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TRADE AGREEMENTS ACT EXTENSION

WEDNESDAY, JUNE 25, 1958

UNITED STATES SENATE,
COMMITTEE ON FINANCE,

Washington, D.C. The committee met, pursuant to recess at 10:10 a. m., in room 312, Senate Office Building, Senator Harry Flood Byrd (chairman) presiding.

Present: Senators Byrd (chairman), Kerr, Anderson, Martin, Williams, Flanders, Carlson, and Bennett. Also present: Elizabeth B. Springer, chief clerk.

The CHAIRMAN. Our first witness this morning will be Andrew J. Biemiller, director of the legislative department of the American Federation of Labor and Congress of Industrial Organizations.

Please proceed, Mr. Biemiller.

STATEMENT OF ANDREW J. BIEMILLER, DIRECTOR OF THE LEGIS

LATIVE DEPARTMENT, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

Mr. BIEMILLER. I appreciate the opportunity to appear before your committee today to express the views of the American Federation of Labor and Congress of Industrial Organizations regarding extension of the Reciprocal Trade Agreements Act.

I will file my statement and summarize it briefly if that is agreeable.

(The statement of Mr. Biemiller, in full, is as follows:) STATEMENT BY ANDREW J. BIEMILLER, DIRECTOR OF THE LEGISLATIVE DEPARTMENT,

AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS I appreciate the opportunity to express the views of the American Federation of Labor and Congress of Industrial Organizations regarding extension of the Reciprocal Trade Agreements Act.

From its inception more than 2 decades ago, the reciprocal-trade-agreements program has won the vigorous support of the American labor movement. This traditional support was reemphasized in the resolution unanimously adopted at the recent convention of the AFL-CIO. The resolution urged extension of the Reciprocal Trade Agreements Act for a period of at least 5 years with reinforcement of “the basie goal of the reciprocal-trade program, the gradual reduction of barriers to trade without undue hardship to American industries or American workers. The achievement of this goal must be sought, however, in the light of present-day conditions in our own Nation and in the nations allied with us in the common struggle for the preservation of freedom and democracy.” The full text of the convention resolution is attached to this statement.

At the very start, let me assure the members of this committee that in restating its support for the reciprocal-trade program, organized labor has a very realistic view of this problem. This is no sentimental gesture on our part. We are aware of the hard realities of the present situation.

We firmly believe that the need for an effective program for reducing the bar. riers to trade is undoubtedly greater today than ever before.

We feel that this is particularly true in light of the aggressive trade measures the Soviets have been taking in recent months to expand their trade with the free world.

At the same time we are acutely aware of the hardships which an increasing flow of goods to the United States has occasionally inflicted on American business firms and American workers. This is a serious problem to which Congress must direct its attention. We do not want to see the value of the reciprocal trade program jeopardized because of the effects which import competition has produced in a relatively few industries. Rather than weakening the trade agreements program to meet this opposition, we feel that Congress should take a more positive approach to this issue. It is our recommendation that Congress should provide in the current legislation for a trade adjustment program which would directly meet the problems of these industries by providing necessary safeguards both to the business opportunities of employers and the employment opportunities of workers who may be seriously affected by import competition.

CRITICAL NEED FOR RECIPROCAL TRADE EXTENSION

There are new factors in the world situation which make the reciprocal trade program more necessary than ever before. Failure of the Congress to assure continued United States leadership in multilateral efforts to reduce traiffs would be a signal to our free world allies that we were returning to economic isolation and that we were callous to the economic requirements of other free nations.

Because foreign trade, although by no means insignificant, plays a relatively small role in our economy, it is often difficult for us to realize how essential it is for many other countries to maintain and expand their markets abroad. Indeed, imports and exports are the very lifeblood of the economies of many nations. It would be to our own detriment and the detriment of the entire free world if the United States should choose the course of economic isolation. These other nations simply cannot even contemplate economic isolation as a feasible alternative. In a very real sense, they are threatened with economic extinction unless the channels of world trade remain open to them.

MENACE OF SOVIET TRADE DRIVE

The other countries of the free world particularly need to maintain effective trading relations with the United States. Their economies are dependent on many of the products we can ship to them. However, to buy these items from the United States, they must be able to sell their products in the United States. Confronted with contraction or closing of markets for their products in the United States, many of our free world allies might in desperation seek new opportunities for trade with the Soviet Union, Red China, and their satellites.

As we know full well, the Soviet Union and its satellites behind the Iron Curtain are ready and eager to take advantage of any such opportunities that may be offered. For them, trade is a weapon in the cold war. If they can make the free world countries dependent on them for markets, they will exploit such economic ties for their nefarious political goal of world domination.

Indeed, the Soviet rulers are so bold in this drive for trade with the free world that they do not even conceal their objective. Nikita Khrushchev said only recently: "We declare war on you-excuse me for using such an expressionin the peaceful field of trade. We declare war. We will win over the United States."

Already the Soviet Union has offered trading arrangements to a considerable number of non-Soviet countries. Its efforts have been directed not only to Europe and Asia but even to countries in the Western Hemisphere as is evidenced by its determined attempt to expand its trade to Argentina. It would be the height of folly for the United States to strenghen our military posture against the Soviet Union while permitting them to enhance their economic and political position by opening up new avenues of trade with free world countries.

