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categories listed in Article I, especially since no customs duties or charges of any kind are involved. There is no definition of "rules and formalities" in the GATT, but the entire context seems to be that they refer to uniform requirements for customs administration in connection with importation and exportation.
On March 24, 1948, the State Department issued “A Guide to the Study of the Havana Charter for an International Trade Organization" (Commercial Policy Series 114). Article 16 of the Havana Charter is the same as Article I of the GATT. In referring to Article 16 of the Havana Charter, the State Department explained at page 3:
"In this Article each member agrees to apply, in its import and export trade with every other member, the same customs duties and the same laws and regulations concerning customhouse procedures generally."
An exception for Canada as part of a general revision of the Copyright Law (S. 597) cannot be considered a rule or formality in connection with importation or exportation.
5. The State Department also claims that an exemption for Canada would create a new conflict with the non-discrimination requirement in Article XIII, paragraph 1. However, this paragraph refers only to non-discriminatory administration of quotas or other restrictions which come within one of the three exceptions Article XI, paragraph 2, Article XII, and Article XVIII, Section B. It is not a blanket prohibition against any restrictions which are not equally applicable to all countries. Strong support for our position comes from a number of sources :
A. The State Department prepared a document entitled "General Agreement on Tariffs and Trade, Present Rules and Proposed Revisions." This is contained in the hearings of the House Ways and Means Committee on H.R. 5550, March 1956. The following summary of the purpose of Article XIII is contained at page 1395:
"This Article requires a contracting party imposing quantitative restrictions on imports under one of the exceptions to apply them in a non-discriminatory manner."
B. The State Department, in the Guide to the Study of the Havana Charter, referred to above, stated at page 5 :
“Article 22 (the same as GATT Article XIII], as indicated by its title, likewise deals with the same general subject as does Article 16 [GATT Article I]. Under certain circumstances, a member may be permitted to use quantitative restrictions. However, this Article insures that such restrictions as are permitted will be applied equitably to give fair treatment to exporters situated in all other member countries. It prescribes a general rule to this effect and sets forth a number of requirements to give the rule precision and enable it to be enforced.”
C. In the State Department publication “Preliminary Proposals for an International Trade Organization" (Commercial Policy Series 99), the following is stated at page 9 with respect to administration of quantitative restrictions :
"One of the provisions agreed to by the [preparatory] Committee is a general rule for non-discriminatory administration of such restrictions as are permitted under the exceptions described above."
D. William Adams Brown, Jr., at page 257 of "The United States and the Restoration of World Trade" similarly refers, under the heading “Quantitative Restrictions,” to “The non-discriminatory application of permitted restrictions."
It follows that since the manufacturing clause is not a restriction authorized by any of the three exceptions, Article XIII does not apply to it. This is actually the position taken by Mr. French in his testimony to the Senate Subcommittee, with the exception that he did not specifically mention the possibility of the other two exceptions. The result is the same.
In addition, it should be noted that the manufacturing clause is not listed among the all-inclusive “Quantitative Restrictions and Tariff Quotas on U.S. Imports in Force on November 10, 1965" published by the U.S. Tariff Commission. Also, the whole context of Article XIII, which refers to allocation of quotas among supplying countries, makes it clear that the situation dealt with has no relationship at all to administration of the manufacturing clause of the copyright laws.
6. It is stated in paragraph 8 of the State Department's letter that it would not be "feasible" to secure a waiver, although it is "in theory' possible for the U.S. to seek one. We cannot see why this should be so. If there really is a strong concern that the GATT may be applicable, the logical alternatives would appear to
be either consult with the Secretariat and/or other countries, or seek a waiver such as for the Canadian auto parts agreement. In the latter case, a waiver was granted even where it was entirely clear that the provisions of GATT applied, since there were substantial duties on auto parts and discriminatory production quotas.
As of February, 1966, 14 waivers had been granted under paragraph 5 of Article XXV of the GATT, including two to the United States.
The sole substantive reason given by the Department for its position in the present case is that to seek a waiver would conflict with the U.S. goal of maximizing international trade through application of the most-favored-nation principle. It is submitted that this reasoning is based upon a misconception of the role of the manufacturing clause as a limitation upon extension of the copyright monopoly to foreign printers. The Department has incorrectly viewed the Manufacturing Clause as a restriction on free trade, not as what it really is, a limitation on copyright.
THE PUBLISHERS ASSOCIATION,
London, January 3, 1968. Manufacturing Clause Mr. R. W. FRASE, American Book Publishers Council, Inc., Washington, D.C.
