nations of the free world, including those within the European Economic Community. We believe that this is not only essential for the growth of our own economy, but obviously essential for a better international balance-of-payments position and the possible favorable effect of the latter upon U.S. gold reserves.

On behalf of the California State Chamber of Commerce and myself, I thank you for your courtesy and attention.

The CHAIRMAN. Mr. Hornby, I congratulate you on making a very clear statement.

As I gather from what you said you fear that the adjustment assistance program as related to employees would be the first step toward federalizing the unemployment insurance. Am I correct?

Mr. HORNBY. Yes.

The CHAIRMAN. Thank you.

Any further questions?

Senator CURTIS. Mr. Hornby, I wish to congratulate you on a very fine statement. I think you have directed the committee's attention to some things that merit attention. I happen to be acquainted with Dr. Brant who assists the chamber on some of these things. I am very pleased, coming from a farm State, to see you place such importance upon agriculture.

I think there is a tendency in the country, because fewer individuals are engaged in agriculture as we mechanize, to discount its importance. But it really is the backbone of a tremendous portion of the industry of our country; isn't that right?

Mr. HORNBY. It certainly is, and it certainly is a very great part of the entire economic activity of the State of California.

Senator CURTIS. Yes.

Now, the State of Nebraska, while we are much smaller in population we have quite a growing industry, but it is tied to agriculture. Much of our manufacturing is the manufacture of farm machinery and implements and irrigation pipe, storage bins.

There is another branch of our industry, the processing of food. In Omaha we pack more meat than any place else in the world. Personally, I have very grave doubts as to the capability of the State Department to understand the problems of agriculture. I think that we are taking a very serious step when we delegate the powers in the bill, as passed by the House, without any further restriction.

I might call your attention to an article that appeared in the last issue of the Farm Journal published in Philadelphia. It says:

Unless we can head it off, beginning July 30 we will have to pay 10 to 75 percent higher duties to ship some of our farm products into the European Common Market, and these tariff duties may even run higher. For instanceI think the Senator from Delaware would be particularly interestedwe are being asked to pay 10 percent higher duty on barley, 29 percent more on wheat, and 75 percent more on poultry meat going into West Germany, one of the six Common Market countries, the others being France, Italy, Belgium, the Netherlands, and Luxembourg. Duties will also increase by undetermined amounts for pork and eggs. We are already paying 5.4 cents a pound duty, that is 15.9 percent on 34-cent poultry, to ship ready-to-cook poultry into West Germany. The Common Market has announced on July 30—

that is today

four new poultry duties will go into effect.

The first three of these duties in West Germany will add up to 9% cents a pound, 4 cents more than now. If our poultry price to the Common Market countries falls below 33% cents per pound, we will have to pay a fourth duty, making up the difference between the importing price and the 33% cents.

Three months ago our ready-to-eat poultry was going into Hamburg at 30 cents a pound which would call for a 31⁄2-cent additional duty under the new Common Market setup.

Lately there has been a big splurge of buying by West German importers to beat the deadline for the new duties Prices of imported poultry have climbed to 34 cents per pound. If prices fall back to 30 cents later then we will have to pay 32 cents additional duty, making a total of about 12 cents a pound duty compared with 5.4 at the present time.

What will happen is this: West Germans will pay about 10 cents a pound more for poultry meat in the store. We will ship them less. Our poultry meat exports to West Germany increased 25 percent last year. The farm prices of poultry meat will shoot up in the Common Market countries. The European broiler industry will boom, capitalizing on the U.S. promotion and merchandising that has more than doubled per capita poultry consumption in West Germany in the last 5 years.

Farm Journal learns that our Government has protested through the highest level to the Common Market countries, United States claims that increases in duty are discrimintaory and unreasonable. But so far as Farm Journal can learn we haven't threatened to hike any of our tariffs in retaliation.

Mr. Hornby, do you not think it is important that in approaching this subject we realize that the Common Market countries have not lowered or abolished their exterior tariffs; have they?

