chance of a relaxation of the apprehension which has accompanied this rivalry now for 25 years. It seems to me your trade program is dependent upon that element. You say political, security, and economic issues are intertwined. I agree with that, and if we fail in that aspect I don't know where you can make very much progress in creating an atmosphere in which international trade can expand, and proceed in an orderly manner.

Mr. EBERLE. Let me say, as for U.S.-U.S.S.R. trade and title IV of the bill, I would like to defer that until Secretary Kissinger is here on Thursday, and let him address himself to those relationships. But if that should happen and if the article you cite is correct, it seems to me that the bill takes on even greater importance because it does provide the ability for the free world to have negotiations and to strengthen the economic relationships of the free world and, in particular, Japan, the EC, and the United States in a framework with the developing countries that makes some real economic sense and can build on the strengths we have today and that is certainly equally as important or more important than the other.

Senator FULBRIGHT. I would agree with that. But the fact is that if the cold war is revived, and if there is no success in SALT, and we continue to devote our major part of our assets to military actions around the world, such as new bases in the Indian Ocean, and so on, it will not be an atmosphere in which long-term trade agreements are likely to be made because everyone is then apprehensive about the international political situation.

And accepting your own statement, with which I agree that the political, security, and economic issues are intertwined, I don't know how you would feel very confident that even if you got the trade that it would amount to much unless you have also a relaxation of the tensions that have accompanied our international agreements.

Mr. EBERLE. There is no question that if the political relations turn for the worse that it does have the impact that you suggest, but, at the same time, the growth in world trade in the free world is still tremendous and we need the framework in which to keep that going on a multilateral basis because as these political tensions from the other side become gerater with various economies there will be the opportunity for the other, the nonmarket economies to try to separate the free world, and we need a way to be sure we have a framework in which to work together.

Senator FULBRIGHT. I thought it was the theory of the Government and of the administration that for trade to develop you had to have this period of relaxation of tensions or a peaceful period and a prospect for peace.

Mr. EBERLE. Well, certainly we want that also. We think we need both. It would be desirable to have both.

Senator FULBRIGHT. Well, I don't make myself clear, I guess. You seem to say that, well, it is all right but we can proceed under a period of the survival of the so-called cold war where everyone is apprehensive about further military action.

I don't know how our country will ever manage our international payments if we continue to expend the kind of money we have, referred to by the chairman, on foreign aid, military aid, in particular, and upon the maintenance of military forces all over the world, which we are now doing. I had gathered from the actions of our

markets and many other aspects of our economy that we weren't in such good shape as you seem to feel. This morning I heard, I believe on the radio, that there were another hundred thousand, of motor employees laid off, for example. I thought we were in some serious difficulties, but you seem to be more optimistic than I had anticipated. My time is up.

Mr. EBERLE. Senator, maybe I misunderstood you. I think in the longer term I am optimistic but I think from the shorter term we need the kind of authority we have asked here in order to see problems that we have today we are facing, and we do have serious problems, can be managed more effectively.

Senator FULBRIGHT. I thought the MFN was an essential part of it, but you backed down.

Mr. EBERLE. No, it is an essential part of it and we need this in addition in the free world.

Senator FULBRIGHT. My time is up.

The CHAIRMAN. Senator Fannin.

Senator Ribicoff.

BALLBEARING INDUSTRY

Senator RIBICOFF. Mr. Secretary, we have already heard about tobacco from Georgia, and chickens from Arkansas. Let's get down to ballbearings from the State of Connecticut.

As you know, the Tariff Commission some months ago recommended escape clause relief for the ballbearing industry. There has been a delay in your own recommendation to the President because you wanted new information. Now that you have it, isn't it time you carried out the intent of the 1962 Trade Act before you ask for brandnew authority in this bill? What is the use of seeking liberalization of this clause if you have been so reluctant to apply even a stricter clause?

Mr. EBERLE. Senator, I would like to defer this question to my deputy, Ambassador Malmgren. I disqualified myself from any connection with this matter because of prior connections in business so I would defer this to Ambassador Malmgren.

Senator RIBICOFF. Let's hear from Ambassador Malmgren. It seems to me the President is waiting for a recommendation, and I don't feel any compulsion to give you new authority if you don't carry out the authority that you already have.