EUROPEAN COMMON MARKET

As the members of this committee are no doubt aware, the organization of the Common Market of 6 European nations-France, Germany, Italy, and the 3 Benelux countries, Belgium, the Netherlands, and Luxembourg, and the impend

ing organization of the broader free-trade area embracing an even larger group of nations, including Great Britain, raises some serious problems for the United States. Let me hasten to assure the members of this committee that organized labor welcomes the establishment of the European Common Market as an effective step toward economic integration of Europe. The United States should do everything possible to assist and strengthen this movement. The European Common Market should be welcomed because it will improve the welfare and living standards of the people of Europe. We should also welcome European economic integration because the interests of the free world, both economic and political, will be enhanced by the development of more prosperous and stronger nations in Western Europe.

Nevertheless, we must recognize that unless we are prepared to negotiate realistically and flexibly, our markets in Western Europe will be seriously affected by the gradual elimination of tariffs among the member nations of the European Common Market, with gradual equalization of tariffs among the members of the European Common Market. Thus, the United States exporting industries will be faced with the problem of having to clear tariff barriers while their European competitors can export to other European countries in the Common Market without any tariff duties being imposed against them. Clearly, the United States exporters will be operating under a severe competitive disadvantage.

This is a matter of no small consequence to American labor and industry. In 1955-56 more than 16 percent of United States exports were to the 6 European Common Market countries and more than 29 percent to the countries of the potential free-trade area. The jobs of about 500,000 workers depended on exports to the European Common Market and a total of 900,000 to the entire free-trade area."

It is obviously essential that we do everything possible to preserve our export markets in the European free-trade area. This means that there must be authority for negotiation of tariffs with the Common Market so as to obtain reductions in their external tariffs while they are gradually eliminating their internal tariffs. The alternative may well be a tremendous shift among the members of the Common Market away from the products of American industry toward the products of the member countries of the Common Market.

On the other hand, if the reciprocal trade agreements program is extended on a meaningful basis, it will give the United States an opportunity to provide the machinery, equipment, and other items required by the expanding economies of the member nations of the Common Market. Whether or not we will be able to contribute toward, and in a sense profit from, the growth of the economy of Western Europe will depend in large measure upon the action Congress takes on extension of the Reciprocal Trade Agreement Act.

TRADE IMPORTANT FACTOR IN DOMESTIC ECONOMY

Even if there were no Soviet threat and the European Common Market had not been organized, extension of the reciprocal trade agreements program would nevertheless greatly contribute to the welfare and prosperity of the Nation. We usually think of trade as being a relatively small part of our total economy and, as compared with some other countries, it is. But we tend to forget that foreign trade bulks larger in our economy than some of our most important industries. According to the Commerce Department, 542 percent of the Nation's output in 1956 took the form of exports of goods and services. The value of goods exported was greater than the value of all nonfarm homebuilding or consumer purchases of automobiles or of farmers' gross receipts from crops and livestock. It was not much below the retail value of all clothing and shoes purchased by American consumers."

Trade is also an important source of employment. It is estimated that at least 492 million workers, or about 7 percent of our labor force, depend on foreign trade for their employment either directly or indirectly.

Thus, while trade may not play as decisive a role in our economy as in the economies of some other countries, it does contribute significantly to our overall

1 Based on estimates of total number of workers dependent on exports given in staff papers presented to the Commission on Foreign Economic Policy. February 1954. p. 373.

*U. S. Department of Commerce, The Role of Foreign Trade in the United States Econ. omy. Compendium of papers on United States foreign trade policy collected by the staff for the Subcommittee on Foreign Trade Policy for the House Ways and Means Committee, 1957, pp. 15-16.

* Ibid., p. 15.

economic strength and prosperity. There can be no doubt that our economy would be weakened if the volume of our foreign trade were to decline. Like wise, the strength of our economy will be enhanced by expansion of foreign trade.

RECIPROCAL TRADE UNDER ATTACK All of these considerations lead but to a single conclusion. Extension of the reciprocal trade agreements program on an effective basis is essential for the political strength and economic prosperity of the United States and its free world allies. Why is it, then, that the proposal to continue this program has evoked such bitter opposition?

The basic reason is that while there can be no doubt of the long-run advantages of foreign trade to the United States, a growing number of American industries are being affected to a greater or lesser degree by import competition. At least two reasons may be cited for this development.

One factor has been the remarkable economic recovery of Western Europe and Japan after the near destruction of their economies during World War II. Their postwar economic growth has made it possible for them to increase their exports to the United States and, in return, to purchase the output of our industries in increasing amounts. To a considerably lesser extent, the same type of development has taken place in our economic relationships with the underdeveloped countries, although actually few of the products of their much-lessindustrialized economies compete with American industries. In all of this development, attention has been focused primarily on the growing volume of imports because their impact has been felt most keenly in a narrow, although expanding, sector of American industry.

