lease settlement of the United Kingdom. And the United Kingdom's was typical of some of the other lend-lease settlements-in order to give some indication of what was received on the dollar in the lend-lease. Senator BYRD. What I am suggesting is, and the point I think the record ought to show, is that the U.S. Government contended that the Soviet Union owed the United States $2.6 billion. And you have testified to that. So I do not think that is a point at issues at all. Mr. WEINTRAUB. I am not quarrelling with that issue. Senator BYRD. Will you proceed? Mr. WEINTRAUB. The agreement contained a provision making payment of $674 million of the $722 million conditional upon re-extension of most-favorednation tariff treatment to Soviet goods. As you know, the administration has requested congressional authorization to extend most-favored-nation treatment to the Soviet Union as part of the Trade Reform Act of 1973. I might note that the Soviet Union already has paid $36 million of the $48 million payment which is unconditional under the agreement. For the record, I am submitting an information sheet giving additional details on the terms of the final settlement and a comparison of that agreement with the lend-lease accord with the United Kingdom. And as I stated earlier, for the record, if agreeable, I will submit an information sheet giving additional details on it. Senator BYRD. It will be inserted in the record. Mr. WEINTRAUB. I will be very brief on World War I debts. Senator BYRD. Before we get into World War I debts, let me ask you a moment about this proposed agreement with the Soviet Union. They will pay at least $722 million by July 1, the year 2001. Why would it say at least $722 million? Is that the figure? Why do you use at least $722 million? Mr. WEINTRAUB. The figure is because the Soviet Union has been allowed to defer any annual payment up to four annual payments, if they find themselves in difficulty in any given year during that period of time. Senator BYRD. How much is she supposed to pay a year under this agreement? Mr. WEINTRAUB. I am not sure how their payment schedule works, sir. In order to be able to conclude the $722 million by the year 2001, I would have to make that calculation. I am not sure, sir. Senator BYRD. What interest rate? Mr. WEINTRAUB. The interest rate is 3 percent. Mr. WEINTRAUB. That is correct. Senator BYRD. The information I have is that they would pay $12 million in October 1972, $24 million in July of 1973, $12 million in July of 1975, and the balance in equal installments of roughly $24 million. The interest rate would be 3 percent, and they would pay the $700 million over a period between now and July 1, the year 2001. Just one other question in that connection. The agreement that was made by the State Department and the Soviet Union, will that agreement be submitted to the Congress for consideration? Mr. WEINTRAUB. I do not believe so, sir. Senator BYRD. Thank you. Senator BYRD. I thank my dear friend from Wyoming. The CHAIRMAN. Senator Hansen. Senator HANSEN. Mr. Chairman, first let me compliment you on the initiative you have taken in calling these hearings and getting some of the legislation that the Congress is considering back into the proper committees. I think, as a member of the Interior Committee, we were going to take over Finance and Commerce and several others, and I agree with what you are doing here this morning. Mr. Secretary, from time to time, I have viewed with complete approbation your position on wage and price controls and your urging this country to return to a free economy insofar as the restrictions that have been imposed through the Price Stabilization Act is concerned. I understand further you have said so long as it is the law you will do your best to try to make it work, but you believe in the long run we will be better served if the free play in the marketplace can work uninhibited and unfettered. Is this essentially an accurate statement? Secretary SHULTZ. Yes, sir. OIL PRICES AND AVAILABILITY Senator HANSEN. I note in your testimony you state and I quote: Solutions to the energy problem can come about only through the development of new forms of international cooperation. I recall in the last couple of weeks that Kuwait has been unable to get many bids for oil which it has offered to sell at not less than $11.50 per barrel for crude. It is my feeling, and I think it comes into focus this week because of the announced intention of the President, to veto the energy bill, that maybe we ought to think more about what the forces in the marketplace would do for our domestic supply here. Would it be fair to say that given the incentive that presently exists in the market, we may very well anticipate the earlier coming of a viable oil shale operation than would have been the case, or that will be the case if we roll the price back to five and a quarter a barrel? Secretary SHULTZ. Yes; I certainly agree with that. Senator HANSEN. I am told by people who have been working out in the Rocky Mountain area in Colorado, Wyoming, and Utah, that if the price of crude could be up somewhere near where it is now, which domestically is around $10 or perhaps a little bit more, that there would be every reason to think that