Document mq6NJLqNjQ6zaQRz8R9ev5npZ

PLASTICS AND THE TARIFF G. C. Hufbauer University of New Mexico Delivered before the National Industrial Conference Board May 18, 1967 CMA 040226 PLASTICS AND THE TARIFF G. C. Hufbauer University of New Mexico The Dilemma. The typical widget manufacturer's Garden of Eden has, I pect, tariff walls of three different heights. The barriers protecting widget es at home are very great. By contrast, raw materials and intermediate goods ed to make widgets enter duty free. Foreign tariffs on widgets are low, ideally -existent. Widgets may be a figment of imagination, but the tariff dream Just outned seems to be cherished by a great many American industries. When every dustry tries to legislate its own version of the dream, however, contradictions rge. Most inputs for manufactured goods are themselves manufactured goods; thermore, every country is both a home territory and a foreign market. One pany's tariff dream thus becomes another company's nightmare.^- Compromises are quired. In making these compromises, an industry really must choose between two oad strategies. It cannot very well advocate free trade for all products except * own. It must either champion protection, and tacitly endure tariffs both for suppliers and foreign competitors, or it must espouse free trade, and vigor-* ly reject all tariffs. Most American manufacturers have chosen the protectionist course. This rategy may be perfectly logical for textiles and leather goods, but whether tection commends itself to the plastics industry is another question. Academic onomisto, as you know, generally oppose tariffs as contrary to consumer well,2 ing. My remarks here, I would like to emphasize, are addressed not to the lf-interest of the consumer, but rather to the self-interest of the plastics ufacturer. CMA 040227 Tariff Rates. The American plastics industry grew up with protection. Pyroxylin compounds were dutied at rates varying from $1.00 to $0.40 per pound between 18$* and 1900.^ Beginning with its invention in 1909, phenol formaldehyde was protected by a 0$ tariff.*1 Mindful of the trade threat from Germany, the chemical industry pressu t Congress for more protection after the First World War. The Emergency Tariff of 1921 end the Fordney-McCumber Act of 1922 answered these demands. Cellulosic plastics were given 60$ ad valorem protection. The duty on synthetic resins was raised to 60$ (lowered in 192k to 1*5$) plus 7^ per pound. In a highly significant departure, the Fordney-McCumber Act based the resin ad valorem duty, along with duties on many coal tars and dyestuffs, on th American selling price rather than on the foreign price. This departure from customary practice was supposedly required to stop the fraudulent invoice habit of importers. In reality, it transformed high nominal rates into prohibitive duties. As explained in the margin, if the American selling price (ASP) tariff, is >. , the true ad valorem rate on the foreign price can reach --(.6 Diagram 1 portrays this relationship. An ASP tariff of 50$ potentially gives protection of 100$; higher ASP rates become rapidly more prohibitive.^ The Hawley-Smoot Tariff of 1930, inspired by the Great Depression, substantially raised most duties over their 1922 levels. Pates on coal-tar synthetic resins, however, stayed at 1*5$ of the American price, plus 7j^ per p Cellulosic plastics were tariffed at 80$ on the foreign price. Vinyl acetate the other newly emerging thermoplastics were assigned a duty of 30$ on the fore price, plus 6^ per pound. The Hawley-Smoot Tariff was part of a world-wide nationalistic respo to the economic collapse. Statesmen in many nations soon realized the foolis' of mutually prohibitive tariff barriers. Over the objections of the Manufact Chemists' Association, and other trade groups, Congress accordingly passed the1 Reciprocal Trade Agreements Bill in 193^. This act enabled the President to lover American duties by as much as 5Q$> in exchange for similar concessions abroad. " American tariff policy since Roosevelt has been based on extensions of the Reciprocal Trade Bill. In successive rounds of tariff bargaining, American duties on plastics 1 have been lowered from the Hawley-Smoot levels. Table 1 outlines the present rate structure in the United States and other industrial nations. The first section of Table 1 sets forth average "nominal" ad valorem rates for the three types of plastics distinguished in the Brussels nomenclature 