Mr. HORNBY. Not as far as we can find out.

Senator CURTIS. No. What they have done is abolish certain tariffs between the Common Market countries, and then built defensive barriers around the entire group; is that right?

Mr. HORNBY. Yes, that is our understanding.

Senator CURTIS. Yes, that is the system that they work upon.

Mr. HORNBY. We understand that is the purpose.

Senator CURTIS. Yes.

There has been a great deal of loose talk to the effect that the Common Market countries are lowering all tariffs and we had better do likewise. Well so far as the United States and the rest of the world are concerned, at least up to date that hasn't happened, has it?

Mr. HORNBY. As far as we can determine it has not.

Senator CURTIS. Frankly, I think the Common Market arrangement is a good thing for them. I think we should encourage their unification economically and politically and give them every help possible. I do not think that they will respect us nor do what they can to maintain the value of our money if they decide that we are chumps; do you agree with that premise?

Mr. HORNBY. Yes, sir.

Senator CURTIS. Thank you very much.

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

Mr. HORNBY. Thank you, sir.

(Mr. Hornby's prepared statement follows:)

STATEMENT OF ROBERT A. HORNBY, PRESIDENT, CALIFORNIA STATE CHAMBER OF COMMERCE, AGRICULTURE, AND INDUSTRY ON H.R. 11970

Mr. Chairman and members of the Senate Finance Committee, my name is Robert A. Hornby. I am filing this statement for the California State Chamber of Commerce. Agriculture, and Industry.

The California State chamber is a statewide association, as its name implies, with membership in agriculture, business, and industry. One of the aims of this organization, which I think it achieves quite well, is to present the consensus of

California agriculture, business, and industry on matters of concern to our economy. One of these matters is the legislation you gentlemen now have under consideration. The chamber appreciates the opportunity to supplement the views which I am presenting orally.

The chamber's official policy, on which this statement is based, and statistical tables on California agriculture and industry appear as appendixes at the end of this statement.

The State chamber favors the expansion of commerce with other nations of the free world including those within the European Economic Community. We believe that trade expansion is essential to the improvement of our international balance-of-payments position and to the expansion of our own economy.

However, we believe that tariffs should be adjusted by stages, with reciprocity which is in fact reciprocal, in such gradual manner that agriculture and industry can survive without intervention and a dole from the Federal Government. We have serious questions about the adjustment assistance provisions which I shall raise at various times in this statement.

Because of the nontypical, wide variety of California's agricultural and manu factured products, and because of the heavy involvement of these two parts of our economy in foreign commerce, our State has a deep interest in H.R. 11970.

Among the 50 States, California is first in agricultural production and income. It also ranks first in farm exports. Much of the income of California's agriculture is earned from specialty crops, of which there are little or none grown elsewhere in the United States. This fact and its relation to international trade negotiations worry our farmers and all those business groups who depend upon the prosperity of our farmers. They reason that crops grown in a relatively restricted area, and thus having an apparently local economic impact, are more likely to be sacrificed in trade negotiations than would be the case with crops which are more widely grown. A number of major California specialty crops of direct importance to the economy of this State, but of less evident significance nationally, are vulnerable to such sacrifices. Injury can come in two ways: from the imposition of tariff and other barriers, such as unrealistic specifications on pesticide residues, color variations, size, packaging, etc., by foreign nations on their importations of our specialty crops; and from the failure to provide proper restrictions in this country against excessive imports of foreign agricultural products competitive with California specialty crops.

For example, California producers of vegetables, citrus fruits, canned fruits, dried fruits, grapes, almonds, dried beans, and poultry, fear possible loss of export income resulting from foreign restrictions on our export of these items. Producers of grapes, olives, melons, figs, dates, citrus fruit juice, and some meat products, are also concerned about the potentially price-depressing effects of a liberalization of our own trade policies toward imports of competitive items. The export product lines of our industrial production are similar to those found among other States industrialized to the same degree as California.

