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Fourth, Title V should be liberalized to further facilitate imports from the developing countries.

The developing countries are a major potential aid to U.S. efforts to fight inflation. Unlike virtually all industrial countries, many of them have unutilized labor which could be profitably employed if markets existed for their output. Thus there is a natural fit between our need for more goods and their need for jobs.

In addition, many of these developing countries control the supply of key primary products. They are much more likely to seek to raise the price of these commodities, increasing our inflationary problem, if they are unable to meet their own needs for jobs and export earnings by developing their manufacturing sectors. Hence our own antiinflationary effort could be doubly boosted if we increase our imports of manufactures from the Third World. And recent international discussions suggest that we and the other industrial countries may have to provide more access to our markets for the manufactured goods of the developing countries if we are to win their acceptance of new rules to govern our access to their primary products.

Title V of the act seeks to do so by authorizing generalized tariff preferences for such products. However, several key limitations to that authorization are now included. The President is required to take into account a number of factors in determining whether imports from particular developing countries are even eligible for preferences, including their actions toward U.S. investments. At least 35-50 percent of the value of the imported product must be produced in the beneficiary country itself. Products subject to import quotas would not be eligible. Preferences would be lifted wherever eligible imports reached a level of $25 million or 50 percent of total U.S. imports of the item--both tiny amounts of U.S. consumption of virtually every product—unless the President explicitly decides "that it is in the national interest” to continue the preferences.

I recommend that all of these limitations be eliminated. Any valueadded requirement should at least encompass value added in all eligible developing countries, not just the country exporting the final product. Products subject to import quotas, such as textiles, should be eligible for preferences; indeed, these preferences would run less risk of causing injury to domestic interests than preferences on any other products by virtue of the existence of the quantitative limits. Most important, any ceilings on preferential imports should be much higher-and it would be far better to avoid ceilings altogether, as in the original U.S. preference plan proposed by President Nixon in 1969. The standard escape clause, particularly as modified by this act, would provide the needed safeguards against injury to U.S. workers or firms resulting from an excessive growth of preferential importswhich brings me to my final point.

Fifth, Further improvements in the adjustment assistance program are needed to maintain the antiinflationary trade policy which I have

1 See C. Fred Bergsten, "The Threat From the Third World," Foreign Policy 11 (Summer 1973) and "The Threat is Real,” Foreign Policy 16 (Spring 1974).

proposed, because of the problems occasionally caused for particular groups of workers by import flows.

Even in an inflationary climate, where increased imports are clearly in the national interest, equity requires governmental assistance to those particular groups—particularly workers, but sometimes firms or even entire industries—which may on occasion be injured by those same imports. Indeed, the enhanced importance for the United States of unimpeded access to imports enhances the importance of an effective program of adjustment assistance because the only alternative to deal with such injury, restrictions of the imports themselves, is so obviously undesirable. Thus I strongly support the preference expressed for adjustment assistance over import relief in several sections of title II, the several requirements that industry efforts to adjust be carefully scrutinized in determining whether to grant import relief or to maintain such relief after it is initially granted, the numerous requirements that consumer interests be considered in any determination regarding import relief, and the authorization of congressional vetoes of any new import quotas enacted by a President.

In addition, H.R. 10710 would reduce the need to resort to import restrictions by significantly improving the adjustment assistance program. However, further improvements are highly desirable and can be implemented at quite modest cost :

The bill provides that workers laid off due to increased imports would receive 70 percent of their previous weekly wage for the first 26 weeks of unemployment, and 65 percent for the remaining 26-65 weeks of eligibility. This level of benefits would represent a significant cutback in the take-home pay of many workers, and should be raised to 80 percent for the duration of eligibility.

The proposed program provides no fringe benefits. Such benefits, particularly health and life insurance, add perhaps 15-40 percent to the real income of most workers. The Federal Government could easily keep such insurance going during the periods of worker eligibility by paying the premiums previously paid by their employers.

