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quirements. One is that our farm products must have access to foreign markets so that foreign consumers have the opportunity to buy them. The second is that foreign consumers are able to earn dollars with which to buy from us. The third is that we operate constructive market development programs abroad.
It is our sincere belief that the type of legislation we are considering today, more than any other single program, supports these basic requirements; giving access to foreign markets for our exports, and giving foreign customers, in turn, the opportunity to earn dollars. Under Public Law 480 we are expanding our market development work. We should all take careful note that the inevitable result of lower exports is lower acreage allotments for the basic crops.
4. What the trade agreements program has meant, and what its continuation will mean, to American agriculture. -American agriculture today is maintaining a high level of exports within the framework of the trade agreements program. Nearly four-fifths of United States agricultural exports go to countries with which the United States has trade agreements, either under GATT or under bilateral agreements.
In fiscal 1957 almost two-thirds of these exports roughly the equivalent of $2.5 billion worth of farm product-moved under some form of trade concession granted to the United States under trade agreements. Nearly 80 percent of United States cotton exports, 90 percent of soybean exports, about 75 percent of unmanufactured tobacco exports, and about 80 percent of fruits and fruit product exports were moved under trade agreement concessions.
During 1957, and thus far into 1958, many trade agreement countries have liberalized their import policies on one or more agricultural products from the dollar area. This easing of quantitative restrictions has resulted in part from the multilateral consultations held in Geneva under the auspices of the GATT. Many American farm products have benefited from this easing of restrictions. Examples are numerous in such commodity groups as fruits and vegetables, cotton, live-stock and its products, grains, fats and oils, and poultry products.
The trade agreements program acts as a restraining influence on the tendency of countries to increase trade restrictions on agricultural products. A member country is inhibited from taking arbitrary action to exclude products from another country; it must be guided by the rules of the program.
If we did not have the trade agreements program, there would be no impelling reason why many nations could not arbitrarily go as far as they wanted in limiting imports of our farm products. The program is our best single hope-through international cooperation--of keeping open and of deepening the channels of trade through which our farm products flow.
American farmers recognize that two-way trade in farm products helps to expand foreign outlets. That is why many farm organizations in past years have testified in support of the continuation of the Trade Agreements Extension Act when it has come up for renewal before Congress.
You and I know that we must buy from other people if we expect them to buy from us. The trade agreements program supports and encourages this basic necessity. The United States today is the world's largest importer of all goods; we are the second largest importer of agricultural products. Examples of such imports are coffee, rubber, tea, bananas, sugar, and wool. These products contribute to a higher level of living for the American consumer. To provide substitutes for such products would entail an uneconomic use of our resources. A similar situation prevails in other countries. Moreover, these imports into the United States provide an important source of dollar earnings for our customers abroad. Thus, a relatively free exchange of goods among countries based on the law of comparative advantage results in mutual gain.
There is a new element of urgency as we look toward the extension of the Trade Agreements Act. On January 1, 1958, the European Economic Community became a reality. The six governments of Germany, France, Italy, Belgium, the Netherlands, and Luxembourg are now establishing a common market. This truly revolutionary step has received the support of the United States. As the nations work toward a common external tariff, which will involve several years, it is important that countries outside the common market be able to negotiate freely. Only by keeping tariffs at the lowest possible level, and by encouraging the six members to do likewise, can they achieve an outward-looking policy, rather than become a restrictive and inward-looking group. Beyond this effort lies a larger European free-trade area, involving 11 additional nations. To bring these various trade changes into fruitful operation will require years of patient negotiations. A liberal policy, stable and definite, on the part of the United States, can contribute much to the common advance in world trade.
I should add that the trade agreements legislation we are considering today is consistent with our domestic agricultural program. It does not prevent the use of export subsidies, provided such subsidies are not used to capture an undue share of world trade.
American agriculture is fully capable of continuing to move large supplies of farm products to foreign areas. In fact, it must do so if we are to prevent large and undesirable surplus accumulations. It is a fortunate coincidence that the abundant supplies from American farms can be one of the free world's great resources in support of political stability and economic development. (As you gentlemen well know, the Communists are making a determined effort to penetrate the less-developed free countries of the world with a strong economic offensive. Two-way trade is one of the weapons they are using. I have brought along today an analysis made by our people regarding this offensive. I recommend that you read it carefully. I think it shows clearly that we must strengthen our own trade ties with these countries.)
