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The original documents are located in Box 11, folder "Economy - Trade Textile Imports"
of the Philip Buchen Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 11 of the Philip Buchen Files at the Gerald R. Ford Presidential Library
Ec anomy
THE WHITE HOUSE
WASHINGTON
December 21, 1976
MEMORANDUM FOR: L. WILLIAM SEIDMAN
THROUGH:
PHILIP W. BUCHEN
P.
BK
FROM:
BOBBIE GREENE KILBERG
No objection to the request for USITC Study of the
Basis for Classifying Textile Imports.
LIBRARY GERALD P. FORD
THE WHITE HOUSE
WASHINGTON
December 20, 1976
MEMORANDUM FOR PHILIP BUCHEN
JOHN O. MARSH
JAMES M. CANNON
MAX FRIEDERSDORF
BRENT SCOWCROFT
FROM:
L. WILLIAM SEIDMAN
LWS
SUBJECT:
Request for USITC Study of the Basis for
Classifying Textile Imports
Ambassador Dent, the Special Representative for Trade Negotia-
tions and Chairman of the Textile Policy Trade Group has
requested that a request for a USITC Study of the basis for
classifying textile imports be forwarded to the President as
soon as possible.
A memorandum transmitting this request is attached. I would
appreciate your comments and recommendations as soon as possi-
ble and no later than Noon, Tuesday, December 21.
Attachment
FORD : LIBRARY 076838
THE WHITE HOUSE
WASHINGTON
December 18, 1976
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN
LWS
SUBJECT:
Request for USITC Study of the Basis for
Classifying Textile Imports
This memorandum transmits a proposed letter from you to
Chairman Minchew of the United States International Trade
Commission (USITC) requesting a study by the USITC of the
probable domestic impact of changing from a "chief value"
to a "chief weight" basis for classifying blended textile
imports. By law, you only can make such a request for the
Executive Branch.
Background
On September 22, 1976, Senator Talmadge introduced a rider
to a minor tariff bill that, in effect, would have changed
the method of classifying imports of blended textile articles
for duty purposes. The Talmadge amendment would have changed
classification practices from the current "chief value" method,
by which a blended textile article is identified as a "cotton"
or a "man-made fiber" article according to its most valuable
fiber component, to a method by which a cotton/man-made fiber
blend containing less than 66 percent cotton by weight would
be classified as a man-made fiber product.
The purpose of the Talmadge amendment was to halt the erosion
of tariff rates that allegedly has occurred as a result of
recent increases in cotton prices. Those price increases have
increased the number of textile imports that are classified
as "cotton," under the "chief value" method, and thus are duti-
able at the lower rates applicable to cotton articles rather
than at the higher man-made fiber rates.
The Talmadge amendment would, however, have created serious
problems because it inadvertently would have forced the United
States to violate eighteen bilateral textile restraint agree-
ments that we have concluded under the auspices of the multi-
lateral Arrangement Regarding International Trade in Textiles,
and would have violated United States obligations under CRORD
GATT. These problems are described in the legal opini
GERALD
LIBRARY
-2-
attached at Tab B, and are covered more fully in the study
attached at Tab C.
In response to protests by Ambassador Dent and other members
of the Administration, Senator Talmadge withdrew his amend-
ment. Subsequently, he wrote Ambassador Dent requesting a
major study of the problems created by the shifts of increas-
ing quantities of textile imports into the "cotton" category
and the "chief value" method of classification. Such a study
was produced under the direction of the Textile Trade Policy
Group, chaired by Ambassador Dent, and is attached at Tab C.
This study confirms the view that the Talmadge amendment
would force the United States to violate international agree-
ments and would disrupt the administration of our textile
restraint program. It also suggests that a longer term, order-
ly change from a "chief value" to a "chief weight" basis would
create a more stable, predictable, and easily administrable
system for classifying textile imports. The study recommends
that the President request the U.S. International Trade Com-
mission to conduct an investigation in order to determine
the domestic impact of such a change of classification methods.
A letter from you to the Chairman of the USITC requesting such
a study is attached at Tab A. As stated in the letter, we
anticipate that after the USITC has reported on the domestic
effects of such a change, the Textile Trade Policy Group will
review the legal and policy effects of making such a change,
in particular the effects on U.S. international obligations.
Thereafter, if warranted, the TTPG would consider recommending
an appropriate program including legislation if necessary.
This proposed letter has been approved by the Textile Trade
Policy Group, which requests that the letter be sent to the
Chairman of the USITC as soon as possible, SO that the study
can begin at the earlier possible time, and so that the
request for the study can be announced at the same time that
the TTPG study attached at Tab C is submitted to the Senate
Finance Committee.
Recommendation: That you sign the letter requesting a study
by the USITC of the probable domestic impact
of changing from a "chief value" to a "chief
weight" basis for classifying blended textile
imports.
FORD LIBRAST
A
Honorable Daniel Minchew
Chairman, U.S. International Trade Commission
Washington, DC 20436
Dear Mr. Chairman:
Most textile imports composed of two more fibers cur-
rently are classified for tariff purposes according to the
value of the component fibers. For example, a cotton-
polyester blended shirt is classified as a cotton shirt if
the cotton component has a greater value than the polyester
component. This practice is consistent with the current
General Headnotes of the Tariff Schedules of the United
States (TSUS).
The "chief value" method of classifying textile ar-
ticles has been criticized on the grounds that it is unstable
and unduly difficult to administer. It is argued that these
problems would not exist if textile articles were classified
on the basis of the weight of the component fibers, rather
than on the basis of their value.
In order to assist the Executive Branch in deciding
whether to recommend a change in the basis for classifying
blended textile imports, I hereby request the USITC, pur-
suant to section 332(g) of the Tariff Act of 1930 (19 U.S.C.
1332 (g) ) , to undertake a study of the probable domestic
impact of changing from the current "chief value" method
of classifying textile imports to a method by which textiles
FORD
would be classified according to the fiber that constituted
their chief weight. This study should include a consideration
LIBRARY
- 2 -
of the probable impact of such a change on United States
customs procedures, on rates of duty, on reliability of
trade data, and on U.S. production, consumption, and
marketing of textiles and apparel, as well as any other
domestic effects of such a change that the USITC considers
to be relevant.
It is understood that much of the basic data that the
USITC will require for this study will have to be developed
by the Customs Service in connection with the processing
of import entries. I am, therefore, requesting the Secretary
of the Treasury to ensure that the USITC has the assistance
and cooperation of the Customs Service in the conduct of
this study.
I further request that this study be completed as
quickly as possible, and that the results be reported to
Chairman of the TTPG, the Special Representative for Trade
Negotiations, for receipt on the President's behalf.
Following receipt of this report, the interagency Textile
Trade Policy Group will review the legal and policy effects
of changing to a "chief weight" method of classification,
including the potential international effects of such a
change upon U.S. obligations under the General Agreement
on Tariffs and Trade, under the Arrangement Regarding
GERALD FORD LIBRARY
- 3 -
International Trade in Textiles, and under U.S. bilateral
international textile agreements.
Sincerely,
Gerald R. Ford
FORD is LIBRARY GERALD
Consistency of Textile Amendment with Textile
Agreements Program and the GATT
The provisions that would modify the Tariff Schedules
to change the basis for defining the term "of cotton", added
yesterday as a rider to a minor tariff bill by Senator
Talmadge, probably would violate the Multifiber Arrangement
(MFA) almost certainly would be inconsistent with existing
bilateral textile agreements, and probably would violate the
GATT. These conclusions are discussed separately below.
Multifiber Arrangement
The proposed amendment appears to be inconsistent with
two articles of the MFA, and may violate a third article. The
two articles that appear to be rather directly in conflict with
the proposed amendment are Article 3 (1), which states -
"Unless they are justified under the provisions of
the GATT (including its Annexes and Protocols) no new
restrictions on trade in textile products shall be
introduced by participating countries nor shall exist-
ing restrictions be intensified, unless such action is
justified under the provisions of this article".
(emphasis added)
By maintaining the tariffs on many textile articles at
a higher rate than would otherwise be applicable, and by
throwing some products that should, under the bilateral textile
agreements, be counted against restraint levels for cotton
items into the restraint categories for man-made articles,
the Talmadge amendment could reasonably be construed as the
introduction of new restraints, and/or the intensification of
existing restrictions.
Article 9 (1) of the MFA states as follows:
"In view of the safeguards provided for in this
Arrangement the participating countries shall, as
far as possible, refrain from taking additional trade
measures which may have the effect of nullifying the
objectives of this Arrangement.' (emphasis added)
FORD LIEHARY
- 2 -
The objectives of the MFA are expressed in Article 1 as
follows:
"The basic objective shall be to achieve the
expansion of trade, the reduction of barriers to such
trade and the progressive liberalization of world trade
in textile products
The proposed amendment can reasonably be called an "addi-
tional trade measure which may have the effect of nullifying
the objectives of this Arrangement", in violation of article 9
of the MFA quoted above.
