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the consumer price index for the United States, and that for the Netherlands has risen somewhat more sharply. The indexes for Belgium and Germany have shown changes roughly parallel to our own while that for Switzerland has risen slightly less than ours.

Generally speaking, then, the evidence shows that if the United States price level is "getting progressively out of line," it is lagging below the “line" rather than climbing above it. As a matter of fact, reputable foreign theoreticians have so interpreted the situation, and have been very seriously worried about the possible long-run inability of their economies to meet United States competition.

The assertion that “the range of goods in which we can effectively compete is narrowing year by year” does not seem to be supported by any evidence. There is, of course, a constant shifting of competitive conditions in international markets, but the volume of goods supplied to them by the United States in the past two years has been the largest in history, and this record volumefar from comprising a narrower range of products-appears to have been more highly diversified than ever before.

4. The suggestion that growth of United States investment abroad has stemmed importantly from an effort to "regain lost markets from which we have been priced out by our wage-price spiral” is fallacious. As noted under item 3, above, the wage-price spiral in the United States has actually been less steeply upward than in most of the countries which constitute our principal competitors in world markets for manufactured goods. The reasons for expansion of various types of United States foreign investments are numerous and complex, but they obviously do not include the one alleged here.

5. In contemplating the use of quotas as an expedient to protect certain industries against abrupt or severe dislocations which might result from increased imports, we must always remember that they have many disadvantages.

When quotas are applied on some products it is difficult to reject their use on others. Furthermore, once a quota has been adopted it is usually necessary to allocate shares among different supplying countries and among different importers. It is also necessary to keep these quota operations under constant surveillance and to police them to prevent transshipment and other evasions. Thus Government intervention, once initiated, tends to feed on itself, constantly spreading through day-to-day business operations, further curtailing the automatic market adjustments of competition.

Quantitative import restrictions are especially hard on small businesses which have difficulty financing large inventories from quota period to quota period.

Any general resort to quotas on the part of the United States would weaken our current efforts to reduce foreign quantitative restrictions against our own exports. Actually the United States has been the greatest victim of quotas and stands to gain the most from progress in their abolition. As a large exporter and an efficient producer of products wanted by other countries, we have more to gain by avoiding quotas and more to lose by any action on our part which encourages their greater use throughout the world.

(a) The attached extract from a Labor Department study gives an estimate (in the nature of an outside order-of-magnitude limit) of the number of United States jobs "lost" in 1956 by importing dutiable goods instead of producing themthe number "lost” or “displaced” being computed as the number of fulltime workers who would have been required to produce the equivalent of dutiable imports, on the assumption that all of them could have been made by American workers. The Labor Department study goes on to explain some of the reasons why the rough estimate given-"approximately 1 million"-is "obviously much too high." In addition, it may be noted that a similar estimate covering only dutiable manufactured goods would be considerably lower, while one covering duty-free goods as well as dutiable merchandise might be much higher, even without going to such ridiculous extremes as computing, for example, the numbers of workers required to produce our supply of coffee by hothouse methods.

The notion that the available estimate of man-years utilized in producing exported goods and related services is "meaningless without its offset" is not well founded. In the case of export employment, the estimators--despite difficult statistical problems--can deal with a clear and straightforward concept of employment actually utilized in producing certain values which were definitely created by the United States economy. Any attempt to compute man-years "lost" through imports, on the other hand, not only encounters equal or greater difficulties of a statistical nature, but must be predicated upon purely hypothetical concepts regarding situations which might prevail in an entirely different economic world. So many speculative judgments must be pyramided in this process that

the meaningfulness of any general estimate of this kind is open to the gravest doubts.

(6) If our trade policy were to be based upon “desired imports," who would decide what were the desired imports”? In a free enterprise economy, such decisions are normally made by the market place. Deciding by Government fiat what imports might be "desirable" would run counter to the principles under which our dynamic economy has prospered in the past.

(c) In the references to support for "economic areas consisting of nations with resources and industries which on the whole tend to complement each other," it is not at all clear what concept of an economic area is envisioned, nor what is meant by "our supporting' any such area. With regard to complementarity of the component nations' economies, the situation of the six common-market countries is certainly radically different from that of the Far Eastern area mentioned, or of the Western Hemisphere group.

Indeed, the necessity for elaborate arrangements to bring the common market into existence is a reflection of the fact that what is involved is the integration of broadly similar economies, rather than mere formalization of closely complementary economic relationships which would prevail, generally speaking, in any event. Contrastingly, relationships among the Western Hemisphere and Far Eastern countries, respectively, tend to be essentially of the latter type. In each of these areas, the grounds for trade between a predominant industrial nation, on the one hand, and a group of countries exporting chiefly primary products, on the other, are so overwhelming that no special economic integration measures are required to promote the trade in question. The degree to which such trade is likely to be inhibited by narrowly nationalistic economic policies is minimal as compared with the degree of limitation inherent in corresponding policies in Western Europe. Under these circumstances, arrangements along the lines of the common market would not offer anything like the same prospect that they do in Western Europe of bringing about fundamental changes in the character of the trade and the economic productivity of the areas involved.