DEAR BOB: It seems very unlikely that I shall be able to come to Canada this month, but I have consulted the Officers of my Association and also Sir Stanley Unwin, and we are all agreed that we should not wish to raise any objection to the exemption of Canada from the U.S. Manufacturing provisions. I hope this is official enough for you. Yours ever,
Ron. R. E. BARKER, Secretary.
THE PUBLISHERS ASSOCIATION,
London, May 6, 1975. Manufacturing Provisions Mr. ROBERT W. FRASE, Washington, D.O.
DEAR BOB: This is to confirm that my Association has and would not have any objection to book importations from Canada being exempted from the manufacturing provisions currently contained in Section 16 of the present U.S. Copyright Law, due to be confirmed by Section 601 of the Copyright Revision Bill now before Congress.
While I have not been able to find my copy of the letter I know I wrote to you about this sometime early in 1968, when you were with the American Book Publishers Council, our view now, as it was then, is that the manufacturing provisions of U.S. copyright legislation are out of date, providing a form of protection which has long ceased to be necessary (if it ever was), and that, in consequence, anyone who can be exempted from these provisions should be. Because of the intimate relation between printers in the USA and in Canada, there seems to us every reason for making an exception in respect of Canada, until such time as the manufacturing provisions can be done away with altogether. In the meantime, some of our own members might benefit from this exception because, of course, many of them are, like many U.S. publishers, Canadian publishers in their own right.
To give you the assurance I think you want: we should certainly not object to any exemption made in Canada's favour in this respect. Yours ever,
(Dictated but not signed by) Mr. RONALD E. BARKER.
TESTIMONY OF GERARD VAN ARKEL, GENERAL COUNSEL.
INTERNATIONAL TYPOGRAPHICAL UNION
Mr. VAN ARKEL. Thank you, Mr. Chairman. I want to say it was with considerable surprise that I learned that it was over 10 years ago
that I last appeared before this committee on this same topic; namely, the retention of the manufacturing clause. Mr. Strackbein has stated the positions of all of the printing trade unions on this issue. I read my testimony and statement before the committee 10 years ago. I found no reason to make any significant changes or additions. Therefore, I have taken the liberty of resubmitting my testimony as my statement before the committee here.
There was one matter that was not before the subcommittee when I last appeared, and that is the exemption for Canada from the manufacturing clause. We favor this exemption, but since it was not previously before the committee, I have taken the liberty to submit a supplemental statement covering the reasons why we think this exemption from the clause is a desirable change in the law.
Thank you, Mr. Chairman.
Mr. KASTENMEIER. Thank you very much. Our next witness is Jack A. Sandler, representing Book Manufacturers Institute.
TESTIMONY OF JACK A. SANDLER, REPRESENTING THE BOOK
MANUFACTURERS INSTITUTE, ACCOMPANIED BY STEPHEN F. OWEN, JR., COUNSEL FOR THE BOOK MANUFACTURERS INSTITUTE, AND DOUGLAS E. HORNER, VICE PRESIDENT OF THE INSTITUTE
Mr. OWEN. Let me introduce myself. I am Stephen Owen, counsel for the Book Manufacturers Institute, and this is Douglas E. Horner, the new executive vice president of the institute, and our witness is Jack Sandler.
Mr. SANDLER. It looks like I am the new member to testify here, since this is my first appearance.
My name is Jack Sandler, and I am group vice president of sales, for the book division of W. A. Krueger Co., New Berlin, Wis. Today I am appearing on behalf of the Book Manufacturers Institute [BMI) located in Ridgefield, Conn. I am presently serving as chairman of the government relations committee of BMI.
The BMI is a trade association representing approximately 80 percont of all companies in the United States engaged in the manufacture of books, which includes the prepress preparation, printing, and binding of books.
I would like to thank the committee for allowing me to testify here today on behalf of the members of BMI.
At the outset, I wish to emphasize the general support of the BMI for H.R. 2223 and the need for a revision and modernization of the copyright law in the United States.
With this in mind, let us consider an important provision of the bill which the BMI strongly supports and which has a great importance to the economic future of the book manufacturing industry in this country.
Section 601, the manufacturing clause :
Since 1891, as a result of legislative compromise, there has been a "manufacturing clause" in some form under our copyright law. The present manufacturing clause is contained in section 16 of title 17 of the United States Code and is supplemented by section 107.
Basically, section 16 originally required as a condition to copyright that books in the English language be manufactured from type set, plates made, and by a process wholly performed within the United States.
As you can see from our written statement, there has been a constant erosion in the manufacturing area over the years, until we arrive at the language in section 601 of H.R. 2223. This language represents a compromise developed by the book manufacturers and the trade unions, and a number of House and Senate committees in this and previous Congresses.
