TRADE EXPANSION ACT OF 1962 MONDAY, MARCH 12, 1962 HOUSE OF REPRESENTATIVES, Washington, D.C. The committee met at 10 a.m., pursuant to notice, in the committee room, House Office Building, Hon. Wilbur D. Mills (chairman of the committee) presiding. The CHAIRMAN. The committee will please be in order. Today the committee is beginning 4 weeks of public hearings on the President's reciprocal trade agreements proposal. This proposal is contained in H.R. 9900, the Trade Expansion Act of 1962, which I introduced at the request of the administration on January 25 of this year. In the light of the very heavy legislative schedule of the Committee on Ways and Means, it was necessary to place reasonable limits on the time which the committee could devote to the public hearing on this subject. Therefore, under the direction of the Calendar Committee, the witnesses have been requested to consolidate testimony, avoid repetitious statements, and limit their oral testimony to the essentials of their position. Of course, full statements will be received for the printed record and included in the record. One additional point should be made. In the light of the foregoing conditions, it will not be possible for witnesses to shift hearing dates once they have been notified of the day on which they are scheduled. Without objection, there will be included in the record a copy of the message of the President transmitting this proposal to the Congress, a copy of the press release which was issued on February 16 last announcing the details of the hearings, a copy of the bill H.R. 9900, a copy of the section-by-section analysis of the bill as prepared by the executive branch, and a copy of a letter of March 9, 1962, from Howard C. Petersen, special assistant to the President, transmitting a list of modifications to H.R. 9900 suggested by the executive branch. (The documents referred to follow :) [H. Doc. No. 314, 87th Cong., 2d sess.] MESSAGE FROM THE PRESIDENT OF THE UNITED STATES RELATIVE TO THE RECIPROCAL TRADE AGREEMENTS PROGRAM To the Congress of the United States: Twenty-eight years ago our Nation embarked upon a new experiment in international relationships-the reciprocal trade agreements program. Faced with the chaos in world trade that had resulted from the great depresssion, disillusioned by the failure of the promises that high protective tariffs would generate recovery, and impelled by a desperate need to restore our economy, President Roosevelt asked for authority to negotiate reciprocal tariff reductions with other 81843-62-pt. 1 Komedy 5 new devel. EEC nations of the world in order to spur our exports and aid our economic recovery and growth. That landmark measure, guided through Congress by Cordell Hull, has been extended 11 times. It has served our country and the free world well over two decades. The application of this program brought growth and order to the free world trading system. Our total exports, averaging less than $2 billion a year in the 3 years preceding enactment of the law, have now increased to over $20 billion. On June 30, 1962, the negotiating authority under the last extension of the Trade Agreements Act expires. It must be replaced by a wholly new instrument. A new American trade initiative is needed to meet the challenges and opportunities of a rapidly changing world economy. In the brief period since this act was last extended, five fundamentally new and and sweeping developments have made obsolete our traditional trade policy: The growth of the European Common Market—an economy which may soon nearly equal our own, protected by a single external tariff similar to our own— has progressed with such success and momentum that it has surpassed its original timetable, convinced those initially skeptical that there is now no turning back, and laid the groundwork for a radical alteration of the economies of the Atlantic alliance. Almost 90 percent of the free world's industrial production (if the United Kingdom and others successfully complete their negotiations for membership) may soon be concentrated in two great markets-the United States of America and the expanded European Economic Community. A trade policy adequate to negotiate item-by-item tariff reductions with a large number of small independent states will no longer be adequate to assure ready access for ourselves and for our traditional trading partners in Canada, Japan, Latin America, and elsewhere-to a market nearly as large as our own, whose negotiators can speak with one voice but whose internal differences make it impossible for them to negotiate item by item. The growing pressures on our balance-of-payments position have, in the past few years, turned a new spotlight on the importance of increasing American exports to strengthen the international position of the dollar and prevent a steady drain of our gold reserves. To maintain our defense, assistance, and other commitments abroad, while expanding the free flow of goods and capital, we must achieve a reasonable equilibrium in our international accounts by offsetting these dollar outlays with dollar sales. The need to accelerate our own economic growth, following a lagging period of 7 years characterized by three recessions, is more urgent than it has been in years-underlined by the millions of new job opportunities which will have to be found in this decade to provide