Recent manufactured exports moving through California ports were: Canned fruits, vegetables, and fish; wine; lumber and paper; lubricating oils and petroleum products; iron and steel products; electrical machinery; construction equipment; industrial machines; agricultural implements; aircraft (most are flown out); autos, trucks, busses and trailers; chemicals; and medicinals and pharmaceuticals.

Recent manufactured imports moving through California ports were: Wine; cotton manufactures; wool manufactures; lumber, plywood, pulp, and paper; crude petroleum; glass and glass products; china, porcelain, and clay products; steelmill products; copper products; lead ores and concentrates (heavy); electrical machinery and apparatus; sewing and shoe machines; autos, trucks, and buses; machinery and parts; chemicals; and fertilizers.

California industries which already are vulnerable to injury by imports are wine, electronics, electrical machinery, chemicals, fertilizers, lumber and plywood, steel and steel products, motor vehicles, and machinery.

Exports which are affected by the importation policies of other nations are motion pictures; electrical machinery; atomic power equipment; chemicals and pharmaceuticals; canned fruits, vegetables, and fish; wines; machinery; wire rope; iron and steel products; and aircraft.

International trade in aircraft poses a difficult problem which it is hoped will not be worsened by the operation of the proposed legislation. A quotation from the president of a large west coast aircraft manufacturer is pertinent:

"Unit cost in our industry is based largely on a combination of labor cost and labor productivity. We know that the cost of labor per hour in the United

States is several times higher than in Great Britain and France, the major competitive nations. We believe that productivity in the United States is also higher. However, we definitely are of the view that it is not high enough to offset the European labor cost advantage. Furthermore, our observations indicate that manufacturing methods in European factories are generally efficient. Lower unit costs in the Common Market area are probable.

"We should also bear in mind that every major airline in the Common Market area is either government owned or government controlled. Therefore, if it serves the Common Market interest, political pressure can be brought to bear on the airline to purchase Common Market products. This is most likely where the airplane manufacturer is also government supported. You have, then, a situation where government is selling to government, rather than manufacturer to airline.

"Now, let us examine the proposed tariff reductions. We recognize that broad reduction or elimination of barriers can stimulate trade and promote the economic growth of the free world. However, there are certain facts involving the aircraft industry that are worthy of consideration.

"Elimination of tariffs on airplanes would have a twofold meaning. First, on this side of the Atlantic, our European competitors would have an additional price advantage *** on top of the price advantage they already enjoy. Second, the reduction or elimination of barriers on the other side would be quite meaningless. At present tariffs are waived where no local competitive product is available. So far, this has been the practice. However, let us assume that tariffs are imposed. The airline purchaser is Government-owned or supported. The Government takes the duty and simply passes it along in the form of subsidy or other support to the airline * ** having the effect of a 'wash' transaction. So the tariff is no barrier at all. The dual result is that our sales in the domestic market can be impaired by tariff reduction or elimination, whereas our sales to Common Market nations cannot be benefited thereby."

These brief observations of the effect of tariffs and other restrictions on west coast aircraft manufacture can be applied to other products of California industry.

Title III of H.R. 11970 to us is an enigmatic part of this proposed legislation. It is difficult to understand why, after private industry and its employees have filled their respective roles in the winning of a global war, they now face the prospect of going on Government relief and in effect becoming wards of Government in peacetime. We have underwritten the economic reconstruction of much of the free world and made an efficient production machine of it. We have done this while many of our own manufacturers have been hobbled under our tax and fiscal policies. Must our Government now intervene and subsidize some of our industries and their employees so as to remove them from the path of, or to assuage their injury from international competitors created by ourselves under an earlier eleemosynary foreign program?