Section 601 does substantially liberalize the existing manufacturing clause as it is contained in section 16 of title 17 of the United States Code. And exemption has been added for American nationals domiciled abroad for more than 1 year, and the absolute loss of copyright protection upon noncompliance with the manufacturing clause has been deleted. Further, the number of books that may be imported as exempt has been increased to 2,000, and other exemptions have been added.
Section 601 does away with the special ad interim time limits and registration requirements of the present law, and even if copies are imported or distributed in violation of the section, there would be no effect on a copyright owner's right to make and distribute phonorecords of the work or to make derivative works, including dramatization and motion pictures, or to perform or display the work publicly.
The essential question is whether Congress may impose reasonable limitations and conditions on the grant of a monopoly; namely, a copyright, in order to provide domestic printers a limited measure of protection admittedly lost when a copyrighted book is manufactured by a foreign competitor. Recognizing that the manufacturing clause is not solely a free trade issue, it should be emphasized that the needed protection for a domestic book manufacturing industry is not provided now, since the tariffs on most books were eliminated in 1966 through the implementation of the Florence Agreement by the United States. Foreign countries, on the other hand, impose many kinds of tariff and nontariff barriers and currency controls and other restrictive devices to limit the export of our books.
One of the main justifications for that manufacturing clause is economics. The cost of those skilled and unskilled labor abroad in many parts of the world is substantially less than fully comparable cost in the United States. Further, it is important to note that in the United States, labor costs constitute a higher percentage of total manufacturing costs than in most other industries.
As an example, a comparison of data reported by the Department of Commerce and the 1972 Census of Manufacturing indicates a production payroll cost in the book manufacturing industry equals 44.5 percent of total value added by the manufacturer. This is compared to only 29.7 percent for all U.S. manufacturing generally.
In other words, production worker wage costs are related to the value added by the manufacturer, and are more than 50 percent higher in book printing than the average for all U.S. manufacturing.
Further, our industry must meet U.S. standards of servicing quality and bear a certain heavy social cost in the form of OSHA compliance, EPA standards, and a host of other regulatory requirements. Our com
petitors abroad do not have these expenses and burdensome requirements, and thus gain a certain advantage.
It should be remembered that during the last decade with the limited protection of the manufacturing clause, 51 book manufacturers went out of business and 23 were merged or acquired and 3 are to be closed at a later date.
The manufacturer of books requires the purchase of very expensive printing equipment, such as the high-speed, long-run web offset press, but at the same time, return on net worth to the industry has only been in the 5- to 8-percent range in the past decade.
Based on available data, it is clear that the amount of foreign manufactured books imported into the United States is increasing at an alarming rate. In examining the 8-year period between 1967 and 1974, it is apparent that the value of imported books has increased at a considerably faster rate than domestic production, as measured by the BMI composite and the Standard & Poors publishing industry composite. Book imports of all sorts has increased from 69.3 million in 1967 to 150.7 million in 1974, according to the U.S. Department of Commerce figures. This represents a rise in the market share penetration of imported books from 2.5 percent to 3.7 percent of the U.S. market. Remember, this all occurred with the limited protection of the manufacturing clause.
The reason for this rapid increase is a growing practice of the U.S. publishing industry in investing or placing business abroad. In addition, it is also clear that although the present high ratio of exports of domestic manufactured books to imports of foreign manufactured books is this, a repeal of the manufacturing clause will change the situation quickly, since foreign publishers traditionally have never used U.S. manufacturers. This, of course, may add to the current balance-of-payments problems and in addition, severely damage our industry.
In conclusion, I would like to state that based on the above facts, we submit that a repeal or a further weakening of the manufacturing clause will have a disastrous effect upon our industry at a time when there is a necessity for an increased volume of printed material, and a need to utilize a skilled labor force to meet these demands. However, in the spirit of reform and recognizing the long and arduous history of compromise of differing economic interests concerning this issue, the book manufacturing industry states its support for section 601, as it presently appears in H.R. 2223.
Mr. OWEN, Mr. Chairman, we would like to submit the full test of our statement for the record, as presented to Mr. Fuchs 2 days ago.
Mr. KASTENMEIER. Without objection, your full statement will also be accepted.
[The prepared statement of Jack B. Sandler follows:] STATEMENT OF JACK B. SANDLER, CHAIRMAN OF THE GOVERNMENT RELATIONS
COMMITTEE OF THE BOOK MANUFACTURERS INSTITUTE, INC. My name is Jack B. Sandler and I am Group Vice President of Sales, for the Book Division of W. A. Krueger Company, New Berlin, Wisconsin. Today I am appearing on behalf of the Book Manufacturers Institute (BMI) located in Ridgefield, Connecticut. I am presently serving as Chairman of the Government Relations Committee of BMI.