The third article of the MFA that may be in conflict with
the proposed amendment is article 5, which states, in part:
"
The participating importing country should
take full account of such factors as established tariff
classification and quantitative units based on normal
commercial practices in export and import transactions,
both as regards fibre composition and in terms of
competing for the same segment of its domestic market. "
(emphasis added)
The proposed amendment appears to be inconsistent with
the provisions of the MFA quoted above. More important, however,
in terms of the immediate consequences of an inconsistency,
are the individual bilateral restraint agreements concluded
pursuant to the MFA. The consistency of the proposed amendment
with those agreements is discussed below.
Bilateral Restraint Agreements
Article 11 (c) of the Agreement between the United States
and Korea, which apparently is representative of most or all
bilateral textile agreements, states as follows:
"For the purposes of this agreement, textile
products shall be classified as cotton, wool or man-made
fiber textiles if wholly or in chief value of either of
these fibers. All other products /i.e. those not wholly
or in chief value cotton, wool, or man-made textiles/
shall be classified as:
FORD
GERALD
- 3 -
(i) cotton textiles - if containing 50% or
more by weight of cotton, or if the cotton component
exceeds by weight the wool and/or the man-made fiber
component;
(ii) wool textiles - if not cotton, and the
wool equals or exceeds 17% by weight of all
component fibers; and
(iii) man-made fiber textiles - if neither
of the foregoing applies. 11
The provisions quoted above sets forth two agreed bases
for identifying cotton textiles: (a) chief value of cotton,
or if the article is neither cotton, wool, nor man-made fiber
in chief value, (b) 50% or more by weight of cotton. The
proposed amendment, calling for the identification of cotton
articles on the basis of their containing 65 percent or more
of cotton, directly conflicts with this key standard provision
in the bilateral agreements.
The effect of this conflict would be to establish, in
the TSUS, a requirement that Customs assign articles to "cotton" "
or "man-made fiber" TSUS classifications on a basis that differs
from the one required by the bilaterals to be used for adminis-
tering the restraint agreements. As a practical matter, such
an inconsistency would render the restraint agreements incapable
of administration.
This result would occur because currently, with the TSUS
and bilateral agreement criteria identical, the textile restraint
categories are administered by Customs on the basis of TSUS
classifications - that is, each restraint category is applicable
to a specified list of TSUS item numbers. (see Schedule 3
Statistical Headnotes of the TSUS). By making the basis for
assigning TSUS numbers different from the basis for assigning
textile products to restraint categories, the Talmadge amend-
ment would leave Customs with no means of identifying textile
products subject to the differing restraint levels.
Three subsequent results are possible: (1) Customs would
have to apply the restraints on the basis of product identifi-
cations that differ from those required by our bilateral
commitments, thereby violating those commitments; (2) with a
large expenditure of money and manpower, Customs may, over a
period of a year or more, be able to develop a second set of
FORD
LIBRARY
- 4 --
TSUS numbers for purposes of administering the textile
restraints, although there would be no means of administering
the restraints consistently with the bilateral agreements
during the period that the new numbers were being developed;
or (3) the administration of the restraint program would break
down into chaos.
Another possible course of action would be to renegotiate
the bilateral agreements to make them consistent with the TSUS.
Not only would this be a long and difficult process, but also
it would underscore the unilateral deviation from the agree-
ments by the United States.
It is relevant to explore what other consequences might
flow from that deviation from the bilateral agreements by the
United States. There is a general principle of international
law that a unilateral action by one party to an international
agreement that constitures a material breach of the agreement
gives the other party the right to reject the agreement as a
whole. Whether the breach would be considered "material" in
this case depends upon its overall effect. It is my under-
standing that, were the proposed amendment administrable, its
effect would be far greater than merely the maintenance of the
higher tariff rate for man-made fibers, but would also shift
a large number of textile articles from cotton to man-made
restraint categories, thereby causing a number of countries
with which we have bilateral agreements to exceed their quotas
for those categories. At a minimum, such countries probably
would demand higher quotas as the price for their agreement
to a renegotiated fiber-identification basis. At the maximum,
affected countries may attempt to reject the textile restraint
program as a whole.
In short, the potential consequences of the proposed
amendment are so far-reaching that they should deter supporters
of the amendment who also support the MFA program.
GATT Implications
A large number of the duty rates applicable to textile
items subject to the MFA and bilateral agreements were bound
in the Kennedy Round. These items are not identified individu-
ally here, because individual identification is not essential
to the basic conclusions.
The arbitrary change of the basis for identifying "cotton"
and "man-made" articles for the purpose of maintaining the
higher rate applicable to man-made articles very probably would,
GERALD
LIBRARY
- 5 -
if challenged, be construed as a "nullification or impairment"
of benefits derived by trading partners from GATT trade agree-
ments. There are two principal ways of dealing with such an
issue under the GATT.
First, it may be possible for the United States to re-
negotiate with trading partners the duty rates on textile items,
pursuant to Article XXVIII of the GATT. Such an action is in
the nature of an "amicable settlement", but no doubt would
involve our granting compensatory concessions in return for
the tariff concessions effectively withdrawn from trading
partners.
Second, if there is no amicable settlement, other GATT
Contracting Parties may bring an action against the United
States under Article XXIII of the GATT. This probably would
result in the formation of a panel, such as the ones formed
in the DISC, MIPs, and Non-Fat Dry Milk cases.
The usual test for determining whether a nullification
or impairment exists is to ask whether the action taken by a
Contracting Party defeats the reasonable expectations that
another contracting party had at the time a trade agreement
was entered into. It is reasonable to conclude that the
trading partners which entered into the Kennedy Round Protocol
had reasonable expectations that the "chief value" basis for
identifying cotton articles would not be changed, or more
specifically would not be changed for the particular purpose
of maintaining for most articles the higher rate of duty
applicable to man-made fibers.
Accordingly, the proposed amendment probably would not be
defensible if challenged under Article XXIII of the GATT, and
may subject the United States to the requirement of compen-
sating affected trading partners or possibly suffering
retaliation through the withdrawal by them of substantially
equivalent trade benefits.
FORD LIBHARY
C
TARIFF TREATMENT
OF COTTON/MAN-MADE FIBER TEXTILE BLENDS
AN EVALUATION OF A PROPOSAL TO ALTER THE
CHIEF-VALUE CLASSFICATION SYSTEM
Study Prepared by the
Office of Textiles, USDC
Under the Direction of the
Textile Trade Policy Group
Ambassador Frederick B. Dent,
Chairman
QERALO FORD LIBRARY
CONTENTS
Page
I.
Introduction
1
II.
Summary of Study
4
III.
Cotton and man-made fiber markets
7
Domestic market
7
Foreign market
11
Chief-value calculations for polyester/cotton blends
13
IV.
Textile blends
15
Domestic market
15
Foreign market
16
U.S. Imports
18
Fabrics, general
18
Fabrics of cotton, woven
18
Fabrics of cotton, knit
20
Fabrics of cotton, pile
20
Fabrics of man-made fibers, woven
20
Fabrics of man-made fibers, knit
21
Fabrics of man-made fibers, pile
22
Apparel
22
V.
Customs treatment of textiles and apparel
24
Chief weight vs. chief value
26
VI.
Impact of legislation on implementation and
administration of textile bilateral agreements
30
VII.
Impact of legislation on GATT negotiations
32
VIII.
Impact of legislation on U.S. legal obligations
36
IX.
Conclusions and recommendation
37
Appendix A. Memorandum of August 27, 1976 from the
General Counsel of the U.S. International Trade
Commission to Congressman Phil Landrum on the
substitution of "chiefweight" for "Chiefvalue"
concept in TSUSA treatment of textile imports
FORD is 938870 LIBRARY
I.
INTRODUCTION
At the request of several textile trade organizations,
Senator Herman E. Talmadge, on September 22, 1976, introduced
an amendment to H.R. 2177 which, in effect, would change the
method of classifying imports of certain cotton and man-made
fiber blended articles for duty purposes. Whereas such
articles are presently dutiable at rates based on the fiber
component of chief value, the proposed legislation would
amend the Tariff Schedules of the United States (TSUS) as
follows:
"Notwithstanding any other provision of law, for
the purposes of the tariff schedules an article
to which this schedule applies, 90 percent or
more of the total fiber content of which consists,
by weight, of cotton and man-made fibers--
(a) Shall be treated as if it were in chief value
of cotton if 65 percent or more of the total fiber
content of the article consists, by weight, of
cotton (whether the article is in chief value of
cotton or not), and
(b) Shall be treated as if it were in chief value
of man-made fiber if less than 65 percent of the
total fiber content of the article consists, by
weight, of cotton (whether the article is in chief
value of man-made fiber or not) "
The rationale and the intent of the amendment were to
account for changes in the price relationship between cotton
and polyester since the time the establishment of the TSUS
was being considered, in the late 1950's and early 1960's.