A second factor is inherent in the reciprocal trade agreements program itself. There are still undoubtedly ample opportunities for further reduction in tariff duties without serious impact on American industry and labor. Nevertheless, we must recognize that the very fact that the reciprocal trade program has been in operation nearly 25 years means that opportunities for completely noninjurious tariff reductions are becoming decidedly more limited. This is particularly true for many of the items on which our trading partners particularly desire tariff reductions. It is, of course, true that multilateral trade negotiations have contributed to our economic expansion and in the long run have increased employment opportunities, but we must recognize that long-run expansion offers no solace to those who are most seriously affected in the short run. We can only ignore the particular needs of those who feel the impact of imports most directly at the peril of the entire reciprocal trade agreements program.

We are raising these issues because it is imperative that we lay all the facts on the table. There is no question that some industries have been affected by the increasing impact of import competition. Other industries, rightly or wrongly, feel that they may suffer in the future from growing import competition if the reciprocal trade agreements program is extended.

Let me hasten to assure the member of this committee that these considerations do not lead us to argue for a reversal of the present policy of gradual trade liberalization. Quite the contrary, we are virtually convinced that continued gradual reduction of tariff barriers is both desirable and necessary.

We must point out, however, the developments that have caused serious opposition to develop to an expansion of the reciprocal trade agreements program. In fact, the seriousness of the opposition to this program has already been responsible for weakening the basic principles of reciprocal trade in this year's legislation. Not only did the President's proposal make a number of concessions to the protectionist point of view, such as authorizing the President in escapeclause proceedings to raise tariffs by 50 percent of the 1934 levels, but in addition a number of other changes have been made by the House of Representatives. In effect, the President and the House have been willing to weaken the bill in order to meet the demands of the opposition.

It is our firm belief, however, that the principles of an effective reciprocal trade agreements program must not and need not be sacrificed to meet the problems raised by a gradually increasing level of imports. We believe that the problems faced by both businessmen and workers in those industries seriously affected can best be met by a more positive approach; namely, the adoption of a trade adjustment program which would facilitate the adjustment of those most directly affected by import competition.

TRADE ADJUSTMENT PROGRAM Experience has demonstrated that the economy as a whole has not suffered from the gradual lowering of tariff barriers during the past quarter of a century. However, some few industries have been hit hard by the impact of increased imports resulting from tariff reductions. If increased trade and a continued gradual reduction of tariff barriers are in the national interest, then it must also be in the national interest to help the firms, communities, and workers adversely affected by such increased imports.

That is the basic purpose of the trade adjustment program which has been proposed by several Senators. In effect, the trade adjustment program would give the President an alternative to tariff increases or quotas under the escapeclause procedure. It represents an effort to meet the problems resulting from import competition without resorting to measures which restrict rather than liberalize international trade.

The need for an adjustment program rests on two fundamental principles : (1) Tariff policy should not be so restrictive that tariffs must be maintained at or raised to unduly high levels in every situation where the domestic industry cannot maintain levels of activity without such a high tariff : and (2) the entire burden of the impact of increased imports must not be placed on the firms and workers adversely affected by tariff reductions. If tariff reduction is part of a national policy required in the best interests of the Nation as a whole, then no one group should be expected to pay the price of that policy. It is a cost which should be borne, insofar as possible, by the Nation as a whole.

The objective of this proposal is not to subsidize the affected groups or to compensate them for injury. Instead, the aim is to help them adjust to increased imports either by assisting them to make more effective and efficient use of their present facilities or by development of new lines of production which would offer business opportunities to firms and communities and employment opportunities to workers.

The theory behind the proposal is that if by Government decision, tariffs are reduced and the reduction causes or threatens to cause serious injury, then it should be by Government decision and action that some aid, assistance, and adjustments are offered.

HOW THE TRADE ADJUSTMENT PROGRAM WOULD WORK If the trade adjustment program were enacted, the United States Tariff Commission would be required to continue to make its findings under the terms of the escape clause. Upon application by industry, the Tariff Commission proceeds to hold hearings to determine the extent of injury before invoking the escape clause. Once the Commission finds injury or the threat of injury, it recommends to the President that the tariff be increased,

Under the present law, the President can decide either to accept the Tariff Commission's findings of injury and thereby impose the recommendation, which would be an increase in duty, or to reject the findings completely.

Under the trade adjustment program, the President would be given one additional route to follow: He could accept the Tariff Commission's findings of injury, but instead of imposing an increase in duty, he could recommend that the facilities of the trade adjustment program be invoked.

Thereupon, certain types of assistance would be available for workers, industrial enterprises, and communities.

For workers:

1. Supplementary unemployment-compensation benefits up to two-thirds of weekly earnings for 52 weeks.

2. Earlier (aged 60) retirement for recipients of old-age pensions under our social-security law.

3. Retraining for new job opportunities. 4. If necessary, transportation for entire families to new areas of employment. For industrial enterprises:

1. Loans through the Small Business Administration for the adjustment of such business enterprises and communities to economic conditions resulting from the trade policies of the United States.

2. Appropriate departments and agencies of Government will supply "technical information, market research, or any other form of information and advice which might be of assistance in the development of more efficient methods of production and the development of new lines of production."

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