Mr. MALMGREN. Senator, we have this problem under intense examination right now, indeed these very days, today, tomorrow, yesterday, in the executive branch and a decision has to be reached by the President by March 29 at the latest under law. I think you can expect a decision by that time. In the course of these examinations internally we have not only looked at the Tariff Commission report but we have had consultations with all the interested parties, including consultations with Members of Congress who have been concerned about this, including yourself. We have taken your views quite seriously, and we have been talking to labor union people, mayors, town council chairmen as well as the people in the trade. So that we hope that we will be able to give a good decision but I cannot say at this time what it will be. You can expect it soon.

Senator RIBICOFF. In other words, by the 29th there will be a decision.

EEC AND OIL-PRODUCING COUNTRIES

Now, Ambassador Eberle, you seemed optimistic about getting together with the European Community, especially in the oilfield. This morning's press carried a story that the European Community is going on its own into negotiations with the Arab oil-producing States. If I have ever seen the back of the hand given to a nation it was this report in the press. This seems to be so contradictory to what took place in Washington a few weeks ago.

Do you want to comment on that?

Mr. EBERLE. Senator, needless to say we are concerned but I don't think anyone should draw a final conclusion or project what this is really all about, and I did comment in my opening statement that if you look at the number of bilateral deals that have been made or discussed in a sense there is nothing wrong with some bilateral deals because they are even made in relation to the GATT so long as they fit within some overall relationship. We certainly need to know more about this. We have had some discussions on these and I would hope that until we know more about them you would refrain from a final judgment, and I will try to get more information as to what they really are all about.

We do know that some of the bilateral deals we read about today really are not going to be completed, and are not the kind of things that we will worry about. Again, here is a case where frankly we just don't know enough and we are following it and that is all I can say this morning.

Senator RIBICOFF. But as you follow the various trade actions the European Community and Japan over recent years, it becomes very apparent that irrespective of the language they use, when the crunch comes invariably they will opt for their own specific special interestswhat will be best for their own country. I think what worries many of us is that we, in turn, don't always base our decisions on what is good for the United States. But the European Community invariably makes the decision as to what is good for itself. This was indicated in the opening statement by the chairman of this committee yesterday when he cited the organization of the European Community, and the prospective loss of a billion dollars to U.S. industry without anything having taken place in the way of compensation during this entire period of time.

So when you come to a showdown the community acts for itself against the United States. When it is in their own interests then they want to cooperate with the United States.

Mr. EBERLE. There have been, of course, in the past some cases of this. I have reason to believe that there are a number of cases where we have been able to solve some longstanding problems. I think there is an opportunity to, for us to get in and work on some of these problems.

But let me remind you that as an example, if there are export subsidies in a third market we have no authority in dealing with those, and these other governments know it and that is what we are asking for here. Today we have no authority to sit down at a negotiating table and even discuss this with them because they know we don't have any authority. And I think that until we have that authority we are not going to be able to represent the United States as well as we should.

SLOW PROCESS SEEN IN TRADE BILL PASSAGE

Senator RIBICOFF. That brings up a very practical problem. It becomes very obvious that this trade bill is going to be a long-drawnout legislative process. I believe the staff told me, there were 150 witnesses who wanted to be heard. It also becomes very obvious that there are a number of controversial issues in this bill that will take considerable time to markup in this committee, let alone when it comes to the floor.

Under those circumstances do you think it would be advisable to consider some simple resolution giving you authority to proceed with negotiations without nailing down the parameters of that authority?

Mr. EBERLE. Senator, without knowing what those are I cannot respond directly but I can tell you that I am deeply concerned with the same issues that we are confronted with in working with the Congress-that is, of what authority we may have-which would be just as hard fought out over those resolutions as they would be over these issues we have here in the bill. So without knowing my guess is that we really are better off concentrating on the bill, because unless some resolution created credibility for the U.S. negotiators abroad we wouldn't have accomplished anything. If they knew, if our partners knew, that we had to come back and negotiate all over again with the Congress my guess is it would be even more difficult to get along with them. I think we have to settle these issues at home first and that unless you do that I for one would not be prepared to go out to the front line of the negotiations because I couldn't represent the United States the way it ought to be represented in a way in which we don't get out-negotiated.

