movement now dutiable at $3.45 could be dutiable at a rate as high as $6.07% under the administration's suggested revision. Before the President raised watch duties in 1954, such a movement could have entered the country for $2.30. Obviously, most other industries, which have not been subjected to a recent boost in duties, could be affected even more drastically by this proposal.

It is clear, in fact, that the new amendment would permit the imposition of prohibitive duties on virtually any products which are successfully imported into the United States. How could any overseas industry be expected to spend the sizable time and money necessary to build markets in this country when it knew that it would be stymied if its efforts happened to be successful. Surely, such a provision would be directly contrary to our basic policy of stimulating trade. We urge the Congress to reject this unwise amendment.

We should now like to discuss briefly the so-called defense essentially features of the trade-agreements program. Here again, we believe that our experiences are highly pertinent to the consideration of the Congress because few, if any, other industries have been in the vortex of defense essentiality disputes for such a long time and with such a variety of results.

Our industry has been subjected to two investigations by the Office of Defense Mobilization with regard to the alleged essentiality of the domestic watch manufacturers to the national security. The first inquiry, in 1954, resulted in a finding that the domestic jeweled watch manufacturers were vital to defense and that steps should be taken by the Government to maintain annual watch production at a high minimum level. This finding was unquestionably instrumental in persuading President Eisenhower to raise duties on imported watch movements in July 1954, and also led to a series of other administrative harassments of watch importers by the executive branch.

A second and far more comprehensive examination of this problem, which was concluded by ODM in February of this year, reached diametrically opposite conclusions. As a result, it has now been firmly and officially recognized by the Government that watch imports do not threaten to impair the national security. It is interesting to contemplate how the same Government agency could have reached such contradictory conclusions within such a short period of time. The answer, we believe, can be found in the fact that, in 1954, there was a complete lack of criteria, accepted by various responsible executive departments and agencies, for judging whether or not an industry is essential to national defense. Furthermore, this important gap was not corrected the following year when Congress incorporated the defense essentiality concept into the trade agreements statute, but failed to establish clear and logical standards on which to judge such issues.

The dangers inherent in this lack of consistent criteria was emphasized in a report published in July 1956 by the Foreign Economic Policy Subcommittee of the Joint Economic Committee. This group had conducted a comprehensive study of the problems posed by appeals for protection from import competition based on grounds of national security, using the 1954 ODM action involving the watch industry as a case study. The subcommittee report commented as follows on the need for consistent standards for judging defense essentiality appeals:

"Certainly policies related to national security, mobilization, and defense essentiality must be coordinated at the very highest levels of Government. Every department must be working from the same premises if the actions of all are to fit into a meaningful pattern. It seems very clear that there have been obvious conflicts in previous consideration of the problems of foreign economic policy and of national security. *** In the watch industry which we have taken as a case study, it is clear that a narrow view of the mobilization base and the broad objectives of foreign economic policy have clashed ***.

"The 1954 decisions on watches *** were not accompanied by completely developed analysis of defense essentiality. The industry appears to have been studied in isolation from other industries and any set of recognizable criteria.” The subcommittee also discussed at considerable length the type of standards which should be adopted to make certain that there is no conflict between America's foreign economic policy and its preparedness program. On this subject, the report offered the following comments and specific criteria which it felt should be utilized in defense essentiality studies:

"This subcommittee is convinced that a meaningful pattern very definitely must extend beyond any narrow continental defense concept of the industrial mobilization base. * * * Preserving national security in this kind of world requires the very broadest consideration of all aspects of particular policies. In

effect, as particular industries ask for special treatment in the name of national defense, we must ask ourselves these questions:

"(a) How unique and essential is this industry to our military strength and are their skills in short supply?

"(b) Will trade restrictions actually help the industry to keep its skills and does its civilian production aid our defense, or is it seeking a rationale for its own commercial advantage?

"(c) What repercussions will such restrictions have in other industries; will fresh burdens be thrown on them?

"(d) What alternative approaches to preserving the capacity of a critical industry have been sought and weighed?

"(e) Finally, and not least, what will be the repercussions generally on our allies and on other friendly countries whose prosperity is also important to our national security?"

The American Watch Association is in full accord with the report of the Subcommittee on Foreign Economic Policy regarding the type of criteria which should be utilized in studying defense essentiality appeals. We are convinced, as was the subcommittee, that extreme care must be taken to make certain that undue concentration on the requirements of the industrial mobilization base does not lead to a "fortress America" mentality, thus minimizing or ignoring the vital interrelationship of our national security with the economic and military strength of other free nations.

