Since the Tokyo meeting, work has gotten underway in Geneva in preparation for the negotiations and to not worry you about this, these preparations are in fact analytical preparations. They look at various alternatives. They are underway and all nations are, in fact, participating in that preparation.

ENERGY CRISIS AND TRADE NEGOTIATIONS

In the light of the energy crisis during these preparations, some governments have reexamined whether or not trade negotiations should be pressed forward. Most of them have concluded that there is all the more urgency now and have urged us to move forward with the trade bill in our own preparations.

We ourselves agree with this greater sense of urgency. A rash of unilateral trade and monetary actions in reaction to energy problems could only make the problems of world adjustment, and our own difficulties, much worse. I could not help but note in the morning's paper the European community's commitment to negotiate with some of the Arab countries, and again a list in Business Week of bilateral deals. I would say we still have time because these bilateral deals neither are firm nor have they yet created any problems. One should not speculate on these, but it does point up the urgency for us to have the kind of authority to sit down and negotiate to see if we can keep our actions in a multilateral context and to assure that the United States has credibility at the bargaining table now and not after the fact, as has been the case in the past.

CONGRESSIONAL ACTION AWAITED

The momentum that has been generated internationally stands now to wait upon action by the Senate Finance Committee and the Congress. We have put before you what we believe to be a sound set of proposals-proposals which will help us to manage our own domestic position better in relation to the world, and which will help us to negotiate with our trading partners more effectively, with strength and with flexibility. We intend to devise and wize new techniques of negotiations, and new techniques of cooperation and consultation with Congress and with the various segments of the American economy. We hope you see our comprehensive approach as a sensible one, leading to greater equity for America in the world and greater economic opportunities for the American citizen.

OVERVIEW OF THE TRADE BILL

Let me now turn briefly to an overview of the trade bill rather than go through this long volume of testimony which I would like to file at this time for the record, Mr. Chairman, because I believe you will find a high degree of logical consistency and interdependence in the various parts of this bill.

The broad purpose of the trade bill is twofold, and this is absolutely essential to recognize. It is to enable the United States to participate effectively in the forthcoming multilateral trade negotiations or any other negotiations, such as the World Food Conference or whatever may take place and, at the same time, to better manage

the domestic issues as they arise. If negotiations are not yet successful today, it is because we do not have those tools today. We will seek agreements which will stimulate U.S. economic growth in the context of strengthening our global economic relations through fair and equitable market opportunities and more open and nondiscriminatory world trade.

TITLE I

Title I of the bill contains authorities to conduct the new round of trade negotiations and procedures through which to implement the results. The primary negotiating authorities would extend for a period of 5 years and include reduction or removal of tariffs and nontariff barriers to trade and provisions for increased participation and oversight by the Congress and the public. Let me add here that the comments that this is a great grant of power to the Executive just are not valid. This proposes a joint working relation with Congress, a joint understanding with Congress during the negotiations and then a procedure for congressional oversight and veto, when we come back. If we do not have that kind of participation neither Congress nor the Executive are going to represent the U.S. public well.

To enable us to more effectively manage the trade agreements program, there are also authorities to make adjustments on the trade side to particular inflationary or balance of payments circumstances. As presently drafted, these authorities are the minimum needed to provide credibility for the U.S. negotiators in their attempt to bring about a common realization that international cooperation can work effectively to deal with new as well as old problems. As I have indicated, we have proven that in the last 2 years, we have not had the authority to get at some of these old problems.

TITLES II AND III

Now, turning to titles II and III, the authorities to manage trade problems domestically, I might point out again there are provisions for Congressional oversight. We want Congress directly concerned with these problems and we must have congressional cooperation.

Title II provides for temporary import relief and adjustment asSistance which is made more accessible for industries, firms and workers. The tests of injury for import relief are eased. Administration of worker adjustment assistance is streamlined under the Labor Department and its level and scope have been substantially expanded. Under the import relief provisions an order of preference is expressed. Tariffs are preferred to quotas and orderly marketing agreements, which are lowest in preference and incidentally, they are subject to congressional review.

The provisions of Title III generally improve existing authorities to deal with foreign unfair trade practices. Authority is granted, subject to a number of limitations and procedures, to apply duty increases or quantitative limitations in response to unjustifiable-illegal-or unreasonable trade practices by foreign countries. Again, I had to read the morning paper to see the emphasis on this retaliation. I would like to make the point as a negotiator that we do need that right for the world to understand that the executive branch does not have that power, which we do not today. At the same time, we do not expect to use that

power unless we fail to find a way of negotiating international agreements or our trading partners do not live up to their international obligations. No one should fear that we are going to retaliate all by ourselves, because it takes adverse actions by our trading partners. before we would do it.

The authority in this area is extended specifically to include export subsidies to third country markets or to the United States. Any measure imposed under this authority is subject to congressional review. Concerning anti-dumping provisions, time limits and procedural and technical changes have been proposed. Time limits have also been established on countervailing duty procedures. In addition, the countervailing duty provisions would be extended to cover duty-free imports. During the next 4 years, the Secretary of the Treasury can refrain from countervailing if to do so would jeopardize the international negotiations. There are serious problems with this provision, which Secretary Shultz has already spoken to.

Finally, I would note that changes in responses to unfair trade practices involving patent infringement provide for fairer procedures, a greater role by the Tariff Commission, and judicial review.