employment for those already unemployed as well as an increasing flood of younger workers, farmworkers seeking new opportunities, and city workers displaced by technological change. The Communist aid and trade offensive has also become more apparent in recent years. Soviet bloc trade with 41 non-Communist countries in the lessdeveloped areas of the globe has more than tripled in recent years; and bloc trade missions are busy in nearly every continent attempting to penetrate, encircle, and divide the free world. The need for new markets for Japan and the developing nations has also been accentuated as never before, both by the prospective impact of the EEC's external tariff and by their own need to acquire new outlets for their raw materials and light manufactures. To meet these new challenges and opportunities, I am today transmitting to the Congress a new and modern instrument of trade negotiation-the Trade Expansion Act of 1962. As I said in my state of the Union address, its enactment "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." I. THE BENEFITS OF INCREASED TRADE Specifically, enactment of this measure will benefit substantially every State of the Union, every segment of the American economy, and every basic objective of our domestic economy and foreign policy. Our efforts to expand our economy will be importantly affected by our ability to expand our exports, and particularly upon the ability of our farmers and businessmen to sell to the Common Market. There is arising across the Atlantic a single economic community which may soon have a population half again as big as our own, working and competing together with no more barriers to commerce XP and investment than exist among our 50 States in an economy which has been demand growing roughly twice as fast as ours-representing a purchasing power which will someday equal our own and a living standard growing faster than our own. As its consumer incomes grow, its consumer demands are also growing, particularly for the type of goods that we produce best, which are only now beginning to be widely sold or known in the markets of Europe or in the homes of its middle-income families. Some 30 percent of our exports-more than $4 billion in industrial goods and materials and nearly $2 billion in agricultural products-already goes to the members and prospective members of the EEC. European manufacturers, however, have increased their share of this rapidly expanding market at a far greater rate than American manufacturers. Unless our industry can maintain and increase its share of this attractive market, there will be further temptation foreign to locate additional American-financed plants in Europe in order to get behind the external tariff wall of the EEC. This would enable the American manufacturer to contend for that vast consumer potential on more competitive terms with his European counterparts but it will also mean a failure on our part to take advantage of this growing market to increase jobs and investment in this country. A more liberal trade policy will in general benefit our most efficient and exec panding industries-industries which have demonstrated their advantage over other world producers by exporting on the average twice as much of their prodnets as we import-industries which have done this while paying the highest wages in our country. Increasing investment and employment in these growth industries will make for a more healthy, efficient, and expanding economy and a still higher American standard of living. Indeed, freer movement of trade between America and the Common Market would bolster the economy of the entire free world, stimulating each nation to do most what it does best and helping to achieve the OECD target of a 50-percent combined Atlantic Community increase in gross national product by 1970. Our efforts to prevent inflation will be reinforced by expanded trade. Once given a fair and equal opportunity to compete in oversea markets, and once subject to healthy competition from oversea manufacturers for our own markets, American management and labor will have additional reason to maintain competitive costs and prices, modernize their plants, and increase their productivity. The discipline of the world marketplace is an excellent measure of efficiency and a force to stability. To try to shield American industry from the discipline of foreign competition would isolate our domestic price level from world prices, encourage domestic inflation, reduce our exports still further, and invite less desirable governmental solutions. Our efforts to correct our adverse balance of payments have in recent years + roughly paralleled our ability to increase our export surplus. It is necessary if we are to maintain our security programs abroad-our own military forces overseas plus our contribution to the security and growth of other free countriesto make substantial dollar outlays abroad. These outlays are being held to the minimum necessary, and we are seeking increased sharing from our allies. But they will continue at substantial rates and this requires us to enlarge the $5 billion export surplus which we presently enjoy from our favorable balance of trade. If that surplus can be enlarged, as exports under our new program rise faster than imports, we can achieve the equilibrium in our balance of payments which is essential