COMMERCIAL POLICY

Peter Kenen, associate professor, economics, Columbia University. Morris C. Dobrow, executive secretary, Printing Papers Manufacturers Association, and public adviser to U.S. GATT delegation. Julius Stulman, president, Stulman-Emrick Lumber Co.; publisher, "Main Currents in Modern Thought.'

Peter R. Nehemkis, Jr., counsel, Whirlpool Corp.

T. V. Houser, vice chairman, CED Research and Policy Committee; retired chairman, Sears Roebuck & Co.

A. B. Sparboe, vice president, Pillsbury Co., member, National Chamber of Commerce, foreign commerce committee, foreign policy committee, National Chamber of U.S. Chamber of Commerce.

Clay Shaw, director, International Trade Mart, New Orleans. Raymond Vernon, professor of international trade and investment, Harvard Business School.

O. R. Strackbein, president, Nationwide Committee of Agriculture, Industry and Labor, Washington, D.C.

Herbert E. Harris, second assistant legislative director, American Farm Bureau Federation.

Irving Kravis, professor of economics, Wharton School of Finance and Commerce, University of Pennsylvania.

Bert Seidman, economist, department of research, AFL-CIO, public consultant to U.S. delegation to GATT.

Hon. George W. Ball, Under Secretary of State.

Hon. W. Willard Wirtz, Under Secretary of Labor.

Hon. Edward Gudeman, Under Secretary of Commerce, with a panel of Commerce Department officials.

It is most gratifying to acknowledge the public service which the study paper authors and the witnesses have contributed in bringing about a better understanding of the United States economic role in the free world and the issues which confront us all.

(Signed) HALE BOGGS,

Chairman, Subcommittee on Foreign Economic Policy.

PART I: TIME FOR DECISION

In 1962 Congress faces its most important decisions on foreign economic policy since the Trade Agreements Act of 1934. The practical achievements of the European Economic Community (popularly known as the Common Market) present the United States with an entirely new set of economic problems, affecting the whole range of our foreign policy.

The Common Market today is a fact, not a theory. As the second part of this report attempts to illustrate, the Common Market has set in motion forces which can, if we do nothing, isolate us from our major allies. Communist imperialism will do everything in its power to exploit these divisive forces, for communist imperialism has a vested interest in every issue which tends to divide the free world. At the same time the Common Market presents us with a unique opportunity to take a giant step in the direction of a new Atlantic economic partnership out of which can grow new and decisive strength in our economic battle with communism.

Gov. Christian A. Herter, Secretary of State in President Eisenhower's second administration, put the matter simply in his opening statement before the subcommittee:

Iwant us EL I can think of nothing that the Russians would like

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better than to see a first-rate trade war between this side of the Atlantic and the other side of the Atlantic. So what is the alternative in the picture? The alternative, to my mind, is to reconcile our policies with those of Europe, with a view of increasing trade on both sides, helping our balance-ofpayments picture, and bringing a closer unity which would make possible the facing of the Soviet bloc with such a strong economic community that our chances of survival would be magnified enormously.'

Governor Herter's theme was echoed by the other distinguished leaders of business, labor, agriculture, the professions, and Government who testified before the committee. The fact that the United States in the 1960's will no longer be the leader among many in the Atlantic community, but instead one of two economic giants which together hold the bulk of the free world's productive power was regarded by the witnesses as a great opportunity to consolidate the strength and purpose of free nations.

There was virtually unanimous opinion that an immediate revision of our trade legislation was necessary as a start toward exploiting this opportunity. In his state of the Union message, President Kennedy asked for

a new law a wholly new approach-a bold instrument of American trade policy. Our decision could well affect the unity of the West, the course of the cold war and the growth of our Nation for a generation or more to come.

1 Hearings before the Subcommittee on Foreign Economic Policy of the Joint Economic Committee, Congress of the United States, December 4-14, 1961, p. 12.

Trade is seen by the President, as well as by the witnesses before this subcommittee as the key to foreign economic policy in the 1960's. We must examine why this is so.

While there is no question of joining the Common Market the decisions Congress and the American people face affect far more than our traditional concern with tariffs and trade barriers, far more even than our newer concerns with foreign aid and export controls. The opportunity to form a trade partnership with the Common Market involves bringing together the foreign and domestic policies of this country at dozens of different points. Such a partnership means new en accepting a degree of economic interdependence between ourselves teck pen and our major allies which is something entirely new in the American experience.

A commitment to freer trade is not just a commitment to lower tariffs. It is also an implied commitment to a rate of growth which approximates that of our partners; an implied commitment to a farm policy which encourages competitive trade and discourages burdensome surpluses; an implied commitment to a monetary policy which encourages growth while preserving the purchasing power of the dollar; and an implied commitment to a fiscal policy which stimulates high levels of employment and economic productivity.

These are not formal commitments for which treaties would be negotiated or legislation asked. They are simply the requirements for doing business in an Atlantic partnership. We cannot take advantage of the tremendous new trading opportunities which the rapid growth of the Common Market affords us, if our economy is loping along at only half their rate of growth; it is, after all, the rate of growth even more than the level of tariffs which determines whether world trade expands or not. We cannot maintain and expand our farm exports simply by lowering tariffs if we and our trading partners continue to fence off our farm economies with ever higher subsidies and ever smaller import quotas. It does little good to lower trade barriers if our trading partners lose confidence in our money or we in theirs.

