oxide
Over .155"
.154"-.099"
.098"-.063"
.062"-.041"
.040"-.030"
None
.029"-.025"
.024"-.020"
.019"-.015"
.014"-.010"
II
H
M
Metallic
Copper
Nickel
116
174
232
Not Available
M
M
11
•i
II
H
II
H
II
H
Non-Metallic
35
35
47
72
99
25
25
33
50
66
99
135
177
210
66
95
125
151
16-15D
REV. JAN, 1979
FINISH EXTRAS
Size Range*
.703"-.595"
.594"-.501"
.500"
.499"-.375"
.374"-.3125"
.3124"-.250"
.249"-.234"
.233"-.216"
.215"-.200"
.199"-.185"
184"- .170"
169"- .155"
154"- .142"
141"- .128"
127"- .113"
112"- .093"
Centerless
Ground
300 Series,
17-7PH,
400 Series,
17-4PH, &
15-5PH
Centerless Ground
and Polished
300 Series,
17-7PH,
400 Series,
17-4PH,&
15-5PH
499
499
551
563
563
627
627
697
720
720
563
865
865
958
1120
720
1051
1051
1167
1353
1318
1579
1840
2165
2711
5521
1567
1846
2107
2432
3001
6078
*A11 intermediate sizes to take next higher price.
17-4PH to be included in 400 series.
Straightening and cut to length extras are already
included in the above finish extras in case of
centerless ground or centerless ground and polished
16-15E
REV. JAN, 1979
TOLERANCE EXTRAS
Standard:
AISI or JIS Specification
Diameter Tolerance
S/MT
Standard
Not less than 1/2 standard
Closer than 1/2 to 1/4 standard
Closer than 1/4 standard
0
$116
25% of size extra
50% of size extra
Straightening and Cut to Length Extras
Size Range Dollar per MT
,703"-.595"
594"-.501"
.500"
499"-.375"
,374"-.3125"
,3124"-.170"
,169"-.099"
,098"-.051"
,050"-.032"
104
104
104
131
131
236
590
1706
1968
Length
Dollar per MT
Under 12"
12" to under 18"
18" to under 24"
24" to under 30"
30" to under 36"
36" to under 48"
48" to under 60"
60" to under 72"
72" to under 120"
120" to under 168"
168" to under 192"
192" to under 216"
216" to under 240"
240" to under 264"
264" to under 288"
288" to 316"
92
59
59
39
39
39
39
39
33
33
33
33
33
26
26
26
Packaging Extras
Type
Dollar per MT
Bundle
Wooden Boxes
Fibre Drums
Coil Carriers
Spools
29
87
87
29
145
16-15F
REV. JAN. 1979
Stainless Wire (Continued)
Category 16
Tariff Schedule Nos. 609.4510 and
609.4540
Ocean Freight
West Coast
Gulf Coast
East Coast
Great Lakes
93
109
109
142
Handling
7
5
4
4
Interesl: F
1,.8%
2,.4%
2..4%
2,.9%
Interest charge equals F.O.B. price including size
extra times interest factor.
Insurance at 1% of base plus extras plus ocean freight.
16-22
New Page, Jan 1979
Category A.I.S.I.
16
Tariff Schedule Number 609.4315 8.5%
1st Quarter
Base Price Per Metric Ton $487
Charges to C.I.F.*
Ocean Freight Handling Interest
West Coast $38 $7 $ 9
Gulf Coast
Atlantic Coast
Great Lakes
47
49
62
5
4
4
12
121
14
Insurance 1% of Base Price + Extras + Ocean Freight
Extras
1. Size Extra
Size (Inches) $ Per Metric Ton
0.191 - 0.135 Base
0.134 - 0.105
0.104 - 0.080
0.078 - 0.062
*Tramper Rate
9
13
24
New Page 16-23
Jan 1979
MECHANICAL SPRING WIRE A.S.T.M. A-227 AND A-648
Category A.I.S.I.
16
Tariff Schedule Numbers 609.4305 8.5%
609.4315
8.5%
Base Price Per Metric Ton $513
Class 1 and 2
Charges to C.1.F.
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
Ocean Frei ght
Handli ng
$38
47
49
62
$7
5
4
4
Interest
$ 9
12
12
15
Insurance 1% of Base Price + Extras + Ocean Freight
Extras
1. Processing Extra Class 3 $2/M.T.
2. Size Extra
Per Metric Ton
Size (Inches)
0-625"
0.436"
0.191"
0.134"
0.104"
0.079"
- 0.437"
- 0.192"
- 0.135"
- 0.105"
- 0-080"
- 0.062"
class 1 and 2
10
-2
Base
7
22
34
* Ocean Freight Represents Tramper Rate
class 3
10
-2
Base
7
22
34
16-24
New Page, Jan 1979
Category A.I.S.I.
16
Tariff Schedules 609.4055
609.4305
609.4315
Base Price Per Metric Ton
8 2%
8-2%
8"2%
$516 MB Grade
Charges to C.I.F.
Ocean F reight
H andli ng
Container
Tramper
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
$38
47
49
62
$7
5
4
4
$ 88
100
100
102
Intere
$10
. 12
12
15
Insurance 1% of Base Price + Extras + Ocean Freight
Extras
1. Processing Extra
HB Grade
2.
$22
Size Extra
$ Metric Ton
Size ( Inches)
0 625 - 0.437
0 436 - 0.192
0 191 - 0.135
0 134 - 0.105
0 104 - 0.080
0 079 - 0.062
0 061 - 0.054
0 053 - 0.042
0 .041 - 0.037
0 -036 - 0.0348
M.B.
10
4
Base
19
46
64
72
81
95
150
N.B.
10
4
Base
19
46
64
72
81
95
150
Wires 0.625" through 0.054" shipped by Tramper
Wires 0.053" through 0.0348" shipped by container vessels
16-25
Mew Page j.an 197'J
Category A.I.S.I.
16
Tariff Schedules 609.4305 8.5%
609.4315 8.5%
Base Price Per Metric Ton $859
Charges to C.I.F.
Ocean Freight
West Coast $ 88
Gulf Coast
Atlantic Coast
Great Lakes
100
100
102
Handli ng
Interest
$7
5
4
4
$16
20
20
25
Insurance 1% of Base + Extras + Ocean Freight
Extras
1, Size Extra
Size (Inches) $ Per Metric Ton
0.311 - 0.250 $ 90
0.2499 - 0.207
0.2069 - 0.192
0.1919 - 0.162
0.161 - 0.1483
0.1482 - 0.135
0.134 - 0.1205
0.1204 - 0.1055
0.1054 - 0.0915
0.0914 - 0.090
Ocean Freight - Container Vessel
55
11
Base
25
47
85
143
207
266
New Page 16-26
Jan 1979
AUTOMOBILE TIRE BEAD WIRE 0.037"
Category A.I.S.I.
16
Tariff Schedule 609.4065 8.5%
Base Price Per Metric Ton $602
Charges to C.I.F.
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
Ocean Freight
Handling
$ 91
101
101
103
$7
5
4
4
Inter
Insurance 1% of Base Price + Extras + Ocean Freight
Ocean Freight Represents Container Vessel
$11
14
14
17
New Page 16-27
Jan 1979
GALVANIZED CORE WIRE FOR A.S.C.R. A.S.T.M. B-498
CLASS "A"
Category A.I.S.I.
16
Tariff Schedule Number 609.4365 8.5%
Base Price Per Metric Ton $642
Charges to C.I.F.
Oc ean Fre ight
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
$50
53
55
65
Handli-ng
$7
5
4
4
Interest
$12
15
15
19
Insurance 1% of Base Price + Extras .+ Ocean Freight
Extras
1 . Size Extra
Size (Inches) $ Per Metric Ton
0.1878
0.1409
0.1209
0.1054
0.0914
0.0859
0.0799
0.0719
-
0.1410
0.1210
0.1055
0.0915
0.0860
0.0800
0.0720
0.0661
Ocean Freight Represents Tramper Rate
$ 12
Base
12
35
47
71
101
165
New Page 16-28
Jan 1979
FIELD FENCE A.S.T.M. A-116
Category A.I.S.I. 19
Tariff Schedule Number 642.3570 0.10 per lb.
Base Price Per Metric Ton $587
#11 Gauge Galvanized Wire
Charges to C.I.F.
West Coast
Gulf Coast
Atlantic Coast
Great Lakes
Ocean Freight
Handli ng
Interest
$ 42
50
55
60
$7
5
4
4
$11
14
14
17
Extras
Size Extra
$ Metric ton
Stay Wire Spacing
Filler Wire Size
6"
12"
#11
#12i
Base
16
- $ 3
13
Ocean Freight Represents Tramper Rate
loW'TREASURY
.C. 20220 TELEPHONE 566-2041
'LIBRARY
^I8f73
FOR RELEASE AT 4:00 P.M.
T
•
January 16, 1979
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 25, 1979.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,805 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
October 26, 1978,
and to mature April 26, 1979
(CUSIP No.
912793 Y2 6), originally issued in the amount of $3,389 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,000 million to be dated
January 25, 1979,
and to mature July 26, 1979
(CUSIP No.
912793 2D 7).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing January 25, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,691
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. 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 22, 1979.
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-1352
-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 bookentry records of Federal Reserve Banks and Branches. -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
must be made or completed at the Federal Reserve Bank or Branch
or at the Bureau of the Public Debt on January 25, 19 79
in cash
or other immediately available funds or in Treasury bill's maturing
January 25, 1979.
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, 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 17, 1979
Contact: Robert E. Nipp
202/566-5328
TREASURY ANNOUNCES'RESULTS OF GOLD SALE
The Department of the Treasury announced that 1,500,100
troy ounces of fine gold were sold yesterday to 23 firms and
individuals who bid successfully at a sealed bid sale. Awards
of 1,000,000 troy ounces of gold in 400 ounce bars whose fine
gold content is 99.5 to 99.94 percent were made to 18 successful
bidders at prices from $219.23 to $222.00 per ounce, yielding an
average price of $219.71 per ounce. Bids for this gold were
submitted by 31 bidders for a total amount of 5.5 million ounces
at prices ranging from $42.00 to $222.00 per ounce.
Awards of 500,100 troy ounces of gold in 300 ounce bars
whose fine gold content is 89.9 to 90.1 percent were made to 14
successful bidders at prices from $217.51 to $220.93 per ounce,
yielding an average price of $218.22 per ounce. Bids for this
gold were submitted by 23 bidders for a total amount of 1.3
million ounces at prices ranging from $190.00 to $220.93 per
ounce.
Gross proceeds from today's sale were $328.8 million. Of
the proceeds, $63.3 million will be used to retire Gold
Certificates held by Federal Reserve Banks. The remaining
$265.5 million will be deposited into the Treasury as a
miscellaneous receipt.
The General Services Administration will release a list of
successful bidders and the amounts of gold awarded to each, after
those bidders have been notified that their bids have been
accepted.
The current sale was the ninth in a series of monthly
auctions being conducted by the General Services Administration
on behalf of the Department of the Treasury. The next sale, at
which 1,500,100 ounces will be offered, will be held on
February 20, 1979. At this sale, 1,000,000 fine troy ounces
will be offered in bars whose fine gold content is 99.50 to
99.94 percent. The minimum bid for these bars will be for 4 00
fine troy ounces. A total of 500,100 ounces will be offered
in bars whose fine gold content is 89.9 to 90.1 percent. The
minimum bid for these bars will be 300 fine troy ounces. Bids
0o
for bars in each fineness o
category
will be evaluated separately.
B-1353
FOR RELEASE AT 4:00 P.M.
January 17, 1979
TREASURY TO AUCTION $2,700 MILLION OF 2-YEAR NOTES
The Department of the Treasury will auction $2,700
million of 2-year notes to refund approximately the same
amount of notes maturing January 31, 1979. The $2,704
million of maturing notes are those held by the public,
including $774 million currently held by Federal Reserve
Banks as agents for foreign and international monetary
authorities.
In addition to the public holdings, Government accounts
and Federal Reserve Banks, for their own accounts, hold
$151 million of the maturing securities that may be refunded
by issuing additional amounts of the new notes at the
average price of accepted competitive tenders. Additional
amounts of the new securities may also be issued at the
average price, for new cash only, to Federal Reserve Banks
as agents for foreign and international monetary authorities.
Details about the new security are given in the
attached highlights of the offering and in the official
offering circular.
oOo
Attachment
B-1354
/
[over)
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 2-YEAR NOTES
TO BE ISSUED JANUARY 31, 1979
January 17, 1979
Amount Offered:
To the public
Description of Security:
Term and type of security
Series and CUSIP designation
Maturity date January 31, 1981
Call date...
Interest coupon rate
Investment yield
Premium or discount
Interest payment dates
Minimum denomination available
Terms of Sale:
Method of sale
Accrued interest payable by
investor
Preferred allotment
Deposit requirement 5% Qf 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.
$2,700 million
2-year notes
Series P-1981
(CUSIP No. 912827 JJ 2)
No provision
To be determined based on
the average of accepted bids
To be determined at auction
To be determined after auction
July 31 and January 31
$5,000
Yield auction
None
Noncompetitive bid for
$1,000,000 or less
Acceptable
Tuesday, January 23, 1979,
by 1:30 p.m., EST
Wednesday, January 31, 1979
Monday, January 29, 1979
Friday, January 26, 1979
Monday, February 5, 1979
THE SECRETARY OF THE TREASURY .
WASHINGTON
January 16, 1979
Bear Mr. Chairman:
I am submitting with this letter both general and
technical explanations of President Carter's proposal for
Real Wage Insurance.
As you know, this program needs expedited consideration, for it is designed to influence wage decisions in
1979, many of which will be made early in the year. I am
submitting the proposal at this time in the hope that the
Ways and Means Committee can hold public hearings immediately following testimony by Administration witnesses.
Inflation is the most important economic problem facing
the nation. To establish an economic climate conducive to
wage and price moderation, the President has made a longterm
commitment to genuine fiscal and monetary restraint and has
announced a balanced program of voluntary wage-price
standards.
Real wage insurance complements this overall approach
by providing a powerful incentive for pay standard
compliance. The incentive is simple and logical: For
members of employee groups meeting the 7 percent pay
standard, the program would provide a large measure of
insurance against any erosion in real income due to
inflation exceeding 7 percent. The financial risk involved
in accepting pay restraint would be greatly reduced, and
acceptance of pay restraint throughout the economy would
increase correspondingly, helping to brake the wage-price
spiral.
I wish to emphasize that real wage insurance is
an incentive for wage restraint. It is not a program to cut
taxes generally: That would be inflationary — expanding
the deficit while contributing nothing to wage moderation.
Nor is this a program to "index" the tax system to
inflation: That would constitute a surrender to the problem
rather than a solution to it.
tri555
-2More than any other single proposal
Congress, real wage insurance promises a
impact on the wage-price spiral. I look
with you and your colleagues on this new
days ahead.
Best regards.
Sincerely,
W. Michael Blumenthal
The Honorable
Al Ullman
Chairman
Committee on Ways and Means
House of Representatives
Washington, D.C.
20515
Enclosures
before the
direct and major
forward to working
proposal in the
FOR IMMEDIATE RELEASE
JANUARY 19, 1979
Contact: Robert E. Nipp
20~2/566-5328
TREASURY ANNOUNCES RESULTS OF SF NOTE SALE
The Department of the Treasury today announced that it
is accepting a total of SF 2,015 million in subscriptions
for its issues of 2-1/2 and 4-year notes denominated in
Swiss Francs. A total amount of SF 5,188 million in
subscriptions for these issues was received.
The Treasury accepted SF 1,247 million in subscriptions
for its 2-1/2 year notes. Total subscriptions received for
this issue were SF 3,663 million. In the case of the 4-year
note, the Treasury accepted SF 768 million in subscriptions.
Total subscriptions received for this issue were SF 1,525
million. These acceptances represent allocations of
33 percent of subscriptions for 2-1/2 year notes and
50 percent for the 4-year maturity. In each of the two
maturities, allocations are being made at a pro rata basis.
Individual subscriptions, however, are being rounded up
to the nearest SF 500,000.
#
B-1356
#
#
FOR RELEASE ON DELIVERY
Expected at 9:30 a.m.
January 22, 1979
TESTIMONY OF THE HONORABLE ROBERT CARSWELL
DEPUTY SECRETARY OF THE TREASURY
BEFORE THE
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
I am pleased to present the views of the Administration
on H.R. 7. We support the efforts of the Congress to deal
with the question of mandatory universal reserves for depository
institutions at this time. In mid-1977, the Administration
requested the introduction of S. 1664, which approached this
question in a somewhat different way, and we gave general
support to other approaches in the last Congress. We hope
the Congress will be able to act on this matter early in
this session.
Many plans have been put forward to deal with this
problem. Rather than discussing them in detail, I would
like to consider the principles that we believe should
govern this undertaking.
They are:
— improvement of the tools available to the
Federal Reserve in the implementation of
monetary policy.
B-1357
- 2 —
reducing competitive inequities among depository institutions engaged in the same
or similar lines of business.
— restraining the negative impact of any changes
on the Federal Budget in this period when the
Administration and the Congress are striving to
squeeze down the deficit.
Universal and Uniform Required Reserves
These objectives are best served by imposing mandatory
reserve requirements on all institutions holding similar
deposit balances. Since reserve requirements are important
to the effective formulation and implementation of monetary
policy, their coverage should not be contingent upon voluntary or induced membership in the Federal Reserve System.
They should be regarded as a price and a necessary component
of participation in the monetary system rather than a result
of decisions about the choice of a regulator, the value of
access to the discount window or a nice balancing of the costs
of maintaining reserves against the benefits of membership.
Moreover, to the extent that all institutions maintaining
transaction balances have the same level of reserves, the
link between the aggregate amount of reserves and the money
supply is made more firm.
For these reasons, this bill takes a constructive step
in severing the connection between reserves and Federal Reserve
membership, and by focusing instead on the type of balance
involved. Extending reserve requirements to thrifts for
transaction accounts is a timely shift toward competitive
equality and a more equitable distribution of the reserve
burden. The adverse impact on thrifts is relatively small
because their transaction balances are small at this time.
Of course, it is not possible to achieve full equality
of treatment with this step. There are many small depository institutions that with some justification will resist
a reserve obligation on the ground that the adverse impact
on earnings is too great, and their participation, while
theoretically correct, may not in practice be necessary to
the effective conduct of monetary policy. Total reserves in
excess of vault cash of the smaller banks would in any event
constitute only a small proportion of total reserves.
- 3 Accordingly, some exemption from universal reserves
for small institutions may therefore be appropriate, but we
would hope that the exemption would be less generous than
that proposed in this bill. In effect, H.R. 7 ratifies the
status quo by exempting slightly less than the approximately
72% of commercial bank deposits currently subject to reserve
requirements. Equity prompts expanded coverage -- which
also might permit lower reserve ratios. It would also provide
a larger reserve base for use in monetary policy implementation
while still leaving the vast majority of small depository
institutions unaffected.
The reporting requirements contained in the bill provide
important supplementary monetary coverage of all depository
institutions not required to hold reserves. The report forms
and statistics should be brief and rely as much as possible
on existing information flows. The paperwork burden of all
institutions, particularly the smaller, should be kept to a
minimum.
Finally, we do not think that the concept of universal
reserves is inconsistent with the principles of the dual
banking system. That system recognizes that when there
is an overriding Federal interest in an issue, the groundrules should be established by the Federal government. That
is the case, for example, with bank holding companies. It
is also the case with monetary policy. So long as reserves
have a role to play in this process, all banks similarly
situated should have the same burden to the extent practicable.
Surely the Federal Government has no responsibility to insure
the viability of state supervision by making it financially
unattractive for a bank to be a member of the Federal Reserve.
The strength of the system comes from the choice it offers
on supervision and examination. That choice remains unchanged
by
this bill.
Moreover, the availability of Federal Reserve
Interest
on Reserves
services to all banks at nondiscriminatory rates will make
In
the last
the Administration
indicated that
it easier
forCongress,
a larger bank
to be a nonmember.
if the Congress decided that the holding of reserves should
continue to be voluntary, then the Administration would
support legislation to reduce the financial burden of membership through the payment of interest on reserves. For all
the reasons I have noted, we very much prefer the approach
of required reserves embodied in this bill.