to our economic stability and flexibility. If, on the other hand, our surplus should fail to grow, if our exports should be denied ready access to the EEC and other markets, our oversea position would be endangered. More over, if we can lower the external tariff wall of the Common Market through negotiation our manufacturers will be under less pressure to locate their plants behind that wall in order to sell in the European market, thus reducing the export of capital funds to Europe. Our efforts to promote the strength and unity of the West are thus directly related to the strength and unity of Atlantic trade policies. An expanded export program is necessary to give this Nation both the balance-of-payments equilibrium and the economic growth we need to sustain our share of Western military security and economic advance. Equally important, a freer flow of trade across the Atlantic will enable the two giant markets on either side of the ocean to impart strength and vigor to each other, and to combine their resources and momentum to undertake the many enterprises which the security of free peoples demands. For the first time, as the world's greatest trading nation, we can welcome a single partner whose trade is even larger than our own-a partner no longer divided and dependent, but strong enough to share with us the responsibilities and initiatives of the free world. The Communist bloc, largely self-contained and isolated, represents an economic power already by some standards larger than that of Western Europe and hoping someday to overtake the United States. But the combined output and purchasing power of the United States and Western Europe-nearly a trillion dollars a year-is more than twice as great as that of the entire Sino-Soviet world. Though we have only half the population, and far less than half the territory, we can pool our resources and resourcefulness in an open trade partnership strong enough to outstrip any challenge, and strong enough to undertake all the many enterprises around the world which the maintenance and progress of freedom require. If we can take this step, Marxist predictions of "capitalist" empires warring over markets and stifling competition would be shattered for all time, Communist hopes for a trade war between these two great economic giants would be frustrated, and Communist efforts to split the West would be doomed to failure. As members of the Atlantic Community we have concerted our military objectives through the North Atlantic Treaty Organization. We are concerting our monetary and economic policies through the Organization for Economic Cooperation and Development. It is time now to write a new chapter in the evolu tion of the Atlantic Community. The success of our foreign policy depends in large measure upon the success of our foreign trade, and our maintenance of Western political unity depends in equally large measure upon the degree of Western economic unity. An integrated Western Europe, joined in trading partnership with the United States, will further shift the world balance of power to the side of freedom. Our efforts to prove the superiority of free choice will thus be advanced immeasurably. We will prove to the world that we believe in peacefully tearing down walls instead of arbitrarily building them. We will be opening new vistas of choice and opportunity to the producers and consumers of the free world. In answer to those who say to the world's poorer countries that economic progress and freedom are no longer compatible, we who have long boasted about the virtues of the marketplace and of free competitive enterprise, about our ability to compete and sell in any market, and about our willingness to keep abreast of strate the vitality of free choice. Lochanks the times-will have our greatest opportunity since the Marshall plan to demon Aid dev iring Communist bloc nations have negotiated more than 200 trade agreements in recent years. Inevitably the recipient nation finds its economy increasingly de pendent upon Soviet goods, services, and technicians. But many of these nations have also observed that the economics of free choice provide far greater benefits than the economics of coercion, and the wider we can make the area of economic freedom, the easier we make it for all free peoples to receive the benefits of our innovations and put them into practice. Our efforts to aid the developing nations of the world and other friends, however, depend upon more than a demonstration of freedom's vitality and benefits. If their economies are to expand, if their new industries are to be successful, if they are to acquire the foreign exchange funds they will need to replace our aid efforts, these nations must find new outlets for their raw materials and new manufactures. We must make certain that any arrangements which we make with the European Economic Community are worked out in such a fashion as to insure nondiscriminatory application to all third countries. Even more impor tant, however, the United States and Europe together have a joint responsibility to all of the less-developed countries of the world, and in this sense we must work together to insure that their legitimate aspirations and requirements are fulfilled. The "open partnership" which this bill proposes will enable all free nations to share together the rewards of a wider economic choice