CHART 12 THE GROWING COMMON MARKET REPRESENTS Secretary HODGES. For the people in the EEC to achieve our standard of living we now enjoy will require, for example, that someone produce and sell them roughly an additional 50 million cars, 50 million TV sets, and 135 million radios. There is no reason, if the Trade Expansion Act is passed and we maintain and strengthen our competitive position, why we cannot ty achieve a fair share of this emerging new market. tokrit If the Trade Expansion Act is not passed, however, the prospects <text are that our exports not only will fail to gain a proper share of this new growth, but in many cases will lose their present position in the European market. In other words, we cannot stand still; we either move forward or slip back. The reason for this is simple, and vitally important to all of us. In the process of creating a broad trade area, the Common Market is moving to eliminate all internal tariffs on goods traded between Common Market member countries. At the same time it is in process STALAC of adopting a uniform common external tariff applicable to goods imA ported into any EEC member from a nonmember country, including the United States. Internal tariffs those which apply to trade between EEC member countries have already been reduced by 40 percent for industrial commodities and 30 to 35 percent for a substantial number of agricultural products. Internal duty reductions are running ahead of the Community's original timetable, and will probably be eliminated altogether before the end of this decade. CXT Because of this, the height of the ECC's common external tariff becomes of critical importance to U.S. exports. If the Market's external duties remain high, our ability to compete in Europe decreases and our exports suffer accordingly. If, however, the common external tariff is brought down so as to narrow or eliminate the competitive disadvantage we will otherwise increasingly face as the internal tariff is lowered to zero, we stand to reap the trading benefits promised by Europe's economic growth. Let me cite a few examples to illustrate these developments. When the Common Market external tariffs have gone completely into effect, say before the end of this decade, as now scheduled, and the internal tariffs have been eliminated, a Belgian buyer of a compact, inexpensive American car will have to pay a 22-percent duty amounting to some $300 to $400 whereas if he bought a comparable French make, there would be no duty at all. This is a disadvantage hard to overcome. Another example: In 1960, France bought about a million dollars worth of American tires. West Germany, too, has a tire industry. In 1960, United States and German producers faced nearly the same duty. At present, American tires entering France are dutiable at 18 percent; the West German tires pay about 11 percent because the internal tariff has already been lowered substantially. By the end of this decade, and probably sooner, no duty will be imposed on the German tires, but the American tires will still be subject to a duty of 18 percent-a duty of $2 or more—as things are now scheduled. Anyone trying to sell U.S. washing machines in the Common Market will face a similar handicap of a 15-percent duty as against no duty for the competing European product. The tariff-cost disadvantage our chemical manufacturers will face with the important chemical, styrene, to name but one of many, will be 14 percent. These instances are random examples of the general pattern of the tariff disadvantages now scheduled to develop for most of the industrial part of the $4 billion worth of American products now sold to the Common Market. This tariff pattern could lead to a stagnation or shrinkage of AmeriI can exports to the Common Market, a serious loss of jobs and profits, a loss of tomorrow's opportunities for growth, and a severe blow to our position of leadership in the free world. There is one thing we can do, and must do, to prevent this result and to take advantage of this enormous opportunity to expand our exports. We must negotiate a new trade agreement with the nations of the Common Market in which they agree to open their market to our products on a truly competitive basis, by lowering their external tariff barriers. They will, in our judgment, agree to do so, but only if we agree to accept their products on the same basis, that is, agree to lower our own barriers to their trade. It must be a businesslike bargain in which there are mutual benefits. To enter into negotiations for such a bargain, the President must have the legislative authority requested in the Trade Expansion Act of 1962. TARIFF BARGAINING WITH THE EEC The Trade Expansion Act of 1962 provides the President with a varied package of bargaining power to permit him to deal with the special situation of the European Economic Community. It will help to explain the need and the usefulness of these bargaining authorities, if we look for a moment at the way in which the Common Market nations now negotiate among themselves to bring down their internal tariffs. In negotiating the Treaty of Rome, which in 1957 established the basis of the Common Market, the participating nations realized that they would never be able to agree to substantial reduction of their tariffs if they proceeded on a commodity-by-commodity basis. Their solution to this problem-and it has been the key to the growing success of the Common Market-was to carry on their tariff reduction program on an "across-the-board" basis. In general, with some exceptions, they have reduced tariffs in stages by fixed percentages applied across the whole range of existing tariff rates. Similarly, the Common Market's uniform external tariff on industrial goods is being arrived at by averaging the existing rates of the participating countries. As a result of this dramatic, and successful joint attack on the problem of negotiating tariff reductions, the authorized negotiators for the Common Market have the necessary bargaining power, are able to proceed in negotiation, and able to offer wholesale tariff reductions, with a range and flexibility never before possible. EEC has The traditional way of conducting tariff negotiations has, of course, been on an individual item-by-item basis. But this process is in. Hem by terminably slow and frequently leads to absolute deadlock and a severe limitation on the effectiveness of the tariff negotiations in opening up new market opportunities for the parties concerned. In large measure the successful emergence of the Common Market is attributable to their solution of this problem which allows really effective negotiations. In order to cope successfully with this new situation, there are two main grants of bargaining authority provided for under the Trade Expansion Act for