1 The condensation group includes phenol formaldehyde, urea formaldehyde, alkyd, polyester, silicone, and similar resins. Virtually all condensation plastics are, still tariffed by the United States (though not by other countries) on the domesti selling price basis. Owing to competitive pressures at home, however, this has n noticeably benefitted the industry. The polymerization group includes polyvinyl chloride, polyethylene, polypropylene, acrylics, polystyrene, and other thermo plastics. Of these, only polystyrene receives ASP treatment. The cellulosic group comprises cellulose nitrate, cellulose acetate, and related compounds, none of which are dutled on the ASP basis. Evidently, the United States has a somewhat higher "nominal" tariff structure, especially on the thermosets, than other major industrial nations. The second section of Table 1, drawn from the work of Professor Balassa, compares "nominal" and "effective" rates for synthetic materials as a group (plastics, synthetic rubbers, and man-made fibers).^ The "nominal" tariff re lates the duty to the foreign price; nominal tariffs correspond to the common concept of ad valorem tariffs. The "effective" tariff, on the other hand, relates the duty to that portion of the foreign price accounted for by value added (wages and profits) in the industry; furthermore, the "effective" tariff makes allowance for the duty on inputs.^ Japan Average Nominal Ad Valorem Tariff Rates Sweden 10% 2Q% 20% 1C% 21% 10% 20% 10% 21% 30% 20% 10% Average Nominal (N) and Effective (E) Rates NE NE NE 1--'& a r--l H 19% M 12% 18% 7% 13% .at t a, Tariffs on condensation plastics are 'based on the American selling price. However, internal competition has kept American selling prices beneath the maximum levels they might attain without attracting foreign supplies. Thus, while the highest feasible ad valorem tariff is 35%> the actual rate is about 26%. Cf. U.S. Tariff Commission, Products Subject, to Duty on the American Selling Price Basis of Valuation; Conversion of Rates of Duty on Such Products to Rates Based on Values Determined by Conventional Valuation Methods, July 1966 (TC Publication 181). 2. Plastics, synethetic rubbers, and man-made fibers. ,4 Sources: F.K. Topping, Comparative Tariffs and Trade, volume I, 19^3 (Committee for"Economic Development); B. Balassa, "Tariff Protection in Industrial Countries: An Evaluation", Journal of Political Economy, December 1965 L ces 'S w i CMA 040231 Suppose, for example, that a finished widget costs $1*00 on the world market, that each widget incorporates $0*50 of raw steel and $0.50 of wages and profits, that the nominal duty on widgets is 10$, and that the nominal duty on tCutr clau steel is 2$. The effective tariff on widgets is then 18$ (10$ - .5x2$)/.5 = 18$ ,; The effective rate on a product exceeds the nominal rate whenever inputs are tariffed at lower nominal rates than the product in question. 13 A low proportion of value added enhances effective protection under these circumstances. Effective rates on synthetic materials are generally higher than nominal^ i*the ! part tkey . : Chem rates. Following the time-honored custom of according greater protection to more highly processed goods, inputs for synthetic materials are dutied at lower rates than the materials themselves. Of the three groups making up synthetic materials,j plastics enjoy the highest effective rate, at least in the United States: l2$.^5 j Among industrial countries, the United States has the highest overall effective rates on synthetic materials (and almost certainly on plastics), though only Uca: KB Oi: sStatEfurti. Squire marginally higher than Japan, However, quotas on petrochemical feedstocks are rapidly eroding these high effective rates. Quotas on a key input exercise ap proximately the same impact as high tariffs. The steep effective rates presently imposed by the United States on plastics are reflected in its low import ratio by comparison with other areas. America imports about 1.5$ of its plastic needs, the Common Market imports about 2-3$ of its requirements from areas other than the EEC, Japan imports around 1-T$,J and Britain, about 18.9$*^ Even without high protection, the United States woul^ probably have a low import ratio, but not so low as 1*5$* Almost five years ago. Congress enacted the Trade Expansion Act of 1962^ psuch E.COSSt fexchr i Is ch i Conve ne V giving the President authority to cut tariffs up to 50$ of their 19^2 levels.