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ports the idea of negotiating an international code on subsidies that would define what should and should not be permissible. Otherwise we might find ourselves in a subsidy race that could touch off another trade war.

EAST-WEST TRADE

Title IV would make the extension of nondiscriminatory tariff treatment to non-market economy countries contingent on changes in their emigration policy. The proponents of this title tell us that it is a means to the realization of high humanitarian principles; the opponents tell us that it places world peace in jeopardy. We do no know if these provisions will accomplish all that the proponents would wish or have all the consequences the opponents fear. We do know that there has been little rational debate over this issue and that the fate of the trade bill hangs in the balance.

The League's position on this issue must be stated in two parts: 1) In accordance with our liberal trade position we have, since 1965, favored the expansion of East-West trade, including nondiscriminatory tariff treatment. 2) We have not abandoned this position, but neither have we been dogmatic in promoting it. In the House, we supported the trade bill as reported by House Ways and Means, including Title IV. Similarly, in the Senate, our focus will be on the entire trade bill and we would oppose a veto of the bill. We do, however, urge Congress and the Administration to continue the dialogue and work toward a compromise which reflects profound concerns of both sides.

SHORT SUPPLY PROBLEMS AND THE DEVELOPING COUNTRIES

In the past few months, we have all become aware of a new dimension of international trade policy-the problem of supply shortages and the need to assure fair access to supplies of food and raw materials. The recent oil embargo demonstrated that every nation is a potential "have not" and that interdependence is, therefore, a fact of life.

It is clear that we need policies to deal with similar situations in the future. For one thing, we must learn to conserve and manage our domestic resources better. For another, we need to develop international rules to assure nondiscriminatory access to scarce raw materials. The trade bill should include provisions which address this problem in two ways: 1) by making supply access one of the major goals of trade negotiations; and 2) by directing the President to seek international agreement on new rules governing supply access.

More important than these specific proposals is the need to reevaluate our policies toward the less-developed countries (LDC's). The negotiation of international rules on supply access will be of limited value unless the producing countries, which are primarily LDC's, have a stake in playing by those rules. The United States can help give them that stake by using its trade and aid policies to bridge the gap between rich and poor nations.

As a step in that direction, we support the provisions of Title V which would give the President authority to extend duty-free treatment to imports from the less-developed countries. In an interdependent world, it is in our national interest to fulfill this international obligation.

Thank you for this opportunity to present our views. The League is prepared to work with you for enactment of this important legislation.

The CHAIRMAN. Now we will hear from Mr. Strackbein. We are very pleased to have you with us today, Mr. Strackbein.

STATEMENT OF 0. R. STRACKBEIN, PRESIDENT, THE NATIONWIDE COMMITTEE ON EXPORT-IMPORT POLICY

Mr. STRACKBEIN. Mr. Chairman. I have a summary and a full statement, and also, I would like to offer from the record to be printed after my statement the paper that I wrote in 1968 on the "Competitive Plateau of the United States." 1

1 See p. 1252.

The CHAIRMAN. That will be done.

Mr. STRACKBEIN. Mr. Chairman, my name is O. R. Strackbein, president of the Nationwide Committee on Import-Export Policy. I think we are all aware, Mr. Chairman, that the profile of our foreign trade has changed radically in the past 2 or 3 years. Four or five departures from the previous conditions have marked the great changes that have occurred:

No. 1 was the imposition of the 15-percent tariff in 1971 and the devaluations of the dollar since that time. Two, the rapid rise in the exports of agricultural products since 1972. That is also a new departure. Three, the vast increase in our petroleum imports hand in hand with the energy crisis. Four, the world inflationary trends of the past several years. Five, the inclusion in the House-passed trade bill of provisions that are, in my opinion, extraneous to trade policy in the form of political considerations that were best left to seperate treatment on their own merits.

Now, these subjects I shall treat in the above order.

The imposition of the 15 percent additional tariff was in recognition of the untenable competitive position in world trade, both in the export field and in the domestic market in relation to imports. We were incurring heavy merchandise trade deficits and this turnabout from previous so-called surpluses greatly aggravated our balance-of-payments situation. We were in fact in a much worse position in the matter of trade balance than our official trade statistics revealed. The causes of this self-deception lay in the manner in which we reported our imports, on the one hand, and our exports on the other. Our currency was facing collapse.

The devaluation which followed the elimination of the tariff surcharge represented a general increase in the tariff and was designed to put us on a more nearly equal competitive position with a number of other countries, but especially with Japan and West Germany.

Resource to realinement of our currency merely represented a different way of skinning the cat. Devaluation of the dollar made imports. more expensive to our consumers, just as higher tariffs are designed to do. It was merely a matter of method. At the same time, our exports would cost consumers in foreign countries fewer dollars, just as a tariff reduction by them would have accomplished.

