to efficient The economics of freer trade with the Common Market means for Shits industry the American economy relatively more employment and investment in our high-wage, high-efficiency industries. Over time it may mean relatively less employment and relatively less investment in low-wage, less-efficient industry than would be the case without an increase in exports. These marginal shifts go on in our economy all the time under the stimulus of domestic competition. Workers are dislocated, some businessmen go out of business, when others invent a new product or a new production process. So long as our economy is expanding at a rapid rate, we take these dislocations in our stride for change is the order of the day under the free enterprise system. When dislocations occur because of increased imports, the results are exactly the same. American consumers and producers are accepting a product produced more efficiently abroad in return for a greater opportunity to sell abroad more of that which we produce most efficiently. Again the displacement of workers and industrial plant caused by this kind of change rarely involves hardship when our economy is expanding at a healthy rate. There can, however, be cases of real hardship arising from import competition. Congress recognized that even as a result of domestic competition when it passed the Area Redevelopment Act last year. In part 3 of this report we recommend a policy, called trade adjustment assistance, for cases of genuine hardship stemming from import competition. We believe that there are a number of aids which the Federal Government should be empowered to use in cases where workers and individual factories face prolonged periods of idleness. because of increased imports. These aids would be used not to protect uncompetitive business practices; they would be used to cushion the change needed for more efficient production or for retooling and retraining for a new kind of production. A decision to provide trade adjustment assistance is a necessary part of any program of freer trade. By aiming at adjustment rather than protection it is quite in keeping with an open economic policy toward other nations. The subcommittee believes that the general economic disciplines inherent in an Atlantic partnership should also be welcomed. The overall efficiency of the American economy has been a matter of congressional and public concern for many years now, particularly since the adoption of the Employment Act of 1946. Both Congress and the Executive are pledged to promote policies which encourage growth, high employment levels, and stable prices. The fact that closer economic relations with the Common Market will add another powerful incentive toward the adoption of such policies should be welcomed. Just as the individual states of Europe have made a virtue out of their economic interdependence, so the United States can and must make an economic virtue out of our interdependence with Europe. The stage is admirably set for the growth of a close economic partnership. The time is ripe for action. The economic principles which are being rediscovered in Europe are, after all, the guiding principles of the American enterprise system. At the same time our economy now needs the "brisk shower of competition" which Europe has taken. Just as economic forces have been the prime forces working for European integration, so these same forces give us a unique oppor tunity to start the growth of an Atlantic partnership. In pursuing this course we must assure the rest of the free world that our aim is not to form an exclusive club but to form an association better designed to serve the needs of free nations everywhere. We will need to be on guard against policies and pronouncements which seem to ignore the legitimate aspirations of the free nations of Asia, Africa, and Latin America. We must make it clear that a prime purpose of Atlantic cooperation is to give us more strength to aid the development of these countries. Indeed, the major aim of economic cooperation in the Atlantic Community should be to pool our resources and skills in order to assure the advance of freedom everywhere. Ours must be an open partnership, designed to preserve diversity, not to enforce uniformity. It is only as we courageously accept the increasing interdependence of our freedom with others the world over that we can preserve our own freedom and national independence. Such is the price of technical and economic progress in our time. The alternative is simply to deny the very idea of progress. PART II: THE CONSEQUENCES OF INACTION January 1, 1958, will go down as one of the pivotal dates in history. On that day the Treaty of Rome, signed by six European nations, France, Germany, Italy, Belgium, Holland, and Luxembourg, went into effect. The signatories, among other things pledged to: Features 20.me Ticafy 1. Remove tariffs, quotas, and other trade barriers among themselves; 2. Create a uniform external tariff system to regulate trade between themselves and the rest of the world; 3. Abolish restrictions on the movement of labor, capital, business enterprises and services within the new community; 4. Coordinate monetary and fiscal policies in order to promote high employment and stable prices in each country; 5. Establish a common agricultural policy. The original timetable for bringing about a full economic community called for a 12- to 15-year period of adjustment, but this timetable is already being shortened in some important respects. While there are a great many obstacles still to be overcome, the vitality of the Common Market idea has already in 4 years begun to transform the face of Europe. The best indication of how far the theories behind the Treaty of Rome have already been put into practice was the decision last year of the United Kingdom Government to break with centuries of tradition and apply for membership on the basis of full acceptance of the treaty's provisions. For U.S. foreign economic policy, the Treaty of Rome marked the closing of one chapter and the opening of a new one. With the beginning of the Marshall plan the United States undertook to promote the full integration of Western Europe. We consistently and persistently encouraged the nations of Europe to compete in a single unified market. Our aim was twofold; to curb the kind of European nationalism which led to two world wars, and to help create an environment wherein Western Europe could grow strong enough to participate with us as an equal partner in the many enterprises which free nations must undertake to guard their security and prosperity in this century. The course of this policy has