- 4 Revenue Loss Projections
In testimony before the Senate Banking Committee last
June and August and in a letter to this Committee in
September 1977, the Administration stated that it would
accept a revenue loss of $200-300 million, after tax
recoveries, to deal with this problem. Then, in an
October letter to the Senate Banking Committee, with the
budget outlook tightening, we indicated that a revenue
loss at the lower end of that range was preferable. In
the current budget environment, a solution to the membership
problem involving a revenue loss under $200 million, net of
tax recoveries, is essential. We understand that the
Committee staff estimates that the net cost of fully implementing H.R. 7 would be approximately $170 million.
While this expense does not exceed the limit of acceptability, these next few years will be ones of budget
stringency. Accordingly, we would encourage exploration of
proposals that involve lower costs.
In any calculation of the total annual cost of a membership solution, the Congress should focus particular attention
on the fiscal 1980 budget impact. There are several elements
in the revenue and cost figures that make the near term
financial results of the various membership solutions a special
concern. In determining the after-tax revenue loss for most
proposals, estimates of tax recaptures that may take several
years are used. These deferred tax effects might leave a
disproportionate after-tax shortfall in the first year of
most annual loss projections.
Similarly, most proposals assume income of about $410 million from the explicit pricing of Federal Reserve services to
reduce the annual net revenue loss the proposals will generate.
Yet, not all the revenue will be available in fiscal 1980.
It will take time to develop and institute prices on some
services.
Finally, most membership proposals contain provisions, as
in this bill, to phase in reserve requirements on depository
institutions that are not now Federal Reserve members and
to impose any increased requirements on existing members
over a four year period. At the same time, the proposals
mandate that any change in reserve ratios, including the
moderate lowering in H.R. 7, be effected within two years.
- 5 We are concerned that the time gap between a lowering of
ratios and the accumulation of new reserve balances may
increase the net revenue loss in the early years.
Accordingly, our support of H.R. 7 is premised on the
assumption that the Federal Reserve will fully offset any
revenue loss during the transition years. Chairman Miller
has advised me that the Board of Governors has agreed to
this approach.
Other Issues
Section 7 of H.R. 7 would require the Federal Reserve to
price its services and make them available to all depository
institutions, whether or not they are members or hold re-.
serves. Once access to System services is no longer required
as an inducement to membership, the more general availability
of Federal Reserve services should benefit the banking system
as a whole. Moreover, requiring that the Federal Reserve
price services on a basis involving full allocation of cost,
with appropriate allowances for costs unique to private
organizations such as capital and taxes, should allow other
vendors to compete with the System more effectively. Hopefully,
market mechanisms will then become important in establishing
the prices of these services and the relative roles of the
competing vendors.
H.R. 7, like its predecessor H.R. 14072, would index the
exemption from reserve requirements based on deposit growth.
We do not favor this provision. The exemption results from
the structure of the current system, under which many small
banks are nonmembers, and thus maintain no reserves at the
Federal Reserve, and others have low reserve requirements.
We should seek to eliminate the disparate treatment of large
and small banks over time. If the exemption is not indexed,
the growth of the deposit base will gradually reduce the
scope of the exemption, and will further the objective of
competitive equity.
This concludes my formal testimony, Mr. Chairman. I
would be pleased to answer any questions the Committee may
have.
BUDGET BRIEFING STATEMENT
OF
THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
January 20, 1979
This budget is part of an overall macroeconomic
policy of sustained and balanced restraint.
This budget will bring about a moderation in the
pace of economic growth and in the rate of inflation,
and will help establish the fundamental conditions
necessary to maintaining a strong and stable dollar.
It is a very tough budget but it is also, in my
judgment, fair and prudently scaled to the resources
available for public needs at this stage in the
economic recovery.
I would like to say a few words about those
aspects of the budget of particular interest to the
Treasury.
On the receipts side, the budget contains no large
additional revenue losses. Until we succeed in bringing
inflation under control, it would be very risky to entertain a general tax cut. With the economy's margin
of unused capacity and labor shrinking steadily, a
general tax cut would generate new demand pressures
wholly inconsistent with the fight against inflation.
Between fiscal 1979 and 1980, receipts will rise as a
percentage of GNP, but only slightly—from 19-9% to
20.1%. This is tolerable and necessary in present
economic circumstances.
The major proposal on the receipts side of the
budget is real wage insurance, an integral component
of the President's voluntary program of wage-price
standards. We have budgeted this innovative proposal
B-1358
-2at $2.5 billion; this figure assumes a reasonably
high rate of participation in the program—by about 47
million employees—and an inflation rate of 7.5% between
October-November 1978 and October-November 1979. This
program involves a modest investment and could pay
very substantial dividends in terms of moderating the
wage-price spiral.
The restrained character of this budget will have
a positive impact on financial markets. The Unified
Budget Deficit will amount to only about 1% of GNP,
as compared to about 4% in 1976. The deficit will be
about $8 billion smaller than in FY 1979, and offbudget financing—at about $12 billion—will show no
increase between the two fiscal years. The government
will be placing no inappropriate pressures upon the
capital markets. Over the longer term, the budget
proposes establishing a new system of centralized
monitoring and control over the off-budget direct and
guaranteed loan programs of the federal government.
This long needed reform will ensure much better coordination of the government's financing activities.
Turning briefly to international financial markets,
the budget treats profits from our gold sales as a
"means of financing other than borrowing." That
means we have not used these profits to show a smaller
budget deficit. We have projected $2.5 billion in gold
sales profits, as a financing item, in FY 1979 but have
refrained from making a projection for FY 1980.
By its restraint, this budget reduces the government's share of the nation's productive and financial
resources and fortifies our efforts to assure the
strength and stability of the dollar, both at home and
abroad.
# # #
topartmentoftheTREASURY
TELEPHONE 568-2041
IASHINGTON, D.C. 20220
FOR IMMEDIATE RELEASE
January 22, 1979
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,800 million of 13-week Treasury bills and for $3,000 million
of 26-week Treasury bills, both series to be issued on January 25, 1979,
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 April 26. 1979
26-week bills
maturing July 26, 1979
Price
Discount
Rate
Investment
Rate 1/
Price
97.663
97.644
97.652
9.245%
9.320%
9.289%
9.60%
9.68%
9.64%
95.219
95.207
95.210
Discount
Rate
9.457%
9.481%
9.475%
Investment
Rate 1/
10.07%
10.10%
10.09%
Tenders at the low price for the 13-week bills were allotted 22%
Tenders at the low price for the 26-week bills were allotted 17%
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
Accepted
Received
Accepted
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$
42,245,000
4,477,385,000
26,675,000
29,430,000
20,020,000
38,995,000
215,680,000
32,450,000
56,775,000
27,635,000
21,040,000
152,465,000
$
42,245,000
2,357,985,000
26,675,000
29,430,000
20,020,000
38,995,000
90,430,000
16,450,000
56,775,000
27,635,000
21,040,000
56,685,000
$
32 ,175,000
4,770 ,910,000
9 ,090,000
26 ,380,000
16 ,660,000
23 ,195,000
252 ,740,000
35 ,825,000
44 ,045,000
27 ,345,000
10 ,605,000
178 ,110,000
$
15,175,000
2,742,360, 000
9,090,000
18,380,000
16,660,000
23,195,000
52,540, 000
15,825,000
24,045, 000
27,345, 000
10,505,000
28,110,000
Treasury
15,855,000
15,855,000
16,910,000
16,910,000
$5,156,650,000
$2,800,220,000aA $5,443,990,000
TOTALS
^/Includes $424,380,000 noncompetitive tenders from the public.
b/lncludes $274,070,000 noncompetitive tenders from the public.
^/Equivalent coupon-issue yield.
R-1359
$3,000,140,000b/,
FOR RELEASE AT 4:00 P.M.
January 23, 1979
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 February 1, 1979.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,806 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
November 2, 1978,
and to mature
May 3, 1979
(CUSIP No.
912793 Y3 4), originally issued in the amount of $3,504 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,000 million to be dated
February 1, 1979,
and to mature August 2, 1979
(CUSIP No.
912793 2E5).
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing February 1, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,446
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. 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,
0. C. 20226, up to 1:30 p.m., Eastern Standard time,
Monday, January 29, 1979.
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-1360
-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 bookentry records of Federal Reserve Banks and Branches. 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
must be made or completed at the Federal Reserve Bank or Branch
or at the Bureau of the Public Debt on February 1, 1979,
in cash
or other immediately available funds or in Treasury bills maturing
February 1, 1979.
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, 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 23, 1979
RESULTS OF AUCTION OF 2-YEAR NOTES
The Department of the Treasury has accepted $2,701 million of
$4,044 million of tenders received from the public for the 2-year
notes, Series P-1981, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 9.82%Highest yield
Average yield
9.87%
9.85%
The interest rate on the notes will be 9-3/4%. At the 9-3/4% rate,
the above yields result in the following prices:
Low-yield price 99.876
High-yield price
Average-yield price
99.787
99.822
The $2,701 million of accepted tenders includes $780 million of
noncompetitive tenders and $1,756 million of competitive tenders from
private investors, including 97% of the amount of notes bid for at
the high yield. It also includes $165 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 to the $2,701 million of tenders accepted in the
auction process, $151 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, 1979, and $235
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 1 tender of $5,000
B-1361
FOR RELEASE AT 4:00 P.M.
January 25, 1979
TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for approximately $3,250 million, of 364-day
Treasury bills to be dated February 6, 1979, and to mature
February 5, 1980
(CUSIP No. 912793 3D 6). This issue will not
provide new cash for the Treasury as the maturing issue is
outstanding in the amount of $3,253 million. Additional amounts
of the bills may' be issued to Federal Reserve Banks as agents of
foreign and international monetary authorities.
The bills will be issued for cash and in exchange for
Treasury bills maturing February 6, 1979.
The public holds
$1,889 million of the maturing issue and $1,364 million is held
by Federal Reserve Banks for themselves and.as agents of foreign
and international monetary authorities. Tenders from Federal
Reserve Banks for themselves and as agents of foreign and international monetary authorities will be accepted at the weighted
average price 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. This 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,
Wednesday, January 31, 1979.
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. 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.
B-1362
-2Banking 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 bookentry records of Federal Reserve Banks and Branches. 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
$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.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on February 6, 1979,
in cash or other immediately available
funds or in Treasury bills maturing February 6, 1979.
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.
-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, 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.
0 ) f-H
'5 ™
federal financing bank
E vo
(/> CM
p CM
o
ot ~
WASHINGTON, D.C. 20220
FOR IMMEDIATE RELEASE
January 26, 1979
FEDERAL FINANCING BANK ACTIVITY
Roland H. Cook, Secretary, Federal Financing Bank (FFB),
announced the following activity for December 1-31, 1978.
Department of Transportation-Guaranteed Lending
On December 29, the National Railroad Passenger Corp.
(Amtrak) refunded the $100 million outstanding under FFB
Note #12 into a new Note #18, which will mature March 30,
1979, and which provides for 91-day extensions of maturity
up to October 1, 1979. All Amtrak notes are guaranteed by
the Department of Transportation (DOT).
Under Note #17, which matures February 16, 19 79, FFB
lent the following amounts to Amtrak:
Interest
Date
Amount
Rate
$15,000,000.00
9.415%
12/1
10,000,000.00
9.535%
12/19
8,000,000.00
9.545%
12/20
6,000,000.00
9.575%
12/21
10,000,000.00
9.475%
12/29
FFB advanced funds to the following railroads under notes
guaranteed by DOT under Section 511 of the Railroad Revitalization and Regulatory Reform Act:
Trustee of The Milwaukee Road
Chicago § North Western Trans.
Missouri-Kansas-Texas Railroad
Trustee of Chicago, Rock Island
Date
Amount
Maturity
Interest Rate
12/1
12/1
12/5
12/15
$1,104,652
1,389,744
128,224
414,512
11/15/91
3/1/89
11/15/97
12/10/93
9.282<
9.322*
8.901*
9.37%
Other Guaranteed Lending Programs
During December, FFB purchased the following General
Services Administration Participation Certificates: I n t e r e s t
Series Date Amount Maturity Rate
K-•014
M-•040
L-•049
B-1363
12/1
12/13
12/14
$1,548,784.52
4,855,506.33
1,723,802.44
7/15/04
7/31/03
11/15/04
8.96%
8.984%
9.016%
annually
annually
quarterly
annually
- 2On December 22, FFB signed a $500 million loan agreement
with the Government of Israel. Repayment of advances made
under this loan agreement are guaranteed by the Department of
Defense under the Arms Export Control Act. Also during
December, FFB made 32 advances totalling $215,887,769.93 to
14 governments under existing DOD-guaranteed loan agreements.
On December 20, FFB purchased a total of $7,000,000 in
debentures issued by 9 small business investment companies.
These debentures are guaranteed by the Small Business Administration, and mature in 3, 5 and 10 years, with interest rates
of 9.645%, 9.345% and 9.305%, respectively.
Under notes guaranteed by the Rural Electrification
Administration, FFB advanced a total of $114,305,000 to 31
rural electric and telephone systems. Details of individual
advances are included in the attached activity table.
FFB provided Western Union Space Communications, Inc.,
with $8,500,000 on December 20 at an annual interest rate of
9.604%. This advance is part of FFB's $687 million financing
of a satellite tracking system to be constructed by Western
Union and used by the National Aeronautics and Space Administration, which guarantees repayment of these advances.
Agency Issuers
The Tennessee Valley Authority sold FFB a $70 million
note on December 15 and a $690 million note on December 29.
Both notes mature March 30, 1979 and carry interest rates of
9.40% and 9.664%, respectively. Of the total $760 million
financed, $625 million refunded maturing securities, and $135
million raised new cash.
In its weekly short-term FFB borrowings, the Student
Loan Marketing Association (SLMA), a Federally-chartered
private corporation which borrows under a Department of
Health, Education and Welfare guarantee, raised $80 million
in new cash, and refunded $245 million in maturing securities.
FFB holdings of SLMA notes now total $915 million.
During December, FFB purchased the following Certificates
of Beneficial Ownership from the Farmers Home Administration.
Interest on these certificates is charged on an annual basis.
Interest
Date
Amount
Maturity
Rate
12/12 $560,000,000.00 12/12/83 9.312%
12/28
215,000,000.00
12/28/83
9.71%
- 3 On December 1, the Export-Import Batik sold FFB a
$330 million note which matures December 1, 1988, and
which carries an interest rate of 9.023% on a quarterly
basis.
FFB Holdings
As of December 31, 1978, FFB holdings totalled
$51.3 billion. FFB Holdings and Activity Tables are
attached.
# 0#
FEDERAL FINANCING BANK HOLDINGS
(in millions of dollars)
December 31, 1978
Program
December 31, 1978
(12/1/78-12/31/78)
On-Budget Agency Debt
Tennessee Valley Authority
Export-Import Bank
Net: Change
November 30, 1978
.
$ 135,0
330.0
$ 5,635.0
6,898.3
$ 5,500.0
6,568.3
2,114.0
355.7
2,114.0
355.7
-0-0-
23,825.0
57.0
163.7
38.0
637.7
107.3
23,050.0
57.0
16?. 7
40.1
637.7
108.9
775.0
17.5
49.2
4,284.8
297.4
36.0
38.5
17.5
46.2
4,137.7
289.2
36.0
38.5
-03.0
478.2
• 280.1
4,603.7
267.6
915.0
21.8
177.0
429.2
271.6
4,489.4
260.6
835.0
21.8
177.0
$51,298.5
$49,645.1
Net Change-FY 1979
(10/1/78-12/31/78)
t
415,0
330.0
Off-Budget Agency Debt
U.S. Postal Service
U.S. Railway Association
-0-1.1
Agency Assets
Farmers Home Administration
DHEW-Health Maintenance Org. Loans
DHEW-Medical Facility Loans
Overseas Private Investment Corp.
Rural Electrification Admin.-CHO
Small Business Administration
1,550.0
-0-0-
-0-0-
-2.2
-2.2
-0-
-0-
-1.6
-4.8
Government Guaranteed Loans
DOT-Emergency Rail Services Act
DOT-Title V, RRRR Act
DOD-Foreign Military Sales
General Services Administration
Guam
DHUD-New Communities Admin.
Nat'l. Railroad Passenger Corp.
(AMTRAK)
NASA
Rural Electrification Administrationi
Small Business Investment Companies
Student Loan Marketing Association
Virgin Islands
WMATA
TOTALS
Federal Financing Bank
147.1
8.1
-0-049.0
8.5
114.3
7.0
80.0
-0-0$1,653.3*
-013.4
306.9
27.2
-0-0-56.2
43.6
412.2
17.0
170.0
-0-0$3,221.0
January 15,. 1979
*Total does not add due to rounding.
FEDERAL FINANCING
BANK
December 1978 Activity
BORROWER
v
AMOUNT
OF ADVANCE
PATE
:
: INTEREST:
INTEREST
: MATURITY ; RATE :
RATE
(other than s/a)
Department of Defense
Peru #4
V
Thailand #2
Thailand #3
Thailand #5
Ecuador #2
Malaysia #3
Colombia #2
Ecuador #3
"ftmisia #4
Honduras #2
Korea #8
Costa Rica #1
Jordan #2
Thailand #3
China #8
Ecuador #2
Thailand #2
Turkey #4
Turkey #5
Turkey #6
Malaysia #3
Colombia #2
Indonesia #3
Morocco #4
China #2
Jordan #2
Jordan #3
Korea #8
Colombia #2
Ecuador #3
Export-Import
Jordan #3 Bank
#1
NoteColombia
#18
1,300,000.00
211,418.54
1,229,369.00
11,300,000.00
125,765.00
152,648.60
363,457.50
146,500.00
103,098.00
81,242.00
1,080,469.21
37,275.16
999,999.25
1,014,967.80
393,521.35
142,001.69
2,804,440.06
7,822,966.89
30,000,000.00
6,933,785.50
78,829.76
467,302.50
9,527,238.00
24,950,881.00
130,126.09
899,015.71
61,222.00
109,069,942.62
1,182,094.80
100,000.00
529,273.00
2,648,919.70
4/10/85
6/30/83
9/20/84
9/20/87
8/25/84
3/20/84
9/20/84
8/1/85
10/1/85
10/7/82
12/31/86.
