U.S. Government financing for any Communist country except Yugoslavia and Poland; and

Most-favored-nation (MFN) tariff treatment to any Communist country except Yugoslavia and Poland.

Thus, if the bill is enacted in its present form, it would reverse the Administration's actions in extending (1) the Export-Import Bank's export credit and insurance programs to the Soviet Union and Romania and (2) the Overseas Private Investment Corporation's investment insurance program to investments by U.S. companies in Romania. In addition, it would prevent the Administration from extending MFN tariff treatment to imports from any of the Communist countries, except Poland and Yugoslavia whose imports already enjoy such treatment. Since the provision concerning U.S. Government financing programs was adopted by the House without any opportunity for the public to offer views concerning the measure, we particularly welcome the opportunity to offer our views on the possible economic impact of that proposal.

Recommendation for Deletion of Title IV

We endorse the President's recommendation that Title IV be deleted from H.R. 10710 and considered separately. These provisions are not central to the bill's purposes of providing the President with negotiating authority for major multilateral trade negotiations and with other authorities related to imports and their effects on domestic industries and workers. We appreciate that some of the congressional support for these provisions reflects concern over such fundamental questions as the direction of U.S.-Soviet Union relations and the extent to which U.S. foreign policy can broaden the rights of citizens in Communist countries. However, it must also be recognized that a further interruption in the normalization of relations with the Communist countries couldand quite possibly would-result in an immediate loss of trading opportunities and in a re-orientation of attitudes toward trade on the part of those countries and U.S. businessmen that could take years to reverse.

Impact of Denial of U.S. Government Financing

The provision which would deny U.S. Government financing to countries which do not recognize the right of emigration would, we believe, have an immediate adverse impact on U.S. exports of capital goods since they are highly sensitive to the cost and availability of export credit. In our view, the public discussion of the financing provision and certain related aspects of trade with the Communist countries of Eastern Europe has reflected some misunderstanding of the issues involved and we would like to offer the following comments:

1. With respect to the capital goods and allied equipment industries, withdrawal of Export-Import Bank participation in sales to Eastern Europe would not result in the denial of any significant number of products important to the Soviet (and other East European) economies but would result in the replacement of U.S. suppliers to those countries by supplier from the industrial countries of Western Europe and Japan. (As discussed below, the Senate Committee on Banking, Housing and Urban Affairs also reached this conclusion in its 1971 review of this question which resulted that year in the removal of the Export-Import Bank Act's absolute prohibition on Bank activities in most Communist countries.)

2. The rate of interest and other items of Export-Import Bank export financing to the Soviet Union and the other eligible countries of Eastern Europe do not constitute "aid ;" they are the same terms offered to borrowers in other countries. Credit is no less a sales tool in Eastern Europe than in other areas and the government-supported export credit facilities in our major competitor nations support sales to Eastern Europe in the same manner as to non-Communist countries.

3. Trade with the Soviet Union and the other countries of Eastern Europe is of significant interest to U.S. firms of varying sizes and product lines. For example, over the past year or so a number of firms which produce machine tools and other equipment for the automotive industry have received substantial orders from the Soviet Union. While these firms are not "small businesses" in the legal sense of the term, they generally have annual sales of less than $100 million. Many of these companies could not finance

the transactions themselves and it is extremely unlikely that financing on competitive terms could be obtained from U.S. commercial banks.

The limited role of the United States as a supplier of capital goods to East European countries and the Export-Import Bank's lending policies are discussed in more detail below.

U.S. share of capital goods exports to Eastern Europe by leading industrial nations. As noted earlier, the termination of Export-Import Bank operations in the Soviet Union and Romania would adversely affect the capital goods industries because the products of those industries are customarily sold on mediumterm credit and such sales are customarily supported by government export financing facilities in the major industrial countries.

Table I appended to this statement shows the volume of exports of machinery and transport equipment accounted for by the U.S. and other members of the Organization for Economic Cooperation and Development (OECD), which includes all of the leading industrial nations, to the Communist countries of Eastern Europe. Table II shows the market share for exports of machinery and transport equipment accounted for by the U.S. and other OECD members to Eastern Europe. In brief these data show that:

Although U.S. exports of machinery and transport equipment to Eastern Europe, including the Soviet Union, more than tripled from $29 million in 1968 to $98 million in 1972, the U.S. share of capital goods exports to the area only doubled, and then from a low base, from 2 percent to 4 percent. (By way of comparison, the U.S. share of OECD exports of capital goods to all countries was more than 20 percent in both years.)