not been without its disappointments; for example, the European Defense Community and its companion Political Union proved in 1954 to be premature. But the progress of European economic integration from reconstruction, through financial independence to the Coal and Steel Community, the European Atomic Energy Commission and, finally, the Common Market has been spectacular. The chapter in American diplomacy which ended with the Treaty of Rome must be counted among the most successful in American history. The new chapter opens with an entirely new situation. The United States, instead of being the leader of a score or more of industrialized nations bound together with loose ties of common interest and common heritage, faces the prospect of becoming one of two economic TRADE EXPANSION ACT OF 1962 giants, dominating the affairs of the free world. The Common The fact is, however, that if the United States does nothing, the As a first order of business, the consequences of inaction on our part should be examined coldly and honestly. A. TRADE POLICY There is a clear and present danger that if we do nothing about our trade policies, trade will become a new, divisive issue within the Atlantic Community. This is true both of trade in manufactured goods and trade in farm products. The act of creating a Common Market in Europe contains within CX it a serious threat of discrimination against American exports. Euro-de pean producers (and British producers too, after Britain's accession) cowill receive an automatic advantage over American exporters in the new market. This automatic advantage stems from the simple fact that tariffs among Common Market members are being abolished, to be replaced by a common external tariff wall against the rest of the world. Where, for example, the American exporter and the German exporter used to compete on even terms in, say, the French or Italian markets, now the German exporter will have free access while the American will have to pay the new external tariff. Even if the new external tariff is lower than the tariffs it replaces the American exporter is still competing at a handicap with European producers who will have removed all tariff barriers among themselves Just how much of a handicap this will be depends on many factors. The external tariff on a wide range of goods of interest to Americans (cotton, for example) will be low or nonexistent: Europe depends for its livelihood on a great variety of imported products, many of which it doesn't produce at all. Then again tariffs within the Common Market are not being swept away overnight but are being reduced by stages; the American exporter is not faced with the full handicap all at once. Finally, the Common Marcel shown itself willing and ready to bargain' down its external tariff in exchange for trading Common Market is not starting out as a protectionist organization. concessions with outsiders, particularly with the United States. The Nonetheless, it is obvious that if we do nothing about our trade) are inherent in the creation of the Common Market, will take root and ican export stake in Western Europe in 1960 amounted to more than lead to a new vested interest in protectionis in Europe. The Amer$6 billion, or about a third of our total exports. If nothing is done 284 EEC EEC to lower the external tariff around the Common Market, American industry may have difficulty maintaining this stake, much less expanding it. Our handicap is likely to be felt sooner rather than later. The Common Market timetable of tariff cuts has already been shortened twice; trade barriers among the original six members will have been reduced by 50 percent at the beginning of 1962 or nearly 2 years ahead of schedule. There is every reason to expect still further shortening of the timetable. While Britain and the other Western European nations have not yet joined the Common Market, they have been reducing tariffs among themselves and will have to match the Common Market reductions when they do join. CAP proble The problem of maintaining and expanding our farm exports to Europe (worth $1.7 billion in 1960) poses different and even more difficult problems. The Common Market has the aim of working out a common agricultural policy for all member countries, and to achieve this is perhaps the most difficult task they have set themselves. Like the United States, each member country now has a system, of one kind or another, designed to maintain farm incomes-price supports, subsidies, import restrictions and so on. To bring about policy changes adverse to the agriculture of any country will manifestly be a difficult political task. Yet recent announcements indicate that the Council of Ministers of Common Market countries have been able to reach agreement even on this difficult problem. The United States faces the choice of offering to mesh its own agricultural policy with that of the enlarged Common Market or accepting almost certain discrimination on its farm exports. North American agriculture is by a wide margin the most productive in the world. Under an ideal system of free trade between North America and Europe, North American farms would quickly become the breadbasket of Europe. Growing most basic foods and fibers is a specialty in which North Americans have few serious competitors. But trade in farm products is anything but ideal, anything but free. Many of our own agricultural policies are in conflict with the ideals of free trade. Reconciling our policies with those of the Common Market, enlarged as it will be by Britain and her Commonwealth connections, is going to be one of the biggest obstacles in the way of an Atlantic partnership. Clearly, the consequences of inaction on our part will be very serious. B. RELATIONS WITH THIRD COUNTRIES Built into the Common Market structure as it stands now are provisions which could result in serious discrimination against the trade of many countries with which the United States has very close relations, particularly Japan and the Latin American nations. These provisions allow certain countries in which members of the Common Market have longstanding interests to become associated states and have free access to the Common Market. In particular, France has demanded such privileges for her former colonies in Africa. Britain, on its accession, can hardly ask for less for her former colonies in Africa and may also ask for the same privileges for certain Commonwealth countries. If these special privileges are allowed to multiply and to become vested interests, American policy may be seriously affected. First, we may be forced to grant similar concessions to free nations outside |