By using our farm supplies judiciously now, in pursuit of these objectives, we can build stronger commercial markets for the American farm products of tomorrow. This we hope to achieve with the help of the Trade Agreements Extension Act of 1958.
I have appreciated this opportunity of expressing my sincere thoughts about this important legislation.
DEPARTMENT OF THE INTERIOR,
OFFICE OF THE SECRETARY,
Washington, D. C., June 26, 1958. Hon. HARRY F. BYRD, Chairman, Committee on Finance,
United States Senate, Washington, D. C. DEAR SENATOR BYRD: Your committee has requested a report on H. R. 12591, a bill to extend the authority of the President to enter into trade agreements under section 350 of the Tariff Act of 1930, as amended, and for other purposes. We recommend the enactment of this bill.
This legislation, which has been acted upon favorably by the House of Representatives, will enable our Government to continue to pursue a course that will promote our commerce with other countries of the free world. We are in general accord with the provisions of this measure which includes the extension, for an additional 5 years, of the authority of the President to enter into foreign trade agreements under section 350 of the Tariff Act of 1930, as amended.
We have been advised by the Bureau of the Budget that the enactment of
DEPARTMENT OF STATE,
Washington, June 30, 1958. Hon. HARRY F. BYRD,
Chairman, Committee on Finance, United States Senate. DEAR SENATOR BYRD: The Department is pleased to respond to your letter of June 13, 1958, requesting a report on H. R. 12591, to extend the authority of the President to enter into trade agreements under section 350 of the Tariff Act of 1930, as amended, and for other purposes.
H. R. 12591 as approved by the House has the full support of the administration. It provides that during the next 5 years the President shall have available, under existing procedures further developed by amendments, adequate authority to conclude reciprocal trade agreements in the interest of the United States. It is based on an administration proposal which the President has described as Essential to our national economic interest, to our security, and to our foreign relations and as a powerful force in waging total peace.
Events have moved rapidly in recent months, lending added force and urgency to the President's words. New and disturbing incidents bear witness to growing uncertainty concerning the trade outlook on the part of some of our best neighbors. The Soviet trade drive among uncommitted developing nations has continued to grow. Altogether, it is difficult to overstate the importance of approval of H. R. 12591, which more than any other single act would affirm this country's deter
mination to support and lead a free-world movement to liberalize trade for some time to come, as it has done over the past 24 years.
We believe that this affirmation alone would so encourage advocates of trade liberalization the world over that it would contribute materially to the further reduction of barriers which presently restrict United States exports and hamper world trade in general. It could not help but have a salutary effect upon the future trading policies and practices of our friends and allies.
The safeguards of trade-agreement procedure, developed over the years and further implemented by the provisions of H. R. 12591, provide against any unforeseen adverse import developments that may threaten American interests. In the escape clause, domestic producers have access to a procedure safeguarding particular industries against serious injury from imports. In section 22 of the Agricultural Adjustment Act there is a procedure to safeguard against import interference with governmental agricultural programs. In the national-security amendment, ample scope exists to take necessary action to prevent imports from threatening to impair the national security.
The national security provisions in particular are substantially amended by the new bill (sec. 8), so as to clarify the procedures to be followed and to assure a broad scope of investigation. On the procedural side, it is made explicit that ODM will investigate upon the application of any interested party; further investigation by the President after the Director of the ODM has reported his opinion that the national security is being threatened, is made optional rather than mandatory; a report on each case is to be published. Furthermore, a one-time summary report on administration of the amendment is to be submitted to the Congress by February 1, 1959. As to the scope and character of the investigation and the basis for decision, the law would retain all of its essential flexibility, but it would make clear that not only the quantity but also the circumstances under which imports are entering, including their character and use, are to be studied. In arriving at determinations whether imports are threatening to impair the national security, the Director of ODM and the President are to include in their consideration domestic production needs, capacity of domestic industries to meet these requirements, existing and anticipated availabilities of human resources, products, raw materials and other supplies and services essential to defense, the growth requirements of such industries and supplies and services, including the investment, exploration and development necessary to assure such growth. A consideration of imports in terms of quantities, availability, character, and use is also explicitly required.
The purpose and anticipated effect of the amendments is to strengthen the Executive in taking necessary action to avoid a threat to our national security through imports. Although special attention has been given, in the debates, to the position of extractive industries, it is also plain that the provision is not limited to any particular class or kind of product but may apply to any product. Finally, the President is not limited to a specific kind of action affecting imports, which may not be workable, in dealing with a threat of this kind, once he has determined that a threat exists. Thus, maximum procedural safeguards are coupled with maximum flexibility in action.