(d) Since there is no compilation of United States foreign trade statistics according to size of the trading firms or of the domestic firms affected by competitive imports, it is impossible to make any factually based analysis of the effects of past tarifi reductions on enterprises of any given size. It is worth noting, however, that size has not been a criterion for determination of peril point or escape clause findings in the past, nor is it a criterion in the administration's pending bill. Since that bill contains fully adequate safeguards for domestic industries, regardless of size, the question of possible discrimination against small or local industries in favor of large corporations simply does not arise.

(e) In all probability, the economic strength of the United States and that of the rest of the free world will rise or fall together. United States commercial policies tending to weaken our friends economically will tend to weaken us, too, and polieies which truly strengthen our own economy as a whole will fortunately contribute also to the strength of our friends abroad.

Under the pending Trade Agreements bill, there is no possibility of "deciding which of our industries * * * shall be marked for * * * perhaps fatal competition. To be sure, the bill does envision the encouragement of expansion in our more productive industries, but it does not contemplate the sacrifice of existing industries to accomplish this common sense objective. On the contrary, it includes all existing and some newly added safeguards against injury to domestic industries through increased imports which might result from tariff reductions.

"POLICY PROPOSALS" Adoption of the proposal that the Trade Agreements Act be extended for only 2 years, instead of 5, is not responsive to United States policy needs. It would place the United States in a weak and uncertain negotiating position during the erucial formative period of detailed and specific determination by the common market countries what will be their ultimately uniform external duties on imported merchandise, including that from the United States. In view of the potentially profound effects of the common market upon our trade with Europe in decades ahead, it is vital that we retain the strongest and most flexible possible bargaining position in order to minimize the danger of common market decisions prejudicial to our national commercial interests. A detailed analysis of the need for tariff negotiations with the common market and the prospective timetable showing the need for 5-year renewal is attached. Even in the absence of the common market development, a 2-year extension would provide so little assurance

to other countries of stability in our tariff policy that we would have great difficulty in negotiating worthwhile concessions for our exports. Moreover, the processes of preparing for tariff negotiations and conducting them are so cumbersome and time consuming that an extension as short as 2 years would in any event curb the scope of the necessary staff work and thus limit the possibility of fruitful results.

The proposal for appointment of another Commission to examine questions relating to United States foreign commercial policies appears to overlook the intensive in yestigations in this field carried out so competently only a few years ago by the distinguished members of the President's Commission on Foreign Economie Policy (Randall Commission). The fact that no revolutionary changes have since occurred in basic conditions under which world trade is conducted makes it unlikely that a new Commission would arrive at fundamentally different conclusions. The guidelines laid down by the Randall Commission are still eminently appropriate, and a project to have them largely reconfirmed by another Commission would appear both unnecessary and unduly costly.

The 5-year authority would be used primarily in connection with those rates which are now unnecessarily burdensome, and concessions would not be made in cases where injurious increases in imports would be threatened. The probable effects of duty reductions are not necessarily correlated with the height of the existing duties. Some high duties could be reduced only at considerable risk of injury to domestic producers, while some relatively low duties could well be further reduced without such risks. The appropriate test lies in the probable result of a change in a tariff rate, rather than in the absolute level of a prevailing rate. Sincerely yours,

SINCLAIR WEEKS, Secretary of Commerce, Index numbers of wholesale prices and cost of living in selected industrial countries,

1950 and 1953-57

(1950=100]

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1 Producers' prices of industrial products.
2 Manufactured products, except food, tobacco, and fuel.

Sources: United Nations-Statistical Yearbook and monthly bulletin of statistics, International Monetary Fund International Financial Statistics OEEC-Statistical Bulletin. Prepared by: International Economic Analysis Division, Bureau of Foreign Commerce, U. S. Department of Commerce, June 1958.

Senator FLANDERS. There are 2 or 3 points with regard to these questions that I would like to take up with you; particularly in view of the fact that unless new light shines on me from some high source, it is my intention to support a 3-year extension of the act and to call for a new examination of its basis—a thorough professional economic examination and a report of a Commission brought to the Congress at the beginning of the new session of the Congress in 1960.

You might well ask why we should have a new report.

I have on my desk across thc hall at this moment a series of reports going back just to 1950 and those reports alone total 11% inches high.