^ The authority granted by this Act expires June 30, 1967. [Cccmc 6-c In a few weeks, the results of five years'negotiations will be known. nerl toe U. 6- WCMA 040232 Negotiators at Geneva have expressed pessimism, especially over tariff cuts in the chemical field. The Europeans are objecting strenuously to the ASP clause/but the American team has no bargaining authority on this point.1 The plastics industry faces a dilemma. In these last crucial weeks of the Kennedy Round, and in the years ahead, should the industry seek to exchange part of its present high protection for lower rates abroad and liberalization on key inputs? Or should It, along with other members of the Synthetic Organic Chemical Manufacturers' Association, staunchly defend the status quo?1^ Comparative Advantage. The key to this dilemma lies, I think, in David Ricardo's concept of comparative advantage. To illustrate this concept, I will use a simple example. Suppose there are only two countries in the world, the United States and the Cocnon Market, and only %vo products, plastics and steel. Suppose further that labor is the sole input, that prices are proportional to labor re quirements, and that production conditions can be described as follows: United States man-years Common Market man-years Steel, per ton l 1 Plastic, per ton 2 3 Under these assumptions, American prices for steel and plastic will be Buch that 2 tons of steel exchange for 1 ton of plastic (e.g., a ton of steel might cost $100; a ton of plastic, $200). In the Common Market, 3 tons of steel will exchange for 1 ton of plastic (e.g., steel, fr. 100; plastic, fr. 300). Plastic is cheaper, relative to steel, in the United States than in the Common Market, diversely, steel is cheaper, relative to plastic, in the Common Market than in be, United States. The United States has a comparative advantage in plastic; the Cccaon Market has a comparative advantage in steel.Under a free trade regime, _* exchange rate between francs and dollars will necessarily adjust so that lea exports plastic and the Common Market exports steel. Put very plainly, ,U. S. plastic industry and the Common Market plastic industry would both expand 7 - CMA 040233 under free trade, while the U- S. steel industry and the Common Market steel Indus try would both contract.^2 The former two industries are natural allies in the cause of free trade; the latter are natural advocates of protection. But does the complex real world actually favor the American plastics industry with a comparative advantage? Direct productivity comparisons are hard to obtain.^ Nevertheless, there are, I submit, at least six indicators of American prowess at manufacturing plastic. In the first place, the United States exports a larger share of its plastics output than its output of other manufactured goods. Between 1952 and 1965, plastic exports ranged between 6# and 12# of production. By contrast, ex-3 ports of all manufactures fluctuated around 3*5# of total sales. To be sure, as a given plastic matures and its technology becomes well known American exports decline as a percentage of output.^ Despite pessimistic comments from some quarters, however, I detect no reversal of the export prospects for the industry! as a whole.^5 as 0ia products decline new products and new processes will take their place. Secondly, the manufacture of plastic requires a great deal of capital. Equipment and structures per man amount to about $17,600, whereas the average U.,S. manufacturing plant utilizes only about $k,500 per man. The lower labor costs enjoyed by competing industrial nations thus count less heavily in the plastics trade than elsewhere, simply because depreciation charges and profits assume greater importance per unit of output. Third, the plastics industry employs more skilled labor than the avers firm. This is indicated by an average wage rate of $7,13 per man, contrasted with a wage of $5,880 for manufacturing taken as a whole. The use of human capital, like the use of physical capital, enhances the industry's position vis-J a-vis other American manufactures. 