To achieve real adjustment and limit costs, early warning of possible trade-induced dislocation is needed. The Government, working closely with private industry and labor, should create a systematic program for detecting new areas where increased imports will lead to problems and which will give them prompt attention.

Adjustment assistance should be available to import-impacted communities, as well as groups of workers and firms.

A new Office of Adjustment Assistance should be created in the Executive Office of the President to run the program. Its administration is otherwise too diffuse to be operated with maximum efficiency.

CONCLUSION

With the proposed changes, along with its other provisions, the Trade Reform Act could take the lead in addressing U.S. foreign economic policy to the problems of the relevant future. It could play a particularly important role in combating inflation. It could provide means to deal effectively with any job losses caused by increased imports. And it would place the United States in an excellent position

to negotiate new trade rules which would both promote our national economic interests and further the prospects for global economic cooperation—a vital necessity in today's world of unquestionable economic interdependence. My final recommendation is that the committee report the amended bill as quickly as possible, and push for its early adoption by the entire Congress.

Thank you.

Senator MONDALE. Listening to your analysis of the world in which we live where the danger is inflation and not unemployment, and having earlier listened to some of the representatives of organized labor where they are terribly concerned about unemployment, one wonders whether we are looking at the same world.

For example, the auto workers, which have traditionally opposed any kind of quotas, speaking through their president, Leonard Woodcock, last week as I recall, asked for temporary quota protection against the importation of cars on the grounds that the drop in foreign exchange reserves in Japan would probably force the Japanese to try to export furiously their small cars. Then Mr. Meany, testified that there is a very strong movement in unemployment. When I go around the country that is what I hear when I am with union leaders and members. They are very concerned about their jobs.

Now how do you reconcile those two views of what is the major economic problem today?

Mr. BERGSTEN. I must say I have great sympathy with the auto workers. They are victims of two things that were beyond their control. One was the failure of our automobile industry to move as it should have moved to producing the kind of small cars that obviously were in demand by American consumers. And that was coupled with the second factor, the energy crisis, which has so dramatically changed energy cost in this country. A massive transition problem was created for the automobile workers as Detroit is now forced to the production of smaller cars.

But I would think that import restraints would be exactly the wrong way to deal with the issue. Indeed, the only reason that Detroit ever began to produce any small cars whatsoever was foreign competition. The United Auto Workers would be in a much worse situation today if Detroit had not been forced, first by Volkswagen in the late 1950's and then by the Japanese in the late 1960's, to begin producing at least some small cars so that some American demand for that kind of vehicle could be met from domestic production.

If it had not been for the competitive impulse of foreign competition, our automobile industry and our automobile workers would be in far worse shape than they are today. Now that of course leaves open the question of what to do about the present situation where we do have a transitional problem for the automobile workers and, indeed, for our automobile industry, having let itself be in the position it is in today.

I think the answer would be direct support to the automobile workers, which would have been included in the adjustment assistance package of the energy bill which was voted by the Congress recently but vetoed by the President.

Senator MONDALE. Are you talking about unemployment insurance?

Mr. BERGSTEN. That is right. I think that is the response. I think any effort to put import quotas on now would be totally ineffective because American demand for automobiles has shifted from large to small cars. If you put quotas on imports of small cars, you are not going to significantly increase the demand for large cars. You simply reduce the demand for all automobiles, until the quotas are lifted or until Detroit has retooled itself to produce the small cars which are being demanded now by American consumers.

I think there is very little chance that import quotas of the type called for would have a very significant effect in increasing employment in our automobile industry, because the American consumer's demand for automobiles is simply not for the kind of cars that Detroit is now prepared to produce.

Indeed, I would think that putting on import quotas would slow the pressure on Detroit to convert to produce the kind of cars that they can sell here, and therefore, even in the relatively short run, would have an adverse impact on employment in the automobile industry.