4/10/83
11/26/85
9/20/84
7/1/85
8/25/84
6/30/83
10/1/87
12/15/87
6/3/88
3/20/84
9/20/84
9/20/86
9/10/86
12/31/82
12/31/86
11/26/85
12/31/86
9/20/84
8/1/85
12/31/86
6/30/83
;
9.254%
9.401%
9.2961
9.176*
9.251
9.293*
9.287*
9.237%
9.224*
9.499%
9.176%
9.422*
9.229%
9.338%
9.301%
9.349*
9.446*
9.235%
9.227%
9.205%
9.435%
9.589%
9.479%
9.481*
9.859*
9.582%
9.537*
9.56%
9.703%
9.636%
9.555%
9.851%
12/1
12/1
12/1
12/1
12/6
12/7
12/8
12/8
12/11
12/12
12/12
12/13
12/13
12/14
12/15
12/15
12/15
12/15
12/15
12/15
12/18
12/20
12/20
12/20
12/21
12/21
12/21
12/22
12/28
12/28
12/28
12/29
$
12/1
330,000,000.00
12/12
12/28
560,000,000.00
215,000,000.00
12/12/83
12/28/83
9.105*
9.485%
12/13
12/14
1,548,784.52
4,855,506.33
1,723,802.44
7/15/04
7/31/03
11/15/04
8.96%
8.984%
9.016%
15,000,000.00
10,000,000.00
8,000,000.00
6,000,000.00
10,000,000.00
100,000,000.00
2/16/79
2/16/79
2/16/79
2/16/79
2/16/79
3/30/79
9.415%
9.535%
9.545%
9.575%
9.475%
9.874%
12/1/88 . 9.125%
9.023% quarterly
Farmers Hone Administration
Certificates of Beneficial
Ownership
General Services Administration
Series K-014 12/1
Series M-040
Series L-049
National Railroad Passenger Corp. (Amtrak)
Note
Note
Note
Note
Note
Note
#17
#17
#17
#17
#17
#18
12/1
12/19
12/20
12/21
12/29
12/29
9.312% annually
9.71% annually
FEDERAL FINANCING BANK
December 1978 Activity
Page 2
-BORROWER
DATE
AMOUNT
OF ADVANCE
: INTEREST: INTEREST
RATE
MATURITY : RATE
(other than s/a)
Rural Electrification Administration
Tri-State Gen. § Trans. #89
Arkansas Elect. Coop. #97
Southern Illinois Power #38
Powell Telephone #41
Arkansas Electric Coop. #77
Doniphan Telephone #14
Eastern Iowa Light 5 Power #61
Empire Telephone #43
Cooperative Power #70
Alabama Electric Coop. #26
Wolverine Electric Coop. #100
Northern Michigan Elect. #101
Wabash Valley Power #104
Allegheny Electric Coop. #93
United Power Assn. #86
United Power Assn. #122
Tri-State Gen- § Trans. #79
Colorado-Ute Electric #78
Western Illinois Power #99
Dairyland Power #36
St. Joseph Tele § Telegraph #13
Continental Tele of the South #106
Big River Electric #58
Big River Electric #65
Big River Electric #91
San Miguel Electric #110
Arizona Electric Power #60
Central Iowa Power #51
Soyland Power #105
Sh'o-Me Power #114
North West Telephone #62
East Kentucky Power #73
So. Mississippi Elect. #3
So. Mississippi Elect. #90
Gulf Telephone a 50
East Ascension Telephone #39
Cooperative Power #121
Southern Illinois Power #38
Wolverine Electric #100
Oglethoipe Elect. Membership #74
Empire Telephone #43
Wabash Valley Power #104
12/1 i1 3,625,000.00
6,589,000.00
12/1
500,000.00
12/4
329,000.00
12/5
724,000.00
12/5
150,000.00
12/6
1,400,000.00
12/6
1,090,000.00
12/7
7,000,000.00
12/8
9,900,000.00
12/11
1,020,000.00
12/11
1,303,000.00
12/11
4,422,000.00
12/11
2,472,000.00
12/11
1,000,000.00
12/11
100,000.00
12/11
1,490,000.00
12/13
258,000.00
12/13
1,428,000.00
12/15
8,000,000.00
12/15
439,000.00
12/18
3,000,000.00
12/19
3,033,000.00
12/20
104,000.00
12/20
3,840,000.00
12/20
10,000,000.00
12/20
2,850,000.00
12/20
518,000.00
12/21
7,248,000.00
12/26
3,250,000.00
12/26
1,159,000.00
12/26
5,040,000.00
12/27
504,000.00
12/27
246,000.00
12/27
528,000.00
12/27
500,000.00
12/28
1,175,000.00
12/28
650,000.00
12/29
1,516,000.00
12/29
14,152,000.00
12/29
632,000.00
12/29
1,121,000.00
12/29
12/1/85
12/31/12
12/4/80
12/31/12
12/31/12
12/31/12
12/6/80
12/31/12
12/31/12
12/11/80
12/11/80
12/11/83
12/31/12
12/31/12
12/31/12
12/31/12
12/13/85
12/31/12
12/15/80
12/31/12
12/18/80
12/31/12
12/20/80
12/20/80
12/20/80
12/20/80
12/31/12
12/31/12
12/26/80
12/26/80
12/31/12
12/27/80
12/31/80
12/31/80
12/31/12
12/28/80
12/31/12
12/29/80
12/29/80
1/15/81
12/31/12
12/31/12
9.075% 8.974% quarterly
8.979% 8.88%
9.675* 9.561%
8.951* 8.853%
8.951% 8.853%
8.971% 8.873%
9.675% 9.561%
8.959% 8.861%
8.993% 8.894%
9.685% 9.571%
9.685% 9.571%
9.105% 9.004*
8.99*
8.891%
8.99%
8.891%
8.99%
8.891%
8.99%
8.891%
9.085% 8.984*
9.004% 8.905%
9.715% 9.60%
9.052% 8.952%
9.755% 9.639%
9.165% 9.062%
10.085% 9.961*
10.085% 9.961%
10.085% 9.961%
10.085% 9.961%
9.161* 9.058%
9.189* 9.086%
10.155% 10.10%
10.135% 10.10%
9.15%
9.048%
10.155% 10.0291
10.155% 10.029%
10.155% 10.029%
9.138% 9.036%
10.155% 10.029%
9.129% 9.027%
10.155% 10.029%
10.155% 10.029%
10.135% 10.10%
9.17%
9.067%
9.17%
9.067%
12/20
12/20
12/20
12/20
12/20
12/20
12/20
12/20
12/20
700,000.00
300,000.00
1,000,000.00
500,000.00
500,000.00
500,000.00
1,000,000.00
2,000,000.00
500,000.00
12/1/81
12/1/81
12/1/81
12/1/83
12/1/83
12/1/83
12/1/88
12/1/88
12/1/88
9.645%
9.645%
9.645%
9.345%
9.345%
9.345%
9.305%
9.305*
9.305%
12/12
12/19
12/26
90,000,000.00
95,000,000.00
70,000,000.00
3/6/79
3/13/79
3/20/79
3/27/79
9.446%
9.387%
9.715%
9.82%
12/15
12/29
70,000,000.00
690,000,000.00
3/30/79
3/30/79
9.40%
9.664%
Small Business Investment Companies
First Midwest Capital Corp.
First United SBIC, Inc.
Grocers SBIC
Fundex Capital Corp.
Oceanic Capital Corp.
Suwannee Capital Corp.
Builders Capital Corp.
First Conn. SBIC
Venture SBIC
Student Loan Marketing Association
Note #173 12/5 70,000,000.00
Note #174
Note #175
Note #176
Tennessee Valley Authority
Note #88
Note *89
FEDERAL FINANCING BANK
December 1978 Activity
Page 3
BORROWER
DATE
AMOUNT
OF ADVANCE
: INTEREST: INTEREST
MATURITY : RATE :
RATE
(other than s/a)
Department of Transportation
Trustee of The Milwaukee Road 12/1 $ 1,104,652.00
Chicago 8. North Western Trans.
12/1
1,389,744.00
Missouri-Kansas-Texas Railroad
12/5
128,224.00
Trustee of Chicago, Rock Island
12/15
414,512.00
11/15/91
3/1/89
11/15/97
12/10/93
9.076%
9.114%
9.00%
9.16%
9.282%
9.322%
8.901%
9.37%
annually
annually
quarterly
annually
10/1/8?
9.384%
9.604% annually
Western Union Space Communications, Inc.
—OTCSAI
—
12/20
8,500,000.00
FOR RELEASE UPON DELIVERY
EXPECTED AT 11 A.M.
JANUARY 29, 1979
STATEMENT BY THE HONORABLE W. MICHAEL BLUMENTHAL
SECRETARY OF THE TREASURY
ON REAL WAGE INSURANCE
BEFORE THE
HOUSE WAYS AND MEANS COMMITTEE
JANUARY 29, 1979
Mr. Chairman and Members of this distinguished Committee:
I am grateful for this hearing on the Administration's
proposal for real wage insurance. This innovative proposal
offers the Congress a unique opportunity to strengthen the
nation's fight against inflation, and I hope the Committee
will give the proposal serious, expeditious, and positive
consideration.
The President has subordinated all of his other policy
objectives to the inflation fight. Over the past several
months, the American people have shown a willingness to
cooperate earnestly in this effort, even at the risk of
financial sacrifice. We have had an encouraging and braod
based response to the President's appeal for voluntary price
and wage restraint. The American people clearly appreciate
the crucial Importance of this common effort. They
understand that the country cannot afford to fail in this
enterprise.
The President, through this proposal, is asking the
Congress to enlist in this fight against inflation. To
continue holding the line on wages and prices, the President
and the American people need your help. Expeditious
enactment of real wage insurance would provide that help
precisely where it is needed, in a direct and effective
fashion.
B-1364
-2Questions inevitably arise about a genuinely new idea,
and I welcome this chance to answer them. But it is
important at the outset stress that no other instrument has
been suggested that could so effectively encourage voluntary
wage restraint. We do not pretend that this particular tool
assures the success of our entire anti-inflation effort, but
it plays an important and unique role in that effort.
On January 17, I submitted to the Committee full
general and technical explanations of the proposal. Today,
I would like to explain how the proposal fits into the
overall structure of our anti-inflation policies. I will
then address some of the major questions that have been
raised about the proposal.
I. The Inflation Problem and the President's Policies
Over the 1970's, inflation has posed a critical threat
to economic progress throughout North America, Europe, and
Japan. It has made all of our other problems much worse.
In some countries, inflation has compromised political
stability and democratic procedures. More than once it has
seriously shaken the international monetary system.
Everywhere it has retarded economic growth and social
progress. Inflation has proved to be far more destructive
of prosperity, and far more intractable, than any of us
would have imagined possible ten years ago.
As the decade comes to a close, however, we have
learned that inflation is not an insoluble problem: It is
not like death and taxes; we can rid ourselves of it. In
1974, Japan suffered a 22 1/2 percent rate of inflation; the
Japanese inflation rate is currently running at 4 percent.
Similarly, Germany has reduced its inflation rate from 7
percent to 2 1/2 percent over the past 4 years, and the
British brought their inflation rate down from 24 percent to
8 1/2 percent between 1975 and 1978.
That is cause for hope. But it is also reason for
impatience about our own experience. The inflation record
of the United States has been less than admirable. The
dollar's buying power has been cut in half since 1967. In
the 1970's, inflation here has rarely gone into the double
digits — but it has averaged 6 3/4 percent. Last year, the
inflation rate experienced a disturbing acceleration. At
the end of 1978 the CPI was 9 percent higher than at the end
of 1977. This constituted an increase of more than 2
percentage points over the previous year's inflation rate.
-3-
In the spring of last year, the President moved the war
against inflation ahead of all other objectives and
policies. During the spring and summer of 1978, the
President worked with the Congress to reduce the FY 1979
budget deficit to less than $38 billion. In late October
and November, the President added important new weapons to
the anti-inflation arsenal. He set a target of $30 billion
or less for the FY 1980 budget deficit; he announced that
the Federal Reserve Board would take strong steps to contain
credit expansion; he arranged with Germany, Japan, and
Switzerland a far-reaching program to stabilize and
strengthen the dollar in the foreign exchange markets; he
set in place an unprecedented program for reviewing the
economic impact of federal regulations; he promulgated a
full program"of voluntary wage-price standards; and he
announced plans to submit to this new Congress a proposal
for real wage insurance, to encourage compliance with the
voluntary pay standard.
This full array of policy tools is necessary because
our inflation problem has many causes. We have structured
our anti-inflation program to check all of the sources of
inflation — e.g., dollar depreciation, over-regulation,
impediments to competition in domestic and foreign markets
— but three dimensions of the problem are of particular
importance and require special, concerted, and sustained
attention: aggregate demand pressures, low productivity
growth, and wage-price momentum. Real wage insurance
responds to the last of these problems, but an appreciation
of the other dimensions is necessary to understand the
purpose and importance of the proposal.
Demand pressures
At the center of the President's anti-inflation
strategy is firm and persisting restraint on aggregate
demand -- a sustained commitment to prudence, both in the
making of budgets and in the creation of dollars.
The President's FY 1980 budget sets an example of
restraint for the entire economy:
Total federal spending in FY 1980 will be nearly
frozen in real terms. After adjusting for
inflation, federal outlays in both 1979 and 1980
will show annual increases of less than one percent
— the smallest increases in five years, and far
below the 3 percent average for the 1970's.
-4-
Federal spending will absorb the smallest share of
total output in five years. Outlays in 1980 will be
down to 21 percent of GNP, compared with 22-1/2
percent in 1976.
Federal borrowing requirements will show no growth
from 1979 to 1980. The budget deficit will be below
$30 billion for the first time in five years. The
President's budget yields a deficit for 1980 of
about 1 percent of GNP; in 1976, by contrast, the
deficit was 4 percent of GNP.
Fiscal austerity is complemented by increased monetary
restraint, a commitment to keep the supply of dollars from
outpacing the demand for them, either at home or abroad.
We are emphasizing fiscal and monetary restraint on
aggregate demand for two reasons.
First, there have been warning signals of demand excess
in recent months. We must remember that this economic
recovery has been remarkable both in its durability and in
its strength: over the last 45 months, it has proceeded at
an average annual rate of 5.1 percent, and has added 11.4
million new jobs and $240 billion in real GNP (1972
dollars); in the last quarter of 1978, real growth ran at a
6.1 percent annual clip. All of this has inevitably placed
some inflationary strains upon the economy, and has
generated tightness in selected labor and product markets.
If we did not move now to slow the pace of economic
activity, through a controlled and measured application of
tight budgeting and monetary prudence, we would surely be
forced to jam on the brakes later. That would mean a wholly
unnecessary recession and a great deal of unnecessary
hardship.
There is a second reason for demand restraint: both
here and abroad, experience has demonstrated that no
anti-inflation effort -- no array of policies -- can succeed
without the long-term, unwavering support of fiscal and
monetary discipline. This long-term discipline is essential
to reduce inflationary expectations and reverse the
wage-price spiral. The President has not joined this battle
against inflation to win temporary victories. Our goal is
not a momentary pause in the wage-price spiral, but an
economy securely settled on a path of long-term price
-5stability and sustainable progress in growth and employment.
This effort will require patience and sacrifice by the
American people, and from Washington it will require
political courage and a determination to share the
sacrifices fairly and evenly.
Productivity growth
A second major source of our inflation problem is
sluggish productivity growth —
a low rate of increase in
real output per hour of work. On this criterion, we have
been finishing dead last among industrial nations throughout
most of the 1970's.
Productivity growth is the fulcrum between wage
inflation and price inflation. When productivity is
increasing at 3 percent a year, as it did through the first
two decades of the post-war period, average wages can also
increase at 3 percent without putting any upward pressure on
prices. Over the last ten years however, productivity
growth in the private business sector has averaged only
1-1/2 percent, and last year it fell to an abysmal 0.8
percent. This means that average wage increases and price
inflation must run at nearly the same rate: last year, for
instance, compensation per hour (wages plus fringes) rose by
about 9-3/4 percent; price inflation tracked right along at
about 9 percent.
To improve productivity growth requires a long term
effort to increase our investment in productive resources
and to refrain from imposing excessive regulatory burdens
upon the private sector. Last year's tax bill, involving
substantial incentives for investment, will help. The
President's new program for reviewing regulatory costs and
benefits will help.
But it will take persistent policy attention over a
number of years to return productivity growth to the high
rates that made life so cheerful for economic advisers in
the 1960's. Until then, average wage inflation will be
feeding very directly into price inflation: To bring down
price inflation, we must bring down wage inflation, and vice
versa. No genie is about to appear to allow us one without
the other.
-6Wage-price momentum
This brings me to the third major element in our
inflation problem: The sheer, self-reinforcing momentum of
wage and price increases.
When the inflation rate jumps up, we can usually
identify a specific cause. At times the cause is beyond our
immediate control — e.g. a large oil price increase by OPEC
or poor harvests abroad; at times, the government itself
plays a part — e.g. by imposing an overly costly regulatory
burden or by spending too much. A major dimension of the
problem, however, is that the inflation rate tends to stay
up even after the event causing the increase has passed.
What went up refuses to come back down, as the one-time
increase in prices gets embedded more or less permanently in
the on-going wage-price spiral.
Inflation persists in this way because everyone expects
it to persist. Expecting high inflation, business sets high
prices, labor demands high wages -- and we thereby generate
precisely the high inflation that was expected.
The wage-price sprial is enormously stubborn. Demand
restraint can have some effect on it, and is clearly a
necessary part of any cure; but, acting alone, demand
restraint works its cure quite slowly. The U.S. inflation
rate in the 1970's has declined with painful slowness even
during periods of great slack in labor and product markets.
Even when aggregate demand is sharply cut back, business and
labor continue for a substantial period to act upon deeply
ingrained expectations of high inflation. The inflationary
momentum persists and, while it does, the decline in demand
delivers its impact on the only remaining targets:
employment and real growth. It is only after a considerable
period of demand restraint that inflationary expectations
finally begin adjusting to the changed economic conditions,
so as to permit demand restraint to shift the wage-price
spiral into reverse.
To succeed in reducing inflation, we must learn
patience, but we must also seek to speed up the response of
wages and prices to conditions of demand restraint. Every
advanced nation has recognized this. Each has established
its own particular procedures and institutions for braking
wage-price momentum — for overriding unrealistic
inflationary expectations -- so that demand restraint can
reduce inflation without socially wasteful delays.
-7-
It is for this purpose that the President promulgated
voluntary wage-price standards last October. These
standards describe a path for wages and prices consistent
with the general moderation of economic activity that is
assured by our application of fiscal and monetary
discipline. If these standards are followed, the inflation
rate will adjust downward, smoothly and realistically, to
the slowing pace of the economy. We will avoid an
unnecessary, sharp fall-off in real growth rates and an
unnecessary, large increase in unemployment.
The wage-price standards are voluntary. The President
strongly opposes mandatory controls. The U.S. experience
with controls, and that of virtually every other nation, is
that they saddle the economy with enormous bureaucracy,
riles of red tape, and crippling inefficiencies. Very
quickly, mandatory controls collapse under their own weight.
Controls are an attempt to usurp the roles of the market and
the collective bargaining table in setting every price and
wage throughout the economy. That's an absurd and
unnecessary project. Cur purpose is merely to check the
tendency of wages and prices to take on a momentum of their
own, unresponsive to basic macro-economic conditions. That
vital, but limited, purpose can be accomplished without
excessive gcvernnment interference in allocating resources
and incomes throughout the economy.
The role cf real wage insurance
The President's wage-price program calls' upon the gccc
faith, farsightedness, and sense of trust of America's
working people and businesses. The program asks everyone tc
forego personal, short-term, economic gains in exchange for
long-term economic improvements of a much more substantial,
general, and lasting character. In launching the program,
the President expressed confidence that the American people
were willing tc undertake this commitment: the response to
the program, has so far justified that confidence.
But voluntarism raises a basic issue. Every working
person has a legitimate fear: the fear that his cr her
compliance with the program will not be matched by others
and will accordingly result in reduced real income as
inflation continues beyond a 7 percent level. Wages are set
for extended periods — 6 months, a year, sometimes several
vears. Compliance on the waae side constitutes a relativelv
-8long term commitment, and thus triggers a particularly acute
concern about real income loss. This is the concern that
drives the wage side of the wage-price spiral. If we can
meet this basic concern, we can considerably enhance the
effectiveness and fairness of the anti-inflation effort.
Real wage insurance responds directly to this central
concern of working people. It would materially reduce the
financial risks of compliance; it would lead to more
widespread compliance, and thus to a more rapid and
pronounced impact on the inflation rate. The proposal would
not of course render a commitment to compliance completely
riskless nor entirely remove the inevitable measure of
short-run sacrifice required by a successful anti-inflation
effort. But it would help, and help a great deal.
The proposal in effect sets up an insurance contract.
In this contract, we ask wage restraint from each employee
group, so as to reduce inflation for the benefit of all; in
return we offer to share the risk that inflation will in
fact exceed the wage increase ceiling. This is a novel, but
natural, response to a dilemma that has evaded solution for
many years. In the overall structure of our anti-inflation
policies, real wage insurance plays an important role for
which there are no readily imagined substitutes.
II. The Real Wage Insurance Proposal - The Major Issues
The proposal is a major innnovation, but it is also
simple, direct, and straightforward, both in its design and
in its attack upon the wage-price spiral.
If inflation exceeds 7 percent in 1979, real wage
insurance will give a tax credit to workers in groups that
hold their average pay increases to 7 percent or less. The
tax credit is computed as a percentage of the first $20,000
of the employee's 1979 wages. This percentage is the number
of percentage points, up to 3, by which inflation exceeds 7
percent.
Employes will divide their employees into a few simple
groups and determine qualification separately for each
group.