INVASION OF U.S. MARKET BY EEC AND JAPAN SEEN IMMINENT

Senator RIBICOFF. We have seen estimates of what Europe and Japan's oil bill this year would be, how they will skyrocket to some $70 billion in 1974. There is going to be a great problem as to how the Community and Japan will pay for this additional oil. Won't there be big export drives mounted to penetrate the American markets to earn additional trade surpluses to pay for this oil?

Mr. EBERLE. There is no doubt about it that pressures will be there to do this. We have not seen it yet. We are watching very carefully and that is another reason why we need this kind of an approach in order to take those issues up directly and resolve them internationally, if they continue to have the power to proceed promptly because it may not be U.S. markets but third country markets, and they may wish to do that in other ways in which the United States could not be responsive. So long as you have one hand tied behind your back there is no way to deal with it effectively, but the challenge is there.

Senator RIBICOFF. But the indication is that the Community has really thrown down the gauntlet to the United States and that has been highlighted by the news story I mentioned earlier. Now you face $15 billion in additional expenses by the United States for imported oil this year. There is an additional $70 billion costs to be borne by the other industrialized nations. We have the biggest market in the world, so an invasion is in prospect by Japan and the Community into the American market.

30-229-74-pt. 1-16

Here we are, with many potential economic strengths, and I am at a loss to understand why we don't use those strengths instead of standing supinely by when the rest of the world is getting ready to raid U.S. markets.

Mr. EBERLE. We do have a lot of leverage and I think what we need is the authority to use it, and, frankly, that is one of the integral parts of this total package, an integral part in the sense that you try to negotiate internationally but while you are negotiating if anyone takes advantage of you, you have got to have the authority to quickly respond, and I can tell you today I am not the most popular man in some parts of the world because we have responded and we have been firm in the American interest.

Senator RIBICOFF. I think that is good news that you are unpopular. I would just as soon you stay unpopular in that field.

My time has expired, Mr. Chairman.

The CHAIRMAN. Senator Hansen.

Senator HANSEN. Thank you, Mr. Chairman.

First, I do have some questions that I realize I won't have time to ask. I will submit them in writing.

[The questions and answers follow:]

AMBASSADOR EBERLE'S REPLY TO WRITTEN QUESTIONS SUBMITTED BY

SENATOR HANSEN

Question. Why have orderly marketing agreements been given a lower preference that quotas under the import relief provisions of the bill? Would it not be preferable to attempt to work out voluntary arrangements with our trading partners as you-the Executive-did on textiles and steel rather than using quotas or adjustment assistance?

Answer. The preferred order for providing import relief in section 203 of the Trade Reform Act was established by the Ways and Means Committee. Although the Committee Report on section 203 does not state the Committee's reasons, several policy arguments support the Committee's position which places orderly marketing agreements last on the list of import relief measures.

First, quotas are arrived at openly and administered under public scrutiny. Import shares under orderly marketing agreements have sometimes been negotiated and implemented without such scrutiny. Foreign governments and suppliers divide and police the agreement quota outside of the public view.

Second, orderly marketing agreements can encourage the cartelization of foreign industries. When agreements are regulated at least partly by foreign suppliers, they must divide among themselves the allowed exports to the United States. To do this effectively, they are forced to organize to ensure that imports to the United States do not exceed the orderly marketing agreement levels.

Third, tariffs, quotas, or orderly marketing agreements restrict the importation of goods priced at world market levels and thus protect higher domestic prices. The difference between the domestic and the world price is "windfall" revenue for someone. In case of a tariff (or a tariff quota), the government gets the revenue. In the case of a quota, this revenue goes to the government when the quota rights are auctioned, or to the domestic importer when the quota rights are distributed on a non-fee basis. However, under orderly marketing agreements foreigners police their exports and therefore are likely to supply their guaranteed share of the market at the premium protected price. In this case, the difference between the world price and the domestic price is captured by the foreigner under the orderly marketing agreement as “windfall” revenue. It is estimated that under the steel orderly marketing agreement in some years foreigners captured $175 million in revenue. (See Steven P. McGee, "Welfare Effects of Restrictions on U.S. Trade", Brookings Papers on Economic Activities, Volume 3, 1972, p. 672).

Finally, orderly marketing arrangements are difficult to administer with respect to producers not included in the arrangement. There are also difficulties in shifts in the product mix of imports under each arrangement.