26 - 8- re: id fkncv iree roci iboi err. itf tic ttc jtn ud: fccr ror. en in ran :oc CMA 040234 Fourth, the United States enjoys a technical lead in plastics manufacture er virtually all nations save Germany. The frequency of licensing arrangements d joint ventures between U. S. firms and overseas companies attests to American ow-how. One quantitative device I have used to measure technical disparity beeen nations is the "imitation lag." This figure relates average national first production dates for various plastics to average world first production dates. A hort lag indicates technical leadership. As of 1962* both the United States and many had plastic Imitation lags of 2.5 years; Britain had a lag of 8.1 years; all her countries had lags of 10 years or more. Fifth, economies of scale characterize plastic manufacture, particularly nufacture of the petrochemical thermoplastics. Since American markets are large^ e United States firm can more confidently erect a big plant and reap this ad.tage than his foreign competitor. Sixth, the trade record of the United Kingdom, the one large industrial tion which most nearly practices free trade in plastics, offers much hope for the ~ited States. In 1965, Britain exported nearly $227 million of plastic material, .d imported only $153 million. If the United Kingdom, with various disadvantages en compared to the United States, can achieve a large export surplus under ndltions approaching free trade, it seems likely that the United States can camplish the same feat on a much grander scale. Looking at these six indicators, I conclude that the United States has a Tong comparative advantage in making plastics. If this conclusion is correct, hn the typical American plastic firm has more to gain by all around free trade n by universal protection Apart from its comparative advantage at home, the American plastics dastry has, I think, an international stake in free trade. Through licensing angements, Joint ventures, and sole ownership, the larger manufacturers are * pP, oming extensively 'committed to overseas production. This commitment will _q CMA 040235 prove most rewarding if each new plant can be designed to service a large market. Costs of production rise rapidly when Email, uneconomical plants must be installed^ for each product in each country. But the ideal of large markets can be achieved cnly when free trade conditions exist in broad geographical areas. The international ,h_emical_flrm thus has a general interest in promoting low tariffs. 29 Some Qualifications. Evidently I believe that free trade commends itselfj to the U. S. plastics industry. Yet historically this industry has favored high tariffs. Am I to conclude that the industry has mis-Judged its own self-interest?^ Mot entirely. To begin with, the industry's tariff position was really developed in | 1922. At that time, plastics were in their infancy; the industry may have been truly disadvantaged in an all-out competitive struggle with Germany. But condi tions change in h-5 years. The policy response of the 'twenties may no longer be appropriate to the 'seventies and 'eighties. Secondly, the plastic industry belongs to the chemical industry, more precisely, to the organic chemical industry. In my estimation, free trade commen itself to the chemical industry as a whole, but undoubtedly there are cany organ| chemicals -- particularly coal-tar intermediates and dyestuffs -- which would suffer under this policy. A firm with far-flung interests in many products very well advocate protection for some, free trade for others. To maximize its^ effectiveness, it must stand wholly for tariffs, or wholly against them. The same is even more true of industry associations. In deciding which way to turn| most firms and associations have, it seems, paid undue attention both to their own tariff arguments advanced a generation ago and to their less competitive products. But cool economic calculation might, in fact, lead some firms to choose the protective way.^ Third, the chemical industry may genuinely believe that it can best the American balance of payments distress by maintaining a high tariff wall and - 10 - pi r ISic: fginr pita ies" ttle idJo fprc bout *appr l, Ne -> h PTaf' th 113 ick as Dne :tr. as - lent to CMA 040236 f ing imports at a minimum. 