The program is available to every employee group in the
nation.
-9For most groups, qualification for real wage insurance
is determined as of the close of the program year. Special
rules, however, apply to collective bargaining agreements,
negotiated during the program year, that represent long term
(i.e. more than 15 month) commitments by the employees.
These agreements are evaluated as of the time of settlement
so that the parties may be assured of RWI coverage in
advance. Average pay increases must be 7 percent or less
over the life of the contract.
The full specifications of the proposal, sent to this
Committee on January 17 are included as an appendix to this
testimony. I do wish, however, to address here several
major questions that are typically asked about this
proposal.
Is it an efficient tool for reducing inflation?
The proposal offers a significant and direct
anti-inflationary impact while the revenue cost, if any,
would be modest. That is why the President and his economic
advisers selected this proposal from among many different
candidates for anti-inflation legislation.
This is a year of budget austerity, a year in which our
concern for inflation requires that every federal penny
prove its case. Real wage insurance passes this test. Any
revenue loss under the program would serve direrctly to
reduce labor costs and price inflation in the private
sector.
Fortified by this proposal, the voluntary wage
standard should produce a reduction of 0.5 percentage points
in the 1979 inflation rate, compared to what it would have
been without the wage-price program. This is a moderate
estimate; it assumes that 47 million out of 87 million
potentially eligible workers will comply with the wage
standard. If the proposal succeeds in inducing an even
higher rate of compliance, the impact on inflation will be
significantly larger. It would be 1.4 percentage points
with maximum compliance.
However, a 0.5 percentage point reduction in a single
year is itself a major achievement. To achieve that much
effect on inflation through a payroll tax cut would require
a continuous revenue loss of $10 billion a year.
-10The cost of real wage insurance, if any, will be far
less. If the program induces 100% wage standard compliance,
we estimate that 1979 inflation would fall below 7 percent,
and the program would cost nothing. For the sake of
budgetary prudence, we have projected only moderate wage
standard compliance, a 7.5 percent inflation rate, and a
consequent program cost of $2.5 billion. Unlike a payroll
tax cut, the revenue loss need not be continued year after
year to sustain the initial 0.5 percentage point improvement
in the CPI.
Real wage insurance is to a large extent self-limiting
in terms of cost. If compliance is low, few will be
eligible, and the cost will be low; if compliance is high,
inflation will be reduced, and that will reduce the cost.
It is of course theoretically possible that high compliance
and high inflation would somehow occur simultanously,
creating a sizeable program cost. But that could happen
only if the rate of price inflation exceeded the rate of
wage inflation by an appreciable margin. In fact, since
World War II, price inflation in the U.S. has exceeded wage
inflation only once — in 1974. The prospect that 1979 will
ressemble the eccentric inflation profile of 1974 is
extremely low: That was the year that world oil prices
quadrupled and agricultural harvests failed dramatically.
The odds against a large cost for RWI are very substantial.
Nevertheless, we have taken care to limit the
theoretical costs.
We have limited covered wages to $20,000 from any one
job. This still allows full income coverage for 88 percent
of all qualified employees, but it avoids the potential
payout of very large sums to any one person.
Similarly, we have capped the inflation coverage at 10
percent. This adequately reflects the range of reasonable
inflation estimates for 1979, including even those that are
extremely skeptical about food and oil prices. The 10
percent cap limits the hypothetical budget exposure without
detracting in a serious way from the proposal's incentive
effect.
Can it be easily administered?
RWI is a practical, workable proposal. It is no more
complicated than dozens of other tax provisions enacted by
the Congress. It involves a minimum of paperwork for
-11employers, employees, and the Government. No one will be
required to file a single additional form with any
government agency.
The qualification rules rely mainly on payroll records
already required for tax purposes and on a company's
standard records of hours worked. Only when there are
changes in certain employee benefit plans is any additional
pay information required.
The rules for determining qualification for RWI
generally follow the rules for compliance with the pay
standard. Where there are differences, the RWI rules are
invariably simpler and involve fewer optional calculation
methods.
To determine the amount of wage insurance for each
qualified employee, an employer need refer only to regular
tax information. The employer increases W-2 wages for each
eligible employee by the announced credit rate and reports
the credit amount in one new box on the employee's W-2 Form.
The employee has only to copy the amount of wages from
the W-2 Form, as he would normally do, and claim the wage
insurance credit on one new line of the tax return.
«
Is it as attractive as big wage increases?
A few critics have noted that, under some
circumstances, some workers would be "better off" securing a
large wage increase than complying with the 7'percent wage
standard and securing the coverage of real wage insurance.
This is true. But it is not a defect in the program. Real
wage insurance does not seek to compensate for hypothetical
wage increases on a dollar-for-dollar basis; it seeks merely
to provide a large measure of protection against the risk of
real income loss caused by wage retraint. It is not
intended to purge the anti-inflation effort of the need for
sacrifice and austerity. No program can do that, and no
nation can stop inflation if the only inducement to wage
restraint that its citizens will accept is full,
dollar-for-dollar compensation. In the end, a voluntary
anti-inflation program must rely on the maturity and the
community spirit of the people themselves. The working
people of America measure up to that standard. What real
wage insurance offers to them is reasonable and fair: It
is neither too much to ask, nor too little to have a major
impact.
-12-
Are the rules fair and sensible?
The administration designed the rules for this proposal
with great care. As you scrutinize them closely, I think
you will come to agree that we made the proper decisions.
Real wage insurance is not a general tax cut and its
rules cannot logically be tested by all the conventional
norms used in the tax field. For instance, we often demand
that a tax cut go to everyone and be progressive. But that
test would utterly destroy this proposal. The whole idea of
real wage insurance is that it be available only to those in
groups that comply with the wage standard and that it pay
out in proportion to the inflation rate and to the
recipient's earnings (up to reasonable limits). Otherwise
it simply would not be a sensible insurance program for
those in compliance with the wage standard.
Similarly, it is important that qualification for real
wage insurance be by employee group, rather than on an
individual basis. To ask each individual to meet the 7
percent standard would interfere massively with all the
mechanisms by which companies, unions, and employees
allocate merit raises, promotions, overtime pay, and every
other form of employee compensation. This would create
strange, artifical incentives for individuals to work less
and quit early. All of that is avoided by group
qualification.
On the other hand, we have taken care to open the
program to every employee group in the economy.
We have also taken pains to deal fairly as between
groups. Low wage workers, unions, managerial employees, and
all others are each assigned to separate groups. This mean
that unusual pay increases going to one group will not
prejudice the Qualification of the others. Similarly, the
rules deal sensibly as between union and non-union
employees. In general, we apply exactly the same rules to
the two groups. However, where a union undertakes a pay
restraint commitment of substantially more than a year -e.g. a multiyear contract — we apply the somewhat more
liberal CWPS rules to determine whether the contract
qualifies, and we determine qualification as of the date of
settlement. This is a fair exchange and assures that the
real wage insurance proposal will integrate smoothly with
the collective bargaining process.
-13-
Finally, we have included the insurance payments in
taxable income. This is logical, because the payments serve
as a substitute for foregone wages, which would have been
taxable. It is also fair, because a dollar of non-taxable
payment would be equivalent to more in the pay envelope for
high-bracket than for low-bracket taxpayers.
Is this a prelude to indexing?
Real wage insurance is the opposite of indexing.
Indexing the tax system to inflation would be a surrender to
inflation — a confession that the problem cannot be solved
and must be permanently accomodated. Real wage insurance is
an attack upon inflation. It confers its benefits only on
those who exercize anti-inflationary restraint. Indexing,
by contrast, would confer its benefits most bountifully on
those who show the least restraint and secure the biggest
increase in earnings. The Administration is totally opposed
to indexing of the tax system, in any form.
Ill. Conclusion
The new Congress convenes at a critical point in the
anti-inflation fight.
It has been just three months since the President took
a series of bold and coordinated steps in fiscal, monetary,
exchange rate, and wage-price policy. These steps have set
in motion broad and hopeful trends throughout the ecomony.
The dollar has rallied by 9.3 percent against all OECD
currencies since October 31, and the stock market has firmed
and gained substantially since the President acted.
The inflation figures for the last half of 1978 showed
some improvement over those for first part of the year.
Opinion and financial leaders, both here and abroad,
now recognize that this goverment is determined to see the
inflation fight through to a successful conclusion. It is
no longer the smart bet to wager against the prospects of
the American economy.
Real growth remains strong, if anything somewhat too
strong, and the doomsayers who have been predicting an
imminent recession for more than a year are once again
busily pushing their forecasts further into the future.
-14-
Most importantly, the American people have ignored the
cynics and have shown a genuine receptivity to a common,
voluntary effort to restrain wages and prices.
All this adds up to strong evidence that our economy
can indeed be steered to a deflationary path without
dislocation, turmoil, and recession.
These hopeful signs do not of course mean we have won
this fight, but they give us a genuine chance to win it
if we can retain the momentum.
—
That is where you come in. Real wage insurance is the
only piece of legislation we have proposed to deal directly
with the wage-price sprial. Prompt and constructive
legislative action would be a vital help in sustaining the
momentum of the anti-inflation effort.
I realize that this is an unfamiliar proposal, a
genuinely new idea. You will want to examine it closely and
objectively. I welcome such scrutiny and ask only that you
not count novelty itself a defect. We are dealing with a
specific problem of wage-price momentum for which all the
old ideas have proved inadequate. We need this new tool,
and we need it as soon as possible.
I also appeal to you not to let this hopeful new
proposal be used as a vehicle for solving every perceived
ill or grievance in our economic or tax systems. Real wage
insurance has a limited, precise, and vital purpose: To
help all Americans pull together to conquer inflation. To
approach the proposal with any other purpose in mind would
be inconsistent with the seriousness of the inflation
problem confronting the nation, and with the rising hopes of
all of us that this problem can indeed be resolved.
Thank you for your attention. I would be happy to
answer questions.
Attachment
REAL WAGE INSURANCE - IN BRIEF
What is RWI?
Real wage insurance (RWI) is an innovative antiinflation initiative which President Carter has proposed for
enactment by the Congress.
RWI would strike directly at the wage-price spiral by
encouraging widespread observance of the voluntary 7 percent
pay standard announced by the President in October, 1978.
RWI would work like this: If you belong to an employee
group that has an average pay increase of 7 percent or less,
you would qualify for a tax credit equal to your 1979
employment earnings times the amount by which the 1979
inflation rate exceeds 7 percent. For instance: Assume
that you belong to a complying group, that your 1979 earnings
are $15,000, and that the 1979 inflation rate is 8 percent.
You would receive an RWI tax credit of $150 — $15,000 times
1 percent (i.e., 8 percent minus 7 percent). This credit
would be shown on your Form W-2 and would serve either to
reduce your tax payment or to increase your tax refund. The
credit (like wages themselves) would be subject to income
tax.
The proposal would cover inflation up to 10 percent,
with the rate measured from October-November 1978 to OctoberNovember 1979, and would apply to the first $20,000 of your
pay from an employer.
What is the Purpose of RWI?
RWI is not a general tax cut or a device for indexing
the Tax Code to inflation. Inflation would actually be
worsened by such proposals, for they would enlarge the
- 2 budget deficit without encouraging wage restraint. The sole
purpose of RWI is to encourage compliance with the 7 percent
pay standard..
RWI would accomplish this by greatly reducing the risk
that compliance would mean an erosion in real (i.e., inflation
adjusted) incomes. Workers understandably seek high pay
increases out of fear that inflation will be high. But high
pay increases produce higher labor costs and thus guarantee
the very increase in inflation that is feared. RWI is
designed to help break this vicious cycle. With real wage
insurance available, employee groups can limit their pay
increases to 7 percent without risking the loss in real
income that would otherwise occur if inflation exceeded 7
percent. RWI helps to protect workers who cooperate with
the pay standard from the non-cooperation of others and from
such other inflationary effects as abnormal food or energy
price increases.
How Much will RWI Help
in the Fight Against Inflation?
RWI will have its major impact on those employees who
might otherwise secure pay increases over 7 percent, but
have the ability to show restraint. If RWI helps to persuade
6 0 percent of these employees to comply with the 7 percent
standard, the 1979 inflation rate would be reduced by about
1/2 of a percentage point.
How Much Will RWI Cost in Federal Revenues?
A key advantage of RWI is that its revenue cost is
somewhat self-limiting: If many workers participate, that
brings down the inflation rate and thus reduces the RWI
payout; if few workers participate, the anti-inflation
effect is small, but so also is the RWI payout.
The Administration forecasts participation by about 47
million workers and an inflation rate of 7.5 percent for the
relevant period. This implies a revenue cost of $2.5
billion, which will be included in the Administration's
January budget.
- 3 How Do I Qualify for RWI7
To qualify, you must belong to a qualified employee
group. The 7 percent pay standard applies to average pay in
employee groups, not to each individual's pay increase.
Thus, the system does not impose penalties against hard
work, merit increases, or promotions for individuals.
There will be four types of employee groups: (1)
employees subject to collective bargaining"agreements, (2)
low-wage workers (i.e., $4 per hour or less), (3) managerial
and supervisory employees, and (4) all others.
Your group would qualify for RWI if the average hourly
pay within the group rose by 7 percent or less between the
third quarter of 1978 and the third quarter of 1979.
Average hourly pay includes taxable wages, plus 25 percent
of bonuses or other irregular payments made in the preceding
year, plus 25 percent of the employer's annual cost of
improving fringe benefit programs. Your employer will make
these computations and, if your group qualifies, the amount
of your credit will appear on your W-2 Form.
If you are under a collective bargaining agreement,
that defines your group. New agreements of more than 15
months'duration, negotiated between October 24, 1978 and
October 1, 1979 will be assessed for qualification as of the
date of settlement. The contract must conform to the 7
percent pay standard on average over its entire life, but
the first year's increase can be as high as 8 percent and
still qualify. COLA provisions in the contract will be
costed out at an assumed 6 percent inflation rate.
The RWI program will not apply to the self-employed, to
non-residents, or to employees who own 10 percent or more of
their company's stock. Also, employers of 50 or fewer
workers need not participate in the program.
REAL WAGE INSURANCE
Legislative Proposal
Real Wage Insurance (RWI) will give a tax credit to
workers in groups receiving average pay increases of 7 percent or less, if inflation exceeds 7 percent in 1979. The
tax credit is computed as a percentage of the first $20,000
of an employee's 1979 wages. This percentage is the number
of percentage points, up to 3, by which inflation exceeds 7
percent.
I. Reasons for the Program
This proposal is an integral part of the anti-inflation
effort. It supplements the President's initiatives to limit
federal spending, cut the budget deficit, and reduce the
economic burdens of regulations. These actions will create
an environment in which a voluntary program of wage and
price restraint can be effective and lasting.
The essential purpose of real wage insurance is to
reinforce the voluntary pay standards by giving workers an
additional incentive to accept average pay increases of 7
percent or less. In times of inflation, employees often
believe that a large pay increase is their only defense
against a steady erosion of real income. Yet, higher labor
costs are quickly passed on in higher prices. The present
inflation clearly reflects the momentum of price and wage
increases that have become built into the economy in recent
years. Slowing this inflationary momentum is the most
important challenge of domestic economic policy.
Real wage insurance will help to break the cycle of
inflation by assuring groups of workers that they can
cooperate with the pay standard without the risk of being
penalized by an acceleration of inflation — from whatever
source. This point deserves emphasis: Unlike other antiinflation proposals that are often suggested, RWI hits at
the core of the wage-price spiral. Everyone involved in
that spiral knows that self-restraint will break the spiral —
if most of us exercise that self-restraint. But no one
wants to go first. If one employee group shows restraint,
but others do not, that group knows it will be penalized —
its wages will be restrained, but prices generally will keep
- 2 on rising. So everyone avoids restraint, even though
everyone knows that this guarantees more inflation. RWI
offers a sensible remedy for this general frustration of the
general interest. RWI allows unions and other employee
groups to take the first step toward wage restraint without
risking adverse consequences if others do not similarly
cooperate or if other inflationary events occur.
RWI is the natural and logical complement of a voluntary
system of pay and price restraints. It rewards responsible
voluntary behavior. A voluntary system, fortified by RWI,
is far less intrusive and cumbersome and far more equitable
than a system of mandatory controls.
Real wage insurance is not a general tax cut, nor a
device to compensate all workers for the effects of inflation. It is an incentive for responsible pay behavior. To
cut taxes or provide general inflation relief without a
requirement of wage restraint would actually fuel inflation —
by adding to the budget deficit and by weakening employers'
resolve to restrain costs.
Real wage insurance is the opposite of indexing. It is
tax policy applied to retard inflation rather than to
accommodate inflation.
This program can help to reduce inflation. Based on
historical distributions of pay increases among various
groups of workers one can predict that a large percentage of
U.S. workers would receive pay increases in excess of 7 percent in 1979, in the absence of wage restraint. Many of
these workers are not yet "locked-in" by continuing contracts
or other mandated raises. If 60 percent of these are persuaded to accept 7 percent pay increases, the average
increase in pay for the country will be reduced by about
0.7 percentage points in 19 79. This moderation of pay
increases will be passed through to reduce the rate of
price increases for most items. Overall, the rate of price
inflation (including food and fuel prices) will be reduced
by 0.5 percentage points as compared to what it would have
been in the absence of wage restraint. The pass-through of
wage deceleration into prices is specifically required for
compliance with the price standards and is shown by historical
relationships tc be a normal response.
II. General Explanation
The proposal is designed for effectiveness in moderating the rate of increase in labor costs. Effectiveness
- 3 depends upon the link between wage performance and potential
rewards. Every employee group (except those of small
businesses choosing not to participate) is subject to a test
of pay-rate increases. In the case of new collective
bargaining agreements of more than 15 months' duration, this
test is a prospective evaluation under the pay standard
recently announced by the Council on Wage and Price Stability
(CWPS). In other cases, an end-of-the-year calculation of
the annual pay-rate increase will be made according to rules
set forth below. In either instance, RWI is available to an
employee group only if the average annual pay increase for
the group is 1_ percent or less.
The proposal combines effective incentives for wage
restraint with limited budget exposure. The objectives of
effectiveness, and cost control are both served by insisting
that groups must hold pay increases to 7 percent or less to
receive wage insurance. A high rate of compliance will slow
inflation; slower inflation will reduce, and may eliminate,
the budget cost of real wage insurance. Budget risk is also
reduced by limiting the amount of covered wages from any one
job to $20,000 and by limiting the wage insurance rate to 3
percent, thereby protecting for inflation up to 10 percent.
Such limitations are prudent, but not overly restrictive.
The $20,000 limit will allow full coverage of wages for
88 percent of employees, and will provide coverage for 87
percent of total wages for qualified workers. Similarly,
the 10 percent inflation limit will curtail payout of RWI
only if inflation substantially exceeds the range of professional forecasts for 1979.
The rules for real wage insurance are designed for
simplicity, to the extent possible, given other goals of the
program and the variety of pay practices used by businesses.
The amount of insurance is based entirely on pay as normally
reported for tax purposes. The rate of credit is the same
for everyone. RWI will add only one line to the individual
Federal income tax return. Payment would be made through
the regular process of Federal income tax refunds and
payments.
Employers will divide their employees into groups and
determine whether each employee group qualifies. The rules
for grouping and for qualification generally follow the
standards recently published by CWPS. However, the rules
for real wage insurance are somewhat simpler and have fewer
options and exceptions. The simplified rules are intended
- 4 to hold down the number of calculations and records required
of smaller businesses and to facilitate their verification
(when necessary) by the IRS.
Employers will not be required to report computations
of pay-rate increases to the government, although the
employer's determination will be subject to verification by
IRS. Small businesses with fewer than 50 employees may
choose to refuse RWI and thus avoid any calculation of
average pay increases.
Every member of every employee group meeting the test
of a 7 percent or smaller pay increase is qualified for wage
insurance whether or not the group is covered by the CWPS
standards. In other words, even those groups automatically
exempted from the CWPS standards (i.e., low-wage workers and
workers under continuing contracts) are eligible for RWI.