The price of polyester staple fiber was so much higher at
that time than the price of cotton that a blend of the two
FORD LIBRAST
2
fibers in an article would have had to contain only a
relatively small amount of polyester to make the article
dutiable at the man-made fiber rates. In most cases the
man-made fiber rates are higher than the rates applicable
to articles in chief value of cotton. The increasing price
of cotton and the decreasing price of polyester fibers in
recent years have changed this relationship and have re-
sulted in the possibility of a smaller amount of cotton
being required in a blend to obtain the lower cotton rate
of duty. It is contended by Senator Talmadge that this was
contrary to the intent of Congress.
The Honorable Frederick B. Dent, the Special Trade
Representative, advised the Senate Finance Committee of
his concern that the amendment proposed by Senator Talmadge
could:
(1) Involve technical implementation problems and
result in violation of most U.S. bilateral
textile agreements, all of which depend for
their implementation on the tariff classifi-
cation of textile imports.
(2) Violate the rights under the General Agreement
on Tariffs and Trade of foreign suppliers of
textiles to the United States.
FORD is LIBRARY
3
In a letter of September 29 to Ambassador Dent, Senator
Talmadge stated that he had withdrawn his amendment to per-
mit the government to study and evaluate his proposed
legislation and to report back to the Senate Finance Com-
mittee. The Senator asked for such a report "at the earliest
practicable date."
II. SUMMARY OF STUDY
4
The study is herewith submitted. Its principal findings
are:
(1) An analysis of the various fiber prices and
the types of blends being imported indicate
that the changes in fiber prices up to the
present time have had little effect on Customs'
classification of blends for duty purposes.
(2) Based on discussions with fiber economists and
such studies as are available, it does not
appear that cotton can command in the market
place for any extended period the premium
prices over man-made fiber which would require
large-scale change in classification practices
for blends.
(3) Senator Talmadge's amendment, by changing the
classification of a substantial number of cot-
ton and man-made fiber blended textile products,
would not only increase duties on these products
but would also result in some trade now classi-
fied in cotton categories of the bilateral
textile agreements being classified instead into
man-made fiber categories. This skewing of the
trade into man-made fiber categories could be
considered as violating many of the bilateral
/ GERALD FORD
5
agreements. It could lead to legitimate re-
quests by the bilateral partners to raise the
restraint levels of man-made fiber categories
and groups.
(4) Although, on a theoretical basis, this problem
could be handled administratively, as a prac-
tical matter for textile import restraint
agreement purposes incorrect classifications
and statistics could not be avoided.
(5) A large number of textile duty rates were bound
in the Kennedy Round and changes in classification
practices which changed some of these duty rates
would probably be construed as a nullification or
impairment of benefits derived from GATT Trade
Agreements. The United States would probably
have to negotiate compensation or face retailia-
tory action under GATT.
(6) The study found that many of the problems in-
herent in the classification system which would
be established by the amendment would be elimi-
nated if a chief-weight system were applied for
all textiles and apparel, that is, the blend
would be classified simply on the basis of which
B. FORD LIBRANA
6
fiber component was greatest by weight. The
study also indicated that such a system might
also have a substantial number of other
accompanying benefits.
Recommendation
Any major changes in the present classification system
for textiles and apparel should be postponed until interested
agencies could review a detailed study which would be made by
the ITC, aided by other government agencies concerned, on the
consequences of a complete change to a chief-weight classifi-
cation concept for all textiles and apparel.
FORD LIBRARY
7
III. COTTON AND MAN-MADE FIBER MARKETS
Cotton's position in the world market for fibers has
consistently declined as man-made noncellulosic fibers have
captured an ever increasing share. Cotton's share declined
from 62.3 percent of the total cotton, wool and man-made
fiber market in 1964 to 53.5 percent in 1975 while non-
cellulosic fiber increased its percentage from 9.9 percent
to 29.5 percent. The shares held by wool and cellulosic
man-made fibers also declined during this period.
Domestic Market
Mill consumption of noncellulosic fibers in the United
States has grown rapidly, increasing at the expense of
cotton, wool and cellulosic fibers. The following table
provides data on the changes in cotton and noncellulosic
man-made fiber market shares in the United States.
Cotton and Noncellulosic Fiber U.S. Market
Shares, Selected Periods
(Percent of Fiber Market)
Noncellulosic
Period
Cotton
Fibers
Other
1964
54.6
20.0
25.4
1968
43.4
35.3
21.3
1972
33.9
51.8
14.3
1973
30.1
57.4
12.5
1974
30.4
58.5
11.1
1975
29.2
61.8
9.0
SOURCE: Cotton and Wool Situation, USDA
LISAARY GERALD ? FORD
8
Polyester staple has provided the most direct competi-
tion for cotton during the period under review. Cotton's
direct losses to polyester staple occurred primarily in
markets where durable-press blends replaced fabrics wholly
of cotton due to the easy-care properties of the blends
and to changed price relationships.
Cotton's losses were especially heavy in the shirt,
blouse and nightwear markets, where 65% polyester/35%
cotton blends substantially replaced 100 percent cotton
fabrics and in the work clothing and in the sheet and pillow-
case markets where 50% polyester/50% cotton blends have been
increasingly substituted. Cotton producers, through their
organization, Cotton Incorporated, have waged an extensive
campaign to improve cotton's performance by developing and
promoting blends which contain higher percentages of cotton
than those mentioned above. Several of the major manufac-
turers of apparel and sheets and pillowcases are cooperating
with Cotton Incorporated by producing and aggressively
merchandising the so-called reverse blends, in which cotton
predominates. Cotton Incorporated believes that this pro-
gram can be successful if cotton supplies are adequate and
prices are competitive.
LIBRARY GERALD R. FORD
9
1/
There is little doubt that changed price relation-
ships have contributed significantly to the shift in the
domestic markets from cotton to polyester staple. The fol-
lowing table indicates the trends in the U.S. market for
these two fibers:
U.S. Landed Mill Point Prices
- Cents Per Pound -
Period
Cotton 1/
Polyester 2/
1964
35
99
1968
35
56
1972
37
35
1973
61
37
1974
62
46
1975
52
48
Sept. 1976
78
53
1/ M 1-1/16" at group B mill point, net weight.
2/ Average market price for 1.5 denier polyester staple
for cotton blending.
SOURCE: Cotton and Wool Situation, USDA
It should be noted that the above prices for cotton are
based on spot prices and may or may not reflect actual mill
costs since substantial portions of the cotton requirements
were contracted for in advance at prices below the spot
prices at delivery date.
1/
Prices and values hereinafter discussed are in terms of
current dollars unless otherwise specified.
VORD LIBRARY
10
The present spread between the price of cotton and that
of competing staple fiber, while characterized as abnormal,
is certainly not unique. In 1973, for example, the price of
cotton rose from 39c per pound in January to 88c per pound
in September. The price of polyester staple, over the same
period, rose from 35c per pound to 37¢ per pound. On the
other hand, the price of cotton in 1974 decreased from 86¢
in January to 45c in December, while the price of polyester
rose from 38c to 50c per pound.
Cotton prices as reported on the spot markets for the
Fall of 1976 were unusually high in relation to those for
polyester staple but it is expected that cotton will be
more competitively priced in the future. One indication
of the probable decline in the price of cotton is a middle
of November report of the future's market which indicates
that December 1977 contracts are being quoted at discounts
of about 14 cents below the December 1976 contracts. This
would indicate a spot price level of about 63 cents per
pound for December 1977. Another indication of a possible
decline in cotton prices is a report published in mid-1976
for member governments by an international organization
which projected 1980 cotton prices at a level of 53.5 cents
per pound based on constant 1974 dollars, or about 64 cents
per pound based on 1976 dollars.
11
An internationally recognized consulting firm, under
contract to the same international organization, prepared
projections of polyester costs for certain countries.
This study, based on 1976 constant dollars, and assuming
$12 a barrel oil costs, indicated polyester staple costs
for 1980 of 60¢ per pound in Korea, 58c in Taiwan, 73¢ in
Japan and 74c in the United States; sales prices could be
expected to be higher. While there have been and may in
the future be periods when price relationships between
cotton and polyester staple are abnormal due to temporary
supply and demand situations, it is anticipated that the
price levels of these two major raw materials of the tex-
tile industry will not be far apart over any extended
period.