negotiating with the Common Market. The first of these the General Authority-authorizes, with certain safeguarding exceptions, a 50-percent reduction on U.S. tariffs on any commodities in trade agreements with the EEC or any other free world nation. It is of particular importance in this context, however, as a part of the bargaining power which we need to accomplish our goals with the Common Market, including the preservation of our present markets in the EEC and the achievement of a fair share of its future growth. But this 50 percent authority by itself is simply and clearly notio enough to accomplish our objectives concerning the European Com-t mon Market. If we were able to reduce our tariffs by no more than 50 percent the EEC could then be expected to impose a similar limitation ball f in its reductions, still leaving an only partially reduced tariff wall as a formidable barrier against many particularly large U.S. export products. Goods With the internal tariffs paid by our European competitors being eliminated altogether, this would still leave U.S. business trying to export to the EEC under a heavy cost disadvantage tariffwise. Therefore, we also need a Special Authority for negotiating with the European Economic Community to give us the necessary additional flexibility and bargaining power to remove this handicap. The Europeans are moving to free trade; we need authority to go to zero, too, on at least part of our trade which is primarily concerned with European markets. Either we give our exporters a real chance to keep their markets and share in the growth of the new Europe, or we turn our backs in retreat. The President summed it up when he said, "We either grow together, or we grow apart." Because of this, the Special EEC Authority would authorize the President to eliminate gradually over 5 years or more all tariff and other trade restrictions on those categories of goods in which the United States and the expanded Common Market together supply 80 percent or more of free world export value and thus together dominate the free world export market in those goods-evidence of our strong competitive position in such commodities. The exact items included under this authority can only be determined finally at a point in time closer to the negotiations, but in general they will probably include a substantial portion of our industrial auth hard goods-machinery, transportation equipment, and metal manu factures many chemicals, and a similar portion of consumer hard goods. They will also, to a very large extent, be commodity categories in which we export more than we import. The central idea of this Special Authority is that the national interest requires, for reasons already discussed, that we make special tariff arrangements with the Common Market in cases where the United States and the Common Market together dominate the world export market. Under the act this central idea is expressed in a formula under which the President is authorized, through trade agreements affording mutual benefits, to reduce without limit the tariff rate on any article that falls within a "category" if 80 percent of the free world export value of the articles in that category are provided by the United States and the Common Market. This Special EEC Authority also has additional virtues. The dominant supplier formula contains within it the possibility of drawing up lists of goods, or categories of goods, with a high degree of commonality between the Common Market and ourselves because of our mutual stake in the list of commodities it produces. To move gradually to free trade on a common list of goods of major interest to both European and American exporters would be in keeping with the policy and the techniques of tariff reduction within the Common Market itself. Past discrepancies in tariff levels tend to be washed out and industries on each side have the assurance that their competitors abroad are being treated in exactly the same way and that as a consequence new export opportunities are being opened for them at the same time that their own domestic markets may become subject to new foreign competition. The formula also contemplates the retention of the most favorednation principle while at the same time by definition minimizing somewhat any problems that might otherwise arise out of extending major reductions to third countries. Two examples of such a category which would in all probability be included under the dominant supplier formula are: (1) Metalworking machinery: Machine tools for working metals. Metalworking machinery, other than machine tools: Converters, ladles, ingot molds, and casting machines, (2) Aircraft: Rolling mills and rolls therefor, Gas-operated welding, cutting, and so forth, appliances. Aircraft, heavier-than-air. Airships, balloons, and parts of aircraft, airships and balloons (not including rubber tires, engines, or electrical parts). Airships and balloons. Parts of aircraft, airships and ballons (not including rubber tires, engines, or electrical parts). What groups of commodities meet this classification requirement at the present time? I have included at the end of my statement an illustrative tabulation of these commodity groups of which the value of exports from the United States and six present and five other possible members of the European Economic Community together accounted for 80 percent or more of free world exports in 1960. Such a commodity list can only be illustrative of the commodity groups that may be included in a finally selected list under the "80percent dominant supplier" formula. Under the act, a definitive list of the included commodity groups at any one time can only be compiled (1) at a future date approaching the commencement of negotiations and (2) after data have been assembled for world trade in a representative period, selected from the years since January 1, 1957, as determined by the President. Such period might include 1961, for which trade statistics are not yet fully available, and 1962 or 1963. The list of commodities to be actually offered in negotiation under the special dominant supplier authority, as distinguished from the maximum list of commodities which could be included, would only be decided upon after public hearings have been held by the President and by the Tariff Commission. Further, the Tariff Commission will have reported to the President its views concerning the impact on American employment, productive facilities, and profits from anticipated reductions in duties on such commodities. Under the proposed law, items on which escape clause or national security action has been taken must be withheld from negotiation. In addition, the President may withhold such other items, where he deems such action to be in the best interests of the Nation and the economy. |