11 The balance of payments problem is too broad for Bideration here, but I think American manufacturers have a common interest in ; an exchange rate solution, rather than restrictive measures on imports, ital movements, tourist, or government activity abroad. Fourth and last, there are probably those who believe that "foreign-trade nes" will answer the tariff dream of the plastics industry. Hence they feel ttle incentive to lobby for lower tariffs. Under enabling legislation passed in 34, the Secretaries of the Treasury, Commerce, and Army can designate cones in adjacent to Ports of Entry.An area with zone status can store, manufacture, d process foreign goods, adding American components to the imported supplies, thout paying customs duty. If the goods do subsequently enter the United States, appropriate duty is then paid on the import content.33 Until recently, zones were mostly located in major cities, such as New brie, New Orleans, and San Francisco for warehousing purposes. In the past few are, however, zones have been established in Puerto Rico and Day City, Michigan, d Taft, Louisiana, at the behest of petrochemical firms.^ Foreign-trade zones fer the petrochemical firm two major advantages. First, the petrochemical firm can service the export market without tially paying duty on inputs. To be sure, the firm might eventually obtain avback of duty anyway, but the foreign-trade zone avoids cash outlays to the toms authorities and bypasses red tape. Upon payment of appropriate duties, e zone plant can also sell to the U. S. market. Economies of large scale oduction can thus be realized just as if the plant were located in American Stems territory. The second major advantage remains in the anticipatory stage. A sidential proclamation of December 1965 gave the Oil Import Administration er to set oil quotas for foreign-trade zones located in the continental United t'es. The proclamation, however, did not apply to Puerto Rico; hence the Union 11 - CMA 040237 Carbide zone plant in Penuelas can import feedstock unrestricted by quotas. The Oil Import Administration has yet to make its maiden decision on quotas for main' land zones, but petrochemical firms are hoping that the Administration will look favorably upon their feedstock needs. An application from Dow Chemical for Bay City is pending; Union Carbide is apparently awaiting the outcome to submit its own request for the Taft complex. Needless to say, the domestic oil interests are vigorously resisting any 3 quota liberalization for the foreign-trade zones. Wrapping themselves in both flag and balance of payments, they contend that feedstock allotments would damage the national interest. From an academic viewpoint, the petrochemical firms could in my opinion, have the better of both these arguments. But the Oil Import Administration can hardly be expected to decide the issue on its academic merits. The domestic oil industry has strong political connections. While I applaud the foreign-trade zone concept, it is only a partial answer to the needs of the plastic industry. Zones will lose most of their attraction if the petroleum interests have their way on quotas; in any event, zones will do nothing to lower tariffs abroad or to reduce duties on chemical inputs. Despite the allure of zones, therefore, I suggest that the American t plastics industry not forget its long-range interest in universal free trade. 32 - /CMA 040238 Footnote s A.' .1. VI. Keynes provides on emusing example: "...the interest? of Amcr:c"n manufacturers cf synthetic aromatic raw materials and of finished cosmetics collided violently and each suggested diametrically opposite rerr1 ion. This clash enlivened the dinner cf the rarfumery, Soajj_& Allied Indus ;v>s a.t the Hotel Astor, New York City, on March 8, 1923* [_The cosmetics industry had appealed] to Vlashington... for a. 50 per centjre duct ion in the duties cn the raw materials cf cosmetics... [At the dinner] Dr. S. Iscrmern cf Vm Dyk &. Company and Dr. L. Jenkel of Denney & Denney fought back hittcriv in defense of the duty on raw materials, landing some sarcastic blows on the selfish inconsistency cf the highly protected perfumers." American Chemical Industry, volume IV, p. 296, lU8. Certain exceptions are made for "infant industry" and "optimal tariff" arguments, tut these arguments have more relevance to developing countries than to advanced industrial, nations. 