Groups of employees are disqualified only if they have wage
increases above 7 percent, or they are employees in small
businesses choosing not to participate, or they are in a
position to set their own wages (such as owner-managers of
corporations). To accommodate RWI to the collective bargaining process, special rules apply to collective bargaining
agreements of more than 15 months' duration negotiated
during the program year. These agreements are evaluated as
of the time of settlement so that the parties may be assured
in advance of RWI coverage. Average pay increases must be 7
percent or less over the life of the contract. For all
other groups, qualification is determined as of the close of
the program year.
A. Computation of RWI Credit
Employees who are members of qualifying employee groups
will receive a tax credit if inflation exceeds 7 percent.
The amount of this credit will be determined by multiplying
the employee's 1979 earnings from qualified employment by
the difference between the rate of inflation for the year
and 7 percent. For example, if the rate of inflation in
1979 is 8.0 percent, the amount of RWI credit reported to an
employee earning $10,000 of taxable wages in 1979 would be
$100. The amount of wages qualified for wage insurance is
limited to $20,000 from any one employer. The rate of
credit is the same for all qualified persons.
The rate of inflation for the year will be measured as
the percentage increase of the average Consumer Price Index
(CPI) for October and November 1979 over the average CPI for
October and November 1978. This measurement period covers
- 5 calendar year 1979 as closely as possible while still allowing the government to announce the rate of RWI credit before
the end of December 1979, in time for employers to prepare
W-2 forms.
The rate of RWI credit will be limited to 3 percentage
points of inflation. Thus, qualified workers will be
insured against loss of real income due to inflation up to
10 percent in 1979.
The program may also be extended to a second year. The
President must order the extension and may reduce the
target inflation rate for the second year by Executive Order
on or before December 1, 1979. Congress must then approve
the Executive Order by Joint Resolution within 30 legislative
days for the extention and new target rate to become effective.
Special procedures will facilitate Congressional action by
limiting the amount of time a committee may take to consider
a joint resolution, after which it will be brought to the
floor.
The RWI credit is intended to supplement wages for
those groups foregoing wage increases above 7 percent. In
general, the tax credit will be treated as if it were an
additional wage payment and, consequently, will be subject
to federal income tax as 1979 wages. However, RWI will not
be subject to FICA or FUTA taxes.
B. Qualification
Any employee receiving a W-2 form for earnings in 1979
is potentially eligible for RWI. This includes government
employees, domestic workers, and farm workers, but excludes
the self-employed. The only specific exclusions are for
wages reported by a company to an employee not a resident in
the United States or to one who owns 10 percent or more of
the company's stock. These latter earnings, like those of
the self-employed, are often hard to distinguish from
profits.
An individual obtains coverage by being a member of an
employee unit that qualifies. This rule of group qualification is very important. Like the voluntary CWPS pay standard,
the RWI program aims to restrain a company's average pay
increases. If the 7 percent standard and RWI applied on an
employee-by-employee basis, rather than a group basis, they
would not have a beneficial impact on the economy. First,
it is a company's average pay increase that affects its
- 6 prices. If RWI operated on an individual basis, it would be
available even where average pay increases exceeded the 7
percent standard. Thus, RWI would not act as an effective
anti-inflation incentive for company-wide decisions about
the pay of its various union and nonunion employee groups.
Second, an individually based program would create perverse
incentives. Individual employees would be encouraged to
avoid promotions, overtime work, merit bonuses, and the
like. That is, the program would stifle productivity.
Third, an individually based program would interfere in
complex ways with eaoh company's pay system. By contrast, a
group-based standard leaves each company and its employees
free to allocate pay among workers in the most efficient and
equitable manner.
The group-standard also greatly simplifies the administration of the program. For each group, it is necessary
only to divide pay by hours worked, information readily
available to employers. An individually based program would
require that pay-rate calculations be made for every job
held by every worker in the economy — about 140 million
separate calculations.
Employees of a company will be divided into four types
of employee units: (1) employees subject to collective
bargaining agreements, (2) low-wage workers, (3) management
and supervisory employees, and (4) all others. Employers
will determine the qualification of each employee unit for
RWI.
To determine qualification, employers perform the
computations described below. These computations need not
be reported to the IRS, but must be available for possible
verification.
Step One: Separate employees into groups. The qualification of those under new collective bargaining agreements
is determined contract-wide as of the time the contract is
signed. All other groups are separately tested by the
employer after the end of the Program Year (October 1978 September 1979).
Collective bargaining units that sign new agreements of
more than 15 months' duration after October 24, 1978 and
before October 1, 1979 will qualify for RWI if annual pay
increases under such agreements average 7 percent or less
according to the rules for new collective bargaining agreements published by the Council on Wage and Price Stability
- 7 (CWPS). All employees covered by such agreements are qualified,
wherever they work. Other employees in the same company
whose pay maintains a historical tandem relationship with
such agreements are also qualified. Qualification will be
based upon the terms of the agreement evaluated prospectively
as of the date of the agreement. Thus, for example, agreements
that contain cost-of-living adjustments will not be subject
to reevaluation if later events reveal an inflation rate
different from the 6 percent rate specified in the CWPS
rules for evaluating agreements.
Step Two: Compute base quarter pay rate. For each
remaining group, the employer determines total taxable
straight-time wages for employees in the group for the third
calendar quarter in 1978. To this total amount is added 25
percent of bonuses and other irregular payments made during
the base year (October 1, 1977 to September 30, 1978). The
resulting sum is divided by the total straight-time hours
for which employees are paid in the quarter. The result is
the "base quarter pay rate."
Step Three: Compute program quarter pay rate. Next,
the employer makes the same calculation for the third
quarter 1979 including 25 percent of irregular payments in
the program year. If there have been changes in the structure of benefit plans, such as for pensions, medical insurance, and educational assistance, 25 percent of the change
in the annual cost of these benefits also is added to (or
subtracted from) taxable wages in calculating the "program
quarter pay rate." The benefit rule is necessary to avoid
an obvious loophole -- the substitution of fringe benefits
for cash wages. An employer may also adjust the program
quarter pay rate for changes in hours of employment among
establishments within the company.
Step Four: Determine qualification for RWI. If the
program quarter pay rate for an employee group does not
exceed its base quarter pay rate by more than 7 percent, the
group qualifies for real wage insurance.
C. Payment of Real Wage Insurance
For each member of qualified groups, the employer will
add the real wage insurance credit to other amounts reported
as wages on the employee's Form W-2 and also report it in a
separate space on that form. The Federal income tax return
of an employee will have only one additional line — for the
amount of real wage insurance credit. This amount will
- 8 either increase the taxpayer's refund or reduce taxes owed
in the same way as amounts withheld. The full amount of
refund will be paid even if it exceeds the employee's tax
liability or if the employee has no tax liability. The RWI
credit is included in taxable income, but this involves no
change in tax return preparation because it is included by
copying wage amounts from the W-2, as always.
Thus, real wage insurance involves a minimum amount of
additional effort for the individual taxpayer and only one
additional item for the IRS to check on an individual return.
If inflation exceeds 7 percent, those qualified for RWI will
receive RWI payments as part of the regular tax refund (or
payment) procedure.
The degree of simplicity provided for the individual
taxpayer can only be accomplished by specifying the wage
limit as $20,000 for each qualified job of an employee.
Other types of limitations, such as $20,000 of covered wages
for each person, would require more lines on the tax forms
and more computations for the taxpayer.
D. Small Employers
The cooperation of small businesses is important to the
anti-inflation effort and most will find the offer of real
wage insurance beneficial to them and to their employees.
However, to avoid imposing additional burdens upon those
with special recordkeeping problems, employers with 50 or
fewer employees may choose not to participate in the RWI
program (except to report RWI credits for union members
under qualified new agreements). Employers choosing not to
participate must clearly notify their employees of that
intention.
III. Revenue Cost
The revenue cost of Real Wage Insurance will depend
principally upon (1) the rate of compliance among employee
groups and (2) the rate of inflation as measured by the
change in CPI between October-November 1978 and OctoberNovember 1979. These factors are related. Higher compliance will result in reduced labor costs and a corresponding
reduction in inflation. Thus, the cost of real wage insurance is partly self-limiting, since high compliance can
reduce the payoff per qualified worker while low compliance
reduces the amount of insured wages.
- 9 The Administration estimates a revenue cost of $2.5
billion for RWI in its FY 19 80 budget. This is based on a
forecast inflation rate of 7.5 percent for the relevant
period and qualification for RWI by about 4 7 million employees. About 87 million employees would technically be
eligible for RWI, but about 26 million of these will likely
be disqualified because existing pay agreements or legal
mandates assure them pay increases in excess of 7 percent.
The $2.5 billion revenue estimate for RWI assumes that 47
million of the remaining 61 million employees, about threefourths of them, will qualify.
Alternative assumptions are, of course, possible. For
example: if all 61 million realistically eligible employees
qualified for RWI, the forecast inflation rate would be
6.6 percent and there would be no revenue cost of RWI. If
only about 40 percent of these employees qualified, the
forecast inflation rate would be 8.0 percent, and the revenue
cost of RWI would be $2.7 billion. Revenue cost estimates
that associate very high participation rates with much
higher inflation rates are very improbable.
REAL WAGE INSURANCE
Technical Explanation
A.
Coverage of Individuals
Wages reported to an employee on any W-2 form are
covered, or not covered, depending upon whether the employee
is a member of a qualified group with respect to those
wages. A person who is paid wages by more than one employer
during the year may be qualified for wages paid by some
employers and not others. In every case, however, all wages
reported to one employee by a single employer (up to the
$20,000 limit) are either qualified or not qualified. Wages
are not apportioned even if the employee changes duties
within the company.
For purposes of determining coverage of wages for an
individual, membership of an employee in a group depends
upon the employee's position in the company on September 30,
1979. Group membership of an employee who leaves a company
before that date is determined by the employee's position on
the date of separation. (This rule applies even if the
employee is rehired after September 30, 1979.) An employee
first hired by the company after September 30, 1979 is
classified according to the position for which that employee
is hired.
Eligible persons include domestic workers and farm
workers who receive a Form W-2 and employees of governments,
whether or not withholding of income tax or social security
is required. However, persons who own directly or indirectly
10 percent or more of the value of the stock of a company or
who are not residents in the United States cannot qualify
for RWI. The determination of status as a shareholder or a
resident will be made as of the same dates that group membership is determined. It is the employer's responsibility to
determine which employees are entitled to coverage.
B. Types of Employee Groups
As indicated above, each employee is assigned to one
employee group and is entitled to coverage if that group
qualifies. However, for purposes of determining qualification of groups other than low-wage groups, the employer need
- 2 not trace individual employees from Base Quarter to Program
Quarter. For example, wages paid for service in supervisory
positions during the Base Quarter are counted in calculating
the Base Quarter pay rate for supervisors and, similarly,
the Program Quarter calculation for that group includes
wages paid to supervisors during the program quarter.
There are four types of employee units:
1. Employees Subject to a Collective
Bargaining Agreement
Employees covered by each collective bargaining agreement to which an employer is a party constitute a separate
employee group,. For any company, this group may at the
election of the company include employees within the company
whose pay rates have moved historically in a close tandem
relationship to pay rates of the collective bargaining unit
and who are granted pay rate increases parallel to those of
a "new collective bargaining agreement" in the Program Year.
A separate determination of qualification for RWI must be
made for each group governed by a collective bargaining
agreement.
2. Low-wage Workers
Low-wage workers are those earning straight-time wages
at a rate of $4.00 per hour or less as of the last pay
period in the Base Quarter, or at the time of hiring if
later. Low-wage workers covered by new collective bargaining agreements are covered if the agreement qualifies under
the CWPS rules. Other low-wage workers are a separate group
whenever they comprise (as of the last pay period in the
Base Quarter) at least 10 percent of the group to which they
would otherwise belong and there are at least 10 low-wage
workers in the group- Otherwise, low-wage workers are
included as part of the appropriate larger group, i.e., with
their collective bargaining unit or as part of "all others"
as the case may be. Thus, a company can have as many as one
low-wage worker group for each collective bargaining unit
not under a new agreement plus one such group for all other
employees.
3. Management and Supervisory Employees
All management and supervisory employees of a company
are one unit except those included in the above groups. The
designation of "management and supervisory employees" must
- 3 be made by the employer on a reasonable basis according to
the assignment of responsibilities within the company and
must be consistent between the Ease Year and Program Year.
4. All Others
The "all others" category will usually include most of
the non-union employees of a company. This group is a
single unit and may not be subdivided or combined with
another group.
State and local government employees are divided
according to the same rules that apply to employees of
private companies. The "employer" in these cases is the
reporting unit for payroll purposes. Federal government
employees are a single employee group.
C. Qualification Rules for New Collective
Bargaining Agreements'
Employees subject to collective bargaining agreements
signed after October 24, 1978 and before October 1, 1979
that will be in effect for more than 15 months ("new collective bargaining agreements") will qualify for RWI if the
employers party to the agreement, or their bargaining agents,
determine that the agreement satisfies the 7 percent test
for new collective bargaining agreements. This determination
is to be made on the basis of the terms of the agreement
using the costing method published by CWPS. Employees
included with a collective bargaining unit because of a
historical tandem relationship will qualify for RWI if the
agreement qualifies. These determinations of qualification
and coverage of employees will be subject to subsequent
audit by the IRS.
In the case of an audit, the IRS may ask CWPS to certify
the determination of qualification and the existence of a
tandem pay relationship for any group not directly subject
to the agreement. The CWPS certifications may not be
overruled by the IRS. In the case of contracts involving
1,000 or more employees, the employer, employer group, or
the union may request that CWPS make a certification of
qualification at the time of signing. Employers (including
all small business employers) are responsible for identifying
employees under qualified contracts and must report the
amount of wage insurance due regardless of the status of
their other employees.
- 4 -
CWPS may rule a new collective bargaining agreement
having a pay increase of more than 7 percent to be exempt
under any of several exceptions to the pay standard (e.g.,
the tandem rule, the acute labor shortage exception, the
undue hardship' exception, and the gross inequities exception) . Employee groups covered by these agreements do not
qualify for RWI. To qualify for RWI a contract must "cost
out" to an average increase over the contract life of 7
percent or less (after allowance for productivity-improving
work rule changes, if any) and have no more than an 8 percent increase in any one year.
D. Qualification Rules for all Employee
Units not Subject to New Collective
Bargaining Agreements
All employee groups not subject to the rules prescribed
above for new collective bargaining agreements will be
evaluated after the close of the Program Year. To qualify,
the pay rate of such units during the third calendar quarter
of 197 9 (the Program Quarter Pay Rate) must not exceed the
pay rate of such unit during the third calendar quarter of
197 8 (the Base Quarter Pay Rate) by more than 7 percent.
The definitions of terms used in this qualification rule are
as follows:
1. Base Quarter Pay Rate
The Base Quarter Pay Rate is Base Quarter Pay divided
by the number of straight-time hours in the Base Quarter.
In the case of bonuses, commissions and other payments not
made on a regular basis every pay period, 25 percent of such
payments made during the Base Year (i.e., October 1977
through September 1978) shall be included in Base Quarter
Pay.
2. Program Quarter Pay Rate
The Program Quarter Pay Rate is Program Quarter Pay
plus 25 percent of the Cost of Changes in Benefits divided
by the number of straight-time hours in the Program Quarter.
In the case of bonuses, commissions and other payments not
made on a regular basis every pay period,. 25 percent of such
payments made during the Program Year (i.e., October 1978
through September 1979) shall be included in Program Quarter
Pay.
- 5 The employer may choose to compute a separate program
quarter pay-rate for group members in each establishment
(i.e., branch, office, factory, store, warehouse, or other
fixed place of business) in the company and then to compute
the weighted average pay rate for the group using the Base
Quarter percentage of total group hours for each establishment as weights. For example, if a company has two branch
offices (A & B) and its total hours in the Base Quarter for
the group in question was divided 40 percent for employees
at branch A and 60 percent for employees at branch B, its
Program Quarter Pay Rate for that group would be 40 percent
of the branch A pay rate for that quarter plus 60 percent of
the branch B pay rate regardless of the actual division of
hours between the branches in the Program Quarter.
3. Pay
Pay is the total amount, exclusive of overtime pay, of
W-2 earnings for Federal income tax purposes allocated to
the Base or Program Quarter (as the case may be). This
includes wages, salaries, commissions, vacation and sick
pay, deferred compensation and those employee benefits
reported as current income.
4. Straight-time Hours
Straight time hours are all hours worked, exclusive of
overtime hours, plus the numbers of hours of paid vacations
and other leave. Employers are to attribute a reasonable
number of hours to the efforts of salaried, commissioned,
piece and other workers not compensated on an hourly basis
in a manner consistently applied to the Base Quarter and
Program Quarter.
5. Costs of Changes in Benefits
Costs of Changes in Benefits are the costs attributable
to providing new types of benefits or to changes in the
benefit structure of those employee benefit plans or programs the contributions for which are not currently taxable
to employees. Such plans include qualified pension and
profit sharing plans, medical and health plans, group legal
plans, group term life insurance plans, employer provided
educational assistance plans, and supplemental unemployment
benefit plans.
Specific rules are as follows:
(a) benefits derived from third party payments (such
as insurance companies or trusts exempt under Section 501 (c)
- 6 (9) of the Code) and benefits excluded from income (e.g.,
medical, group term life) are excluded from Costs of Changes
in Benefits if the benefit structure of the plan is not
amended. However, the cost of new plans or plan amendments
providing any increase or decrease in benefit levels is a
Cost of Changes in Benefits, unless the change is required
by law (e.g., paid pregnancy leave).
For example, if a pension plan is not amended, costs
attributable to the plan are excluded from the pay rate
calculation even if an increase in wages increases benefits.
Similarly, if a health insurance program is not changed,
costs attributable to the program are excluded whether the
cost has increased by more or less than 7 percent.
(b) The Cost of Changes in Benefits with respect to
these benefit plans and programs is computed by holding all
assumptions constant and comparing the cost of the plan or
program with and without the amendment. Thus, if an employer
changes the plan to provide for 5-year rather than 10-year
vesting, or to increase benefits 10 percent, all other
features of the plan and actuarial assumptions used are to
be held constant and the cost of the plan with and without
the change are to be compared to determine the Cost of
Changes in Benefits.
For example, suppose an employer using the entry age
normal funding method for purposes of the minimum funding
standard amends his plan in the program year to increase
benefits. Before the plan amendment the unfunded cost
allocated to past service (the accrued liability) was
$800,000 and the current year's cost (the normal cost) was
$80,000. After the plan amendment (using the same funding
method, actuarial assumptions, and census data) the accrued
liability was $900,000 and the normal cost was $90,000. The
increase in accrued liability as a result of the amendment
is $100,000 ($900,000 minus $800,000). The annual amount
necessary to amortize that $100,000 over 30 years is $6,195.
The increase in total costs attributable to the plan amendment
is $16,195 (the sum of the increased cost of funding the
increase in accrued liability over 30 years [$6,195] and the
increase in normal costs [$10,000]).
(c) There are two exceptions to these rules:
(i) Defined Benefit Qualified Plans:
If plan benefits or a component of benefits are a
flat amount not determined by reference to pay or
- 7
earnings, the flat rate of such benefits may be increased by up to 7 percent. Only the cost associated
with an increase in excess of 7 percent would be
considered a Cost of Change in Benefits. For example,
under a plan that provides a benefit of $15 per month
times years of service, the benefit could be increased
to $16.05 without affecting the pay rate computation.
The actuarial cost of increasing the benefit above
$16.05 would be a Cost of Changes in Benefits. However, smaller increases do not create a "credit" for
the pay rate computation.
(.ii) Defined Contribution Plans:
When plan contributions are discretionary or based
on profits, only the amount attributable to the increase
in the rate of contribution as applied to Program Year
compensation would be a Cost of Changes in Benefits.
For example, suppose the base period contribution to a
profit sharing plan is 5 percent of the employee's
compensation base of $400,000, or $20,000. During the
Program Year the contribution is raised to 6 percent of
the new compensation base of $500,000, or $30,000. In
such a case, Cost of Changes in Benefits is $5,000,
i.e., 1 percent of the compensation base in the Program
Year. If the rate of contribution had not increased the
cost change would be counted as zero.