The whole maneuver was confession of an erroneous tariff policy since the days when our principal foreign trading partners were catching up with us technologically while the labor costs lagged behind those prevailing in this country.

We have had a phenomenal increase in our agricultural exports. This increase helped greatly in reversing the disastrous trend in our trade balance. In 1973, our agricultural exports reached $17.6 billion, which was $8 billion more than in 1972. The increase took place principally in our grain exports-wheat, corn and sorghums-and in soybeans. Grain exports alone increased by nearly $5 billion. It should be noted, however, that the value increased distinctly more than the quantity, because of the increased prices, of course.

Altogether agricultural exports increase 80 percent in 1973 over 1972, while nonagricultural exports rose less than half as much, or 32 percent. That the high level will continue is open to serious question,

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serious doubts, because foreign crop failures accounted for a substantial part of our rising farm exports.

The trade deficit of 1972, which had reached $6 billion by the official system of tabulation, but which was really about twice as high so far as competitive private commercial trade is concerned, declined to about $1 billion in 1973. Early this year we moved out of the red according to the official statistics. Actually, we are still in a deficit position by some $5 billion on an annual basis even if the present level of exports over imports continues.

The imports of petroleum and petroleum products rose nearly as sharply as our agricultural exports. They went up 72 percent in 1973 over 1972, or from $4.3 billion to $7.5 billion. This increase, however, was more than offset by the increase in agricutural exports, which, as we saw, rose by $8 billion.

This year petroleum imports are likely to increase more sharply both because of higher quantity and much higher prices. In December 1973 alone, oil imports reached $962 million. Spread over a year this would mean imports of over $11 billion in 1974.

Now, actually, it is anticipated that our petroleum imports would probably range from $15 to $20 billion as matters stand today.

If the Mideast countries lift their embargo, which they have now done, and prices remain at their present level, oil imports may be expected to rise sharply this year over 1973-enough, in fact, to obliterate the rising agricultural exports.

Then, the world inflationary forces, because of their unequal incidence, have affected the flow of trade in varying magnitudes, depending in the price movements in particular products. Some raw material countries have benefited from rising prices while for others the terms of trade have been adverse.

Until very recently inflation in other industrial countries, particularly Japan, has been at a higher rate than in this country, thus helping our exports bevond the boost given to them by our devaluation.

Today, it is impossible to predict with confidence what the future trends will be, particularly because national policy trends are unpredictable. In that respect, this is not a good time to legislate in the field of trade policy. What may be done today gives promise of being obsolete tomorrow.

This is all the more reason why provisions in the trade bill that are extraneous to considerations of trade policy should be eliminated. It is bad economics to use political considerations as pawns in economic policy, and it should be the very last recourse.

Our policy erred in going down the road of tariff reductions well after it was already clear that we were no longer competitive in world trade and depended on subsidies and false trade statistics to make our position look healthy. When we resorted to an emergency tariff and then to devaluation, we confessed the failure of that policy without admitting it verbally. This latter would have been too embarrassing to the policymakers who were too intransigently wedded to a policy of free trade regardless of its national consequences.

Devaluation became a must, but it should be recognized that it is an unsatisfactory long-term instrument of policy, one, because other countries can counteract its effects almost at will, and two, it repre

sents a shotgun approach. All products are effected to the same degree regardless of the need.

A far more sophisticated and effective approach lies in the adoption of flexible import quotas that are administered unilaterally in keeping with guidelines established by legislation.

The bill before you, 10710, has some good features so far as the use of import quotas and fair marketing agreements are concerned, but it contemplates shifting of yet more power into the hands of the Executive, while constitutionally the authority to regulate foreign commerce is vested in the Congress. This body should fullfill its responsibility instead of surrendering yet more of its power in this field-one in which the Constitution is in no sense in doubt.

Now, Mr. Chairman, that ends the summarization, and I have a full statement here which I ask be put in the record.

The CHAIRMAN. We will do that, Mr. Strackbein.

And I want to assure you, I am going to take this article that you wrote for the Wall Street Journal, which they refused to print, and carry it in my pocket with me until I have read it; because you have come up with some very thoughtful information for this committee, including the fact that you alerted us to the fact that those trade figures were on an F.O.B. basis and they were completely misleading. You will notice that our staff has prepared those figures on a C.I.F. basis which takes into account the giveaways and recognizes that imports should include the cost of the insurance and freight.

Mr. STRACKBEIN. Mr. Chairman, you and I both know that it has taken a matter of 7 or 8 years to get this

The CHAIRMAN. It seems to me it has taken a lot longer than that to get something done about that.