Foreign Market
Cotton has been more successful in retaining its share
of markets abroad than it has in the United States. Much of
the mill consumption of cotton abroad is in the developing
or socialist countries where cotton is grown and man-made
fiber production has lagged or is nonexistent. Also, the
trends toward blends have been behind those in the United
States because of consumer resistance and different price
relationships. The following table indicates the changes
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in market shares of cotton and noncellulosic fibers in
LIBRARY
foreign areas:
12
Cotton and Noncellulosic Fiber Foreign Market
Shares, Selected Periods
(Percent of Fiber Market)
Noncellulosic
Wool & Cellulosic
Period
Cotton
Fibers
Man-Made Fibers
1964
63
7
30
1968
68
13
19
1972
58
19
23
1973
56
22
22
1974
58
22
20
1975
59
22
19
SOURCE: International Cotton Advisory Committee
Polyester staple prices in western Europe generally were
about 10 cents per pound higher than in the United States
until 1974 when the difference reached 20 to 25 cents above
U.S. prices. ICI in England early in November 1976, announced
a price increase of 12% for polyester staple. If this increase
is followed by other European producers, the differences
between United States and European prices will widen further
unless U.S. producers also raise prices. Japanese polyester
staple prices were also about 10 cents per pound higher than
U.S. prices during most of the period but during the past two
years have been 15 to 20 cents per pound higher.
Cotton prices abroad generally ranged at about or slightly
above the level which prevailed in the United States. This
stems in part from the fact that most foreign cotton importing
countries were able to acquire a substantial portion of their
13
cotton needs from foreign suppliers at lower than U.S. prices,
in part offsetting the additional freight costs of U.S. cot-
ton. Since most of the blends produced abroad are 65%
polyester/35% cotton and since the per pound costs for poly-
ester staple and cotton are not greatly different, it can be
assumed that such blends would be in chief value of polyester.
For those blends which are 50% polyester/50% cotton,
cotton costs are likely to be below polyester, since advances
in spinning technology now permit the increased use of shorter
staple cotton which is available at a considerable discount
from the prices of the cotton used in the 65%/35% blend.
Looking into the future after assuming that the international
organization's projections for cotton prices are reasonable,
it would appear that the cotton component will be valued
below polyester staple for those blended fabrics which are
manufactured for export to the United States as fabrics or
finished goods.
Chief-value calculations for polyester/cotton blends.
--Using the U.S. price data on page 7 in a simple arithmetic
exercise which disregards waste, manufacturing and other costs,
the percentage of polyester fibers in a polyester/cotton
blend would have had to be about 26.5 percent in 1964 (the
first full year of operations under the provisions of the
FORD is LIBRARY
14
TSUS) to constitute the fiber component of chief value. The
polyester ratio would have had to be about 39.5 percent in
1968 (the first year of Kennedy Round reductions) to achieve
chief value. These are necessarily rough calculations
because there are so many factors other than price that
affect the fiber ratios in blends, such as end-use require-
ments, consumer acceptance, differences here and abroad in
raw material and manufacturing costs, and fiber shortages
caused by unforeseen adverse economic and climatic conditions.
After 1968 the price of cotton fluctuated widely, al-
though trending upward, and the price of polyester, although
increasing in the past two or three years, did not trend as
sharply upward as cotton. Consequently, the percentage
relationships of polyester and cotton in blends have under-
gone substantial changes.
FORD is GENALD LIBRARY
15
IV. TEXTILE BLENDS
A definitive discussion of the production and con-
sumption of articles comprised of blends of man-made fibers
and cotton is made difficult by the limitations of statis-
tical data. Some assumptions can be made and some conclusions
can be drawn, however, from information that is available.
Domestic Market
For many years the United States has been in the fore-
front of the development of blended textile materials as
well as being a leading producer of cotton and of man-made
fibers. Prior to the advent of the noncellulosic fibers,
beginning with nylon in about 1939, and for some time there-
after, the principal blends were of cotton and rayon and/or
acetate. The shortages of fibers for civilian use engendered
by the defense needs of World War II stimulated the search
for newer and better man-made fibers and resulted in a
phenomenal growth in the development and production of such
fibers, particularly the noncellulosics, which became the
principal fibers for blending with cotton.
Precise data on blend ratios are not available, but
market information indicates that 50-50 and 65-35 percent
polyester/cotton are and have been the most popular in recent
years. The 50-50's are consumed to a considerable extent in
domestics, such as sheets and pillowcases, and in heavy outer-
FORD
wear, and the 65-35's are consumed mostly in lightweight GENAL
LIBRARY
16
apparel. Because of the recent high price of cotton, there
has been a trend toward increasing the percentage of poly-
ester in blends, and this has been at the expense of the
50-50's.
The following table shows the production of spun weaving
and machine-knitting yarns over a period of years and gives
an acceptable indication of the growth in the production
and consumption of the blended articles because these two
types of yarn represent the bulk of the spun yarn consumed
in textile blends. It may be noted that the yarns chiefly
of polyester blended with cotton far outstripped any of the
other types and in 1975 amounted to over 70 percent of the
total shown as compared with about 24 percent in 1964.
Blends chiefly of cotton also increased over the period,
but not nearly as much as the blends chiefly of polyester.
Blends chiefly of rayon and/or acetate declined drastically.
Based on projections by the man-made fiber producers as to
future capacity for the production of man-made staple fiber,
especially polyester, it would appear that a continuing
increase in the U.S. consumption of textile blends is
anticipated.
Foreign Market
The United States is and has been the world's leading
producer of polyester staple fiber, the fiber most used in
Spun Weaving and Spun Machine-Knitting Yarns (except carpet yarns) Composed of Blends Chiefly Cotton
Or Chiefly Man-Made Fibers: U.S. Production, 1964, 1968 and 1972-75
Item
1964
1968
1972
1973
1974
1975
In Millions of Pounds
Chiefly cotton containing:
Rayon
108
106
70
64
44
32
Other fibers
69
155
184
200
207
179
Chiefly rayon and/or acetate
212
223
149
173
121
85
Chiefly polyester containing:
Cotton
149
626
953
1,098
1,073
1,159
Wool
14
39
27
13
5
5
Other fibers
31
87
84
121
165
92
Chiefly acrylic or modacrylic
39
25
28
35
30
28
Chiefly nylon
1/
9
1/
1/
6
9
Chiefly other noncellulosic fibers
3
4
25
45
47
36
TOTAL
625
1,274
1,520
1,749
1,698
1,625
1/
Included in other, if any
Source: U.S. Department of Commerce
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LISAARY
17
18
blends with cotton. Of the world production in 1975 of
1,726,000 metric tons, the United States accounted for
697,000 metric tons or 40 percent. Other large producing
areas were Japan, West Europe, and East Europe. Most of the
foreign producing countries are not as deeply into blends
for home consumption as is the United States. The principal
foreign suppliers of blended textile articles generally
follow the U.S. pattern in the blend ratios of their exports
to this market.
U.S. Imports
Fabrics, general. - As stated earlier, specific data on
the quantity and fiber content of textile blends is lacking.
This applies to imports as well as to production. Some idea
of the quantity and fiber mix of imported blends can be
derived from data on imports of woven, knit, and pile fabrics
in chief value but not wholly of cotton and of fabrics in
chief value of man-made fibers. It is in these categories
that the cotton and man-made fiber blends would be included.
Fabrics of cotton, woven. - - Imports of woven fabrics
comprised only of blends of cotton and man-made fibers are
dutiable and are recorded under TSUS items 326.00 through
331.00 if in chief value of cotton. Imports of such fabrics,
as shown in the tabulation below, increased substantially
LIBRARY GERALD ? FORD
19
from 4.6 million square yards in 1964 to 36.4 million square
yards in 1973, trended drastically downward to 10.3 million
square yards in 1975, and then increased markedly in the
first half of 1976. If the six-month trend continues
throughout 1976, imports in that year would exceed those in
the peak year of 1973. Information obtained from Customs
indicates that a substantial proportion of the growth in
1976 of these imports is comprised of cotton/rayon blends
in which cotton predominates by weight as well as by value
which have been substituted for fabric imports wholly of
cotton.
Certain Cotton-Fabric Imports by Type
Year
Woven 1/
Knit
Pile
1,000
1,000
1,000
Sq. Yds.
Pounds
Sq. Yds.
1964
4,646
385
6,459
1968
25,511
259
7,709
1972
36,263
392
13,883
1973
36,403
246
9,178
1974
22,890
150
4,693
1975
10,271
165
2,360
Jan.-June
1975
5,305
74
872
1976
27,840
231
2,548
1/ In chief value, but not wholly of cotton containing (in
addition to cotton) silk or man-made fibers, or both, but
not containing other fibers.
