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.

Senator HANSEN. Now that oil import program of course has been scrapped. What has happened to the price of oil since then?

Mr. BERGSTEN. We all know how dramatically it has risen.

Senator HANSEN. You still feel, though, that it makes good sense to stop all import restrictions even though it may discourage the development of available domestic industry? That could have avoided to some extent at least, the situation we find ourselves in these last several months.

Mr. BERGSTEN. It is not clear to me that maintaining the oil import controls for 12 years, using up our domestic supplies, did not in fact add to the problem that has increased oil prices in the last 2 years. Had we had more domestic production still on hand rather than used up, we would have been in a far stronger position to counter the Arab oil embargo, and I think probably could have held prices down.

Senator HANSEN. I think the facts are that there are a number of authorities who would disagree that we used up our domestic supplies. I think it can be supported factually the lack of incentive among independent oil companies as demonstrated by the fact that in 1957 we had over 20,000 of them drilling for oil in this country, and in 1972 that number had dropped to less than half that number down to about 10,000 with only half as many wells being drilled despite the fact that our consumption of energy and oil had doubled, so that the shortfall was about in the ratio of 4, certainly suggests to me that the mandatory oil import program was caught on both sides. We tried when it was put into effect to give the encouragement to the domestic industry, but we did not let, for a number of reasons, prices rise to give the financial incentive that would follow.

So I would ask you, do you think that if we do develop a dependency on foreign supplies of any kind, we can be assured that foreign suppliers are going to keep prices cheap.

When Mr. Abel was here not long ago he testified that the cost of imported steel now exceeds the price of domestic steel by $100 per ton. How would you respond to his statement?

Mr. BERGSTEN. I would find it very surprising and difficult to reconcile his statement with the continued call of the steel industry for import barriers. If the foreign steel is costing $100 a ton more, there is certainly no need for import restraints to keep it out. Indeed, as I have observed, what has happened in the last year or so has been a dramatic improvement in the competitive position of our steel industry, so any import restrictions now would seem totally redundant.

Senator HANSEN. Without trying to defend or support the contention made by the domestic industry, my question was do you think we can depend upon foreign sources to keep prices cheap if we lose our domestic capability to compete with them?

Mr. BERGSTEN. No, not if we completely give up our domestic capability. That is one major reason for the Mondale-Ribicoff Amendments, to set up both domestic policies and international rules that would put the pressure on other countries not to extort from us.

As you may know, I have taken the position rather strongly in recent months that we face in other raw materials the potential for

the very same problem that we have faced in oil-that foreign producing countries may develop cartels to try to gouge us on price, the same as they have done in oil-and that we have to respond to that very effectively. So I am with you on that.

Senator HANSEN. I am sure that Zaki Yamani needs no defense from me, but when we visited some of the Arab countries early this year in January and we talked about the commonality of interest that we and they had in keeping prices down so as to halt or slow down the possibility of a world-wide inflationary spiral, they said do not look at us. First compare the cost of American products that we are buying, and they spoke about a number of things. And they had some pretty dramatic illustrations.

So let us not look at the Arabs and say quite insulated from any other consideration that the oil prices have risen. I think a point can be made that they are using a depletable resource. The time will come -I do not know how quickly-when they will be out of oil.

And to conclude, Mr. Chairman, the point that they were making is that when we compare the price of oil as it has escalated in recent months, they would like us also to compare the price of goods that they have been buying from us in recent months.

Mr. BERGSTEN. May I say I think you make one of the most important points that can be made in this discussion, because in a highly inflationary environment such as we now have everybody is trying to keep one leap ahead of the other guy in raising his prices. That is why I am calling for a U.S. trade policy, a new set of measures, a new set of mechanisms to try to cut that off because everybody loses very, very badly in both economic and social terms if the process continues. Senator HANSEN. Thank you, Mr. Chairman. Senator MONDALE. Senator Packwood.

ADJUSTMENT ASSISTANCE

Senator PACKWOOD. Mr. Bergsten, on adjustment assistance, we have had several witnesses testify as to the distinction among the words substantial, primary, and major. In your opinion, what should be the standard for adjustment assistance?

Mr. BERGSTEN. Substantial.

Senator PACKWOOD. As defined in the bill?

Mr. BERGSTEN. I think the eligibility criteria in the bill as it now stands are quite good and would provide the basis for an effective adjustment assistance program.

Senator PACKWOOD. Were we to adopt the Mondale Amendment, should we have a provision for veto by Congress in the event the President exercises his power unwisely in using export retaliation powers?

Mr. BERGSTEN. I should certainly think you should careful proce dural safeguards that insure the open testimony of all interested parties before any decisions were taken.

Whether you would want to have a congressional veto, or rely on Tariff Commission procedures as we now do in the escape clause, is a hard question and really gets to whether the Congress feels it should

take up individual issues of that type. I would certainly have no objection to it. I think it would add to the basic purpose, to make sure that there are procedural safeguards and the whole issue is considered very carefully.

There are usually not very great time urgencies on these matters, so I would not be dissuaded by a concern that it would slow the

processes.

Senator PACK WOOD. I think Senator Mondale has a good idea, but we make no particular provision one way or another and I wonder if there is any value in consistency when we are talking about trying to achieve the same end in toto, whether we are talking about tariff or non tariff barriers, or export limitations.

Mr. BERGSTEN. It would be consistent. I think the intimate involvement of Congress in trade policy is essential because trade is such a highly politicized issue in this country now, and Congressional input is the only way to insure that all aspects of the issue are always heard. So as I say, I would certainly have no objection to that inclusion. Senator PACKWOOD. I have no further questions.

Senator MONDALE. Senator Roth.

Senator ROTH. A number of our witnesses in the past have expressed concern about preserving the industrial base of this Nation, that we should not permit ourselves to become a service country.

I wonder if you would care to comment on that, and if you agree that it is a problem, what we should do to make certain that we maintain the industry we need down the road.

Mr. BERGSTEN. I certainly share the concern that the United States retain a strong industrial base. I must say I am quite pleased and optimistic about our ability to do so.

In looking at our foreign trade performance, even during the period of massive overvaluation of the dollar in 1969 through 1971, our trade surplus in capital equipment, heavy production goods, the kind of things that make up an industrial base, remained very sizable and quite strong.

Since the exchange rate realinements have removed the artificial impediment to our competitive position caused by disequilibrium exchange rates, there has been of course the most dramatic improvement in our trade balance in a single year than has ever happened in the history of trade an $8 billion improvement in our commercial trade balance, some of it agriculture, but much of it, in addition, on the side of manufactured goods, with the volume of our industrial exports rising by almost 25 percent in a single year.

All of that, I must say, gives me a great deal of confidence in our industrial base. The question for the future is how one insures retaining that industrial base.

I for one would be reluctant to think that we could maintain it by erecting barriers to competition within our industrial base. I indicated before, on the automobile industry, that the impulse of external competition has forced our automobile industry to innovate, modernize, diversify itself. I would simply think that any kind of barriers to imports, or on the export side as well, would undermine the objective of trying to maintain our industrial base.