the technology soon could be developed that would within a few years, make a very substantial contribution to our energy supply. Do you share that view? Secretary SHULTZ. Yes, sir, I do. You hear all kinds of estimates of the cost of bringing in substantial oil shale, for example, or other alternative sources. Some are very low compared with current prices, some are in the neighborhood of them. We tried to figure out what we thought was a long-term supply price for oil in this country, that is a price at which there would be enough supply to clear the market and from domestic sources only and we thought it was probably in the neighborhood of $7. But it is a very difficult thing to estimate and I would not put much reliability on anybody's estimate. It seems to me we are better off to let the market operate and let people make their own judgments about what they think they are willing to invest in. That is the way our system has worked in the past and we have worked through these kinds of problems. And it seems to me that is the way to do it now. Senator HANSEN. Well, critics of the industry have repeatedly been quick to point out that there are no lines of waiting motorists to be found anywhere in Europe, that only here in America can they be found and that there are some who say the world is awash with oil everywhere except in the United States. Is it not true that in Europe the price of oil and gasoline is substantially higher than it is in the United States. Would it be your feeling that the price mechanism, working as it does there, probably accounts for the fact that there are not motorists lined up and that the supply has cleared the market? Would you comment on that? Secretary SHULTZ. Well, where you have a commodity being sold at some price and everybody who wants to get it at that price can get it, then you have got a market clearing price, and so they have market clearing prices in Europe. They are astronomical by our standards. Of course, they include a very large component of excise taxes, and the Europeans, because of these excise taxes, even in times of cheap oil had high prices, mostly for gasoline. They thereby accustomed themselves and made the kind of adjustments that one makes when the price of something is very high, particularly small cars, as an example, and motorcycles and bicycles and so forth. We have suddenly been hit by this rapid change in price and the shift over of people's reactions to that high price to less energy consuming things such as small cars causes us in a way more of a transition than it does them. I believe the only other country that is having real trouble with lines and rationing and stuff like that is Italy, and they have some of the same efforts to control the price that they do. TRADE DEFICITS AND RISING IMPORTED OIL PRICES Senator HANSEN. In your statement you assert that deficits arising from the rising costs of oil imports should not call for action to redress the trade balance. I am not sure I understand exactly what you mean by that statement. How do you anticipate the Europeans and the Japanese will react to their trade deficits caused by oil imports? Secretary SHULTZ. Well, the problem-I hope that people will react by not sort of overreacting and trying to cure that balance-of-payments problem on the trade account because by definition it cannot be done. That is, you have a situation in which a large flow of added foreign exchange is going to countries that do not want to import to the extent of their exports and so they will just accumulate a large balance, and that means that the world as a whole cannot achieve a trade balance. An individual country may, but if everybody tries to by competitive practices, no one will succeed, and we will just undercut each other. So try to keep the situation in place. Now, what we are seeing in the exchange markets is a reflection of the uncertainties created by this sudden large amount of money which we know is not just going to stay there in those Arab countries because that would be silly for them to just hold the money. They want to put it out on interest and earn money on it, so it is going to flow back into investments and the question is where is it going to flow? And what those reflows, where they go, will have an impact on the balance of payments of various countries. And after we have seen the situation settle down a little bit both in terms of where the money flows and I believe in terms of the prices coming down and the problem changing itself, then other rearrangements can take place. But in the meantime, I believe it is important to hold the present arrange ments. Senator HANSEN. My time is up. Thank you, Mr. Secretary. USE OF ADMINISTRATION'S RETALIATORY AUTHORITY Senator RIBICOFF. Secretary Shultz, I was pleased to hear your support for the amendment Senator Mondale and I have introduced regarding access to raw materials. Now, assuming these amendments had been law at the time that the Arab oil embargo was announced, do you believe this authority to retaliate would have been used by this administration? Secretary SHULTZ. Well, I think that, first of all, we need, we would envisage, I hope, two additional ingredients. One, is a sense of what are proper rules for behavior