STATEMENT Of the. before

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1 STATEMENT Of the KALAMA CHEMICAL, INC. before THE SENATE FINANCE COMMITTEE S. 1651

2 SUMMARY Kalama Chemical, Inc. r supports the extension of the duty free status of p-hydroxybenzoic (para) acid until September 30, Passage of S will provide the following results: 1. The U.S. chemical industry will continue to be competitive in the paraben market. 2. Domestic companies trying to produce para acid will not be injured by duty free status. 3. There will be increased research into uses of the product that will further spur employment and diversification of this chemical intermediate.

3 Good afternoon, my name is Ted W. Palmer and I'm the Chairman of the Board and Chief Executive Officer of Kalama Chemical Company of Seattle, Washington. Kalama Chemical strongly supports the passage of S Kalama Chemical, Inc., commenced operation on February 1, 1971, with the acquisition from Dow Chemical Company of a chemical plant located in Kalama, Washington. Through a series of acquisitions, Kalama Chemical, Inc., has grown into a national chemical company. Its largest acquisition occurred in December, 1982 when it purchased from Tenneco Chemicals, Inc., a chemical manufacturing plant located in Garfield, New Jersey. The New Jersey plant has been a significant importer of p-hyidroxybenzoic acid and competes in the paraben market with other domestic manufacturers and imports from Japan, Taiwan, Israel and Europe. P-hydroxybenzoic acid is a chemical intermediate with three primary market applications: paraben preservation, specialty coatings, and high performance plastics. For many years, p-hydroxybenzoic acid has been used to produce a class of preservative known as parabens (specifically, methyl paraben, propyl paraben, butyl paraben, and ethyl paraben). These materials are widely used in the U.S. cosmetics and toiletries industry. In its 1984 report,

4 - 2 - "Frequency of Preservative Use in Cosmetic Formulations," the Food and Drug Administration ranked methyl paraben, propyl paraben, and butyl paraben among the five most widely used preservative products. The parabens are particularly effective against fungi and gram positive bacteria, and they occupy a unique cost/performance niche in the U.S. preservative market. Until recently, the bulk of the U.S. consumption of p-hydroxybenzoic acid has been governed by demand for preservatives, such as the parabens, in the cosmetics and toiletries industries. Being mature markets, the market share for the paraben based products has stabilized over the years. Consequently, so has demand for p-hydroxybenzoic acid. Total sales for this use of the acid has leveled at about two and a half million pounds annually. The continued duty free status of para acid will allow the U.S. industry to remain competitive in the world market for parabens. The duty free status enjoyed from 1983 to October 1, 1985,.allowed for reduced costs of production resulting in a better competitive position for United States companies in the paraben market. Since the paraben market is a world market, tariff protection on para acid will hurt the domestic industry's ability to compete.

5 - 3 - Kalama Chemical has been made aware of the purported domestic production of para acid byx two producers. It is our understanding that neither of these producers has begun commercial operations. Neither company has offered to sell para acid to Kalama Chemical. In fact, we believe that even if they become operational, the joint production of these two plants will not be sufficient to satisfy the raw material needs for one of the company's paraben production. One of these companies, NAAP Chemical, operates its facility nearby our New Jersey facility and we are aware of the difficulties they are experiencing in an attempt to produce para acid. It is our belief that the Administration's position opposing the bill and the House's inaction on the companion bill H.R were based on inaccurate information about the potential for the domestic production of the chemical. The reality is that domestic production, if it exists at all, is grossly inadequate to meet the needs of the U.S. industry. The paraben market is a highly competitive market in which U.S. chemical companies enjoy substantial tariff protection. Failure to restore duty free status for para acid will result in a competitive imbalance for the domestic and will reduce our ability to provide value added benefits to the economy through the production of parabens. Thank you for this opportunity to present the real situation on the production of para acid.

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