SOURCE: U.S. Department of Commerce
LIBRARY GERALD ? FORD
20
Fabrics of cotton, knit. - - Imports of knit fabrics
wholly or in chief value of cotton, including blends, did
not follow exactly the trend of the imports of cotton woven
fabrics over the same period. They fluctuated rather widely
from year to year during 1964-72. They were 392 thousand
pounds in the latter year and subsequently decreased to 165
thousand pounds in 1975. A substantial increase is indicated
for 1976. The proportion of imports of knit cotton fabric
which is comprised of 100 percent cotton fibers or of blends
of cotton and other fibers cannot be determined from avail-
able data.
Fabrics of cotton, pile. - Imports of pile fabrics
wholly or in chief value of cotton were 6,459 thousand square
yards in 1964, increased to 13,883 thousand square yards in
1972, and decreased in each succeeding year to 2,360 thousand
square yards in 1975. As is the case with the woven and the
knit cotton fabrics, cotton pile fabric imports are expected
to show a large increase in 1976. Again, the quantity of
these imports which consisted of 100 percent cotton fibers
cannot be determined.
Fabrics of man-made fibers, woven. -- Imports of woven
fabrics in chief value of polyester fibers blended with cotton
are included in the TSUS with woven spun-yarn polyester fabrics
(TSUSA items 338.3065 and 338.3085). As is shown in
theoro LIBRART
21
tabulation below, imports of such fabrics increased from 3
million square yards in 1964 to 33.5 million square yards
in 1968, but were only about 8 million square yards in 1975.
In the first six months of 1976, imports were more than
double those in the same period of 1975. The quantity of
blended fabrics involved is unknown but it is certain that
it would be much less than the totals shown.
Certain Man-Made Fiber Fabric Imports by Type
Woven
Knit
Pile Fabrics of
Polyester
Polyester
Man-Made
Fabrics 1/
Fabrics 2/
Fabrics 3/
Year
1,000 Sq. Yds.
1,000 Pounds
1,000 Sq. Yds.
1964
2,892
4/
1,238
1968
33,518
1,229
3,846
1972
7,808
6,658
17,659
1973
8,271
2,939
11,335
1974
15,198
1,713
6,136
1975
8,018
2,091
3,685
Jan. -Jun.:
1975
4,211
995
1,626
1976
9,658
1,444
2,716
1/ Wholly of spun yarns (TSUSA items 338.3065 and 338.3085).
21 Other than wholly of continuous fibers (TSUSA items
345.5068 and 345.5088).
3/ TSUSA items 346.6045-.6060.
41 Less than 500 pounds.
SOURCE: U.S. Department of Commerce
Fabrics of man-made fiber, knit. - Imports of knit
fabrics of polyester fibers, other than wholly of continuous
FORD
fibers, (TSUSA items 345.5068 and 345.5088) which would include
LIBRARY
22
blends, were negligible in 1964. They increased from 1.2
million pounds in 1968 to 6.7 million pounds in 1972, then
decreased to 2.1 million pounds in 1975. A substantial
increase is indicated for 1976, but it does not appear that
the total for the year will reach the level of 1972.
Fabrics of man-made fiber, pile. - Total imports of
pile fabrics of man-made fibers, which include fabrics
wholly of man-made fibers as well as those in chief value
but not wholly of man-made fibers, increased very sub-
stantially from 1.2 million square yards in 1964 to 17.7
million square yards in 1972. Subsequently they dropped
to 3.7 million square yards in 1975. Although an increase
is indicated for 1976, it probably will not exceed the 1974
level.
Apparel. - - The lack of data on imports of blended articles
is particularly evident in the apparel field. While it is true
that the foreign exporters of apparel to the U.S. market
generally follow the trend of the blend ratios popular at the
time orders are taken, the breakdown of such blends in specific
quantities and end uses is not available. A study made by an
independent research organization, which involved a sampling
of imports of certain types of apparel in the first half of
1976, by blend ratios, indicated that nearly three-fourths.opp
LIBRARY
23
of the polyester, cotton, and polyester/cotton-blend articles
sampled consisted either of 100 percent polyester (42 per-
cent) or 100 percent cotton (30 percent). The 50-50 blends
of polyester and cotton accounted for only 6 percent, and
the blends chiefly of polyester, which were predominantly
65 polyester and 35 cotton, accounted for 17 percent. The
reverse blends, consisting chiefly of cotton, only accounted
for 5 percent. These figures seem to indicate that the area
of controversy, mainly the 50-50 blends, is relatively small.
This conclusion is substantiated by estimates provided by
the U.S. Customs Service. Its import specialists at the
New York Port estimated, based on recent entries, the fol-
lowing percentages of imports which were wholly of cotton
and cotton blends:
Estimates of U.S. Imports of Selected Products
By Fiber Content 1/
- Percent -
Wholly
Man-Made Fiber/Cotton Blends
Item
Cotton
65%/35%
50%/50%
M & B Dress shirts,
woven
30
70
Nil
M & B Sportshirts,
woven
45
55
Nil
M & B Sportshirts,
knit
50
30
20
M & B work shirts,
woven
90
Nil
10
M & B trousers
95
5
Nil
M & B pajamas, woven
65
30
5
WGI blouses, woven
75
15
10
WGI nightwear, woven
98
2
Nil
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Sheets & pillowcases
100
Nil
Nil
1/ Imports of wholly cotton and man-made fiber blends; to not
LIBRARY
include other imports.
SOURCE: U.S. Customs import specialists' estimates in response
to inquiry by U.S.
24
V.
CUSTOMS TREATMENT OF TEXTILES AND APPAREL
Imports of textiles and apparel have for many years been
classified for duty purposes on the basis of the fiber compo-
nent of chief value. General headnote 10 (f) of the TSUS
defines chief value as follows: "an article is in chief
value of a material if such material exceeds in value each
other single component material of the article." For example,
if the value of the polyester fibers in a 50-50 polyester/
cotton blend article exceeds the value of the cotton fibers
in the blend, the article would be subject to the pertinent
rates of duty applicable to man-made fiber articles. The
chief-value concept existed long before the implementation of
the TSUS in 1963.
Imports of blended man-made fiber and cotton articles have
generally had blend ratios prevalent in domestic production.
The bulk of the man-made fiber/cotton blend imports from 1964
through 1967 contained 65% polyester and 35% cotton. This
blend ratio has continued to prevail for lightweight goods, but
50-50 man-made fiber/cotton blends have become increasingly
important for heavier-weight goods since 1967. Customs has
consistently classified both the 65/35 and the 50/50 blends as
being in chief value of man-made fiber. The rationale for this
is that the man-made fiber duties are usually higher and it is
the responsibility of the importer to submit acceptable data LORD
25
prove that his goods should be subject to the lower cotton duties.
According to information from Customs, only in a few instances
have importers been able to submit adequate proof to justify the
application of the lower cotton duties for the 50/50 blends.
Customs' experiences indicate that even though cotton spot prices
might indicate that the cotton cost of a 50/50 blend would be
higher than the man-made fiber cost, the actual costs of cotton
are usually lower than the spot markets indicate, and thus cotton
should not be considered to be the material of the chief value.
Customs officials indicate that these procedures will con-
tinue to be followed unless the cotton price, over a long period,
consistently exceeds the price level of the competing man-made
fibers. If this should occur, Customs would have to reevaluate
its classification procedures, at least with regard to the 50/50
blends. Since it is doubtful that cotton will, over an extended
period, command a price level substantially higher than man-made
fiber, it is not expected that Customs' present classification
procedures will have to be changed, at least in the foreseeable
future.
Passage of the proposed legislation would complicate the
present Customs procedures inasmuch as it would apply only to
certain textile articles. It would undoubtedly encourage other
special-interest groups to seek to obtain similar treatment for
GERALD LIBRARY
26
their commodities and thus seriously interfere with the intent
and the orderliness of the existing tariff schedules.
CHIEF WEIGHT VS. CHIEF VALUE.
The U.S. Tariff Schedules, including the TSUS, have for
many years been based on the chief-value concept, i.e., the
fiber component in a blended textile article which exceeds in
value each other fiber component in the article would determine
the classification and the applicable rate of duty for that
article. Because of wide fluctuations in fiber prices and
because of the varying economic conditions prevailing in the
various countries of the world, it is possible for imports of
blended textiles into the United States of exactly the same
types and fiber content to be classified in different parts of
the TSUS at different rates of duty. The chief value method of
classification thus presents serious customs administrative
problems and results, in many cases, in unreliable statistical
compilations.