With this in mind, we should like to express a note of caution regarding the defense essentiality standards which were incorporated into the House-approved bill. These criteria, it seems to us, are designed essentially to meet a World War I or II type of situation, where there would be adequate time to convert from peacetime to military production. The type of criteria required in the act, we believe, are the kind which would help to identify America's true national security in terms of strengthening the ability of the United States and its allies to meet the sudden, devastating attacks which would probably occur in event of hostilities in the jet and missile age of today and tomorrow.

In brief, while we believe it is most sound for Congress to write standards into the statute, we feel strongly that the criteria should follow the lines indicated by the Joint Subcommittee on Foreign Economic Policy, rather than the standards established in the House bill.

Even in the case of those industries which are properly identified as truly vital to national security, it is the conviction of the American Watch Association that they cannot and should not be maintained through Government efforts to curtail import competition. In light of our own experience, we believe it is a misconception to think that the national security can be strengthened through efforts to adjust the level of imports as is contemplated in the present bill.

We are convinced that restrictions on imports are an ineffective method of attempting to revitalize and strengthen domestic industries and that trade barriers inevitably weaken the economic fiber and morale of our friends overseas. In short, we are convinced that resort to higher tariffs, quotas, and other restrictive devices will actually weaken our total national security and that the basic purposes of section 7 can best be achieved through techniques which do not involve a reduction in international commerce.

In our opinion, the responsibility of the United States toward its free-world allies, as well as in the uncommitted areas of the world, requires an extension of the Trade Agreements Act without tariff-boosting features which are in conflict with the fundamental intent and spirit of the program. Should the Congress allow the law to lapse, or load it with protectionist features, it would be a signal to other nations that America is abandoning its promises and its stated objective of promoting international trade. Our prestige and our leadership among the free nations would suffer a calamitous blow. Clearly, America's future security requires Congress to pass a law which will permit our country to work in closer harmony with other nations and which will continue to grant the President discretionary authority to administer the trade program as he deems best for all the American people.

The United States must face up to its world responsibilities and must not yield to pressures for more and more protection from import competition. Indeed, it is imperative that we seek alternative methods of assisting domestic industries which are injured by import competition. In this connection, we have been pleased to note that serious congressional consideration is now being given to plans for direct assistance to the employees and managements of such domestic

industries, to help them adjust their operations to the manufacture of new products.

Such proposals would be far less expensive for American consumers and more effective for American workers and inventors than exorbitant tariffs, quotas, and other trade barriers. We are convinced, in brief, that they would serve the best interests of the United States economy and the national security, and would avoid the serious pitfalls that inevitably accompany efforts to curb import competition.

The American Watch Association urges the Congress to extend the Trade Agreements Act for at least 5 years, eliminating those provisions which have been used to pervert its basic purposes and continuing the President's discretionary authority to administer the program.

STATEMENT OF WILLIAM L. CLAYTON IN SUPPORT OF H. R. 12591, THE TRADE AGREEMENTS EXTENSION ACT OF 1958

Mr. Chairman and members of the Senate Finance Committee, my name is William L. Clayton. I am a retired businessman living in Houston, Tex.

Beginning in 1940, I held various Government jobs, among them: Deputy Federal Loan Administrator, Assistant Secretary of Commerce, Surplus War Property Administrator, Assistant Secretary of State for Economic Affairs, and Under Secretary of State for Economic Affairs.

In the Department of State, the administration of the reciprocal trade agreements program was under my direct supervision.

There are many sound economic reasons why we should continue the reciprocal trade agreements program in full force and effect. In the twenty-odd years of its operation, it has been an important factor in the growth of our international trade which, in turn, has contributed much to the growth and prosperity of our country.

I am informed that this aspect of the matter will be adequately presented by others.

What I wish to do in this statement is to ask the committee to consider something else that is involved here which, in the present world circumstances, I believe to be of the most vital concern to our country and to the entire free world.

As of today, we are losing the cold war.

If anyone doubts this, let him look at a recent map of the world shaded to show the Communist areas and he will see the frightening inroads made by communism throughout the world in the 13 short years since the end of World War II.

If still in doubt, let him take a realistic view of the situation in the Middle East, just now the powder keg of the world.

The Russian objective in the cold war is the isolation of the United States. If they get control of the Middle East, they will substantially have achieved this objective.

If in the end we lose the cold war, we will lose just about everything that we hold dear, except life itself, without a shot being fired.

The West is losing the cold war principally because the free world lacks that degree of economic unity which through NATO it has achieved in the military field.

When General Eisenhower addressed Congress on February 1, 1951, immediately after his return from Europe, he spoke of the vast resources and great potentialities of the democracies and asked why we should be frightened of dictatorial government and then he gave this answer:

"Only for the one reason-because they have a unity of purpose." And then he said: "What we have got to do is meet that unity with a higher type, the unity of free men that will not be defeated."