U.S. exports of capital goods to the Soviet Union increased from $14 million in 1968 to $61 million in 1972, but the U.S. share of OECD exports to that country in 1972 was still only 6 percent.2

The data concerning trade in capital goods between the United States and Eastern Europe show the slight dependence of the area on U.S. suppliers and, given the advanced state of industrial technology in Western Europe and Japan, there are few products which the Communist countries could obtain only from the United States. This view was also expressed by the Senate Committee on Banking, Housing and Urban Affairs in 1971 when it recommended the removal of the absolute prohibition on Export-Import Bank activity in Communist countries.

Views of Senate Committee on Banking, Housing and Urban Affairs in 1971 regarding restrictions on Bank activity in Eastern Europe.-It has been only a little over two years since the Congress removed the absolute prohibition on Export-Import Bank activities in most Communist countries. The report issued by the Senate Committee on Banking, Housing and Urban Affairs on the bill relaxing the prohibition included the following comments on the matter of restricting Export-Import Bank activties in Eastern Europe: 3

Trade wth Eastern Europe comprises approximately 16 percent of total world trade. However, the U.S. share of this market is only 3 percent. Yet, the Eastern European marketplace is one of the fastest growing in the world. None of the allies of the United States similarly restrict themselves on export credit to Eastern Europe. They treat Eastern European business the same as all other business.

To retain this anachronistic restriction [on extensions of Eximbank support of exports to Eastern Europe] in view of all circumstances will only serve to

2 It should be noted that, as a result of the commercial agreements between the United States and the Soviet Union in October 1972 and the extension of Export-Import Bank financing to that country, U.S. exports of capital goods to the Soviet Union increased substantially during 1973. According to statistics compiled by the U.S. Department of Commerce which are roughly comparable to the OECD data cited above, U.S. exports of machinery and transport equipment to the Soviet Union during January-September 1973 totaled $136 million, more than doubling the level for all of 1972. Comparable data concerning 1973 capital goods exports to the Soviet Union by the other leading industrial nations are not yet available. However, even if the total volume of trade between the Soviet Union and the OECD countries remained at 1972 levels, the U.S. share of market would only be 13 percent.

3 Report No. 92-51, U.S. Senate, 92d Cong., 1st Sess., March 31, 1971. pp. 8-9.

inhibit the growth of U.S. exports, penalize American business, and restrict improvement in our currently adverse balance-of-payments situation.

The restriction denies no product to Eastern Europe; the business merely goes elsewhere....

That act [Export Administration Act] directed the Department of Commerce to encourage trade in peaceful, nonstrategic goods with the nations of Eastern Europe in order to strengthen political ties, to further weaken the dependence of the Eastern European nations upon the Soviet Union, and to make our own controls more consistent with those of our Western allies.

The full attainment of these positive goals in our relations with Eastern Europe is not possible so long as we absolutely prohibit Export-Import Bank assistance for exports to those countries. By giving the President the authority to permit Export-Import Bank assistance to those transactions which he finds will be in the national interest, we are giving him the flexibility necessary to vigorously pursue increased U.S. exports and at the same time fully protect the security of the Nation.

As noted previously, we believe the Committee's observations are equally valid today.

