in pres count. the Common Market system with the result that the free world trading system will become fragmented. If, for example, the African coffee bean has a prohibitive headstart over the Latin American coffee bean on its way to the European coffee drinkers' cups, Latin American trade could be seriously injured with inevitable demands on us for help. Am The United States has a strong interest in seeing to it that the 3 tropical products of all underdeveloped countries have equal access to the markets of the Atlantic Community, preferably free access. Def. We also have an interest in seeing to it that the manufactured exports of Japan and the underdeveloped countries have a growing access to the markets of the Atlantic Community under conditions which allow the Atlantic nations to adjust to new competition in manufactured goods. The Japanese Government has undertaken a plan to double Japan's national income in the 1960's. If Japan is not accepted as a full trading partner among Western nations, she will be under great pressure to look to China for the markets and supplies necessary to fulfill her development plans. Many underdeveloped countries to which we are extending sizable amounts of foreign aid (India and Pakistan, for example) are just beginning to offer significant quantities of manufactured goods in world trade. Without the prospect of growing trade opportunities with the West, opportunities which must eventually allow these countries to pay for their own development needs with their own exports, much of the economic justification behind foreign aid will be undermined and these countries, too, would be forced to turn east for their markets. Japan's needs for trading outlets are already keenly felt. While the Japan trade in manufactured goods from underdeveloped countries is still very small, this trade will grow; in fact, the United States is encouraging such a growth under its foreign aid program. Trade in tropical products from the underdeveloped countries is at this time by far the largest source of development finance available to them; the problem of providing outlets for this trade at fair and reasonably stable prices is already a major difficulty bedeviling our relations with the underdeveloped countries. Each of these matters promises to become more of a concern to the United States if the Common Market develops too many special relationships with third countries. Again there is reason to think that the Common Market members are ready to discuss these matters on an Atlantic-wide basis, providing the United States is willing to bargain. It is obvious that it will be easier to accommodate the trade of Japan and of the underdeveloped countries on an Atlantic-wide basis than it will be if Europe and North America each go their separate ways. It will be easier to cushion the effects of increased manufactured imports from Japan and the others through cooperating with the Common Market than it will be if they discriminate against some countries and we against others. Not only is it clearly in our interest to see that these countries have fair and equal access to the Common Market; our hopes of sharing out the burden of foreign aid with our European allies depend on some trade settlement. There is reason to hope that the coming of the Common Market will raise both the capacity and the willingness of its members to increase their aid to underdeveloped countries. But this will not come about if the United States is not willing to bargain for it. FA Commic track taches screwed by So but الله انا Comme trade C. EAST-WEST TRADE Finally, the consequences of inaction on our part may be serious in the matter of East-West trade. For some time now the United States has been virtually "going it alone" in its policy toward East-West trade. Our trade with the Communist bloc has dwindled to insignificant proportions and we have followed a strict policy of export controls. Meanwhile the Communist bloc has been expanding its trade with the rest of the world. The Communists have clearly had two different objectives. On the one hand they have been anxious to speed up their own development plans by importing advanced industrial technology from the West. On the other hand they have been developing trade as a political weapon in their dealings with the underdeveloped countries. While the bloc has shown itself capable of the most advanced technology in military science, its eagerness to import industrial technology from the West suggests at the very least that the Communist system does not generate industrial innovations at as rapid a rate as in the free economies of the West. The bloc's use of trade and aid as a political weapon in the underdeveloped countries is now a familiar story. Since trade is centered in state monopolies throughout the Communist bloc, the bloc has considerable flexibility in its purchases of internationally traded commodities, flexibility which can be used to disrupt markets, to relieve underdeveloped countries of embarrassing commodity surpluses, and to accomplish a variety of political objectives. The evidence suggests that the Communists have gained considerable advantage on both these fronts. The list of their industrial exports from Western Europe in recent years, as given in evidence before this subcommittee, adds up to a significant advancement in the industrial development particularly of Russia. More than 200 bilateral trade agreements in force between the Communist bloc and free countries add up to a significant threat to free international trading patterns. The ability of the bloc's state traders to undersell private traders in any given transaction represents a serious potential for political and economic disruption in the future. The evidence further suggests that Western Europe, anyway, gets far less in the way of long-term benefits from East-West trade than it gives. While in the short run, individual traders in Western Europe may realize useful profits from given transactions with the bloc, the things Western Europe imports in return are largely marginal. They can easily be replaced from sources of supply in the free world. Western Europe, nonetheless, maintains a much easier attitude toward East-West trade than we do. Whether or not the Common Market tends to bring Europe and American policy closer together in this area is very problematical. It is unlikely to happen if the United States does not press the point. It is also unlikely to happen if the United States cannot demonstrate conclusively that the possible trading opportunities with the Communist bloc in the future are as nothing compared with the possible trading opportunities under an open Atlantic partnership. D. SUMMARY Add together these potentially divisive economic issues and the sum is clearly enough to undermine the whole foreign policy of the United States. Primary Commun. The primary task of American diplomacy today is to weld together coal. a large coalition of free nations on the basis of a common appreciation. of the Communist threat and on the basis of a series of common undertakings to blunt that threat and assert the values of our own civilization. As military and paramilitary strategy becomes more and more confined by the mass destructive power of nuclear