TITLE IV

Now, turning to title IV of the Trade Reform Act, this authorizes. the President, subject to certain conditions to extend nondiscriminatory tariff treatment to imports of certain Communist countries not currently granted equal treatment. This authority is seen as a key element in the development of orderly economic relations with the nonmarket economy countries. As presently drafted, however, U.S. extension of nondiscriminatory tariff treatment, as well as credits and guarantees, may well be precluded. This, in turn, as indicated yesterday, would prevent the October 1972 U.S.-U.S.S.R. commercial agreement and the full settlement of lend-lease obligations from taking effect. The administration is deeply concerned about these constraints, while fully sharing the humanitarian concerns which gave rise to them. We are hopeful that an accommodation can be reached in the language of the statute, thus enabling us to continue building upon mutual East-West interests to achieve a stable and durable

peace.

TITLE V

Title V of the bill grants authority to the President to join with other developed countries in the extension of generalized tariff treatment, for a period of 10 years, to eligible imports of beneficiary developing countries. By increasing their access to developed country markets, developing countries can expand export earnings thus enhancing their economic growth. In addition, the United States can benefit as it is anticipated that a large share of their increased export earnings will return to the United States in the form of additional purchases here. We have put limitations on preferences so that if any eligible exports exceeds $25 million or 50 percent of our market it automatically loses that preference. We have also provided in section 806 and 807 tariff treatment of border industries' exports to the United States that if there is abrupt market disruption, U.S. competitors will be eligible for import relief.

30-229-74-pt. 1-15

Let me conclude with a fundamental theme which is that international peace cannot be based on just one or another action or negotiation in international relations. The political, security, and economic issues are all intertwined. Indeed, in the present state of a higher than ever degree of economic interdependence, this is more true than ever before. To ensure a stable, prosperous world, we must develop an adaptable but orderly world economic system that minimizes frictions between nations and enhances their common interests. It is a fundamental tenet of our foreign policy that common problems in the world should be dealt with collectively, through negotiated solutions, rather than through escalating conflicts of unilaterally determined national policies and actions. The Trade Reform Act is essential to enable us to complete our efforts to build peace in this troubled world.

I would like to close with the President's words from his message accompanying the trade bill when it was submitted last April. They are even more urgent today:

This structure of peace cannot be strong unless it encompasses international economic affairs. Our progress toward world peace and stability can be significantly undermined by economic conflicts which breed political tensions and weaken security ties. It is imperative, therefore, that we promptly turn our negotiating efforts to the task of resolving problems in the economic arena. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Mr. Eberle. I am going to try to confine myself to 10 minutes and urge other Senators to do likewise in the first round of questions.

TRADE FIGURES-CIF Vvs. FOB

I will ask that a member of the staff hold up two charts; I also ask that the charts be made a part of the record.*

Mr. Eberle, I discussed with you what I am going to illustrate with the chart.

It seems to me if we are properly to serve the national interest, we need to take a look at these international programs with some sort of a comprehensive set of figures so people can see what the foreign aid program is costing us, what the trade program is costing us, what the military program is costing us. The Government must stop deceiving the American people through statistical games. As it is now we are told that, no, it is not the trade program that is costing us—we are making money on that-it is the AID program. Then you go to the AID people and they say no, it is not the AID program that is costing us, because most of that would have to do with exports-it is the military program. And then you go to the military and they say, "It's not our program that is costing you, it is the other fellow's." By the time you get through, as Senator Symington said one time, you add up a great column of pluses and end up with an enormous minus at the end of the column.

These charts illustrate the difference between the way our balance of trade books are kept and the way they ought to be kept. The charts show the difference between our balance of trade, the way that 90 per

See footnote at end of table.

cent of the countries keep their books, and what our balance of trade has been in the way that the books are kept in this country.

I understand how the books are kept here. We have a provision in the Constitution, unknown to a lot of people, which says that this Nation will not discriminate among ports, one port against the other, in the collection of tariffs. In order not to discriminate among ports we levy our tariff based on the value of a commodity in the foreign coun try. We call that the foreign value. That way it doesn't make any difference whether you bring the article in at New York or New Orleans, the tariff would be the same.

But when you are considering whether you are making money or losing money on your trade that is not how you should be keeping your books; your books ought to reflect whose ship carried this article from Europe or Japan to the United States and the full amount you paid for it. It is just as when a merchant buys something, he puts it on his books what he has invested in that article on his shelf as well as the freight. But our trade figures-these official figures that have been published for so long-don't include the cost of freight.

As though that were not bad enough, the export figures are inflated by including all that stuff we have been giving away since World War II. So the executive branch includes in its export figures the things that they are giving away or the soft loans which nobody ever repays. And so by including the give-aways on the export side and by leaving off the freight on the import side, they wind up with a big plus figure for what should be a minus.

Now, according to the chart which is calculated on a cost, insurance, and freight basis, we have been in deficit every year since 1966, and that adds up to a deficit of $30.9 billion, roughly $31 billion deficit, in cur trade accounts. This is the way they should keep these books, by any honest bookkeeping methods.

Now look over at the other chart and you see how those books are kept for the purpose of issuing these quarterly official good news announcements. According to this misleading chart, every year, except the years 1971 and 1972, we made a profit.

The difference is that by adding in something that doesn't belong in there and by taking out something that does belong in there, they can deceive people that we enjoyed a trade surplus, when, in fact, we were in deficit. From 1966 through 1973 these quarterly good news announcements would have you believe we had made a profit of $6 billion, whereas by what I would regard as an honest set of bookskept in the way that 90 percent of other countries keep their books, as well as the International Monetary Fund-we didn't make a $6 billion profit, we lost $30.9 billion, or in round figures, we lost $31 billion.

Now on a liquidity basis, we had a deficit in our balance of payments during those same years of roughly $62 billion, of which half of it is what we lost in trade.

Now, during all that period, with the exception of those 2 years where they admit we lost money, they have been saying that the only bright spot in all this military aid, military troops for Europe, war in Vietnam, and all that-the only bright spot in the whole thing has been the trade picture. So, they said, since we have been making money in trade, we have to do more of what we were doing the way we were doing it.