We believe that a sound, freer trade policy, operating under informed administrators, can better enable American industry and agriculture to compete in the world markets. This requires that our Government come to grips with the need for sound fiscal policies with better control of Federal expenditures and impartial labor relations administration. If these are attained, subsidies to industries and workers as provided in title III will not be necessary.

To what avail would it be for the Government to make arrangements for reciprocal trade on the one hand, while on the other hand following policies at home which result in hobbling American industry and agriculture in competition in the world markets? Inflationary spending by the Federal Government with accompanying higher taxes and the price-wage spiral are two major contributors to noncompetitive prices. They also contribute to the ever-tightening profits squeeze.

If the principle of adjustment assistance is embraced in this legislation, there can be no doubt that sooner or later it will be extended to all who are harmed, whether they are harmed directly or indirectly. Otherwise, it will be discriminatory legislation.

If the unemployment benefit funds of States should become overburdened because of unemployment demonstrably arising out of foreign trade policies and practices at the Federal level, and aid should be financed through Federal taxation, then the funds of the State could be reimbursed appropriately. The proof of the cause of such unemployment should be presented by the States

and agreed to by the Federal administrators, but the disbursement of such unemployment benefits should be in accordance with the State standards and paid out by State administrators.

In such sweeping metamorphoses of national policy inherent in this legislation, there is not only the decision of what to do but, even more important, how much time is there available in which to decide to do it, to implement it, and to expedite it.

Since this proposed legislation evidently was prompted largely by what is occurring in and proposed by the European Economic Community, it seems evident there are questions about the direction, continuing success, and exclusivity of membership in the Common Market which need to be posed:

1. Is the ultimate intended result political cohesion of the Inner Six countries and, if so, is it reasonable to expect that the United States will be permitted to participate in some of the trade concessions (the "glue") which will hold the possible federation or confederation of these Inner Six countries together?

2. Is it not inevitable that balance-of-payments troubles will arise between Common Market countries and will this imperil their continuing their membership?

3. Must the nations of the Common Market adopt a common currency or floating exchange rates a time-consuming, major undertaking?

4. How many other European countries will be permitted to join the Common Market? Will additional membership dilute the trade gains of the Inner Six and thereby weaken their cohesiveness?

5. Since much of what is promised for the future in the European Common Market still must meet the test of performance, how do we judge the prospects for long duration of the European Economic Community?

6. If the Common Market succeeds, for either a long or short period, will its major achievement be:

(a) Tariff and trade barrier minimization?
(b) Currency stabilization?

(c) Balance-of-payments surpluses from within and without the EEC? Since the time of achievement cannot be reasonably foreseen and since duration of the European Common Market depends upon political as well as economic determinations, cannot the United States of America wish the European Common Market program well, do what we can to help make our industry and agriculture competitive and promote freer trade with all free countries outside as well as inside the European Common Market. While we favor the objectives of this legislation as they relate to trade expansion throughout the world, we wonder if we are not orienting ourselves toward an interantional economic combine which still seems to be in its infancy.

There are additional major questions that we think need to be at least raised if not resolved at this time.

In the meantime, the California State Chamber of Commerce believes that there can be an environment in this country which will permit our agriculture and industry to compete with the rest of the world. The chamber believes that the ingredients are reasonable rates of tariff adjustments, properly functioning peril-point and escape-clause mechanisms, and especially Government recognition of the need of a tolerable burden of taxation, fiscal and other conditions that permit better control of production costs. There is much that we can do for ourselves in creating an environment for a healthy and competitive economy. There is something wrong with us in the United States of America if we must seek Federal Government intervention and special subsidies from the Federal level so as to compete with countries which, heretofore, have been outclassed by this country's industry and agriculture.

APPENDIX I

GENERAL POLICY ON FOREIGN TRADE

(Adopted by board of directors of the California State Chamber of Commerce in Los Angeles on April 13, 1962)

The California State Chamber of Commerce favors the expansion of commerce with other nations and advocates the following guidelines in reference to tariff and other foreign trade proposals currently under consideration by Con

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