The concept of classifying textile-blend imports on a chief-
weight basis is more logical, would cause fewer administrative
problems, and would result in more reliable trade data. The case
for the substitution of chief weight for chief value is aptly
expressed by R.N. Shewmaker, General Counsel of the International
Trade Commission, in a memorandum he prepared for Congressman
FORD
Phil Landrum. A copy of this memorandum is attached hereto as
LIBRARY
27
Annex A. In this regard, the United States is the only major
trading nation of the world that classifies imports for tariff
purposes on a chief-value basis. Most of the other nations
classify their imports in accordance with the Brussels Tariff
Nomenclature (BTN), which is now referred to as the Customs
Cooperation Council Nomenclature (CCCN).
The United States is not presently a signatory to this
nomenclature.
Section note 2 section XI of the CCCN provides in pertinent
part as follows:
2. -- (A) Goods classified in any heading in Chapters
50-57 and of a mixture of two or more differ-
ent textile materials are to be classified
according to the following rules:
* *
(b) All other goods are to be classified
as if consisting wholly of that one textile
material which predominates in weight
(emphasis added) over any other single
textile material.
From the above it is clear that should the United States
become a signatory to the nomenclature, consideration will have
to be given to a changeover to the chief-weight basis. The U.S.
Tariff Commission (now the International Trade Commission), in
its "Draft Conversion of the Tariff Schedules of the United
States into the Format of the Brussels Nomenclature, stated
GERALD FORD LIBRANT
28
as follows:
"It is to be noted that under the Tariff Schedules of
the United States, textile articles containing two or
more different textile fibers (e.g., cotton, vegetable
fiber other than cotton, wool, man-made fibers, and
silk) are generally classified according to the textile
fiber which exceeds in value each other single textile
fiber in the article. Under the preliminary draft con-
version for chapters 50 through 57, the chief-value
basis of classification has been eliminated in favor
of classification according to the textile fiber which
predominates by weight (except for certain articles in
which silk constitutes more than 10 percent, by weight,
of the textile component). Pending the completion of a
study on the economic impact of this change, TSUSA numbers
which may be affected by, or the rate changes which may
result from, this shift in the basis of classification
will not be identified in the cross-reference tables."
The study mentioned above has not been completed and no defi-
nite date has been set for its completion.
An additional factor involving the possibility of changing
to a chief-weight concept has to do with Section 608 of the
Tariff Act of 1974. This section amends Section 484 (e) of the
Tariff Act of 1930 to read, in part, as follows:
(e) STATISTICAL ENUMERATION The Secretary of the
Treasury, the Secretary of Commerce and the United
States International Trade Commission are authorized
and directed to establish from time to time for statis-
tical purposes an enumeration of articles in such
detail as in their judgement may be necessary, compre-
hending all merchandise imported into the United States
and exported from the United States, and shall seek, in
conjunction with statistical programs for domestic
production, to establish the comparability thereof with
such enumeration of articles.
ORD
In order to achieve such comparability, a change in the
present chief-value concept for the tariff schedules would
LIBRARY
appear to be necessary. Whereas imports are classified on a
29
chief-value basis, production and exports are classified by
weight as being wholly or chiefly of a particular fiber
component. The ITC, Customs, and Census are studying the com-
parability situation and the sections pertaining to textiles are
expected to be published in the near future. These sections do
not, however, face up to the problems involved in or the desira-
bility of changing over to a chief-weight basis.
vono LIBRARY
30
VI. IMPACT OF LEGISLATION ON IMPLEMENTATION AND ADMINISTRATION
OF TEXTILE BILATERAL AGREEMENTS
The United States has existing bilateral textile agreements
with 18 countries, 6 of which involve cotton only and 12 of
which involve cotton, wool and man-made fibers. These agree-
ments were negotiated under the Arrangement Regarding Interna-
tional Trade in Textiles (MFA). Article 12 of the MFA defines
the fiber coverage on either a chief-value or on a 50%-or-more
by weight basis. The U.S. bilateral agreements provide for the
chief-value criteria except in those cases where (1) the textile
component in chief value is other than cotton, wool, or man-made
fibers or (2) where the 50%-or-more by weight provision applies.
The United States negotiated and implemented the agreements on
this basis. A change to a concept of classification based on
the specified weights of the component fibers, as proposed in
the Talmadge amend, would represent a significant departure
from the above ground rules.
The proposed amendment would eliminate chief-value as the
method of determining whether a blended textile import would
be classified as a cotton textile or a man-made fiber textile.
Regardless of value, an imported blended article would be
dutiable in the cotton schedule if it contained 65% or more
cotton by weight. A blend of 64% cotton/36% polyester would
be dutiable in the man-made fiber schedule. Under the 90%
requirement of the amendment, a blend of 64% cotton/26%
poly- FORD LIBRARY
ester/10% wool would also be classified as a man-made fiber
article.
31
The implementation and administration of the multifiber
bilaterals are entirely dependent on the TSUSA items involved.
Every category is comprised of a number of specific TSUSA's
and changing the coverage of a TSUSA item, as would be required
by the amendment, therefore, would change the coverage of a
category. Changing the coverage of a number of categories
would change the coverage of an entire bilateral agreement.
Even the addition by administrative means of numerous TSUSA
items to take care of the distortions of trade would be inade-
quate to reflect the information required by the amendment.
As a practical matter, the conflicts and inconsistencies
involved with regard to certain articles of the bilaterals
would make some restraint agreements incapable of administra-
tion as constituted. The amendment would result in a shift of
classification of trade from cotton categories to man-made fiber
categories, thus skewing the data to show a more rapid filling
of the man-made fiber categories. These inaccuracies could
not be handled adequately by administrative changes. This
would lead to requests for renegotiation of the agreements by
our bilateral partners to raise the levels of man-made fiber
categories and groups. Because the amendment would create a
violation of our bilateral agreements as originally negotiated,
the United States would not be in a strong posotion for
renegotiations.
any B. FORD LIBRARY
32
VII. IMPACT OF LEGISLATION ON GATT NEGOTIATIONS
Most of the column 1, MFN duty rates specified in Schedule
3 of the TSUS, covering items subject to the MFA and bilateral
restraint agreements, were established as a result of bound
concessions to trading partners, made in the Kennedy Round or
earlier rounds of trade negotiations. By establishing such
bindings, the United States undertook to maintain the agreed
effective rates of duty. The failure to maintain a bound rate,
or the undermining of a bound rate, will subject the United
States to the obligation to compensate our trading partners
by granting other trade concessions of value substantially
equivalent to the ones nullified or impaired. This obligation
is enforceable by our trading partners by means of the dispute-
settlement mechanism in Article XXIII of the GATT.
A unilateral change by the United States in the basis for
identifying cotton and man-made fiber articles for the purpose
of maintaining the higher duty rate applicable to man-made
articles almost certainly would, if challenged, be construed
as a nullification or impairment of benefits derived by trading
partners from GATT trade agreement concessions. This breach
of GATT obligations is independent of any effect that the
Talmadge Amendment would have on the MFA and textile bilaterals,
and would not be cured if somehow a way were discovered to
administer the bilaterals under the Talmadge Amendment.
The
it.
FORD
The usual test for determining whether a nullification
or impairment exists is to ask whether the action taken by
LIBRARY
33
Contracting Party defeats the reasonable expectations that
another Contracting Party had at the time a trade agreement
was entered into. It is reasonable to conclude that the
trading partners which entered into the Kennedy Round Protocol
and earlier trade agreements had reasonable expectations that
the chief-value basis for identifying cotton articles would
not be changed, or more specifically would not be changed for
the particular purpose of maintaining for most articles the
higher rate of duty applicable to man-made fiber textiles.
In periods between major rounds of trade negotiations,
there are two principal ways of dealing with such nullifica-
tions or impairments under the GATT. First, the United States
could attempt to renegotiate with trading partners the duty
rates on textile items, pursuant to Article XXVIII of the GATT.
Such an action is in the nature of an amicable settlement, but
no doubt would require the United States to grant compensatory
concessions on other textiles or on articles other than
textiles, in return for the textile tariff concessions that
were effectively withdrawn from trading partners.
Second, if there were no amicable settlement, other GATT
Contracting Parties could bring an action against the United
States under Article XXIII of the GATT. This probably would
result in the formation of a panel, such as the panels formed
in the DISC and MIPs cases. Because the proposed amendment
would not be defensible if challenged under GATT Article XXIII,
34
the United States probably would be subjected through the panel
procedures to the requirement of compensating affected trading
partners, or of being subjected to retaliation through the
withdrawal by trading partners of substantially equivalent
trade benefits.