3. VI. Haynes, American Chemical Industry, volume I, Appendix VI, l?1,3. The The comparable ad valorem rate was probably about 50$ ; VI. Haynes, on. cit. This rate was levied under the Payne-Aldrich Act. VI. Haynes, American Chemical Industry, volume II, Appendix V, 1?'i0. The rates in the Underwood Tariff of 1913 had been h0$ on cellulosics and 15% on synthetic resins. I/?t Pa represent the American price for a given article, and Pe the foreign price for the same article. If the American selling price is governed only by foreign competition, the following relationship must hold, at least ap proximately, for imports of the coo<I: (i) Pf + *Pa = pa The ad valorem rate on the foreign price, t, is given by the expression: ' (iO t - (Pa - Pf)/Pf If relationship (i) is solved for Pp, and that solution value is substituted in (ii), it becomes evident that: (iii) t = x/d- X ) The ed valorem rate will be lower if domestic competition Keeps the American selling price below the maximum level set by potential foreign competition. For an cmnirical. study, see United States Tariff Commission, Products Subject to Duty on ' American Selling P'-ice Pasis of Valuation: Finvcrsicn cf F.atec Based on Values Determined by Conventional Valuation Methods, July I9ot> >(TC Publication TSX}~! - 13 - CMA 040239 7. F. W. Taussig, the noted international economist, resigned from the Tariff Commission ever the high rates of the For&ney-McCumber Act. He specifically] opposed the canorous protection for the dye industry, which large3v resulted; from the ASP tariff system. Taussig even suggested that German and Swiss firms were tetter suited to the dye trade than American companies. Events of the past Lj years have not proven him wrong. CF. W. Haynes, American Chemical Industry, volume IV, pp. 266-70, 19^8. 8. W. Haynes, American Chemical Industry, Volume IV, Appendix I; volume V, Appendix VI, -lydb. 9- V/. Haynes, American Chemical Industry, volume V, p. 59, 19^8. 10. The difference between "nominal" end "effective" rates is explained below. Most countries employ the Brussels nomenclature to classify their tariff rates. 11. B. Balassa, "Tariff Protection in Industrial Countries: An Evaluation," Journal of Political Economy. December 1965 12. Let t-j. represent the ad valorem nominal rate on product i; a-j, the input of^ product j per unit of product i; tj; the nominal rate on product j; end \ri, the proportion of product i accounted for by value added. The effective! rate on i, z^, can then be expressed as: (i) Cf. B. Balassa, o. cit., p. 577. 12. Conversely, when inputs have higher duties than the product, effective pro-1 tection will to less than nominal protection. It is quite possible for effective protection to oe negative. 1L-- Effective protection for some processing activities can thus be quite high:* with a nominal tariff of 40%, makers of Venetian blinds enjoy an effective , rate of 107%. G, Basevi, "The United States Tariff Structure," review of Economics and Statistics. May 1966, p. 155. ^-5- G. Basevi, co. cit. The estimated effective rate on synthetic rubber is 10%, on celiulosic man-made fibers, 39%, and on synthetic man-made fibers, -2%. 16. These figures are based on data presented in A. J. Warner, "Problems Facin_, the Plastics Industry," January 5, 1966, and United Nations, Commodity Trad3 Statistics (Series D), 1964 and 1965- Including imports from the EEC, the Common Market has a ratio cf about 12.8%. 17. As bait for Britain and other nations to enter the Common Market, the Act % also provided that tariffs could be eliminated on products in which the EEC; and the United States together accounted for 80% of free world exports. Since the EEC has not been enlarged, this provision applies to very few items. The United States and the present EEC, for example, account for only 72% of plastic exports. Cf. U. B. Kelly, editor, Studies in United Staten Commercial Policy, 1963, chapter II. This volume also provides a. very readable history of United Stater, tariff legislation. fc; A. F \ A cc 0: T* be cc re wi w _|-Fo Er$i v u. lor sic erne I^The & of >Amo som- m. In -wit) thel advr Stur noml arti Octc n ha of I 14 - CMA 040240 P* I "Mr. Blumer.thnl [the chief U. S. negotiator] says it's possible there will "be little cr no reduction of protective tariffs in the chemical field. " ..'This my cr may net have indications for the overall prospects of the Kennedy Tendadds the negotiator, 'but one thing is cert sir. -- tva biggest losers, if chemicals remain untouched, will be the chemical industries through out the world.' " Wall Street Journal, December 16, 1965. Elumenthal's views are based on the fact that 19$ of the chemical industry's direct inputs come from the chemical industry itself. The plastics industry purchases 25$ cf its inputs from the chemical industry, Cf. "The Transactions Table cf the 3958 Input-Output Study," Survey of Current Business, September :;~19S5} Table 2. An act of Congress would be required to change the ASP clause. For the views of this Association, consult the Oil, Fains, and Drug