Senator MONDALE. I am going to return with some other questions but for the moment, Senator Fannin,

Senator FANNIN. Mr. Chairman, just to get into that one subject, as far as what the automotive industry has done I think we have to realize the tremendous number of jobs that have been available over the year because they have been producing a larger car. And I do not believe that the American public is demanding a small car. But I do feel that they are demanding an efficient car, and I think this is shown by their willingness to buy expensive cars produced, for instance, in Germany that are more efficient.

As an illustration of what is being done, if we are going to have the jobs available in the automotive industry and the public is going to have the demand satisfied, I think we should look forward to producing both a small car and a large car or medium sized car that has a low utilization of fuel. I think that is what we really must look forward to. I do not think we want to just say, well, everyone wants a small car, because most people do not want a small car. They want comfort in the car and I think they are willing to pay for it, but they are concerned with the utilization of fuel.

Do you agree with that?

Mr. BERGSTEN. I fully agree with the focus on efficiency. But there is a pretty high correlation between efficient utilization of energy resources and the size of the car.

Senator FANNIN. Yes, but you can have lighter metals utilized. You can have many cutbacks as far as weight is concerned in the car, and you can have a much more efficient running car as illustrated by some of the foreign cars being sold in the United States today. Well, that is one matter that I think is important because if we are talking about jobs in the automotive industry, that is certainly a factor.

One thing I wanted to discuss with Mr. Gardner is concerning the current policy within the European economic community. Do you think we can attain a consensus among our trading partners to revise GATT to insure access to supply?

Mr. GARDNER. I think we face a long and difficult negotiation. I think we should not be under any illusions. I think the notion that we are going to get a negotiation completed in a year or two, frankly, is not realistic. I see this as a negotiation that probably will run into the next administration, and given the disarray in which a number of the European countries find themselves, and of course France now enters a period of great difficulty and uncertainty, I think we have to face the fact that this is a 3 or 4 year proposition.

But I think if we handle our negotiating situation well, we have a reasonable chance of getting some improved rules.

Senator FANNIN. Well, I do think that you will agree as far as bringing pressure on the producing nations—we are talking about the petroleum producing nations of the world-unless we have some provision where we work together—the consuming nations of the world work together--we as a Nation can not bring very much pressure.

Now when we talk about what we can export, to the Mideast nations, they are dependent upon us for very few items. In other words, they can go to other countries of the world. I was just in the Mideast and I know that they are developing agricultural resources. In fact, we witnessed on the little island of Abu Dahbi a hydroatomic agricultural program that is going forward. They are not going to be dependent upon us for agricultural products. Honestly, how do you think that we can bring pressure other than through GATT or some combined program?

Mr. GARDNER. I stressed in my statement that we should seek to work multilaterally in most cases. Unless we had a substantial number of our OECD partners in Europe and Japan with us, we would be in great difficulty.

On the other hand, there are cases where we have a great deal of leverage either alone or in conjunction with one or two other countries. Take the case that you mentioned about Saudi Arabia. You asked, what do they need us for? I am going to put it rather bluntly: in the long run they need us for the survival of that regime. We are supplying large amounts of military assistance. I do not want to be understood as saying we should take any precipitious action, but I believe, sir, that we have some leverage in the situation and I think the indications are that we have used it behind the scenes in the last few months to bring about the termination of the embargo,

Senator FANNIN. I agree with you and that is the most powerful negotiating tool we have. In fact, it is about the only one that I have observed that could be utilized to great advantage. I notice, Mr. Gardner, you quote Cordell Hull and I of course know that that is a different situation than what existed when he made that statement, because we do have Russia to contend with.

Thank you.
Senator MONDALE. Senator Hansen.

Senator HANSEN. Mr. Bergsten, you estimate that imports as recently as 1971 cost the U.S. customer $20 billion annually. You assume the oil import program cost the consumers in recent year how much? Would you want to hazard a guess?

Mr. BERGSTEN. The figure compiled by the Cabinet Task Force on Oil Import Policy in 1970 was $6 or $7 billion.

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