Why do we need a new one? But I feel that we do. As I set forth in this memorandum, it seems to me that the basis of our reciprocal trade treaties is fundamentally the free trade basis. It was because I had as an amateur, and before I ever though of coming to this place, studied particularly Professor Tausig's book that I became convinced that it was a logical basis for national policy. With that in mind, I stumped for reciprocal trade.

At one time I occupied the platform down in Constitution Hall with Charles Taft and a full hall. It is the only full hall I have ever had before or since.

I would not do it again until certain questions are asked. Just briefly, Professor Tausig assumed that the gold standard would automatically tend to keep prices at a level, and then that dollars which we paid for imports had no ultimate value except as they return to purchase American goods or services.

Now of course they are hoarded as balances to give financial stability.

Then there was the assumption that there was an elasticity in prices. There is only an elasticity one way now. They do not go down.

Then there is a new factor of the increased exportability of American know-how, equipment, and capital. There was the assumption always then that there were certain things that we knew how to do better than the rest of the world. There are, and there have been, and so we send all our equipment and capital and know-how abroad. And there are other things in there which I will not go into.

I am just making this statement that regretfully I shall ask to have the extension for 3 years only and shall ask to have a professionally competent analysis made of these points by a commission appointed for the purpose. It seems to me, Mr. Chairman, that I am now making a speech instead of asking questions.

If the chairman and the Secretary will bear with me, I will only make this speech for 2 or 3 minutes more and then get back to questions. It has seemed to me that the very logical conclusions of men like Professor Tausig, based on then world conditions, were accepted by Cordell Hull and have ever since been accepted by the various administrations and by the State Department as an article of faith.

They have become a religion. I am just proposing that we see what basis of fact and of reasonable development we may put under this article of faith.

As a matter of fact, you had a religious revival service in town here a few weeks ago which again emphasizes the fact that it has become a religious faith.

But let's examine the basis of our faith. I think we will not come out too badly for the things you have in mind. But your foundation is very weak at the present time. Let's see if we can see what we can build under it, if anything.

Now I would like to resume attention to one particular point of your testimony with reference to the Common Market in Europe.

I rather gather, Mr. Secretary, from your section 6, pages 4 and 5, that you see certain possible perils to our reciprocal trade policies that might arise from the effects of the Common Market, is that true?

27629-58-pt. 1- 4

Secretary Dulles. There are possible dangers. We already have, of course, in our agreements, provisions which give a measure of protection against tariff increases, but we shall need, I think, tariff decreases if the position of the American exporter in that area is to be maintained, because at the present time, for example, exports from Italy to France pay the same duty as exports from the United States to France.

After this is over, they will not. After this comes into force, they will not. Therefore, we will need a certain negotiating facility with reference to that situation, if the operation is not to be conducted in a way which would be injurious to the American exporter.

Senator FLANDERS. I have long felt that by opening up the Common Market, the nations of Western Europe could do far more for themselves than we could ever do for them.

I have felt indeed that if they can effectively establish that common market, they would lose any dependence on us for economic aid, and I am a little bit disturbed to find that we are going to perhaps find it necessary to interject ourselves into that process.

I certainly would not want to do it in any way that would weaken their ability to take care of themselves.

Secretary DULLES. That, Senator, is our sentiment also. The advocacy of greater unity in Europe is something which I would say has been expressed most eloquently by President Eisenhower before he was President.

I have expressed those sentiments, too, though I do not claim equal eloquence, and I have expressed them at various times before the Congress. I recall that when I testified here on behalf of the European recovery program, I put a great deal of emphasis upon that point, and you will recall that the original European recovery legislation spoke about the importance of creating in Europe a common market.

This is something we have been working for, and there is certainly no disposition on our part to block that in any way. It may be that in order to get for ourselves the advantages that go with freer trade, we will have to negotiate with it.

Almost every country in the world is going to have to negotiate with this new entity that is coming into being. The United Kingdom is deeply concerned with this matter, and is more vitally affected perhaps, certainly, than we are. But it is important that this common market shall be surrounded not by high tariff walls, but by low tariff walls, and I think most of the members of the community will want that. But there is going to be a very important area for negotiation.

Senator FLANDERS. I think that answers my question.

I might just remark in closing my part of this discussion that in this 1176-inch pile of studies of our foreign trade policy to which I referred the top one was the report of the Rockefeller brothers group.

Secretary DULLES. Yes.

Senator FLANDERS. And that just simply left out all the questions which I have raised. It took for granted that everything is jake. I do not think it is. I think that it needs to be demonstrated that everything is jake or what is jake and what is not jake. And so I am going to stand out here in the committee, and if the committee does not agree with me, on the floor, for the 3-year extension and for a professionally competent investigation of these questions that I am raising.

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