E. Operation of RWI Credit
An individual is entitled to RWI for wages paid by an
employer if that employer certifies the individual's eligibility by entering the amount of RWI credit on Form W-2
for 1979. The employer computes the amount of RWI for each
eligible employee by multiplying the amount of compensation
reported to that employee on the W-2 Form (up to $20,000)
times the rate announced by the IRS as the rate of inflation
in excess of 7 percent.
The employer will add the amount of RWI to other
amounts entered in the "wages, tips, and other compensation"
box on the Form W-2. In addition, the employer will separately
report the amount of RWI in a new box on the Form W-2.
Individual taxpayers will make only one additional tax
return entry. For those filing Form 1040, it will be in the
section of the 1040 return labeled "payments" and for those
filing a Form 1040A, it will be among refundable credits and
withheld taxes on that form.
- 8 If an employee's Form W-2 shows no RWI credit, that
employee may not claim credit for wages paid by that employer
unless the IRS determines that the employer failed to report
RWI credits for members of a qualified group, or wrongfully
excluded the employee from membership in a qualified group.
In the case of a failure to certify a qualified group, the
employer will be required to issue revised Forms W-2 to all
members of the group. If the employees' collective bargaining agent or 50 employees (or 1/3 of employees in a group,
if smaller) petition the IRS claiming an improper failure to
certify their group, the IRS will review the employer's
computations, and the IRS resolution will not be subject to
judicial review.
Small companies with fewer than 50 employees for the
payroll period including March 12, 1979,* may choose not to
participate in the program without being subject to IRS
review. To exercise this option, the company must inform
the IRS and its employees of this intention.
F. Company
The entity responsible for determining eligibility is
the employer as defined for purposes of payroll tax reporting. The employer will make the division of employees among
the four types of employee units according to the rules
described above. Employees of different corporations in
affiliated groups will not be combined. Employees in a new
firm that is a successor to another company may be eligible
for RWI based on a comparison of the predecessor's pay rate
during the Base Quarter.
G. Anti-Abuse Provision
In any case where an employer manipulates normal pay
practices for the purpose of qualifying employees for RWI,
such changes shall be disregarded. For example, if it is
not the normal business practice for an employer's wage
rates to fluctuate during the year, an employer's reduction
of wage rates for the program quarter (with a corresponding
increase thereafter) will be disregarded in determining
group qualification.
* This date coincides with the date for reporting the number
of employees for census purposes.
- 9 H.
Sanctions
Employers who willfully or negligently report RWI
credits for members of units that fail to satisfy the
qualification rules will be subject to sanctions consonant
with fraud and negligence penalties in the Internal Revenue
Code. No action will be taken to recover from employees in
such situations unless collusion existed between the employer and employees. Employers who willfully or negligently
fail to certify a qualified group will also be subject to
fraud or negligence penalties.
PAPER TO BE PUBLISHED BY THE JOINT ECONOMIC COMMITTEE
Adjustment Policies and Trade
Relations with Developing Countries
by Helen B. Junz*i/
The 1970s, in contrast with the preceding 20 years, appear
to be characterized by a growing pessimism about the ability of
the world economy to achieve full employment, or at least susta
non-inflationary economic growth. Inflation has posed a problem
to many national authorities from time to time throughout the
post-war period. But since the early 1960s it has seemed that
each bout of inflationary pressure began with higher levels of
inflation than the one that preceded it. This upward tendency
of underlying inflationary trends over the past couple of decad
points to growing rigidities in the industrial economies. And
this loss in flexibility is one of the factors tending to imped
the return to a satisfactory rate of economic growth. Of course
the adjustment problems associated with the inflationary boom
of 1973 - 74, the subsequent period of recession and slow
growth and in particular the sextupling of oil prices from the
* Deputy Assistant Secretary of the Treasury for Commodities
and Natural Resources. Among my colleagues, I am particularly
grateful to Bruce Hack and Keith Hunter for their help and to
Peter Till and Nicholas Plesz of the GATT and OECD Secretariats,
respectively, for providing hard-to-come-by data.
1/ Paper presented at session on "Prospects of an Economic
Crisis in the 1980s," AEA Annual meeting, August 30, 1978.
Adjustment Policies and Trade
Relations with Developing Countries
by Helen B, Junz*l/
The 1970s, in contrast with the preceding 20 years, appear
to be characterized by a growing pessimism about the ability of
the world economy to achieve full employment, or at least sustain
non-inflationary economic growth.
Inflation has posed a problem
to many national authorities from time to time throughout the
post-war period.
But since the early 1960s it has seemed that
each bout of inflationary pressure began with higher levels of
inflation than the one that preceded it.
This upward tendency
of underlying inflationary trends over the past couple of decades
points to growing rigidities in the industrial economies.
And
this loss in flexibility is one of the factors tending to impede
the return to a satisfactory rate of economic growth.
Of
course, the adjustment problems associated with the inflationary
boom of 1973 - 74, the subsequent period of recession and slow
growth and in particular the sextupling of oil prices from the
* Deputy Assistant Secretary of the Treasury for Commodities
and Natural Resources. Among my colleagues, I am particularly
grateful to Bruce Hack and Keith Hunter for their help and to
Peter Till and Nicholas Plesz of the GATT and OECD Secretariats,
respectively, for providing hard-to-come-by data.
1/
Paper presented at session on "Prospects of an Economic
Crisis in the 1980s," AEA Annual meeting, August 30, 1978.
.I
- 2 beginning of the decade, all have exacerbated earlier adjustment difficulties.
Thus, the need for achieving an orderly
change in output and employment patterns has become doubly
urgent.
Before the turn of the decade, adjustment to economic
change in part was less of a problem because the rapid expansion of world demand allowed resources in declining sectors to
be drawn into expanding activities.
But the general sense of
growing overall prosperity that prevailed during most of the
two postwar decades also allowed adjustment to be put off and
symptoms of adjustment needs to be eased by increasing transfer
payments among sectors of the economy.
However, as world
demand turned sluggish, in part as a consequence of the large
income transfers to the oil producing countries, it no longer
was possible for any individual country to alleviate internal
strains in this way.
Thus, the need to deal directly with
adjustment problems became pressing.
But, the actual process
of adjustment is slow, both because growth rates appear to have
fallen secularly and because of the inflexibilities built into
the various national economies over two decades or more.
At the same time that sluggish demand and high unemployment are complicating correction of structural imbalances in
the industrial economies, growing competition from fast industrializing developing countries is posing further adjustment
problems.
Of course, problems of adjustment to changes in world
supply capabilities are not a new phenomenon.
Over the past
30 years, the world economy has had to adjust to many such changes
- 3Most notable, among industrial countries, was the adjustment in the late 1940s and early 1950s, from a post-war
supply shortage to a more normal demand and supply balance.
Because of the post-war supply constraints, the increase in
productive capacity that accompanied reconstruction, particularly in Germany, was accomodated relatively smoothly.
But,
the need to adjust to the emergence of Japan as a modern
industrial nation in the 1960s posed different problems.
In
fact, many European countries, by effectively limiting the
possibility for Japanese goods to penetrate their markets,
have adjusted considerably less to that event than have some
other countries. A major feature of the 1970s and in the longer
run will be a need to adjust to the increase in productive
capacity of a growing number of developing countries (LDCs).
The rapid industrialization of a number of LDCs, particularly as it is concentrated in a relatively small number of
industrial sectors such as textiles, shoes, electronics, steel
and more recently shipbuilding, is causing friction in a number
of markets.
Thus, it is not surprising that certain industries
or segments of industry in developing companies have become
increasingly concerned about import competition.
This concern
has risen to the extent that some have begun to doubt the
positive relationship between international trade and domestic
economic growth that was fundamental to policy formulation in
the 1950s and 1960s.
In the quarter century following World
War II, policies largely aimed at reducing trade restrictions
- 4 and increasing trade flows. During this period, the volume
of world trade rose at an annual rate of about seven percent,
while world production increased at an annual rate of about
five percent. This relatively fast expansion of world trade
helped promote internal growth, and raised productivity and
incomes. However, recently the notion that the current level
of trade liberalization may be excessive and actually works
to maintain or increase unemployment in the importing
countries, thereby reducing the potential for internal qrowth,
2
has been gaining currency.
This view clearly is not unrelated
to the fact, noted above, that adjustment earlier appeared not
to be a great problem, while more recently adjustments have.
become increasingly hard to make.
Accordingly, the pressure for trade restriction lias
been rising throughout the industrialized world. Although
governments have attempted to resist such pressures, the.
Secretariat of the General Agreement on Tariffs and Trade
(GATT) has estimated that three to five percent of world
trade has been affected by new non-tariff measures sinre
1973/74. Given this climate, the question of how the world
economy will deal with growing competition from LDCs in
world markets becomes increasingly important.
Changing Trade Patterns
The structure of world trade has shifted significantly
with the increase in oil prices in 1973/74. But there has
- 5 been a longer-run shift in other areas as well.
The indus-
trial countries, on average, increased their share in the
nominal value of world exports, excluding fuel, between 196 3
and 1977 (see Table 1),
Over the period, their share rose
from 68 percent to 74 percent and has been about stable since
1972.
But the recent stability in overall export shares of
the industrial countries obscures a decline in the share of
manufactured goods, which was offset by a jump in the value
of food exports in the early 1970s.
Between 1972 and 1977, the share of industrial countries
in world exports of manufactures declined from 82.9 to 80.5
percent, after reaching a peak of 83.3 percent in 1974. Over
the same period, developing countries increased their share
in world exports of manufactures from 5.9 to 7.8 percent.
The
longer-term downward trend in the share of the Eastern Bloc
appears to have been halted in 1975 - 1977, when it stabilized
around 9.8 percent.
Among the developing countries, export expansion was
distributed very unequally.
In fact, most of the increase
in LDCs' export shares in manufactures was concentrated in
only eight countries (Brazil, Hong Kong, Malaysia, Mexico,
Philippines, Singapore, South Korea and Taiwan) (see Table 2).
In 1977, these eight advanced developing .countries (ADCs)
accounted for almost three-fourths of LDCs' exports of manufactures.
In 1963, their share was only about one-third.
- 6 The very rapid growth of the industrial exports of ADCs, as
compared with other developing countries, is not of recent
vintage. In fact, from 1963 to 1972, these countries increased
their exports of manufactured goods at an annual rate of 23
percent as compared with a rate of growth of 16 percent for
all developing countries. And this trend has continued through
1977, although the growth differentials are narrowing somewhat as the ADCs' export volume expands.
Although attention has been focused primarily on the
ADCs' success in the markets of industrialized countries, the
regional structure of ADC exports actually has changed very
little between 1970 and 1976, In 1970, industrial markets
accounted for 70 percent of ADC exports of manufactured goods.
In 1976, their share was 69 percent. The share of non-OPEC
LDCs also declined slightly, from 23 percent in 1970 to 21
percent in 1976. The major shift in the ADCs' regional export
structure reflects their success in OPEC markets which over
the period rose in relative importance from four to eight
percent.
Although the ADCs* dependence on particular regional
export markets has not changed to a significant extent,
their concentration on certain product markets has become
more apparent over time. This is particularly true for
textiles, clothing and consumer electronics. However,
there also has been a remarkable expansion in exports of
- 7 engineering products other than consumer electronics (see
Table 3). For example, while the ADCs' share of TV and
radio equipment in the imports of 15 OECD countries more
than doubled between 1970 and 1977, rising from 7.5 percent
to 18.7 percent, the growth in their share in imports of
scientific instruments perhaps was even more remarkable
as it rose from 0,9 percent to 6.9 percent over the period.
Although imports of manufactured goods from ADCs by
the group of OECD countries grew at an annual rate of 29
percent between 1970 - 1977, reaching $26 billion in 1977,
they still account for only 6.8 percent of their total
imports of manufactured goods and for only a fraction of total
consumption. The group of OECD countries still received 8 8
percent of their imports of manufactured goods from other
developed economies. This high involvement of industrial
countries in each other's markets in part derives from their
high relative level of productivity, from traditionally
close financial, distribution and service ties and related
factors, all of which (albeit to varying degrees), are
likely to be maintained in the future.
But it also reflects an increasing degree of specialization, in which the developing countries are beginning to
share. For example, the large expansion in trade in
manufactures over the past decade reflects in part a growing
shift in emphasis from changes in product to changes in
- 9 continue to supply capital intensive products, is clearly
too simple.
The ADCs, in particular, are supplying an
increasingly broad range of manufactured products.
Their
rising exports of scientific instruments and their entry
into the shipbuilding industry exemplify these trends.
Furthermore, Brazilian and Korean steel plants probably
are less labor intensive than are those in Europe and
the United States, on average.
As the ADCs' industrial
base continues to broaden, industrial countries must
expect to meet their competition in world markets ovev a
growing range of industrial products.
Industrial Growth in ADCs
In 1963, the ADCs exported only $1-1/2 billion worth
of manufactured goods.
to $9-1/2 billion.
By 1972, their exports had grown
And, between 1972 and 1977, their exports
of manufactures expanded at an annual rate of 30 percent at
a time when world exports of manufactures grew at two-thirds
that rate.
This raises the question of how the ADCs could, in
the face of intensified competition and during a period of
relatively subdued world demand, continue to significantly
expand their industrial base and increase their share in
world trade.
For many of them, this achievement reflects
- 10 the results of a conscious shift in policy from import
3
substitution to export promotion,
For some, like Hong
Kong and Singapore, import substitution never was a viable
road to economic growth and their patterns of industrialization always were export-oriented.
For others, however,
policies of import substitution dominated their industrial
structure through most of the 'Sixties,
Although the policy
transition from import substitution to outward oriented
policies was pretty much an accomplished fact for all the
ADCs by the second half of the 'Sixties, the effects of
earlier inward policies took time to erode.
In part, as a consequence of this policy orientation,
most of these countries achieved considerably higher rates of
growth than the industrial countries from the mid-1960s
through 1973.
And most were able to sustain growth during the
recession and subsequent slow recovery.
For example, indus-
trial production in the industrialized countries exceeded its
1974 peak by only five percent in 1977, whereas in the LDCs,
production exceeded its 1974 Jevel by 17 percent.
And the
disparities in rates of growth were even greater in the heavy
manufacturing sector, where output in industrial and developing
countries rose by three percent and 21 percent, respectively,
between 1974 and 1977,
3.
J. B. Donges, "A Comparative Survey of
Industrialization Policies in Fifteen Semi-Industrial
Countries," Weltwirtsohaftliohes Archiv, Heft 4, Kiel, 1976.
11 The ability of the LDCs as a group to expand output
at consistently higher rates than achieved by the developed
countries reflects, in part, their savings and investment
patterns.
Whereas investment activity in the developed
countries has remained subdued since 1974, that in many
developing countries has been maintained.
Of course, the
large investment programs of oil exporting countries, that
have been associated with their rise in revenues play a major
role in the rise in the LDCs' investment activity.
But non-
OPEC LDCs gross domestic investment also has continued to
expand.
Between 1972 and 1977, gross domestic investment,
in current prices, rose at annual rates of 20 percent and
25 percent per annum in the non-OPEC LDCs and the ADCs,
respectively, (see Table 4 ) , The comparable figures are
seven percent for the United States and 14 percent for other
major industrialized countries.
Although it is difficult
to draw any conclusion from such aggregates, these data at
least support the view that investment activity was better
sustained in the ADCs than elsewhere.
In most of the ADCs, a cyclical investment peak was
reached in 1974 in conjunction with the peak of the world
economic cycle.
But in contrast with developments in the
industrialized countries, currently investment levels, as a
percent of GNP, again exceeded their pre-1973/74 levels,
For the ADCs as a group, gross domestic investment and gross
- 12 domestic investment and gross national savings in 1976 amounted
to 23.2 and 26.7 percent of GNP, respectively.
The ADCs have
been able to generate this level of savings and to translate it
into productive capacity despite the uncertainties that currently
dominate world markets.
Although the shift from import substi-
tution policies to more outward-oriented policies has not
reduced the level of government intervention significantly, its
character is such as to sustain growth orientations.
Thus, in
most of these countries, the business climate is as conducive
to the decisionmaking process as it can be in an uncertain
world.
Continuation of these trends clearly will support a
growing importance of the ADCs in world markets.
Trade Restriction versus Trade Creation
The trends that are apparent in world trade of manufactured goods, have given rise to talk of "over competitiveness"
of LDCs and tend to exacerbate protectionist pressures in the
industrialized countries.
However, as the developing countries
become more highly industrialized, and are able to absorb a
broader range of goods and services, they also become
increasingly profitable markets for the products of the
developed economies.
On this same basis, one must reject the assertion that
foreign aid and private investment flows*abroad are detrimental
to the economic interests of the developed countries.
particular, arguments are made against the expansion of
In
- 13 capacity abroad in sectors that, for one reason or another,
are experiencing economic difficulties in the industrialized
community.
But, aid and investment flows to the developing
countries assist in raising per capita incomes and foreign
exchange availabilities in the recipient countries.
As a
consequence, these countries are better able to satisfy growing
pressures for increased standards of living at home and in the
process buy more goods and services from abroad.
As purchasing power rises, so will social and economic
aspirations, and gaps between wage payments among developed
and developing countries will begin to narrow.
of this process is already discernible.
Some evidence
For example,
although levels of wage compensation, on average, continue
to be well below those of the industrialized countries, hourly
compensation in manufacturing industries in a number of ADCs,
such as Brazil and Korea, has tended to double over a two or
three year span, while increases in developed countries tend to
average around six to nine percent per annum.
The consequences of industrialization and concomitant
rises in per capita income are reflected in the substantial
growth of the import markets of developing countries.
Recently, of course, the limelight has been on the increased
purchases of oil exporting countries.
But the markets of
non-OPEC developing countries also have expanded rapidly.
- 14 World exports (excluding fuel) to developing countries
rose from $73-3/4 billion in 1972 to $252 billion in 1977,
lending considerable support to economic activity during
the recession. Although exports to OPEC rose from about
$14-1/2 billion in 1972 to $82 billion in 1977, those to
non-OPEC LDCs rose to an even greater extent — from about
$59-1/4 billion to $170 billion. Thus, it is often forgotten
that the non-OPEC LDCs constitute a very dynamic market for
the products of the world community and, in fact, currently
are absorbing 15 percent of world exports.
Although the rate of growth of non-OPEC LDCs1 exports of
manufactured goods has out-paced that of their imports -27 percent per annum between 1972 and 1977 for exports as
compared with 21-1/2 percent for imports — their trade
deficit in this category has actually widened. This
reflects the much lower base from which the growth of their
exports is computed as compared with that of imports.
Accordingly, their deficit on trade in manufactured goods
has grown from $22-1/2 billion in 1972 to $49-1/2 billion in
1977. Similarly, vis-a-vis' a representative group of OECD
countries, their deficit on trade in manufactured goods has
doubled from $19-1/2 billion in 1972 to $38-3/4 billion in
1976. Over the period, the OECD group's imports of manufactures
from non-OPEC LDCs rose from $9-1/2 billion to $26-1/4 billion,
while exports to them grew from $29 billion to $65 billion.
- 15 Interestingly enough, even with the ADCs, the OECD
countries are registering a rising surplus on trade in
manufactured goods. A group of 15 OECD countries imported
about $7 billion of manufactures from ADCs in 1972 and about
$20 billion in 1976. Over the period, these OECD coutnries1
exports to them rose from $11-1/2 billion in 1972 to $26-3/4
billion in 1976. Thus, the OECD group's surplus on trade in
manufactures with the ADCs rose from about $4-3/4 billion in
1972 to around $6-3/4 billion in 1976.
These developments clearly demonstrate that with
growing industrialization, both imports and exports of
manufactured goods expand as inter and intra-industry trade
intensifies. Of course, a large part of industrial countries'
exports to the ADCs is concentrated in investment goods,
which in turn provide a broader base for the industrialization of these countries. The fast growth of capital
formation in these countries indicates that their competition
not only manifests itself in terms of relative costs of
labor, raw materials and transportation, but to an increasing
extent in terms of competition of modern capital equipment
against an aging capital structure in the more mature economies.