Reporter. - September 12, 1966. As this example illustrates, the term "comparative advantage" refers to two comparisons: first, the cost of the chosen product is related to the cost cf another product (or basket of products) within the country; second, the price ratio between products within the country is related to the price ratio between the sere products in another country (or the world at large). The country on,leys a comparative advantage in the chosen product if its price ratio for that product is more favorable than price ratios elsewhere; other-, wise, the country has a comparative disadvantage. tl. For example, if demand conditions are such that the exchange rate settles at $1 = fr. 0.?9, the following prices, all expressed in dollars, will result: U. S. steel, $100 per ton; U. S. plastic, $200; Common Market steel, $75; Common Market plastic, $22$. Plastic is cheapest in the United States, while steel is cheapest in the Common Market. The export pattern described will emerge as consumers seek the least expensive source of supply. 'The extent of expansion and contraction would depend on the precise nature of cost conditions in the two countries. Among ct'-o- things, qualitative variations between products falling in the same statistical classification, different marketing ability of different firms, and productivity disparities between firms in the same industry within a country, all render meaningful comparisons quite difficult;. Never theless, C-.P.A. MacDougall has broadly confirmed the relevance cf comparative advantage theory to trade conditions: "British and American Exports; A Study Suggested by the Theory cf Comparative Costs, Part T; Part TI," Eco nomic Journal, December 1951; September 1952. Also compare the fellow-up articles by l\. M. Stern and G. D. A. MacDougall in Oxford Economic Papers, October 1952.I I have developed this theme at length in Synthetic Materials and the Theory of International Trade, 1956. CMA 040241 Pessimism was expressed, for example, by A. J. Wanrer in "Problems Facing t riactic Industry," January 21, 1955, pp. P.7-23- In 1955, the United States c::ported some $''25 million of plenties; in 1955, the figure rose to about $4 million. H. Y. Waehrer has documented the positive connection -- which would be expec Crcn theoretical considerations -- between high wage rates (implying high levels of labor shill) end U. S. exports. Inter-Industry Shill Pifferences. Labor Earning's and United States Foreign Trade] I960 (Columbia Ur.ivsrsity I. i.D. thesis). The attractions of free trade would be magnified if developing countries we permitted to sell a range of light manufactures (textiles, processed foods, etc.) to the United States. If poor nations could solve their foreign ex change difficulties by enlarging exports, they would less readil1' practice "import substitution" on plastics end ether hard-to-make products. International firms should reflect on their own possible participation in * larger U. S. imports resulting from lower trade barriers. This interest may be satisfied through the creation of regional free trade*, areas, rather than through multilateral tariff reduction. It seems doubtful, however, that many firms have rationally calculated an overall tariff position. Fee the position of the Synthetic Organic Chemical Manufacturers' Associati Oil, Paint, and Drug Reporter, September 12, 1966. R. II. Lake is the very helpful Executive Secretary of the Foreign-Trade Zop Foard, located in tve Department cf Commerce. The literature on foreign-tr senes includes: Foreign Trade Zones Teard, Laws, Regulations, and Other Inf nation Delating to Toreim-Trode Zones in the United States, June 1966; Ann' PepQ^'t of Ferejf'p.-T.TP'^e Zones Emend (published each yearj; W. A. Pymsza, Foreign Trade .'~>-|ea and Internet?oral. Pusiness, 1964; articles Vv H. I ?n A-erican inr.: end Export Enl.lctin , July 1953, International Commerce, Inly lb, 1954, 0?:T~Dail*', ifc-'cmber C, 1965. Usually raw materials pay lower tariffs than finished goods. Duties levie on "raw" import content are thus lover than the duties which would be col-, lected on the cane goods in more highly fabricated form if it cane from abroad. Incidentally, when the tariff structure is "inverted" (higher dut cn finished goods than on raw products), the Customs authorities have alls* the lower duty to prevail. Oil, Paint, and Drug Reporter, September 19, 1966. Union Carbide, Dow Chemical, and Union Carbide respectively.