1 Potentially affected by reverse preference condition. 2 Countries which do not receive most-favored-nation treatment from the United States. DEPENDENT TERRITORIES Afars and Issas (Territory of the)1 American Samoa, including Swain's Island Angola (including Cabinda) Australian Antarctic Territory Bermuda 1 British Antarctic Territory British Indian Ocean Territory (Aldabra, Farquhar, Chagos Archipelago, Des Roches) British Pacific Ocean (Gilbert and Ellice Islands, British Solomon Islands, New Hebrides Condominium, Pitcairn Islands) St. Helena (including Ascension, Gough Island and Tristan da Cunha) Sao Tome and Principe 1 Spanish North Africa: Sahara (Rio de Oro); Saghiet-el-Hamra Surinam1 Territories for which New Zealand is responsible (Cook Islands, Niuwe Island, Tokelau Islands and Ross Dependency) 1 United States trust territories of the Pacific Islands: include-Midway Islands, Johnston and Sand Islands, Wake Island and the Trust Territory of the Pacific Islands: the Caroline, Mariana Islands Virgin Islands of the United States (St. Croix, St. Thomas, St. John, etc) Wallis and Futuna Islands 1 1 West Indies*-Leeward Islands (Antigua, Montserrat, St. Kitts-Nevis-Anguilla, and British Virgin Islands) and Windward Islands (Dominica, Grenada, St. Lucia and St. Vincent) Question. Could communist countries be included in our system as beneficiaries? Answer. A country must receive non-discriminatory (MFN) tariff treatment in order to be eligible for the proposed U.S. system of generalized preferences. All Communist countries are currently ineligible under this provision except Yugoslavia, which has requested beneficiary status, and Poland, which has not. Poland, along with the Czechoslovakia, East Germany, Hungary, and the USSR, is on the list of 26 developed countries contained in the bill and would not be designated in any event. Yugoslavia, which considers itself a developing country and is generally recognized as such by other developed countries, would not be excluded by any of the mandatory criteria. If non-discriminatory tariff treatment 1 Potentially affected by reverse preference condition. is extended to other communist countries, under the provisions and procedures of Title IV of the Trade Reform Act, their subsequent eligibility for generalized preferences would be subject to the same provisions which apply in designating other countries. Question. Would countries that are associated in one way or another with the European Common Market be included as beneficiaries? Answer. Most countries associated with the European Communities (EC) provide, as part of the association agreement, trade preferences to EC products which enter their markets. Countries which have such association agreements with the EC or with any developed country than the U.S. will have to provide satisfactory assurances that these "reverse preferences" will be eliminated by January 1, 1976 in order to be designated a beneficiary of the U.S. system. Preferential treatment would be withdrawn if a country giving such assurances has not eliminated reverse preferences before that date. The condition would not be met if the developing country simply extends those preferences to the U.S. It should be noted that these preferences do not require that potential beneficiaries dissolve their associations with the EC. Question. Would oil-producing countries be included as beneficiaries in our system of generalized tariff preferences? Answer. None of the major oil-producing countries (except Canada and communist oil producers) will be excluded by the mandatory criteria contained in the title of generalized preferences. These oil-producing countries are beneficiaries of all 17 generalized preferences systems operated by other countries. The economies of Arab oil producers are such as to make it unlikely that they will benefit from the proposed United States system. Non-Arab producers appear to be in a somewhat better position to benefit but only in the long run. No decisions will be made on whether or not to designate these countries as beneficiaries until after the trade bill is signed into law. Considerations to be taken into account in making such decisions will include, but need not be limited to, factors such as the level of economic development and whether or not a country has expropriated U.S. property in violation of international law. As the bill is now written, the President would have discretionary authority to provide or to deny generalized preferences to any of these countries. Congress will, of course, be kept fully informed of the basis for any decisions on beneficiary status. INCREASING WORLD TRADE Senator HANSEN. I would like to pose a couple of philosophical questions. When the Secretary testified yesterday, Mr. Shultz said that : During the time of rapid inflation and a short supply situation in many commodities it has become more important than ever to remove artificial barriers that result in fewer goods being produced both here and abroad. Tariffs, quotas, embargos, and other restrictions on imports and exports generally prevent each country from producing what it could produce more efficiently. Thus fewer goods are produced at higher costs and there is a loss of economic welfare to the country as a whole. I think I have heard some of the arguments that have been made in support of this concept articulated by Secretary Shultz but I would ask you if it isn't fair to assume, given the ease with which people can travel around the world and the increasing ease with which we can communicate one with another, and that there will be a free movement of capital and technology as well as labor, which I think is implicit in what he was saying, that we are going to have to anticipate the time if we remove all tariff barriers and if we try to let each part of the world produce those things which they are best able to produce, that there will also be eventually a leveling out of standards of living worldwide. Is that a fair assumption, Mr. Ambassador? Mr. EBERLE. No, it is not necessarily on that basis. We can all philosophize but I have to deal with the real world to try to implement that philosophy and, first of all, let me comment by saying that I do not believe such total free world trade is practically possible in the near term or maybe even the long term. Senator HANSEN. I don't either. Mr. EBERLE. What we are really talking about here is how to