‘WORLD TRADE IS IN CONFUSION’

Press, Volume CXI, Issue 32701, 2 September 1971, Page 13

‘WORLD TRADE IS IN CONFUSION’

(By

GUY HAWTIN.

LONDON, Aug. 31. World trade is in confusion. A fortnight has passed since President Nixon revealed to an astonished business community his prescription for America’s economic ills, yet exporters and importers on both sides of the Atlantic are still waiting for the implications to be spelt out in full. Until the American Administration explains exactly what it intends to do and precisely how it intends to do it there can be no hope of the situation returning to normal.

During the last two weeks the stream of often contradictory "clarification” statements that has flowed from the United States Treasury has served only to confuse the situation further. There can be little doubt that the Americans are writing the script as they go along. A director of an important British merchanting house told me bitterly this weekend: "Nobody likes their surcharge, but since it is here they might tell us how long it is going to stay so that we can at least make plans to deal with it.” Exporters all over the world are also facing serious problems in quoting prices when the money markets are in confusion. The Confederation of British Industry has been advising its members to quote in “the firmest currency available.” The trouble

is that there just is no truly firm currency. One exporter summed up the problem by saying: “If we quote in yen or Deutchmarks a revaluation would make us uncompetitive. We do not really know what a pound is worth. We certainly do not want to take payment in dollars. That doesn’t leave us much to play with.” Of course trade has not ground to a halt. Some exporters are buying forward sterling just to obtain a firm price to quote. Others are chancing their arms and working their costings on the basis of between $2.46 and $2.48 to the pound. Useful advice is in very short supply. Bodies such as the London Chamber of Commerce and the C. 8.1. have been able to sort out particular difficulties, for instance problems over documentation. But, by and large advice once given is rapidly rendered obsolete by events. The confusion is illustrated by the problems encountered by the American embassy in London. On the morning after the President announced the measures embassy officials were interpreting the surcharge as a 10 per cent hoist in excise duty. It was not until midday that they had official confirmation that the surcharge applied over and above “most favoured nation” duty. Full implications It was not until last Thursday that the full implications of the new 10 per cent job development credit scheme were explained. The wording of the original an-

r nouncement was so vague as to defy interpretation. i It now appears that the ’ scheme, aimed at encourag- • ing American companies to 1 re-equip their plants, will : effectively impose a 20 per i cent surcharge on two large ■ sectors of British exports to : the United States. The two : sectors are non-electrical i machinery and electrical machinery and apparatus. Last : year Britain sold £2o7m worth • to America.

20 p.c. advantage

The 10 per cent credit scheme, which came into force on August 15, applies only to American-produced machinery and it gives United States manufacturers a 20 per cent advantage over their foreign competitors. The 10 per cent credit, as far as one can understand it, will last until August 15, 1972, when it will drop to 5 per cent. If the surcharge is dropped foreign machinery will qualify for a 5 per cent credit, but this will give American concerns a 15 per cent advantage. The obvious short-term worry is that British goods will be completely priced out of the market, but the scheme has serious longterm implications as well. The machinery-buying pattern could be so radically altered that foreign manufacturers could be ruled out of the market for years to come.

British exporters seem to be treating the whole situation fairly phlegmatically. The London Chamber of Commerce says that queries have been confined to technicalities that can be reasonably dealt with. However,

of "The Times," through N.Z.P.A.)

in America British firms find themselves in a position akin to that of unwilling guests at a Mad Hatter’s tea party. Christmas buying The Administration’s refusal to put a time limit on the surcharge has led United States importers to take a chance on its being lifted before the Christmas buying surge. A pattern seems to be emerging in that importers are seeking to leave goods in bond. As many importers do not pay suppliers until goods are cleared from bond, many British companies face the prospects of a long wait for their money. However, there are further complications in an already complicated situation. The bonded warehouses on the east coast and Gulf of Mexico are reported to be packed to capacity with goods sent early to beat the expected east coast docks strike. Bonded warehouses in the New York area are already full and the position is much the same in Norfolk, Virginia, and surrounding territory. Ships loaded The situation is no better on the west coast, where the dock strike is already well under way. Not only are there reports of packed warehouses but ships which failed to beat the strike are lying, still fully loaded, at quaysides. . , The Administration’s refusal to waive the surcharge on goods landed or stranded on board ship before August 14 is causing much bitterness. Pressure has been applied by both American im-

porters and foreign exporters to get the Administration to change its mind.

The bitterness among British exporters is already apparent. There is a belief that they were deliberately encouraged to ship early to beat the strike and that the reward for their pains will be that at best their American customers will ask them to bear part of the surcharge burden. At worst the fear is that some of the smaller importers will abandon the goods altogether rather than face heavy losses as a result of paying part of the surcharge. Price freeze There is also an Alice in Wonderland air about the way the President’s price freeze is to be administered. The watch-dog is the Cost of Living Council and its brief is to clamp down not only on American-made products but on imported goods as well. . , Exporters to the United States have been told that they cannot pass on the surcharge and it must not be taken into account when calculating the mark-up. Noone, it seems, is going to make a profit out of it The only price rises that will be tolerated on imported goods, says the Administrations, are those where it can be proved that there has been a rise in world market prices. No other excuse for price rises will be allowed and the arbiter of all this will be the Cost of Living Council. This price freeze is attacked by British exporters on three main counts. First, it is contended that the United States is exceeding its authority.

Second, the whole point of the surcharge is to make imported goods more expensive and further price rises on imports would surely help this policy. The third point is that the whole idea of policing the prices of imported goods is impractical to the point of impossibility. While it would not be too difficult to police the prices of regular imports, it would be exceedingly arduous to disprove contentions that there had been a rise in world market prices. It is felt that the Americans are being naive in the extreme if they think they can effectively monitor the prices of "oneoff” orders.