The terms of Eximbank loans to Eastern Europe.-It is true that, when the Export-Import Bank's direct lending rate of 6 percent is below the cost of money to the Treasury, there is some element of "subsidy" in its operations. However, this is the Bank's rate for direct lending in all markets, non-Communist as well as Communist. The Bank has been directed by the Congress, through amendments to the Export-Import Bank Act, to provide export financing on terms fully competitive with the government-supported export financing provided by our major competitors. To meet the competition, the Bank's policy with respect to its direct lending activity is to lend one-half of the financed portion of a transaction (with a 10 percent down payment by the borrower, this is generally 45 percent of the sale price) at 6 percent interest; the other half of the financed portion must be obtained from private sources at the going commercial rate. The mixing of the Eximbank and private rates provides a rate to the customer well above the 6 percent charged on the Bank's portion of the loan but not so high as to price U.S. exporters out of world markets. (With a prime lending rate of 9.75, which is general now, and the additional charges associated with export financing, the mixed rate to a borrower on a medium-term transaction would be almost 8 percent.) The Bank adopted this approach because most of our major competitors, traditionaly more aggressive in pursuing export business, isolate export financing from domestic monetary policy through a rediscount system or other techniques which enable them to provide export financing in adequate amounts at interest rates below those prevailing domestically.

It also should be noted that loans to the Soviet Union do not constitute a large portion of total Bank lending, although these loans are largely responsible for the increase in capital goods sales registered in 1973 and will be critical in any future expansion. During the period January-November 1973 the Bank approved loans to the Soviet Union totaling $120.4 million, 4 percent of total loans of $2.96 billion to all areas during this period.

Further implications of an interruption in Export-Import Bank financing of exports to Eastern Europe. The development of trade relations between the United States and the countries of Eastern Europe was hampered for many years by government policies and attitudes. However, the publicity surrounding President Nixon's visits to Eastern Europe and pronouncements concerning “detente,” the more positive attitude of the Congress toward trade with Communist countries reflected in the Export Administration Act and the 1971 amendments to the Export-Import Bank Act, the conclusion of commercial agreements with the Soviet Union last year, and the determination by the President that it is in the national interest for Eximbank to participate in transactions with the Soviet Union, Romania and Poland, convinced a number of capital goods companies which previously had been reluctant to commit the necessary resources to establish trade relations with those countries that our government's policy was finally committed to expanding such trade.

For most U.S. companies, and particularly for those in the capital goods industries, an effort to develop trade with the Communist countries represents a substantial commitment of funds and personnel. These countries pose unusual problems in terms of marketing research, establishing useful relationships with purchasers and users, and the length and complexity of contract negotiations. In many cases the successful completion of negotiations requires months and even years of effort for manufacturers of machinery and related equipment. The sales effort by such firms must also be accompanied by an expensive augmentation of parts and service facilities for customers. If the Congress were to deny ExportImport Bank participation in this trade, sales of U.S. machinery and other equipment would be lost and, perhaps more importantly for the long run, many companies whose products customarily are sold on medium-term credit would curtail their efforts in the Communist market and thus much of the momentum gained in the last few years toward U.S. penetration of these markets would be lost. The type of sustained effort necessary to establish a position in these markets which, for all practical purposes, are newly opened to U.S. companies, cannot be implemented if our government continues "stop and go" policies. "Stop and go" was our government's policy until very recent years and the result in terms of market share has been meager.

Impact of Denial of MFN Tariff Treatment

While the adverse effects on U.S. capital goods producers from the withholding of Export-Import Bank assistance are clearer than those which would result from the withholding of MFN status, one should not underestimate the importance of the latter with respect to the growth of U.S.-East European trade both for the near and long term. The interest of the Soviet Union and other East European countries in MFN status is impressed continuously upon U.S. businessmen by state trading officials in those countries. For the United States to remove the prospect of MFN tariff treatment-after agreeing to accord this status to the Soviet Union and indicating willingness to extend it to Romaniaprobably would result in some type of retaliation against U.S. suppliers. For the longer term, especially in view of the tendency of the East European countries to maintain trade balance with each of their Western trading partners, the prospects for increased two-way trade are not good in the absence of the extension of MFN tariff treatment.

TARIFF NEGOTIATING AUTHORITY AND OTHER AUTHORITIES WITH RESPECT TO IMPORT RESTRICTIONS AND IMPORT RELIEF

General Comments

This new legislative authority is, of course, primarily a response to a longcontinued deterioration in the international trading position of the United States as reflected-until very recent months-in continuing and enlarging deficits in our international balance of payments. Aside from the worsening of our international competitive position attributable to overvaluation of the dollar, uneconomic labor rates, preferential trading arrangements, etc., the problem is intensified by the existence of a great diversity of nontariff barriers to trade and other unfair trade practices which both hamper American exports and facilitate foreign exports to the U.S. and third markets. A measure of the decline in our foreign trade position, from the standpoint of capital goods, is reflected in Table III, Imports and Exports and Import-Export Ratios for Major Machinery Categories, 1963–1972.