This Department strongly supports the President's position in favor of renewal of the Trade Agreements Act with the full authority contained in the House bill.
American economic interest and American foreign policy objectives alike make it of utmost importance that the United States not only provide reassurance of the continuance of a trade policy appropriate to the times, but also that the legislation enable the President to prepare at once for a new general tariff negotiation with the countries which are in process of establishing a Common Market in Europe, to bring the new common tariff down to the lowest possible level so that American exports may compete with minimum difficulty with goods produced within the area. In order to succeed in this effort, it is essential that the President's authority be extended for the full 5 years as provided in H. R. 12591.
The Bureau of the Budget has advised that there is no objection to the presentation of this report and that enactment of H. R. 12591 is in accordance with the program of the President. Sincerely yours,
WILLIAM B. MACOMBER, Jr.,
Assistant Secretary (For the Secretary of State).
UNITED STATES TARIFF COMMISSION
Washington MEMORANDUM ON H. R. 12591, 85TH CONGRESS, A Bill To EXTEND THE AUTHOR
ITY OF THE PRESIDENT TO ENTER INTO TRADE AGREEMENTS UNDER SECTION 350 OF THE TARIFF ACT OF 1930, AS AMENDED, AND FOR OTHER PURPOSES
SHORT TITLE Section 1 of the bill states the short title of the legislation as “Trade Agreements Extension Act of 1958."
EXTENSION OF PRESIDENT'S AUTHORITY TO ENTER INTO TRADE AGREEMENTS
Section 2 of the bill provides for the extension of the President's authority to enter into foreign-trade agreements under section 350 of the Tariff Act of 1930, as amended, from the close of June 30, 1958 (when his present authority expires), to the close of June 30, 1963. The Trade Agreements Act of June 12, 1934, originally authorized the President to enter into foreign-trade agreements for 3 years. This authority has been extended since then 10 times, for periods ranging from 1 to 3 years. This extension of authority is necessary only to permit the negotiation of new trade agreements; it is not necessary for the purpose of continuing existing trade agreements. Existing trade agreements, and duty rates proclaimed to carry them out, will continue in force regardless of whether the President's authority to enter into trade agreements is extended beyond the close of June 30, 1958.
NEW RATE-CHANGING AUTHORITY Rate increasing authority.-Section 350 (a) (2) (A) of the Tariff Act of 1930 limits the President's trade-agreement rate-increasing authority to 50 percent above the rates existing on January 1, 1945. Section 3 (a) (1) of the bill would change the base date from January 1, 1945, to July 1, 1934. This would mean that, with the few exceptions where changes in duties were made between June 18, 1930, and June 30, 1934, the base rates for the purposes of the 50-percent limitation on the rate-increasing authority would be the rates originally established in the Tariff Act of 1930.
Between July 1, 1934, and January 1, 1945, a great many tariff reductions were made pursuant to the trade-agreements authority, many of them maximum reductions (50 percent below the original tariff-act rates). Thus the change in the base date proposed in the bill for the rate-increasing limitation would permit greater rate increases on a large number of commodities-in many instances much greater increases-than are permissible under the existing law. On the other hand, because of rate increases that occurred under the “flexible tariff” provision (sec. 336 of the Tariff Act of 1930) between July 1, 1934, and January 1, 1945, the proposed amendment would in a few instances result in a lessening of the amount of permissible increase.
Under the Trade Agreements Act the rate-increasing authority is to be utilized when "required or appropriate" to carry out a foreign trade agreement. This authority has rarely been utilized in connection with normal trade-agreement negotiations. Its use has been significant only in connection with the escapeclause procedure, where the authority has been utilized to increase duties to reflect modifications of trade-agreement concessions pursuant to the escape-clause procedure. It is in this latter area that the rate-increasing authority would have significance in the future, and it is understood that it is in connection with the administration of the escape-clause procedure that the proposal for change in the base date is being made. Experience under the escape-clause procedure indicates that on occasion, particularly where specific rates are involved, the maximum permissible increase in duties under existing law may not provide an adequate remedy for the serious injury that is found to exist in a particular case. Whenever this should be the case, it is necessary to report to the quota authority. Authority to make greater increases in duties in connection with escape-clause action than is now permitted by law would in some cases reduce the need for resort to quotas.