for all. Our efforts to maintain the leadership of the free world thus rest, in the final analysis, on our success in this undertaking. Economic isolation and political leadership are wholly incompatible. In the next few years, the nations of Western Europe will be fixing basic economic and trading patterns vitally affecting the future of our economy and the hopes of our less-developed friends. Basic political and military decisions of vital interest to our security will be made. Unless we have this authority to negotiate and have it this year-if we are separated from the Common Market by high tariff barriers on either side of the Atlantic-then we cannot hope to play an effective part in those basic decisions. If we are to retain our leadership, the initiative is up to us. The revolutionary changes which are occurring will not wait for us to make up our minds. The United States has encouraged sweeping changes in free world economic patterns in order to strengthen the forces of freedom. But we cannot ourselves stand still. If we are to lead, we must act. We must adapt our own economy to the imperatives of a changing world, and once more assert our leadership. The American businessman, once the authority granted by this bill is exercised, will have a unique opportunity to compete on a more equal basis in a rich and rapidly expanding market abroad which possesses potentially a purchasing power as large and as varied as our own. He knows that, once artificial restraints are removed, a vast array of American goods, produced by American know-how with American efficiency, can compete with any goods in any spot in the world. And almost all members of the business community, in every State, now participate or could participate in the production, processing, transporting, or distribution of either exports or imports. Already we sell to Western Europe alone more machinery, transportation equipment, chemicals, and coal than our total imports of these commodities CXT from all regions of the world combined. Western Europe is our best customer today, and should be an even better one tomorrow. But as the new external tariff surrounding the Common Market replaces the internal tariff structure, a German producer, who once competed in the markets of France on the same terms with our own producers, will achieve free access to French markets while our own producers face a tariff. In short, in the absence of authority to bargain down that external tariff, as the economy of the Common Market expands, our exports will not expand with it. They may even decline. The American farmer has a tremendous stake in expanded trade. One out of p every seven farmworkers produces for export. The average farmer depends on foreign markets to sell the crops grown on 1 out of every 6 acres he plants. Sixty percent of our rice, 49 percent of our cotton, 45 percent of our wheat, and 42 percent of our soybean production are exported. Agriculture is one of our best sources of foreign exchange. Our farmers are particularly dependent upon the markets of Western Europe. Our agricultural trade with that area is 4 to 1 in our favor. The agreements recently reached at Brussels both exhausted our existing authority to obtain further European concessions, and laid the groundwork for future negotiations on American farm exports to be conducted once new authority is granted. But new and flexible authority is required if we are to keep the door of the Common Market open to American agriculture, and open it wider still. If the output of our astounding productivity is not to pile up increasingly in our warehouses, our negotiators will need both the special EEC authority and the general 50percent authority requested in the bill described later in this message. The American worker will benefit from the expansion of our exports. One out of every three workers engaged in manufacturing is employed in establishments that export. Several hundred times as many workers owe their jobs directly or indirectly to exports as are in the small group estimated to be less than one-half of 1 percent of all workers-who might be adversely affected by a sharp increase in imports. As the number of jobseekers in our labor force expands in the years ahead, increasing our job opportunities will require expanding our markets and economy, and making certain that new U.S. plants built to serve Common Market consumers are built here, to employ American workers, and not there. The American consumer benefits most of all from an increase in foreign trade. Imports give him a wider choice of products at competitive prices. They introduce new ideas and new tastes, which often lead to new demands for American production. Increased imports stimulate our own efforts to increase efficiency, and supplement antitrust and other efforts to assure competition. Many industries of importance to the American consumer and economy are dependent upon imports for raw materials and other supplies. Thus American-made goods can also be made much less expensively for the American consumers if we lower the tariff on the materials that are necessary to their production. American imports, in short, have generally strengthened rather than weakened our economy. Their competitive benefits have already been mentioned. about 60 percent of the goods we import do not compete with the goods we pro But Impart |