The fact that private investment is continuing to lag in
most of the industrial economies, while a number of the newer
industrializing countries provide promising investment
- 17 (e)
changing patterns of labor co.-^i a
and reduced labor mobility.
Adjustment to the economic changes of the past several
years is difficult under any circumstances. But, these
difficulties have been exacerbated by relatively low capacity
utilization and high unemployment. The latter, in turn,
have lead to increasing political pressure to insulate
particular sectors of the economy from the need to adjust.
As a consequence, the flexibility of the industrial economies to adapt to changes in the economic environment has
become further circumscribed.
Policy makers in the industrialized countries are
fully aware of the economic costs of defensive or "negative
adjustment policies" that attempt to preserve the status quo.
For this reason, they included a commitment to "positive
adjustment" in the Communique of the Ministerial level meeting
of the OECD countries in June, 1978. However, it must also
be recognized that politically, it is very difficult to phase-out
or resist pressures for, short term policies that spread the
social costs associated with low rates of economic activity
among the different sectors of the population.
Some examples of negative adjustment policies include:
(a) government rescue operations to save
existing jobs and firms in declining
industries and/or regions;
- 18
(b)
special subsidies to specific
industries or firms which shield them
from both foreign and domestic
competition and which impede adjustment to changing market conditions;
(c) regulations and restrictions that
tend to freeze existing market
relationships by biasing economic
decisions toward certain directions;
and
(d)
a host of restrictive actions aimed
at reducing foreign competition,
some of which are currently being
addressed in the MTNs such as government procurement practices, government subsidies and safeguard actions.
In contrast, positive adjustment policies are aimed ;.t
creating new jobs and facilitating the movement ot lahor
and capital from geriatric industries to dynamic sectors
of the economy. These include:
(a) economy-wide incentives for investment in new and productive capital
equipment, in particular encouragement to turn over energy inefficient
capital stocks;
(b) assurance of broadly based, efficiently functioning capital and labor
markets that help foster a productive
environment, in particular for
activities that provide the basis
for growth and technological change;
(c) assurance that government regulations
and reporting requirements are reduced
to the minimum necessary and -do not
hamper investment decisions;
- 19
(d)
assurance that when special measures
are necessary to help certain firms
or industries to adjust, they will -be
temporary and be tied to a phasingout of overaged or redundant capacity.
The cumulation of "negative adjustment" measures
over time has resulted in a world economy that is less
productive, less dynamic and more vulnerable to economic
dislocations than it need be.
Economies that have moved
along a path of increasing rigidities are left with an
aging capital stock, an uncompetitive market structure and,
therefore, increased inflationary tendencies.
Low
productivity growth, under these circumstances, is rarely
accompanied by lower real wage demands.
On the contrary,
because inflationary tendencies are increased, struggles
for income shares are intensified leading to further
losses in output and mismatches in the labor market.
Protection from competition from within or without, thus
tends to set up a vicious circle as it leads to increased
pressures for further protection, results in further
rigidities, necessitating further protection and so on.
Positive adjustment policies can most effectively be
pursued in a climate of rising aggregate demand and
adequate capacity utilization.
But defensive policy action
in the face of inadequate economic growth will tend to help
perpetuate that condition.
This conclusion applies equally
to the area of trade policies.
20
Defensive actions against foreign competition would
only be counterproductive.
developing countries.
And this is espcially so vis-a-vis
Developing countries, already large
importers, are likely to become even more so. Even the most
optimistic forecasts of growth for the OECD area do not
foresee growth rates much above those achieved during the
last couple of years; and the explosive growth of OPEC
markets has begun to stabilize.
Consequently, the non-OPEC
LDCs are likely to furnish the most dynamic markets for
exports of industrial countries for some time to come.
Import
restraints vis-a-vis LDCs could, therefore, result in a
considerable loss of high wage export jobs and income in the
industrialized world.
First, becuase income losses abroad
would cut into foreign purchasing power and second, because
such restrictive actions could easily spread across borders.
Positive adjustment must, however, be a two-way street.
The success of a number of developing countries in world
markets reflects the fact that they have invested in exportoriented industries and have* channelled their savings largely
into productive investment rather than consumption.
However,
past experience shows that at a certain point in the development process, adjustment measures need to be taken so as to
avoid the emergence of chronia surpluses, which reduce the
- 21
welfare of the domestic population and put strains on the
international trading system.
Some of the ADCs have recognized
the desirability of guarding against such surpluses,
in
general, they have tended to reduce tariffs and liberalize
imports rather than remove export subsidies or appreciate
their exchange rates.
It may be natural for them to believe
their emerging surpluses only to be temporary and, therefore,
to be cautious in liberalizing their trade relations.
But for
some, the time may have come when it is appropriate to begin
to accept more fully the general rules and obligations applying
to trading nations under the GATT and IMF.
The developing countries seek to establish a new set
of trading rules in the current Multilateral Trade Negotiations (MTNs) that would recognize permanently preferential
treatment for their products in industrialized countries'
markets and would permit protection of their own markets
for the benefit of their "infant industries."
There are
cases where such treatment is warranted, but institutionalizing
"special and differential treatment" for developing countries
in a generalized way would be harmful to the international
trading system.
As the development process proceeds and
countries emerge as important participants in the world
economy, they must increasingly.undertake the full obligations
of the trading system.
This means not only gradual reduction
in preferential status, but also an increasing degree of
reciprocity for tariff reductions and other concessions
- 22 extended by the industrialized countries. This would include
a graduation from the benefits extended by generalized system
of preferences and reductions in subsidies to exports and in
tariff barriers.
If the "prospects of a crisis in the 1980s" are to be
minimized, cooperative actions among nations must extend to
the world community as such.
If satisfactory levels of
economic growth are to be attained and, once attained, to
be sustained, problems of economic change must be addressed
positively whether they derive from internal or external
sources.
This applies now, even more than ever, to all
countries, be they large or small, alike.
TABLE li REGIPNAI STRUCTURE OF
1962
TOTAL HbRup NON-FUEL E X P O R T ^
SUPPLIED BY:
INDUSITRIAL COUNTRIES
EASTE
,STERN
BLOC _
;TRALIA#W,ZW
AUSTR
TOTAL DEVELOPING
OPEC
NONQPEC
TOTAL ADCs
1QD
16,2
ia. EXPORTS, 1963-1977
m
m
laa
m
JOB
ffl
ffl
QQ
JQQ - 1JOQ
ii i 8
13,6
1.6
14,6
1.1
12,2
4,4
4.0
12.8
1.2
11,6
4,4
13,4
1.2
12,2
5.2
1,
19S
13,4
12.5
.9
12.5
.7
11,8
5,2
4,9
1.1
1.1
m
J9Z&
m.^
m
m
7^.5
74,0
13,3 13,8
.7
.9
12,5
12.9
6,3
6,1
m
m
m
1
ULAYSIA
!EXJCO
fclLIPPINES
TAIWAN
ITAI NON-FUEL fftimRY
IS. &.,HON-FERRQUS M E T A L S
1WffiMM"
5
Jffl
INDUSTRIAL COUNTRIES
AUSTRALIAVH.Z. , S.A,
TOTAL DEVELOPING
OPEC
ft* OPEC
TOTAL ADCs
33,7
2.9
33,3
m
B'S
^'i?
31,3
28,4
27,4
28,8
27.7
29,]
29.7
2.7
2.4
26,0
2.4
25,0
2,1
26,7
1,9
25.8
2,2
26,5
27,1
6,9
7,5
7,5
7.4
8,5
8,0
2.6
ii
2.i
li!
2.j
il!
0,0
7.9
28,6
7.4
2,!
2.
2,
i:
i:
HONGKONG
*^^YSIA
(ICO
•ILIPPINES
i:
i:
2.6
i;
IAIWAN
TOTAL hwuFACTmiNS
SUPPL1E0 BY!
INDUSTRIAL COUNTRIES
a
ffl
m
m
m
10-
1QQ
1QQ
5,0
4.9
5.9
6,9
6.9
6.5
7.7
7.8
,3
.3
7.4
7.5
AUSTRALIA7||,ZM S,A,
TOTAL DEVELOPING
<#•
,1
.2
.2
.3
ton OPEC
,1
4,9
4.8
5.7
6,7
6.6
.2
6,3
TOTAL ADCs
2.0
2.3
3.6
4,6
4,3
4.0
5.2
5.5
li]
i.i
.4
l.<
OPEC
i:i
QNGKDNG
'M-AYSIA
EXICO
PHILIPPINES
IINGAPORE
SOUTH KOREA
IAIWAN
•ADCS PARTIALLY ESTIMATED
h/l^fS ^I8 ^ <*"««» BY KIND.
™tl GATT* U.N., NATIONAL SOURCES
•li
J
XI
ii
8 tl
«5*Ji
"ftniuit tif iafi;?r;i>rp t f c t B U n i j " ^
Values, k U H o n pf Saljaj^
mi im uu im U2i UII im un
'• 'WfiS&HRP'• 0.1
140.4
in.?
4.0
• .1
•I
SM
.1
tt.O
•3
2,0
l.l
247.1 411.1
100.4
SI7.1
SII.O
11.•
SI.4
41.1
•Ji.s
.1
1.4
1.1
1.7
1.1
w.l 14.1
IS.)
10.4
11.1
42.1
40.1
1.0
SI.7
20.1
10.7
10.1
111
1.2
4.1
4.7
.4
.a
2.1
.»
i.o
.1
1.7
i.o
Shares . fercent
2.)
1.4
1.6
.7
1.}
2.2
4.)
4.2
1.1
7.0
.1
1.0
.0
2.9
0.7
6.0
1.0
0.0
1.0
1.2
.0
2J. 1J»C Exports Pf
Towl
OPEC
NOP. OPEC
• ADCs
Bratil
Hong Kong
Malaysia
Mexico
Singapore
Philippines
South lore*
Taiwan
J. Total boric! Export*
pT "Manufacture*
II. IPC Exports cf
yUnuTacturet
Total
•
.4
.1
.J
.5
4)
•
.J
t.l
.1
1.1
.»
l.)
i.i
3.1
4.4
:}
100
100
100
100
10D
200
2 00
s.s
o.s
0.4
100
S.O
4.1
1.0
0.0
o.o
0.0
7.7
7.0
OPEC
.1
.1
.2
.2
.i
.2
.1
.1
Hoc OPEC
4.0
4.0
S.7
0,7
0.0
0.1
7.4
7.1
1.0
4.0
4.2
4.0
1.2
S.I
• 2
.1
.4
.1
1.0
1.1
2.4
.1
.2
.2
.1
.1
•1
.2
.1
•
.2
a
.1
.4
•1
.1
.1
.1
.2
.1
.0
.4 Percent
.1 p.a.
1.0
growth,
.4
1.2
.1
.2
.1
.1
.0
1.0
I
2.1
.1
.2
.1
.4
.0
.0
.4
1.4
.2
.1
.1
.5
1.2
1.2
.4
14
.2
.2
.1
.5
1.2
1.3
1001-1 1001-72 1071
1074
ion
1076
IP"
• ADCs
3. ft 21
Brazil
Hong Kong
Malaysia
Mexico
Philippine!
Singapore
South Korea
Taiwan
Total fcorld Exports
ct~Ranufacturet
II. IDC Exports cf
ftVnuTsctures
•
].
Total
12
17
24
22
o
11
10
12
22
SO
13
2
IS
17
•17
40
24
©PEC
11
10
SO
TO
Mot OPEC
22
21
so
12
2
21
20
B ADCs
10
SI
41
20
2
42
22
SO
10
12
10
21
•1
SI
11
51
71
41
SI
tl
170
SO
100
S4
10
SI
1
21
44
40
27
24
S
40
JO
-7
•1
20
SI
0)4
14
11
12
20
40
20
20
traxll
Hong Kong
Malaysia
Mexico
Philippines
Singapore
South Korea
Taiwan
24
21
i!
4)
44
it
*E>clu4t» flTC fl, pot. ftrifPl twujp
| / m » r-nlally MttMitS • , : v..
*«•«• i H . f M r!lliw, 9} J,.., iut, *,n rerfrr.t
* % , K T r c;yi, v.*.t S M . I I ' I fourcti
5
10
-4
II
•2*
S
-0
2?
TABLE 31 liiwiiisJEJ3AttUMCTUREi^RQfi^
i?j FS. rJ/C/i -
IPERCFNT «>Nn nil LIONS OF r)<>LL*nS>
„
TOTAL
OF WHICH
flAifurACTJiREi:
1
ism
1972
JJFFI CE
LXPORIEHSt
BRAZIL
HONG KOPKS
•VLAYSIA
MEXICO
PHILIPPINES
SINGAPORE
.SOUTH KowfA
TAIWAN
,
.4
1.6
.2
1.4
.3
.5
.1
.1
.4
.6
.4
.7
.2
.4
1.6
1.5
.4
.6
.0
.6
.0
A
.0
.2
SCIENTIFIC
ELECTRICAL
RACHI NERt
197Q
1372
.9
1.1
.1
.5
JlACHJNERt
1970
19/2
r
1970,
1972
INSIRUrlEHIl 1 foniO^ifflaW
13Z0 -12ZI
1972
,1972 I 19/Q
FOOTWEAR.
CLQIHING
r1970
(SHAPES IN IOTAI IMPORTS O F CATEGORY
I
A
.4 ! .5
A
.2
|
>
1
3.4
i
1.2
.6
.1
.4
.7
.2
.0
.6
.0
.1
.0
.9
A
A
A
3.5
10.0 j 1.1
9.9
A
4.4
6.5 j 3.8
12.2
.2
.0
.3 | 1.0
.0
'-1
.1
.9 !
.3
•9 !
1.9
3.1
28.3
.9
6.9
14.9 1 3.7
1.1
1.4
11.5
.
1.3
.1
.4
A
1.0
2.2
.7
1.0
A
.0
.5
.9
.7
.3
.6
.5
1.8
.4
.4
1.9
.9
2.2
1.5 1
* !
.0
7.6 | 3.0
*
!
.9
4.6
.5
1.0
.1
1.8
4.2
5.6
!
TOTAL ADCs
5.6
6.8
1.8
4.5
3.9
11.3
24.5
35.3
9.8'
7.5
-
(BILLIONS OF DOLLARS')
VALUE of IMPORTS
FRO* TOTAL ADCS
4.4
26.0
.1
.4
.3
3.1
1.1
6.3
It./
1.4
.1
.9
A
.2
l.f
I
(PERCENT GROWTH)
A M N M L GROWTH RATt,
or IBPORTS FROPI ADCs#
•
29.1
31.5
38.8
28.5
40.2
59.1
36.S
17.2
15.5
19.2
22.0
20.7
19.1
20.1
A N M M L GROWTH RATE
Unau
M
rturn AMI
tv
T T — T „ p 15 OECD COUNTRIES ARE: AUSTRALIA, CANADA, FINLAND, FRANCE, IRELAND. ITALY, JAPAN, NETHERLANDS,
NORWAY,
U
i!£iJ, S W E D E N ^ W K Z E R L A N D .
UNITED KINGDOM. HNITED STATES AND WEST HEP-ANY.
A/ LESS THAN s50 MILLION OR LESS THAN 0.05 PERCENT.
SOURCE: UNITED NATIONS
nt»
Una*
.ABLE
Jkim!lIATJES.
«
4A:
Effl_l(U)rraOP23_A/©J^
p£fcJ9KLJ9Z5
(IN CURRENT DOLLARS AND IIRCENT OF (IkV
fia
MAJOR
EXPORTING
IllLS
npypppfo G A N T R I E S
fofH)IL
LJXs
LVHUCH
•
•
Hi DOLE
lica*
HIGH
iNCCr*
•
rYiRCtNT
CURRENT
QjRRENT
r^RCENT
OF
GNP
CURRENT
DOLLARS
ftRCOIT
OF
&NP
ftRCENT
CURRENT
DOLLARS
CURRENT
DOLLARS
ftRCENT
OF
GNP
CURRENT
I&LARS
LCM
J
fcRCFJIT
CURRENT
OF
J)0LLA«S
&P
PERCENT
I9fC
93.1
18.4
U2.7
24.8
9.6
17.7
24.3
18.6
11.2
23.6
5.8
16.6
7.2
11.8
1953
112.1
18.8
149.8
25.2
19.2
14.0
29.5
19.1
12.6
22.9
6.8
17.4
10.0
13.7
£58
163.6
18.4
233.4
26.0
17.9
20.8
40.4
19.6
20.6
11.5
15.5
lfl.0
17.7
311.5
27.6
25.5
22.2
52.1
14.2
21.0
14.3
14.1
WL
195.1
18.3
341.0
26.6
28.1
19.4
58.8
20.8
21.4
21.8
24.0
11.8
:S70
17.1
23.6
28.0
25.0
15.6
21.3
W.5
26.3
61.6
30.2
24.8
15.7
19.2
560.1
28.1
23.3
23.6
15.8
.14.6
19.8
34.8
46,4
15.0
15.7
1975
224.1
258 2
19.1
41.0
25.5
260.1
1B.4
634.9
65.9
22.0
U5.1
1975
236.9
15.5
627.6
28.2
24.5
20.7
25.0
17.1
1974
95.6
27.2
13.9
14.1
14.6
1975
288.9
16.9
685.8
25.1
108.8
26.8
5.4
1972
SOURCE: VlbRLD BANK AND DEPARTMENT OF THE TREASURY
79.2
20.8
21.4
59.9
28.4
118.4
24.5
23.3
21.1
32.6
5B.3
25.6
35.2
24.1
22.6
24.8
128.0
23.0
65.6
25.7
39.2
23.1
23.2
TABLE i|B
fo°s$
DOMESTIC IK*STMENT (GI) 4(o GROSSJkTiorw. SAVINGS (GRS) AS-PEKENT
MILLIONS Of HOLLARS AND PERCENT)
8ADCs
•
OF NHIC*
BRAZIL
GNS
6!
-IfaSikNS
GNS
GI
OS
1968
1970
1971
1972
1973
1974
1975
1976
1977
1D.1
12.2
19,6
25.8
28.9
33.0
47.5
72.7
74.1
81.2
N.A.
GI
it*
16.9
19.0
19.1
21.1
20.4
21.5
24.7
24.5
21.6
23.2
N.A.
19.4
20.7
21.8
23.7
23.7
23.8
26.4
31.0
27.4
26.7
N.A.
22.2
22.5
20.5
21.7
20.3
21.7
23.7
25.5
1£.4
28.1
14.6
18.5
22.4
23.0
25.7
27.6
31.9
25.7
26.3
24.3
23.3
25.4
25.1
20.3
22.0
22.5
G!
1.9
14.7
12.9
14.0
19.2
19.0
20.5
21.3
21.6
20.3
23.7
22.1
21.6
21.4
22.2
20.8
21.4
24.2
faiijppTNn
21.3
19.7
18.3
22.9
23.5
29.8
23.3
25.4
22.3
21.9
N.A.
AS
AS
y
24.0
Of
GNS
GI
4f
15.0
1960
1963
16.2
19,6
1968
1970
21.4
21.5
1971
21.1
19.2
1972
1973
1974
20.8
19.0
21.6
28.8
1375
312
24.9
24.0
24.1
m
31.1
. 93.1
20.4
17.0
19.5
1B.7
21.3
22.2
19.9
18.1
25.7
25.4
20.2
29.8
N.A.
GNS
GI
19.8
19.0
21.1
22.9
20.3
21.3
25.3
29.0
29.0
26.1
N.A.
GNS
GI
' 24.4
3B.3
40.3
; 41.5
40.7
(46.2
23.7
3B.1
38.4
74.4
3,7
SDiIRCE: WO»^D BANK AND DEPARTMENT OF T>€ TREASLFY
17.3
19.2
22.5
2'..5
23.7
22.2
N.A.
9£
AS
AS
11.2
14.7
17.0
17.9
1B.3
19.6
_JAJ*W
SOUTH KPREA
SINGAPORE
AS
1977
GNS
ft/.! a.
GN1
51
MALAYSIA
AS
Cl*RENT
DDLLARS
1960
1963
z.