Mr. STRACKBEIN. It has taken a long time. And the reason I am offering this article that I had written and submitted to the Wall Street Journal and they refused to print is that it does draw to some extent on that question, and on some of the other erroneous policies in trade that we have been following for the last, well, the last 40 years, you might say-up until a year or two ago. And it seems to me that the results, the adverse results of that have been acknowledged by the fact that we were forced to devaluation; we were forced to imposition of the 15-percent duty on nearly all imports.

Now, the devaluation had exactly the same effect as raising the tariff, except that, of course, their is nothing permanent about it. As I say here, the other countries can turn around and reverse the whole thing. So, as a long-term policy, I do not think that the currency devaluation is a good rule to follow.

Thank you.

The CHAIRMAN. Thank you very much.

Senator DOLE. I am sorry; I read the statement earlier, but I had to go somewhere else for 20 minutes, and I missed your statement. I have no questions.

The CHAIRMAN. Thank you very much, Mr. Strackbein.

Mr. STRACKBEIN. Thank you.

[The prepared statement and attachments of Mr. Strackbein follow. Hearing continues on p. 1259.]

PREPARED STATEMENT OF 0. R. STRACKBEIN, PRESIDENT, THE NATIONWIDE COMMITTEE ON IMPORT-EXPORT

Mr. Chairman, last November I wrote a paper on the current trade legislation before Congress. It included a brief review of the background of the Trade Agreements Program, going back to 1934, when the initial bill was passed.

I sent the paper, in the form of an article to the Wall Street Journal requesting consideration of it for publication. The paper was returned to me as not acceptable for use by the Journal. I returned it to the newspaper with the request that the proffered article be reviewed, so that if it were again rejected, the rejection would represent the considered action of the Journal. Upon review, the initial action of refusal to print was sustained.

Because of the relevance of that paper to the current bill before you I wish to offer it for printing in the record of this hearing. Since it is several months since the paper was written, I wish to ask that the article be printed at this point and that a few comments to bring it up to date be printed immediately after the end of the insertion:

CURRENT TRADE LEGISLATION

(A paper the Wall Street Journal refused to print)

This country embarked on a tariff dismantling program nearly 40 years ago. Since then our average tariff has been reduced over 80%, or from an average of over 50% to some 8% today, on dutiable items. Nontariff barriers, such as import quotas, licensing, special taxes, etc. therefore loom larger today.

The last tariff reduction was under the "Kennedy Round" (1962-67), the sharpest of all. Since then our world trading position came to reflect the harsh results no less than the blessings of the protracted freer trade program. In those 40 years our exports rose more than thirty-fold in value and our imports over forty-fold.

Now a new trade bill is before Congress, with time of final passage uncertain. It is not the purpose here to analyze this bill. It is enough to say that it is still aimed at further reduction of trade barriers, both tariff and nontariff. Therefore it is time to examine the economic religion to which this country has been treated the past generation.

The free-trade gospel gained its ascendancy with the Great Depression. Unemployment rose to 25%. Classical economists linked themselves with the political discontent generated by the distressful unemployment. As a people we desperately needed a scapegoat. The Hawley-Smoot Tariff of 1930 was a handy symbol. Publicists whipped it hard, and the populace duly came to hate it. Free trade came to look angelic and we became virtual idolators before it.

Eutopian mysticism is indeed a redoubtable fortress in any economic world. The flag of self-righteousness never flutters in a medium of greater self-assurance than did the banner of free-trade in the trough of the Depression. It became the veritable flag of economic sainthood.

An obsessive dogma, be it free trade or Marxism, is not only an unguent for the soul but also a coating repellant to all unwelcome reality pressing from the outside. It is equally impervious to the acids of analytical penetration and the logic or transforming developments.

Our post-1930 generation was never able to perceive the contradictions within its favorite doctrine of economic redemption. We have, for example, long had free trade in coffee, tea, tin, crude rubber, hides and skins and bananas. Are the countries that rely on the exportation of these products to our huge market noted for their economic progress and well-being?

Our tariff-bargaining teams went a-bargaining armed with the conviction that it was heroic to decapitate a tariff, and did so in ecstatic glee, never mind whether they gained a semblance of reciprocity.

Meantime while we so eagerly embraced laissez faire in our trade policy we had other quite different domestic commitments. The "Brain Trust" turned its back unmistakably on the free market in its prescription for the domestic economy. It instituted farm price supports, acreage curtailment, minimum wages, obligatory collective bargaining, bank deposit insurance-all anathema to laissez faire and mostly designed to raise costs and prices. We were riding two opposite-headed horses: but the high voltage of pent-up resentment. fear and hope, fathered by the Depression had no stomach for consistency of economic policy.

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