In the case of products whose duty-free status has been bound in a trade agreement, there is no authority for imposing a duty under the escape clause procedure by reason of the prohibition in section 350 against the transfer of any
article between the duiable and the free list. Thus, where a case for escape action is made with respect to a duty-free commodity, the only remedial action the President has authority to take is to impose a quota. There is increasing concern regarding import competition from certain articles on the free list. This is recognized in section 5 (c) of the bill, which amends section 7 of the Trade Agreements Extension Act of 1951 (the escape clause procedure) so as to permit the imposition of a duty of not more than 50 percent ad valorem on duty-free items under the escape clause procedure.
Rate-reducing authority.--The President's new rate-reducing authority is set - forth in section 3 (a) (4) and (8) of the bill. The details of the new authority are set forth in the proposed new paragraph 4 of subsection (a) of section 350 (beginning on line 11, p. 3, of the bill). The additional rate-reducing authority is expressed by way of prohibition against rate reductions below the lowest rates resulting from any of three alternatives.
Subparagraph (i) of proposed new paragraph 4 of section 350 (a) limits reductions to 25 percent below the rates existing on July 1, 1958. Subparagraph B (i) provides that the 25 percent reduction may be made in not more than five annual stages, but that the amount of reduction in each stage shall not exceed 10 percent of the rate existing on July 1, 1958. In other words, the 25 percent reduction may be made over a period as short as 3 years (e. g., 10-10-5) up to a period of 5 years, regardless of the amount of reduction in each stage, so long as in no stage does the the amount of reduction exceed 10 percent of the July 1, 1958 rate.
The last part of subparagraph B (i) reading "or in any case in which the rate has been increased since that date," etc., appears to deal with the possibility that after July 1, 1958, and before the conclusion of a new trade agreement a rate may be increased. Such an increase might occur, for example, where the present rate is a reduced rate under a bilateral trade agreement, and before entering into the new trade agreement under the new authority, such bilateral trade agreement is terminated, resulting in the restoration of a higher statutory rate on the product in question. This portion of this subparagraph apparently means that in such a case the staging shall be by annual reductions, each not exceeding 10 percent of the July 1, 1958, rate, or one-third of the "total amount of decrease under the new trade agreement," whichever is the greater. For example, if the July 1, 1958, rate was 20 percent and increased to 40 percent in October 1958, and the new trade agreement provided for a decrease in the rate to 15 percent (25 percent of 20 percent), an annual-stage reduction of 10 percent of the July 1, 1958, rate (20 percent) would be 2 percentage points. One-third of the total amount of the reduction (25 percentage points) --40 percent less 15 percent-would be 843 percentage points. Thus the stating of the total reduction would require a limit of not more than the reduction by 87 percentage points in any stage (one-third of the amount of decrease under the trade agreement--25 percentage points)
This alternate-staging rule may cause difficulty in application. For example, what is meant by the total amount of the decrease under the foreign trade agreement”? Assume that at the time negotiations are initiated, a statutory rate of 40 percent ad valorem had been reduced in a bilateral trade agreement to 20 percent, and the 20-percent rate was in effect when the negotiations were initiated. Would the "total amount of the decrease under the foreign trade agreement” be from 20 percent to 15 percent, or from 40 percent to 15 percent? If it should be held that the "total amount of the decrease under the foreign trade agreement" is to be determined as of the date of the signature of the agreement, then suppose that the 20-percent rate was still in effect on the date of the signature of the agreement, but the bilateral agreement pursuant to which the 20-percent rate was in force was terminated prior to the proclamation of the new trade agreement. The staging provided for in the new trade agreement would be, let us say, 18 percent, 16 percent, and 15 percent under the basic-staging rule. If, by reason of the termination of the bilateral trade agreement an increase in the rate to 40 percent results, the rule of maximum decreases in any one stage by not more than one-third of the "total amount of the decrease under the foreign trade agreement" would require the 3 stages to be 31% percent, 23 percent, and 15 percent. In other words, the first two stages would both exceed the rate which was the basis of the negotiations, and the proclamation of these rates would be inconsistent with the rates specified in the trade-agreement schedule. This additional staging requirement would be likely to cause some difficulty.
The second alternative limitation on rate reduction is set forth in subparagraph (ii) of proposed new paragraph 4 of subsection (a) of section 350. This
Changes in United States rates of duty under the Trade Agreements Act are only effective when proclaimed.