Looking back over the events of the intervening years since General Eisenhower made this statement, one must doubt whether free men have yet achieved that higher type of unity of which he spoke. And still they must attain it or risk losing all.

But there is still another reason why we are losing the cold war.

The foreign policy of the West is mostly negative-it is against something. The Communist policy, on the other hand, is positive; they have a program to cure all the economic ills of all the people. It is largely, but not wholly, a false program. They roam around the world offering trade. We give away some millions here and some there. The Russians give little, but they trade. self-respecting people want charity; they want to earn their way.

No

We have grossly underrated the Russians, particularly in the scientific and industrial fields. Let us not be guilty of underrating them in the international economic field-trade, capital, technology.

The free world must shift from the negative to the positive if it is to win this struggle. As vicious and repugnant as communism is, permanent world peace will never be secured simply by fighting communism, even if the Communists lose.

Communism is but an outward manifestation of the world revolution now in progress-a revolution of the "have nots," not so much against the "haves" as against their own lot in life. There are just too many hundreds of millions of people in the world who go to bed hungry and cold every night to expect that victory in the fight to contain communism will bring peace to the world. Modern technological progress has given these people a realization of their plight which they have never had before.

Permanent world peace only can be build on a foundation of reasonable opportunity of economic progress for the peoples of the world.

To create such a foundation is the job of the free world.

Just as the United States took the lead in military unification of the democracies, she must take the lead in the economic field.

To seize the initiative in the cold war and turn defeat into victory, we must first make ourselves worthy of the leadership of the free world. We will never do that so long as we continue to act in the short-term, special interest of our minority groups against the national interest and against the needs and interests of our allies and other nations of the free world. We must greatly strengthen the economic unity of the free world. To do this, we have got to stop the prostitution of our national policy to serve the special interests of minority groups.

The reciprocal trade agreements program has come to be regarded over the world as a kind of symbol of our intention to do this. With the amendments added by opponents of the program, this expectation appears hardly justified. Nevertheless, it would be a shock to the non-Communist world and a delight to the Communist world if the Senate of the United States should weaken the program as it came from the House of Representatives.

If we are to win the cold war, there is so much to do and perhaps so little time in which to do it.

Much capital, public and private, must be made available to the countries that need it for the development of their resources and raising their standard of living.

Only in exceptional cases should there be gifts; but loans and investments can be amortized only through the receipt of goods in multilateral trade. If we are to seize the opportunities for peace and prosperity offered us by the modern world, we must contemplate a great increase in our imports, raising our standard of living, adding to the variety and richness of our lives, and increasing the efficiency of our production. Increased imports would mean decreased grants and smaller budgets.

All of this means that tariffs and other barriers to the international movement of goods must be lowered, not raised. Economic nationalism just won't mix with political and military internationalism. If we try to make them mix, the present feeble unity of the free world will go to pieces, the cold war will be lost, and freedom, as we have known it, will disappear.

STATEMENT OF KURT ORBAN CO., INC., IN SUPPORT OF THE RECIPROCAL Trade AGREEMENTS PROGRAM

KURT ORBAN CO., INC., Jersey City, N. J., June 30, 1958.

Hon. HARRY F. BYRD,

Chairman, Committee on Finance,

United States Senate, Washington, D. C.:

We import and export metals and metalworking machinery. Annual turnover is from $10 million to $20 million, or about one-tenth of 1 percent of total United States imports.

Employees: 65.

Thirty sales representatives make their living on our business in

This business also provides work for freight forwarders, customhouse brokers, truckers, stevedores, and people in banks, steamship lines, cable companies, insurance companies.

We also manufacture concrete reinforcement mesh at Ojus, Fla. Total payroll there is 10.

Customs duty on our imports averages around 7 to 8 percent, which means that we pay about $1 million in duty to the Government each year.

Our imports help the long-suffering taxpayer in three ways: First, by saving him money on his purchases; second, by paying to the Federal Government about $1 million a year which would otherwise have to be raised in taxes; third, by putting dollars into overseas countries, thus reducing the need for foreign aid. Indeed, our business, multiplied by 500, would eliminate the dollar gap, and would put United States commercial foreign relations back on a business-tobusiness basis, where they belong.

We search out and introduce new products and processes, and try to fill supply gaps wherever they appear.

In late 1949 and early 1950, the United States tobacco industry had a heavy surplus. West Germany had open capacity in nails, barbed wire, and other steel products, and they wanted the tobacco but had no dollars. We got together with a group of tobacco importers over there and tobacco exporters here and arranged to take steel products worth about $2 million in payment for the tobacco. This took a lot of sales effort, since we had to sell the steel in quantities of carloads and even truckloads all over the east and gulf coasts, but in the end everyone benefited.