Because we currently are engaged intensely in the Multi-
lateral Trade Negotiations (MTN), however, it is unlikely that
either of the two methods described above would be used to pay
the "debt" that would result from our sudden switching to
less than chief-weight basis for identifying man-made fiber
textile articles in the TSUS. Instead, our trading partners
probably would demand compensation in the MTN (and possibly
in Tropical Products), so that the United States would be
forced to grant tariff concessions of considerably greater
value than the concessions that we received from trading
partners.
At a critical point in the MTN, such a result would cast
doubt among trading partners about our intentions to adhere
to trade agreements and our commitment to tariff liberalization,
would tie our hands in advance of serious tariff bargaining
on specific products, and may raise serious political questions
about our giving away United States tariff concessions in order
to compensate trading partners for U.S. actions to help a
particular industry. Together with several major "escape
BERALD R. FORD LIBRARY
clause" import relief cases under Section 201 of the Trade
35
Act, the Talmadge Amendment could turn the U.S. side of the
MTN into essentially a large compensation negotiation. Thus,
the amendment would have a severely adverse effect upon
United States efforts in the MTN.
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36
VIII. IMPACT OF LEGISLATION ON U.S. LEGAL OBLIGATIONS
The effect of the Talmadge Amendment upon United States
GATT bindings is described in the preceding section. The
factors that are described in that section might also be
relevant in a shift to an overall chief-weight system for
classifying various types of textile articles: whenever such
a shift caused articles that previously would have been in
lower duty-rate categories to be shifted to higher duty-rate
categories, the United States would owe compensation to
trading partners as a result of the nullification or impair-
ment of trade agreement concessions. An overall shift to
a chief-weight basis, however, may also cause articles to
be shifted from higher to lower duty-rate categories thereby
automatically compensating partially or entirely for any
shifts in the other direction.
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37
IX. CONCLUSIONS AND RECOMMENDATION
Man-made fibers have consistently increased their overall
share of the fiber market both in the United States and abroad.
Most of this increase is at the expense of 100% cotton products
and has been due to substitution for them of man-made fiber/
cotton blends. Such substitution is more prevalent in the U.S.
than abroad. Blends of 65% polyester/35% cotton have taken a
significant share of the U.S. market for light-weight apparel.
Blends of 50% polyester/50% cotton are important in some of the
heavy-weight apparel and for sheets and pillowcases. Blends are
not as important in U.S. imports as they are in domestic produc-
tion and consumption. Further, imports of 50%/50% blended
articles are of minor importance.
Despite periodic but temporary high spot cotton prices,
there have been no significant shifts in the classification of
textile and apparel items from the man-made fiber TSUS numbers
to the cotton TSUS numbers. The U.S. Customs Service classifies
65%/35% blends as being in chief value of man-made fiber. In
addition, Customs assumes that a 50%/50% blend is in chief-value
man-made fiber unless proof is submitted to the contrary. Customs
view is that the overseas costs of man-made fibers are higher on
the average than the costs of cotton in a 50%/50% blend, and that
the chief-value of such a blend is man-made fiber. Customs
recognizes that the costs of raw cotton to the textile mill are
based on a contract price and not on spot prices.
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Although spot prices for cotton reached very high levels
in late 1973 and in the Fall of 1976, the higher levels occurred
38
after most cotton had been sold, at lower prices, creating a
temporary spot shortage. If cotton prices should continue to
be at levels considerably above those for man-made fiber over
an extended period, the chief value likely would shift for a
50%/50% blend to cotton. However, it is not likely that cotton
can command, in the market place, a premium over polyester
staple for any extended period.
Unilateral modification of the basis on which imports are
classified would be inconsistent with and possibly in violation
of the Multifiber Arrangement Regarding International Trade in
Textiles (MFA) and the twelve multifiber bilateral textile and
apparel restraint agreements negotiated under it. To avoid this
conflict, the United States might attempt to adopt a dual class-
ification system under which imports would be classified in
accordance with the Talmadge proposal for duty-collection purposes
while classification would continue under the current chief-value
system in the administration of the textile program. This would
require the addition of approximately 1,500 TSUSA numbers, would
almost double the work of the Customs import specialists, and
would be impracticable. It would result in inaccurate classifi-
cations and statistics for textile program purposes. Without
reliable import data, the textile program cannot be properly
administered. The amendment would result in a shift in
classification of trade from cotton categories to man-made fiber
categories which could not be handled adequately by administrative
changes. This would lead to requests for renegotiation
f the
39
bilateral agreements by our bilateral partners to raise the
restraint levels of man-made fiber categories and groups.
Because the amendment would consitute a violation of the
bilateral agreements as originally negotiated, the United States
would not be in a strong position for any renegotiation.
Exporting countries with bilateral agreements covering cotton
and man-made fiber textiles could consider their agreements
void since the United States had unilaterally abridged the
basis on which they were negotiated.
A large number of duty rates applicable to textile items
were bound in the Kennedy Round tariff reductions and the
arbitrary change in classification very probably would be
construed as a nullification or impairment of benefits derived
from GATT trade agreements. The United States probably would
have to negotiate compensation pursuant to Article XXVIII of
the GATT or face retaliatory action under Article XXIII.
The study found that many of the problems inherent in a
classification system established by the proposal would be
eliminated if the United States applied to all textile and
apparel imports a chief-weight system that based its classifi-
cation simply on which fiber component was the greatest by
weight. Such a system would greatly simplify Customs' classifi-
cation work. It would constitute an important step toward
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harmonization of the U.S. import system with the production and
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export classification systems. It would also bring the U.S.
import system into conformity with the import classification
40
systems of all major trading nations. At present the United
States is the only major trading nation on a chief-value
basis on imports.
A chief-weight system by covering all fibers would
probably affect the duties on blended textile products in
both directions, raising some and lowering others. The
impact on the bilateral agreements can be expected to be
comparatively light, compared with that of the Talmadge
amendment, possibly even of minor significance, since in
most instances it would, as a practical matter, continue
the present classification of cotton/polyester blends. At
the same time, a chief-weight classification system would
be welcomed by exporting countries because it would simplify
their implementation of the textile agreements by putting
classification on the same basis as their classification of
all textile exports to other countries.
Recommendation
Any major changes in the present classification system
for textiles and apparel should be postponed until interested
agencies could review a detailed study which would be made by
the ITC, aided by other government agencies concerned, on the
consequences of a complete change to a chief-weight classifi-
cation concept for all textiles and apparel.
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UNITED STATES
ANNEX A
INTERNATIONAL TRADE COMMISSION
WASHINGTON. D.C. 20436
MEMORANDUM
August 27, 1976
(with revised attach-
TO:
REP. PHIL M. LANDRUM
ment, as of 9/24/76)
FROM:
R. N. Shewmaker
General Counsel
Nns
SUBJECT: Substitution of "chief weight" for "chief value" concept
in TSUSA treatment of textile imports.
This memorandum is submitted in response to your oral
request that I provide you with my views as to the merits of certain
proposed legislation which would amend the Tariff Schedules of the
United States (TSUS) by substituting 2 "weight concept" for the
"chief value" concept in the provisions of the textile schedule
for articles made of fiber blends in part of cotton and/or man-made
fibers.
At the present time, articles (except certain fabrics of
wool) 1/ made of blends of fibers are generally classified in the
textile provisions of the TSUSA for duty and statistical purposes
on the basis of the component fiber of chief value. In addition,
the quantitative restraints on textile imports 2/ are administered
in accordance with the 7-digit statistical classes of the TSUSA
and, thus, such restraints are also governed by the "chief value"
concept.
1/ Such wool fabrics are classified basically on a chief weight
concept.
21 Imposed pursuant to the Arrangement Regarding International
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Trade in Textiles administered by the Committee for the Implemen-
tation of Textile Agreements.
2
The classification of composite articles according to
their component of chief value is a product nomenclature
technique that invariably presents customs administrative burdens
and also results in inconsistent, fluctuating and, therefore, un-
controllable product classifications and, derivatively, in the
development of avoidance practices to obtain lower duties or to
circumvent import quotas. In addition, the current chief value
system results in the collection of statistical data of poor quality
generally unsuited to reliable, discriminating trade analysis. The
broad applicability of the "chief value" concept in the classifica-
tion of articles in the textile schedule is not only unsound but
is also not in conformance with industry and commercial practice. 1/
The enactment of legislation providing for an across-the-
board substitution of "chief weight" for "chief value" in the textile
provisions of the TSUS has obvious merit and, in my opinion, is long
overdue. It would ease considerably the administrative burdens of
customs officers by eliminating the more vexatious ones associated
with "chief value". It would stabilize product classifications by
making them accord with the realities of commercial practice. It
would result in the collection of reliable trade data and improved
trade analysis.
While it is true that some changes in the application of
the duties and the quantitative restraints to textile imports would
1/ See treatment of this subject on pages 12-13 of the attached
copy of the Commission's Tariff Classification Study, Submitting
Report, of November 15, 1960.