11.9
19.9
18.5
1.4
6.2
20.0
26.8
19.1
1S.3
27.2
13.7
16.3
20.1
17.1
26.5
26.0
14.5
25.9
28.3
15.0
23.7
27.4
38.3
29.7
30.1
33.0
30.1
25.6
27.7
27.0
29.9
30.1
-0.9
23.0
26.5
24.7
28.0
27.1
26.8
25.6
20.9
26.3
27.3
25.0
22.1
19.3
1B.0
22.3
26.2
34.8
51.2
12.6
16.9
234
25.8
partmentoftheTREASURY
TELEPHONE 560-2041
INGTON,O.C. 20220
FOR IMMEDIATE RELEASE
January 29, 1979
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,803 million of 13-week Treasury bills and for $3,001 million
of 26-week Treasury bills, both series to be issued on February 1, 1979
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 May 3, 1979
26-week bills
maturing August 2, 1979
Price
Discount
Rate
Investment
Rate 1/
Price
97.645
97.641
97.643
9.316%
9.332%
9.324%
9.67%
9.69%
9.68%
95.269^ 9.358%
95.250 9.396%
95.260 9.376%
Discount
Rate
Investment
Rate 1/
9.96%
10.00%
9.98%
a/ Excepting 1 tender of $650,000
Tenders at the low price for the 13-week bills were allotted 35%
Tenders at the low price for the 26-week bills were allotted 30%
TOTAL TENDERS RECEIVED AND ACCEPTED
BY FEDERAL RESERVE DISTRICTS AND TREASURY:
Location
Received
Accepted
Received
Accepted
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$
51,395,000
4,620,315,000
31,950,000
45,545,000
24,820,000
35,565,000
217,855,000
41,300,000
13,480,000
39,875,000
12,345,000
154,805,000
$
26,395,000
2,516,175,000
26,385,000
27,930,000
22,220,000
29,935,000
42,345,000
15,600,000
4,480,000
31,955,000
12,345,000
34,445,000
$
15 ,490,000
4,708 ,310,000
13 ,300,000
72 ,400,000
22 ,705,000
18 ,910,000
185 ,900,000
38 ,350,000
14 ,250,000
17 ,420,000
7 ,020,000
195 ,650,000
$
15,490,000
2,658,310,000
13,300,000
27,300,000
22,705,000
18,910,000
70,900,000
16,350,000
14,250,000
17,420,000
7,020,000
100,450,000
Treasury
12,380,000
12,380,000
TOTALS
$5,301,630,000
$2,802,590,000b/( $5,327,855,000
18,150,000
b/Includes $387,435,000 noncompetitive tenders from the public.
c/Includes $223,490,000 noncompetitive tenders from the public.
1/Equivalent coupon-issue yield.
B-1366
18,150,P7D
$3,000,555,Xoc
FOR IMMEDIATE RELEASE
January 29, 1979
Contact: Alvin M. Hattal
202/566-8381
TREASURY ANNOUNCES COUNTERVAILING DUTY
INVESTIGATIONS ON IMPORTS OF TWO EEC PRODUCTS
The Treasury Department has begun investigations
into whether imports of tomato products and potato starch
from the European Economic Community are being subsidized.
A preliminary determination in the tomato products
case must be made on or before February 22, 1979, and a
final determination no later that August 22, 1979.
A preliminary determination regarding potato starch
must be made on or before June 8, 1979, and a final determination by December 8, 1979.
Imports of tomato products during 19 77 were valued
at approximately $7.7 million. Imports of potato starch
were valued at $3.3 million for the first nine months of
1978.
These actions, under the Countervailing Duty Law, are
being taken pursuant to petitions alleging that manufacturers and/or exporters of this merchandise receive
benefits from the Commission of the European Communities.
The Countervailing Duty Law requires the Secretary
of the Treasury to collect an additional customs duty
equal to any subsidy paid on merchandise exported to the
United States.
Notice of these investigations will be published in
the Federal Register of January 30, 1979.
o
B-1367
0
o
' TuLAbUKiOELPARTMENT
FOR IMMEDIATE RELEASE
Expected at 12:30 P.M. EST
Tuesday, January 30, 1979
ADDRESS BY THE HONORABLE C. FRED BERGSTEN
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE
AMERICAN METAL MARKET FORUM
ON GOLD AND SILVER ,
JANUARY 30, 1979
As the representative of a major supplier of gold to the
private market, I welcome this opportunity to participate in
your forum on the outlook for gold. Recent U.S. Government
actions will have an important bearing on the gold market. It
is therefore especially appropriate at this time to discuss
the relationship of the U.S. Treasury gold sales program to
long-term U.S. gold policy, and to our current efforts to
establish the fundamental conditions for a strong dollar at
home and abroad.
The U.S gold sales program
The sale of U.S. gold to the private market was initiated
in 1975 in response to the demand for gold that developed
in anticipation of the elimination of restrictions on gold
B-1368
- 2 ownership:by Americans. In order to reduce the possible
adverse impact on the U.S. trade balance, two auctions
were held at which 1.3 million ounces of gold were sold.
When
the expected demand for gold by U.S. citizens failed to
materialize and the speculative pressures faded, the sales
were suspended.
The current program of monthly sales dates from May 1978,
with the amount auctioned increased from 300,000 ounces at each of
the first six sales, to 750,000 ounces in November and then to
1.5 million ounces in December, January and "February.
Our
November 1 announcement indicated that sales would involve at
least 1.5 million ounces monthly until further notice.
These sales serve three important U.S. objectives:
—
They help reduce the U.S. trade deficit, which has
been a major factor in the weakness of the dollar.
—
They respond directly to conditions in the gold
markets, which have contributed to the adverse psychological
atmosphere in the foreign exchange market which has undermined
international monetary stability.
—
They promote the internationally agreed effort to reduce
gradually the monetary role of gold.
The expansion of the sales program to at least 1.5 million
ounces monthly was announced on November 1 as part of a comprehensive U.S. effort to achieve the fundamental economic conditions
for a strong dollar at home and abroad.
In the context of the
- 3 -
broad array of policies being pursued —
monetary and fiscal
restraint, a voluntary wage-price program, an energy program,
expanded export promotion, and active intervention in the
foreign exchange market —
the sale of U.S gold can make a
useful supplementary contribution.
Most Americans probably do not realize that the U.S. had
become a large net importer of gold.
domestic sources —
Production of gold from
including scrap - has been running at
2 million ounces annually but domestic demand is well in
excess of that level.
Thus we have a substantial gap which,
in the absence of U.S. Treasury sales, can only be met by
imports.
In 1977, net imports amounted to 9-1/2 million ounces
at a cost of $1.5 billion to the U.S. trade position.
In the
face of rising demand last year, the sale of nearly 4.1 million
ounces from U.S. stocks provided a balance of payments saving
of about $800 million.
At the current monthly level, the sales
would be well in excess of the 8-1/2 million ounces, valued at
$1.5 billion, of net imports in 1978 and could turn us into a
net gold exporter —
helping the U.S. trade position at an
annual rate of up to $4 billion at current market prices.
The sales program is proceeding smoothly.
Indeed, the
amounts bid have been well in excess of our offerings.
The
average,price received at recent auctions has varied by about
- 4 -
$2 per ounce from the price at the second London fixing on
the day of the auction for bars of comparable fineness.
The principal participants in the Treasury auctions have been
recognized gold dealers which buy and sell gold as part of
their normal business activities.
The largest successful bidders
have been banks and dealers from Germany, the United States,
Switzerland and the United Kingdom.
No foreign government
or central bank has purchased gold at the U.S. sales.
The fact that most of the gold has been purchased by
foreign-owned firms does not mean that all of this gold
has been transferred abroad.
These firms act as wholesalers
and distributors of gold in the United States as well as
abroad.
There is also a great deal of location-swapping
of gold to minimize shipping costs abroad.
Thus, a large
portion of the gold sold to these firms has remained in the
United States to meet domestic needs.
The type of gold being sold at the auctions reflects the
general composition of U.S stocks.
Three hundred and four
hundred ounce bars have been offered because they are the
standard size in Treasury stocks.
We don't sell gold in smaller
quantities because we do not now hold significant quantities
in less than 300 ounce bars.
Only high-fineness gold bars
containing at least 99.5 percent gold -- the type traded
in the private market —
were sold in the monthly auctions
- 5 -
in 1978.
Sales of gold bars containing 90 percent fine
gold were initiated in the January auction because 70
percent of the U.S gold stock is in that form.
The response
to the sale of 500,000 ounces of these lower quality bars
was very favorable.
The bids received totaled 1.3 million
ounces; and the lower average price received —
per ounce —
about $1.50
largely reflects costs needed to refine these
bars into bars of the quality normally traded for industrial
use.
Obviously such bars are sold on the basis of the weight
of the gold they contain rather than the total weight of the
bar.
We currently expect to continue sales of this gold in
subsequent auctions.
Since the minimum sale at our auctions is for a 300 ounce
bar, only a handful of individuals have submitted bids.
Although
the opportunity to purchase gold in small quantities is readily
available in the private market, Congress decided last year
that the small American investor should be given the opportunity
to buy gold from the United States gold stocks.
Legislation
was enacted in late 1978 providing for the issuance over a
five-year period of two types of American Arts Gold Medallions,
containing one half ounce and one ounce each of gold. At
least one million ounces of gold in medallion form are to
be offered each year.
If Congress appropriates funds for their
production and distribution, the sales could take place in
- 6 the spring of 1980.
It is expected that 500,000 ounces
of gold would be struck in medallions of each size for
the 1980 sales program.
The expanded gold sales program announced on November 1
is open-ended with regard to both amount and duration.
The
United States has no particular price objective for the program,
and continuation of the sales is in no way contingent upon the
attainment of any particular price level.
The magnitude and
number of sales will continue to be based upon our assessment
of the U.S. balance of payments outlook and conditions in the
foreign exchange market.
The Market Outlook
The supply of newly-mined gold coming on the market has
been been fairly stable since 1976 at about 40 million ounces
annually of which South Africa has accounted for 23 million
ounces and the Soviet Union for an estimated 8.5 million
ounces.
The remainder of the supply reaching the market
reflects sales from official stocks and has increased each
year.
In 1978 total sales from official stocks amounted
to about 16 million ounces of which the International
Monetary Fund accounted for about 6 million ounces, the
United States about 4 million ounces and other countries,
including the Soviet Union, about 6 million ounces.
Continuation of U.S. gold sales at the present level
would make the United States the second largest supplier of
- 7 gold to the world market this year. Assuming that sales
by other suppliers continues at recent levels, the total
supplies reaching the market would amount to about 70
million ounces in 1979, an increase of about 25 percent
from last year.
In assessing the demand side of the market, account
must be taken of two different factors and how they respond
to changing economic conditions:
industrial and commercial
demand and investment-cum-speculative demand.
Tne
industrial and commercial demand for gold generally
follows a pattern similar to that of other metals.
When the
economy is growing rapidly, industrial and commercial demand
for gold will expand.
When the price rises rapidly, particu-
larly in relation to the prices of other metals which can be
used as substitutes, demand in this segment of the market
slackens.
The impact of U.S. gold sales on this sector of the
market is difficult to ascertain, given the many other factors
operating.
For example, the economy will be growing at a
more moderate pace in 1979 which will slow demand.
In addi-
tion, speculative and investment demand is highly volatile.
However an increase in supply of the order of magnitude of
current U.S. sales might be expected to reduce the clearing
price in this portion of the market from what it otherwise
would be.
- 8 -
Tne
speculative and investment demand for gold largely
reflects an attempt to hedge against financial or political
instability and is therefore influenced primarily by expectations regarding inflation and future gold prices and by
political unrest.
The run-up in gold prices in dollar terms
last year was associated with concerns about accelerating
U.S. inflation, which was also a major factor contributing
to the decline of the dollar in the foreign exchange market.
The U.S. commitment to bring down the rate of inflation should
therefore have an important effect on this segment of the
market.
The growing purchases of gold coins, however, which more
than doubled last year to 3-1/2 million ounces, and the rapid
expansion in gold futures trading, no doubt reflect an
increased investment and speculative demand for gold by U.S.
citizens.
Nevertheless, investment in gold bullion appears
to have remained minimal in view of the large amount of
funds that must be tied up in a non-interest bearing form
and the cost of buying and storing gold.
For most Americans, investment in gold remains a highly
risky proposition.
Given the extreme volatility of gold
prices, gains and losses are extremely sensitive to the
timing of transactions.
For example, if an American had
purchased gold when restrictions on ownership were lifted
- 9 -
in 1975, the subsequent rate of return would have been less
than 4 percent annually -- less than could be obtained on
U.S. Savings Bonds.
Of course, much larger gains or losses could have occurred
with a different time frame.
However, the variability of rates
of return on gold investments far exceed that of financial
instruments of comparable maturity.
For example, if three
month gold investments had been made at the beginning of each
quarter from July 1973 to July 1978 the rate of return would
have .been negative in nearly half of the 21 investment periods.
Since the beginning of 1975, when restrictions on ownership
of gold by U.S. residents were eliminated, the range of losses
and gains on three-month investments would have been -58 percent
to +451 percent.
Comparisons on six-month and one-year invest-
ments reveal a similar, albeit less drastic, variability.
U.S. gold policy
At the outset, I noted that the U.S. gold sales program
is consistent with longstanding U.S. policy of gradually
phasing out the monetary role of gold —
a policy which has
been formally accepted internationally for several years.
This policy is based on the widely recognized view that gold,
or any other commodity, is inherently ill-suited as a basis
for a stable national or international monetary system.
- 10 -
Natural forces limit new gold production at the same
time that expanding private uses appropriate a growing share
of available supplies.
Hence the residual supplies for
monetary purposes are inadequate for, and unrelated to, the
liquidity needs of an expanding national or world economy.
Commodities are simply an unsuitable monetary instrument.
Furthermore, the extreme price volatility of gold would
make it a highly unstable standard.
The price of gold moved
from a peak of $195 per ounce at the end of 1974, to a trough
of $104 in mid-1976, back to a new high of $243 last October
and to $195 after the U.S. dollar measures were announced
on November 1.
To have required economies to adjust to such
fluctuations would have led to swings in employment, output
and prices which no government could or should tolerate.
Within the United States, the demonetization of gold has
been proceeding for an extended period with broad bi-partisan
support. The legislative measures removing the domestic link
between gold and the domestic money supply were enacted under
President Roosevelt in 1933-34.
The provision for a gold certi-
ficate reserve against required bank reserves was gradually
reduced and finally eliminated by legislation introduced by
President Johnson in 1968.
Action to terminate the conver-
tibility into gold of dollars held by foreign monetary
authorities was taken in August 1971 by President Nixon.
- 11 Legislation authorizing U.S. acceptance of the IMF amendments
which formally removed gold from a central role in the
international monetary system was introduced by President
Ford and approved by Congress in 1976.
Market sales of
gold from U.S. stocks were begun by Secretary Simon and
resumed by Secretary Blumenthal.
Other countries have also virtually eliminated any
meaningful domestic monetary role for gold.
No important
country allows its money supply to be determined by the size
of its gold stocks.
There is also agreement among nations
that the monetary role for gold internationally should be
reduced although there is a recognition that the international
role of gold will have to be phased out very gradually
because too many countries have a sizable percentage of
their official reserves composed of gold.
The recent amendments to the IMF Articles of Agreement
—
the rulebook for the international monetary system -- adopted
by nearly all members, provides concrete action to phase out
gold's monetary role.
They abolish the official price of
gold and remove gold from its position as numeraire for the
system.
Gold is virtually eliminated as an instrument in
IMF transactions.
Provision is also made for the future
disposition of the IMF's remaining gold holdings.
The IMF is already in the process of disposing of one-third
of its gold holdings, with 25 million ounces being sold at
- 12 -
public auctions for the benefit of developing countries and
a further 25 million ounces being distributed to members in
proportion to their quotas at the old official price. The
IMF is in the third year of its program, which is scheduled to
be completed in 1980. Thus far, 17.6 million ounces have
been sold at 29 public auctions with $2.1 billion obtained
for the developing countries. There have been three IMF
distributions of gold totaling 18.4 million ounces of which
the U.S. received 4.3 million ounces.
There is no evidence that central banks are interested in
building up their gold reserves through purchases in the private
market. Since the United States terminated the commitment to
buy gold at a fixed price in 1971, transactions between central
banks in gold have been few and far between — limited primarily
to a few instances of gold collateral loans. Some countries
have revalued their gold holding to obtain bookkeeping profits
or increase the reported level of their reserves. However,
there is general recognition that the market price could not
be realized if global stocks were sold to the private market
and the volatility of the market price has left the countries
quite uncertain as to what value to place on their gold holdings.
Consequently, practices vary quite widely from country to
country.
Finally, although IMF members have acquired gold from the
IMF under the agreed "restitution" program at the old official
- 13 price, only a handful of the eligible developing countries
have purchased gold at market prices at the Fund auctions.
Even some of these purchases have been made to facilitate
sales to the domestic private market and have not led to an
increase in central bank holdings.
.."V ..
Basically, central banks have been unwilling to acquire
gold at market-related prices because the volatility of
the private price and the inability to sell large amounts
without sustaining heavy losses has made gold a very risky
asset. In fact, IMF data suggest that, in addition to the
United States, other IMF members may have disposed of about
15 million ounces of official gold holdings since 1971.
Some have suggested that the new arrangements under the
European Monetary System represent a departure from this
trend, and will result in a significantly increased monetary
role for gold. It is clearly premature to reach any final
judgment on the effect of the EC decisions, inasmuch as the
arrangements are not in operation. However, there is no
reason to believe that the European arrangements and intentions constitute any revival of a monetary role for gold.
No official price of gold is established and there is no
requirement of official gold settlements. The ECU will not
be convertible into gold at a fixed price. Participants
will retain title to the deposited gold, and must reacquire
their gold at the end of the transition period. The EC
- 14 -
envisages that gold would actually be pooled at a subsequent
stage, although specific arrangements have not been agreed.
The U.S. and all other countries have, of course,
recognized that gold remains an important asset which
countries will want to use even as it is being phased out
of the system. The principal motive for including gold in
the EC arrangements seems to be the recognition that gold
holdings are in fact not readily usable for official purposes.
Thus, the arrangements are an attempt to re-liquify them
to at least a modest extent. We are confident that the EC
will continue to consult closely with the IMF as its arrangements evolve to assure consistency with the agreed international objectives concerning liquidity and gold itself.
Conclusion
In conclusion, I draw three important lessons regarding
the role of gold from events of the past year.
— First, gold is clearly too volatile an asset to serve
as the basis for a stable national or international monetary
system. Retention of gold in official stocks provides no
assurance of better economic performance. In fact any attempt
to have economic policies influenced by changes in gold holdings
would exacerbate current economic problems.
— Second, the future of gold clearly lies in the direction
of greater private rather than official use. The private sector
- 15 -
is better suited to accept the inherent risk associated with
gold holdings.
-- Third, the sale of a portion of the huge U.S. stocks
can make a useful supplementary contribution to achieving our
economic objectives. However, such sales are no substitute
to dealing with the economic fundamentals. The Administration
must and will pursue the economic policies, particularly monetary
and fiscal restraint, required to bring inflation down and
strengthen the dollar at home and abroad.
o 0 o
FOR RELEASE AT 4:00 P.M.
January 30, 1979
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 February 8, 1979.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,812 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,800
million, representing an additional amount of bills dated
November 9, 19 78,
and to mature May 10, 1979
(CUSIP No.
912793 Y4 2 ) , originally issued in the amount of $3,407 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,000 million to be dated
February 8, 1979,
and to mature August 9, 1979
(CUSIP No.
912793 2F 2) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing February 8, 19 79.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,409
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 competitive0tenders.
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. 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, February 5, 19 79.
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-1369
-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 bookentry records of Federal Reserve Banks and Branches. 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
must be made or completed at the Federal Reserve Bank or Branch
or at the Bureau of the Public Debt on February 8, 1979, in cash
or other immediately available funds or in Treasury bills maturing
February 8, 1979.
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, 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
F
@FedFRASER