If this kind of economic interdependence is new to most Americans, it is a very familiar state of affairs in Europe. The people of Western Europe know that they are dependent for their livelihood on foreign trade. When deciding their own domestic policies, they have become used to paying attention to what their neighbors do and think because they have all experienced the unpleasant fact that bad policies at home can bring swift retaliation in the form of payments difficulties with their neighbors. Their decision to form a Common Market represents, in economic terms, a decision to make a virtue out of the fact of economic interdependence. The people of Europe have decided to try to solve their domestic problems-to better earn a high standard of living and better develop national economic strength-through cooperation in the Common Market and, in the words of Prime Minister Macmillan, through taking in "a brisk shower of competition."

Europe, through the Common Market, is rediscovering the benefits of a very old economic principle, namely, that rising productivity and increasing economic opportunities stem from an increasing specialization or division of labor-and from a wide area of competition to stimulate the energies and inventories of free enterprise. The very

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rapid rates of growth on the European Continent in recent years illustrate how quickly the benefits can be realized once the principle is accepted. The Europeans have learned the lesson of America's broad, competitive markets.

The United States is not in the same position as the individual nations of Europe before the Common Market was formed. We are not nearly so dependent on imports and exports for our livelihood. po But few Americans any longer seriously question the fact that we have

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Commarreducible commitments around the world, military commitments and

commitments to new nations which are trying to engineer in freedom an escape from the worst ravages of poverty. To fulfill these commitments the United States must pursue an open economic policy toward other nations. We must look principally to our exports to pay not only for the imported raw materials we need, but also to maintain our political and military position in the world. We either earn these things principally with our exports, or we will be forced to abandon positions we can ill afford to lose.

At the same time our currency, in addition to gold, is the major means of maintaining financial order in the world; nations the world over hold their savings in dollars, and they finance a good part of their trade in dollars. Quite naturally the governments and financial leaders of these nations have the keenest sort of interest in the domestic economic policies of the United States for it is those policies which determine the purchasing power of the dollar.

Considering how long it has been since the American economy faced serious competition from within the free world, it is perhaps natural that some Americans feel or hope that decisions can be postponed.

In recent months voices have been raised here at home to question seriously the ability of our economic system to stand up to the new, competitive demands on it. There have been claims that our exports are being "priced out" of world markets and that we cannot compete with nations having wage levels lower than our own. We have heard doubts raised about our ability to meet the foreign commitments we have undertaken. The fact that in recent years there has been a steady and stubborn deficit in our balance of payments which has resulted in a considerable transfer of gold abroad has tended to stimulate the doubters and give substance to their fears.

It is undeniable that the rise of strong economic competitors within the free world is going to make adjustments in the American economy necessary. It should be obvious, however, that if we are not to jeopardize seriously our political and military position in the world, to say nothing of our standard of living and our rate of economic growth, we must welcome these adjustments, not deplore them.

The subcommittee agrees with the witnesses who have stressed the great benefits to be had from accepting the challenge of the Common Market. The first and most direct benefit will be to our export industries. As Under Secretary of State George Ball said in his statement before the subcommittee:

When you have an area with the dynamism that the Common Market has, with the growth rate which it is enjoying, and with the momentum which it has built up, then there is bound to be a greater and greater demand for goods. I think it is essential that American producers have the opportunity

to share in the development of that potential, and that the Government of the United States has a responsibility for helping to make this possible by eliminating, so far as practicable, obstacles which they would otherwise find.2

ESC Market potential

For the first time in our history our exporters have the opportunity to penetrate a modern mass market which is very similar to our own. The greater this opportunity, the stronger our whole economy will be, and the better assurance we will have that our living standards will continue to rise. Our export industries are our most efficient producers; they pay the highest wages. We know they are efficient for the simple reason that we are able to sell in open competition abroad so much more than foreign producers sell to us. Over broad categories of machinery, chemicals, electrical and electronic equipment, farm products, and even textiles, our exports are much greater than our imports. In competition with the Common Market nations, there is every reason to believe these industries will expand and multiply. Furthermore, the richer the average European gets, the more kinds of American products we can expect to sell in Europe, and the more incentive there will be to develop new products here. Some striking examples of the market potential in Europe for American exports were presented to the subcommittee by Peter R. Nehemkis, Jr., counsel of the Whirlpool Corp. In his testimony, Mr. Nehemkis said:

Consumer If you will examine the chart which is before you, you Duables will see why the European Common Market excites U.S. manufacturers. In the first column, you have the figures which show the actual market saturation here in the United States. Take the first one, automobiles. We are already more or less saturated 100 percent. But now look at the figure for the saturation of the "Seven" it is only 25 percent. Look at the figure for the "Six," 19.

Now turn to television sets. Here in the United States, the actual saturation is 89 percent for television sets, but in the "Seven," it is 61, and in the "Six" it is only 10.

Now, radio sets-here in the United States, the market is already saturated to the extent of 96 percent, but in the "Outer Seven," it is only 24 percent, and in the "Inner Six," it is only 20.

Let us look at one of the products with which I am most familiar, refrigerators. Here we have a market which is saturated to the extent of 98 percent, whereas in the "Seven," the saturation as of the moment is only 14 percent and in the "Six", it is only 12 percent.

Another product that has a special interest to me, washing machines in the United States, the market is saturated to the extent of 91 percent, whereas in the "Outer Seven," it is only 23 percent, and in the "Inner Six," it has not even begun, it is only 12 percent.

To deny our export industries the best opportunity we can negotiate to compete in the Common Market would make as little sense as it would to deny a star runner the right to compete in a track meet because he runs too fast.

* Hearings, op. cit., p. 348. 'Hearings, op. cit., p. 240.

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