GERALD FORD LIBRARY
3
occur, it is believed that it is futile to attempt to anticipate
them with particularity owing to the inadequacy of available data
for that purpose. 1/ However, after the "chief weight" concept is
in effect; it would then be possible by virtue of the better data
it would yield to make realistic appraisals of the impact on domes-
tic producers of imports of textile articles made of blends of
fibers. Moreover, the existence of the flexibly administered
quantitative limitations on imports makes it possible, in my view,
to effectuate the change in concept without the risk of uncontrollable
dramatic surges of injurious imports that might benefit from signif-
icant rate reductions.
In the circumstances, I would give my unqualified support
to the prompt enactment of legislation which would embody the sub-
stitution of "chief weight" for "chief value" across-the-board in
the provisions of the TSUS for textile articles, i.e, schedule 3
and certain parts of schedule 7. I have attached hereto a draft bill
which would accomplish this result. 2/
If I can be of further assistance, please let me know.
1/ The duties would be higher in some instances and lower in
other instances. The immediate effect on the quotas would be to
stabilize them.
2/ The alternate drafts furnished to me did not involve an across-
the-board approach. Their limited approach would, in my opinion,
make them susceptible to controversy as essentially rate-increasing
measures.
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Tariff Commission's Tariff Classification Study, Submitting Report,
of November 15, 1960
12
was derived directly or indirectly from, products provided for in IRC
sections 4511, 4561. and 4571. In assimilating the provisions of IRC
section 4581 into the proposed schedules, they have been reflected in
connection with only those articles known to be directly involved, and
the rate increment added on account thereof was adjusted on an esti-
mated basis so as to apply to the total weight of the article involved
rather than the quantity bv weight consisting of, or derived directly
or indirectly from, products provided for in IRC sections 4511, 4561,
and 4571.
2. Existing temporary and collateral provisions
As previously indicated, the appendix to the proposed revised tariff
schedules is designed for the incorporation of all legislation, procla-
mations, and administrative actions which. because of their tempo-
rary or collateral nature, are not assimilable into the main body of
the tariff schedules. At the present time, these provisions are scat-
tered and are available in consolidated form only at such times as the
Tariff Commission or the Bureau of Customs is able to bring them
together in an unauthoritative compilation.
E. CHANGES IN EXISTING TARIFF DESCRIPTIONS
Specific attention is given in part III of the interim report to cer-
tain anomalies, complexities, and uncertainties in the existing tariff
classification law.30 The succeeding paragraphs of this report are
concerned with the treatment in the proposed schedules of problems
associated with some of the more commonly used tariff terms and
descriptive methods.
1. Descriptions based on component material
In the existing tarin provisions, rate descriptions depending on
component material are stated in any number of ways. In some few
instances the weight of the particular component material determines
the tariff status of the article and in other instances it is required
that the article be "wholly of" or "in part of" the specified material,
but in the vast majority of instances the tariff status of the article
depends upon whether it is "in chief value of" the specified material.
Although the existing tariff laws are pervaded by tariff descriptions
based on component material, as pointed out in the interim report,"
the only related term defined in the existing tariff act is the term
"component of chief value" which is defined in paragraph 1559 (b)
but is rarely used in the tariff schedules and is rarely cited in the
disputes centering on the chief-value concept.
(a) "Wholly or in chief value of" -Depending upon the context
and past interpretations, the terms "of," "made of," "composed of,"
or "manufactures of." followed by the name of a specified material
may mean that the article must be "wholly of" or, on the other hand;
that it must be "wholly or in chief value of" the material in question.
Moreover. words such as "composed of." "made of," and "manufac-
tured from" are held to require that the material preexist as such
before it is made into the article. Sometimes the chief-value descrip-
tion presents troublesome questions as to the order and nature of the
20 P. 45 et eeq.
= Pg. 48, 49.
GERALD FORD LIBRARY
13
ideltor in IRC
wistons OI IRC
processing steps involved abroad in the production of the article.
Differences in production techniques and changing cost factors from
reflected in
time to time or from producer 10 producer (especially in different
it:- involved, and
countries) may result in like articles being classified differently.
seell on an esti-
In the proposed schedules, the problems associated with the chief-
rticle involved
value concept have been reduced substantially, but have not been
derived directly
centirely climinated. However, a material improvement has been
ions 4511, 4301,
brought about by standardization of language. Also, the incidence of
such descriptions has been significantly and realistically curtailed by
the proposed shift from the chief-value concept to weight as the basis
revised tariff
for classifying metal alloys and composite articles of two or more base
lation, procla-
metals, and by "carving out" from the various existing "basket" pro-
their tempo-
visions based on component material of chief value many new classes
main body of
of articles and providing for them at a single compromise rate wher-
ions are scut-
ever possible regardless of the component material. Another device
1 times as the
employed in the proposed schedules to stabilize classifications based on
bring them
component material of chief value is, by means of appropriate head-
notes, to narrow the field of competing materials.= Also, words con-
noting the preexistence of component materials have been avoided.
One notable exception to this attempt to avoid the "chief value" con-
cept in the proposed classification study should be mentioned. The
nort to cer-
increased importance of blended textile libers raises a serious problem
sting tariff
of product description, a matter which was touched on briefly in the
report are
testimony adduced at the public hearing in connection with proposed
1 problems
schedule 3. From the point of view of practical customs administra-
terms and
tion and industry practice, it would be most desirable if descriptions
based on component material of chief value with its confusion and
uncertainties could be abandoned in favor of descriptions based on
the relative quantities by weight of the various textile fibers used in
ading on
textile products. However, this change has not been incorporated
tome few
generally in the textile provisions of the proposed schedules. both
termines
because the implications thereof would be SO far reaching in view of
required
the great range and diversity of rates involved and because of the
naterial,
total absence of data showing the probable effect thereof. It is be-
article
lieved that conversion to a weight basis can be better made at some
aterial.
future date after the proposed revisions have been in effect for a while,
hiptions
since the systematic provision for textile fibers and textile products in
"port,"
proposed schedule 3 will furnish a much better statistical base re-
term
garding imports for conducting such il study than now exists.
30(b)
(b) "In part of" or "containing" This type of component material
in the
description has produced problems and complaints. The concept is
expressed in a variety of wats such as "wholly or in part of," "partly
stest
minufactured of,' "in substantial part of." and "composed in part
of,
of." Some descriptions are based on the absence of a material, e.g.,
crial
"not containing gold, silver, or platinum." Depending on the con-
and,
text and past interpretations, the various descriptions of the type
here considere 1 may 0. may not be subject to the rule of de minimis.
inc-
.\!so, this type of description sometimes gets involved with the ques-
sch
tion of the preexistence of the material involved. The primary objec-
in-
tion to this type of description is its tendency to classify articles on
the
to Sec. for example. headcore 3, pt. 3.1. schedule 3. which in connection with textile floor
coverings provides that "rubber, plastles, or other courextle conteriats Incorporated Into
A that envering as n backing or underlay er to hold the in place shall be disregarded
In determining the component material us chief value In the door covering."
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GLOSSARY OF TECHNICAL TERMS
ANNEX B
Man-Made Fibers:
Cellulosic
Fiber produced from cellulose obtained from
wood pulp or cotton linters and regenerated
into fiber form
Rayon
A fiber made by forcing a viscous solution
of modified cellulose (usually viscose)
through minute holes and drying the
filaments
Acetate
Generic term for man-made fibers composed of
cellulose acetate, a substance derived from
cellulose by the action of acetic acid and
other chemicals
Noncellulosic
A synthetic fiber produced from chemicals
derived mainly from petroleum and coal
Polyester
The generic name for man-made fibers made
of an ester of ethylene glycol and
terephthalic acid
Nylon
The generic name for man-made fibers composed
of long-chain polyamides
Acrylic
The generic name for man-made fibers derived
from acrylic resins (minimum of 85% acrylo-
nitrile units)
Staple Fibers
Fibers that have been deliberately cut to
definite spinning lengths from continuous
filaments
Spot Cotton
Cotton available for immediate delivery after
sale
Futures Market
Market where cotton contracts are traded with
delivery months specified
Forward Contract
Purchase or sale of cotton for delivery at a
specified later date
Durable Press
Articles manufactured from fabric which has
been treated to provide easy-care character-
istics, such as wrinkle-resistance and shape
retention
Pile Fabrics
Fabrics with raised loops, cut interlacings
of double cloths or tufts (cut loops), and
other erect yarns or fibers deliberately
produced on the cloth, which form all or
part of the surface of the fabrics. Velvets,
plushes, velours, corduroys, velvereens, and
terry cloth are examples of pile fabrics
Reverse Blends
Blended articles in which cotton predominates