for supplying nations, on the one hand, and, on the other, international commitments to discipline those who do not follow the rules. Then, any individual country is in a much stronger position to act. If we act to retaliate but our effort is futile, that is, it does not have any impact, then it does not get us anywhere other than for us to feel like we tried to do something, but it is frustrating to try to do something and not succeed. You need to have a broader-based arrangement. REFUSAL OF COUNTRIES TO ABIDE BY TRADE AGREEMENTS Senator RIBICOFF. But that is the biggest problem we have right now. You say that you are in a hurry to have this trade bill. Yet, we have seen in the last few months complete disarray in the European community. Each nation has been out for itself. We have seen France acting on its own. We have seen the rest of the European community willing to toss the Netherlands, one of its partners, overboard. When the chips are down the nations of the world have indicated that they will look out for their own interests and not those of the international community. If this is the case, why do you need a trade bill now if the people you trade with will not live up to their agreements when there is a crunch. Why negotiate? Secretary SHULTZ. Well, I thought, recognizing what you have said and the eternal power of selfishness in people's motivations individually and as countries, it seems to me you have to bank on that and arrange your policies to a large degree for that. Granting all that, it was, I think, quite impressive how most countries attending the energy conference here in Washington, which the President called and the Secretary of State managed, joined in calling for a more broad ranging and multilateral approach to the problem. France did not, but other countries did, and I think that that is a good point and something to build on. And I think that, at the same time, we must remember that in many ways it takes more courage for a country totally dependent on imports for energy to speak up than it does for one like ourselves, which produces 85 percent of our energy right here at home. So while we are discomfitted a great deal, we are not in a position of a country that depends entirely on imports. So I think progress is there. Senator RIBICOFF. We are going to be faced with this same problem with tin, copper, aluminum and many other materials. Secretary SHULTZ. I hate to see you state that as a fact. It may or may not be. We have an important traumatic development in the oil case. It remains to be seen whether the actions taken by the oil producing countries are in their long run selfish, wealth-maximizing interests, and I think that a case can be made that their actions are not in their own selfish interests. I think in the end we will have to see, in order to go along with a multilateral arrangement of any kind, that is fundamentally in their individual interests in the long run. I hope that this point can be brought out more powerfully, and I think it lies behind the development that Senator Hansen mentioned; namely, the fact that these prices have been coming down in the last month or so. Senator RIBICOFF. Well, I think this is something that you are going to have to face in this committee and on the floor of the Senate without question. What has happened so far is only a cloud on the horizon. COMPARATIVE ADVANTAGE Mr. Flanigan, in your statement you used phrases like fair trade, open markets, comparative advantage, these sound like the old cliches you get in the economic textbooks. Could you tell me which American industry that has a high labor content do you believe has a comparative advantage. Mr. FLANIGAN. Given our wage levels, Senator, I do not think it is likely that our comparative advantages are likely to be for us in those industries which have a high labor content. But we do have a comparative advantage where either the Lord has blessed us with a fruitful land as in agriculture or our high technology has given us an opportunity to give our people jobs that have a higher wage rate than their counterparts around the world. Senator RIBICOFF. That is right. But that is not where the crunch is going to come. As Senator Byrd started to say, a large number of employees, happen to be in the industries with the low comparative advantage and high labor content whether it is shoes or textiles or other industries-and this is a main problem we are going to have to be concerned with. FAIR TRADE Now, you also talked about fair trade. What are the Europeans and Japanese doing at present that is unfair-and what do you intend doing about it? Mr. FLANIGAN. As the chairman said, all of us have certain instances in which we fall from the path of virtue, and we can certainly point out to our trading partners, the Japanese or Europeans, where they have fallen from the path of virtue and, as you know, we often have. There are examples, there are instances in the agriculture trade field we have discussed with them at great length over a long period of time. If the Congress gives us negotiating authority we intend to go to the negotiating table with them and urge that they bring their feet back to the path of virtue and no doubt they will urge the same on us, and |