weapons, the economic undertakings of the free world become correspondingly more important. If America's first duty is to maintain our deterrent. power and the nerve to use it if necessary, America's second duty is to use its wealth and ingenuity to maintain the balance of hope among free men and women the world over. It has been a cardinal belief of our policy in the past that the integration of Western Europe will serve both these ends. We have believed that as Western Europe became a strong and coherent eco- 小 nomic entity the nations of Western Europe would become more able to respond to the challenge of communism and more willing to participate as an equal with us in enterprises designed to meet that challenge and to extend the area of the world where free governments hold sway. It is possible that out of the Common Market there can grow such a partnership. But it will not come about automatically. Action on our part is required and required now. PART III: OBJECTIVES OF FOREIGN ECONOMIC POLICY 1958 auth used up A. TRADE POLICY: THE NEED FOR NEW AUTHORITY 1. The U.S. Government needs new authority to negotiate tariff cuts now because the existing authority has been virtually exhausted. The extension of the Trade Agreements Act in 1958 which expires this June authorized reductions in tariffs up to 20 percent over a 5-year period. For all intents and purposes this authority has been used up. During the period since the enactment of the 1958 legislation U.S. merchandise exports expanded by about $3.5 billion with most of the increase taking place in trade with members and prospective members of the Common Market. In the same period our merchandise imports increased only about $1 billion. This indicates the possibilities of freer trade with the Common Market. New authority is needed now to take a much bigger step in that direction. 2. New authority is needed now to negotiate a broad trade agreement with the members and prospective members of the Common Market. The major objective of this agreement should be to secure as liberal access as possible for American farm and factory exports. Any delay in providing this authority will greatly increase the risk that our exports to the Common Market will stagnate as the area of free trade within Europe widens and the new external tariff begins to take effect. 3. New authority to negotiate tariff cuts with the Common Market is needed now to help insure the successful completion of the negotiations forming that market. In the year ahead Britain and other European countries will be applying for membership in the Common Market and working out the many agreements necessary to reconcile their policies with the present members. These new applicants are certain to be influenced by the attitude of the United States. Hesitation on our part may complicate these negotiations. A clear intent. on the part of the Congress to welcome the enlarged Common Market and to work for as wide a flow of trade as possible between Western Europe and North America will help speed the completion of economic integration in Western Europe. 4. New authority to liberalize trade is needed now to strengthen our balance of payments. Nothing would undermine confidence in the dollar more than a retreat or hesitation on our part now about the future course of our trade policy. Whatever the actions that may be needed to safeguard our balance of payments in the short run, in the long run it is our ability to maintain and expand our exports that gives others confidence in the strength of our currency and of our economy. The fact that the United States has maintained consistently a surplus of exports over imports-that we continue to export in manufactured goods about twice what we import in these goods-certainly does not suggest any deterioration in our competitive position in the world market. To assume such a deterioration by refusing now to further liberalize our trade and open up new export opportunities for our farms and factories would be interpreted widely as a capricious act of weakness. The need for a new kind of bargaining authority 5. A simple renewal of the Trade Agreements Act on the lines of the 1958 extension will not suit the needs of our foreign economic policy in the 1960's. The development of the Common Market will change radically the whole structure of the free world's trading system. A new economic unit, embracing perhaps a dozen advanced industrial nations, is forming whose trade will be greater than our own. Instead of conducting negotiations with each individual nation as in the past, we will have to negotiate with the new group as a whole. The traditional procedure of item-by-item bargaining over the thousands of products listed in our tariff schedule is clearly impracticable in these circumstances. The Common Market has discarded this procedure in liberalizing trade among themselves. We must fasion new bargaining instruments to meet the Common Market on its own ground. 6. Much greater authority is needed now than was needed in 1958. We must be able to offer negotiations consistent with the speed with which members of the Common Market are eliminating tariffs among themselves in order to maintain the recent expansion of trade between Western Europe and North America. Authority to reduce tariffs 20 percent over 5 years will not be enough. 7. The United States should be in a position to match the Common Market in the complete elimination of tariffs and other trade barriers over a wide range of products where we and they together have demonstrated our overwhelming technical superiority. Where the exports of advanced nations have virtually no competition except from each other, the tariff and other trade restrictions have become as obsolete as the buggy whip. If free competition is not allowed at this stage of development, it is legitimate to ask when is free competition in world trade ever possible? With the formation of the Common Market a significant part of our trade will fall under this definition. On this portion of our trade we should be ready to offer the Common Market free access to our market in return for free access to theirs. nations Size of incluct 8. Tariff negotiations should no longer be confined to individual item by products. The complexities of modern economies have rendered our tem! traditional item-by-item methods of trade bargaining obsolete in many cases. To assure reciprocal benefits for the concessions we make, we need a much more flexible bargaining instrument, one which will allow negotiations to take place over a wide range of products. Across-the-board bargaining over logical categories of products is necessary both to deal with a large economic unit like the Common Market and to obtain mutually beneficial concessions for new farm and factory products which are produced as part of a complex, integrated production process. 9. Special flexibility is needed to provide maximum opportunities for our farm exports. The present authority to trade tariff concessions for the removal of other kinds of concessions should be preserved and strengthened. Our farm exports account for almost a third of our trade with the members and prospective members of the Common Market, while our agricultural imports from these nations account for |