continue to increase world trade. Two, that the so-called protectionism of the twenties and thirties will probably not come back for the reasons that the Secretary outlined, but that there will be a different kind of approach to so-called protectionism, which I have called defensive nationalism. That includes regional developments, preferential tariff arrangements as an example, or export subsidies to third markets. So fundamentally there still will be continued room for major differences both in the sovereign governments domestic policies and those policies. will be more or less brought together, first of all, in a world of floating exchange rates which will absorb some of those differences, both the rates of inflation and also the differences in standards of living; and, second of all, in the trade framework where there are some countries that have greater stakes it will take a longer time for other countries to develop those stakes. Hopefully, some of the developing world will move up in this arena with some preferences so that they will get out of poverty but I do not foresee in my lifetime this so-called leveling. I think it is more a question of bringing up than it is of leveling and of participating in a way and in a framework which takes advantage to the maximum extent possible of increased trade, comparative advantage to keep costs down and create more jobs. That is the approach that we are trying to take as a practical matter to the trade problem. Senator HANSEN. Well, I appreciate your saying that because I share your view that we aren't going to reach the millenium that seems to be implicit in this concept that we could achieve at one fell swoop, world peace, and better living for everybody by simply erasing all evidence of any national interests and trade barriers. Many people have talked about the oil boycott, and there were some of us who are members of this committee who had made a tour of some of the countries in the Middle East just after the first of the year, who talked about the threat that escalating oil prices posed, not only to developed economies but to the developing nations as well. We discussed this with a number of world leaders, including King Faisal of Saudi Arabia, and his response was: We are just catching up. When you look at the costs that we pay for steel and for cement and all of the things we have to import and have been buying from the western world for a long time you surely wouldn't begrudge us now for our getting a little more for what our oil is worth and what we have been selling so low for a long time." It is pretty hard to answer that. And when you look at them and compare their standard of living with us, and I am sure a lot of us wouldn't want to change places with the typical Arab in the Middle East. I think it is easy to inveigh against what is happening around the world, and too often what we are doing is reflecting our own appraisal of our own situation as compared with that of someone else in another country when we make these assertions. I think also that as we consider a new trade policy we have to ask ourselves where to draw a line between what might be desirable on the part of making our markets available and opening other markets to our products so that we can have a freer exchange of goods, on the one hand, and our national security, on the other. We have certainly seen what can come, following undue dependence on any foreign source of supply for something as important as oil and I just think that we must keep in mind the considerations that seem to be important for us as a nation defensively as we try to structure the kind of mechanism that will make it easier for our products to go abroad and those of other nations to be imported. Do you share that feeling? Mr. EBERLE. I think there are really two issues here that you bring out very clearly: First of all, Congress and particularly the Senate Finance Committee, has to answer these questions: The first one is does Congress want to participate with the executive branch in trying to enter into these negotiations, whether they be multilateral, bilateral, whatever they are, and try to solve some of these problems, recognizing the philosophy that you and I have talked about and that is fundamental because if the answer is "No," you don't need me. If the answer is "Yes," then the second question is simply how do we define the terms under which those negotiations and the trade bill and the management are going to take place. But I am hopeful that we are really talking about the second issue in these hearings and why, in response to Senator Ribicoff, I made the point that if we are to have really true negotiations to represent America it takes the backing of both Congress and the Executive because of the constitutional provisions to have a trade negotiation, and we have got to find a way to put that in perspective and in a trade bill before the United States can be effectively represented, and we haven't resolved those issues in the past and if we are going to do a good job of negotiation we have got to have that kind of backing and, therefore, I think now is the time to face it. EX-IM BANK LOANS TO RUSSIA Senator HANSEN. I appreciate that response, Mr. Ambassador. I understand that the Export-Import Bank has made and is continuing to make financial commitments with respect to projects undertaken in the U.S.S.R. notwithstanding the fact that one House of Congress has already adopted legislation which would likely have the effect of precluding such Export-Import Bank operations in Russia under present circumstances. Can you explain this policy and do you expect that the ExportImport Bank will continue to finance projects in Russia at the same rate as it has done in the past? Mr. EBERLE. Senator, I think there are two issues involved here. First of all, there was a congressional action 2 years ago which allowed the Export-Import Bank to make loans to nonmarket countries specificially, and that is the authority under which I understand that commitments have been made to Russia. The fact that one House has moved on this is certainly an indication, and I can assure you the ExportImport Bank is very knowledgeable and is concerned about this. Now, the commitments, and I would rather have the Eximbank speak for itself, but it is my understanding that they have a procedure where they make a commitment and then they go ahead and make |