In our opinion H.R. 10710 strikes a reasonable balance between those who believe that the United States and other major trading nations should resume the dismantling of international barriers to trade and those who have become increasingly disturbed in recent years about what they consider to be the adverse impact of imports on U.S. industries, workers, and communities.

Our support for this legislation in general terms is based on our belief that broad negotiating authority is needed by the President to achieve the objectives of the legislation. As the President stated in his April 10 message to the Congress on the Trade Reform Act:

The key to success in our coming trade negotiations will be the negotiating authority the United States brings to the bargaining table. Unless our negotiators can speak for this country with sufficient authority, other

nations will undoubtedly be cautious and non-committal-and the opportunity for change will be lost.

Negotiating Authority

As just noted, we believe the President should be armed with appropriate legislative authority to negotiate or renegotiate the terms of trade with other trading nations as a means of achieving basic fairness in our international commerce. In view of the magnitude and complexity of the tariff and nontariff barriers which will be subject to negotiation, broad negotiating authority-with respect to both tariff and nontariff barriers-is necessary to achievement of our goals.

As a result of successive tariff reductions on industrial products in recent decades, for a great number of product groups nontariff barriers now figure as importantly as tariffs as barriers to international trade and are expected to be a-if not the major concern of negotiators in the coming round of General Agreement on Tariffs and Trade (GATT) negotiations. The provisions permitting the President to conclude agreements in this area-subject to congressional veto— represent an imaginative compromise between the needs of our negotiators for broad negotiating authority and the constitutional role of the Congress. Consultation With Industry

In view of the experience gained during the "Kennedy Round" of GATT negotiations and the fact that the coming negotiations will involve trade barriers of great diversity and complexity whose impact is often difficult to measure by government negotiators and others outside of the specific industry concerned, we support those provisions of the House bill which would provide a framework for governmental cnsultation with businesses and other segments of the private sector concerning the negotiations. It is the general opinion of industry that European negotiators were more effective than U.S. negotiators during the "Kennedy Round" because of their closer consultation with their domestic industries. Although the Administration has initiated an impressive effort to establish an institutional framework for ongoing industry-government consultation in connection with the forthcoming multinational negotiations, we believe that a congressional mandate will be useful, particularly in terms of the assurance it provides to businessmen and others who might participate in the various advisory groups, in demonstrating that serious attention will be given to their views. Import Relief From Fair Competition and Adjustment Assistance for Workers We endorse the general thrust of the bill to ease the criteria for a finding of injury to an industry, individual firms, and to workers. We believe there is a broad consensus in our membership that existing statutory and administrative criteria governing such a finding are so rigorous as to fail in achievement of their broad purpose. Based on the experience of some segments of our membership which have undergone sudden and intense competition from foreign (notably Japanese) producers, we believe that the provisions enabling the President to extend import relief to an affected industry for a period of up to five years would give the industry time to adjust to the competition and would help to minimize import disruption to that industry, its workers, and communities. It appears that the several factors cited in the bill which the President must consider before extending import relief should ensure that there is not such a volume of successful applications that U.S. firms are constantly confronted by changing U.S. import duties or the prospect of foreign retaliation against their exports.

We approve of the order of preference for forms of import relief set forth in the bill and we applaud the improvements made by the House Ways and Means Committee in the Administration's proposal with respect to items 806.30 and 807.00 of the Tariff Schedules of the United States. It will be recalled that the Administration proposed that the President, after deciding that import relief is appropriate after an injury finding by the Tariff Commission, could elect to suspend the application of TSUS items 806.30 and 807.00 as well as taking other import restrictive actions. H.R. 10710 provides that import relief in the form of a suspension of the application of TSUS items 806.30 and 807.00 would be permitted only when the Tariff Commission has determined in the course of its investigation that serious injury (or the threat thereof) results from the application of these items. We believe this modification in the Administration's proposal