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The CHAIRMAN. I think the committee would like to have, Mr. Secretary, the articles that in the judgment of the Director of the Defense Mobilization come in the area of those things imported which would impair national security.

It is not only oil, is it?

Secretary DULLES. No, no.

The CHAIRMAN. There must be a good many other things.

Secretary DULLES. Many other things. I am sure the Director of the Office of Defense Mobilization would be glad to furnish information on that subject.

The CHAIRMAN. But offhand you can think of only three, oil, lead, and zinc; is that it?

Secretary DULLES. No; there are a number of others.

For example, here I just happen to have a few things which illustrate the scope of this thing.

Petroleum, fluorspar, watches, dental burrs, photograph shutters, stencil silk, wooden boats, fine mesh wire cloth, thermometers, wool felt; those are all things on which there had either been hearings or projected hearings and in some cases the application has been withdrawn, cordage, wool fabrics, jeweled watches.

Senator LONG. Cordage was withdrawn, was it not, Mr. Secretary, if I may just interrupt?

Quite a few of those which you are listing were not decided-
Secretary DULLES. That is right, they were withdrawn.

All I

am saying is I give that list to indicate the potential scope of this, the very broad scope of this section.

Senator WILLIAMS. As I understood the answer to my question. the scope is almost unlimited as to this?

Secretary DULLES. That is correct. Whenever there is any article, the excessive importation of which is deemed to affect detrimentally the national security, then this section can be invoked.

Senator WILLIAMS. It is my understanding that it is not necessarily confined to articles extracted from the soil but it could be any article manufactured or otherwise.

Secretary DULLES. That is correct. I perhaps carelessly used the word "extracted" because we were thinking about petroleum products, but actually, it is anything.

Senator WILLIAMS. That was my understanding of it.

The CHAIRMAN. Who makes that decision as to whether national security would be impaired?

Secretary DULLES. The President on the advice of the Director of the Office of Defense Mobilization.

The CHAIRMAN. I assume you will furnish the committee a list of those articles that in the judgment of the Office of Defense Mobilization could be classified as the imports which would affect national security.

Secretary DULLES. I think, Senator, that would be an extremely difficult thing to give an all-embracive list, because there are so many things which do affect the national security that you would have to make a list almost as long as

The CHAIRMAN. Take textiles. Would the importation of textiles affect the national security?

Secretary DULLES. I can conceive of certain chances where it might.

I do not think it does at the present time.

That is one of the reasons

why it is not easy to submit a list, because in the last analysis almost everything contributes to some extent to the national security.

You have got to have uniforms for your soldiers, and I suppose that if imports

Senator KERR. Parachutes.

Secretary DULLES. Were of such a character that you would not possess within your own country the capacity to make uniforms for your soldiers, then you would put it on the list. This is not anything which is static.

The CHAIRMAN. What about chemicals?

Secretary DULLES. There again you can have a situation I am quite sure where the importations might theoretically destroy our capacity to have certain essential chemicals. If so, then they would go on the list.

Senator KERR. If we should get to the point where we had a great population beyond that which we could feed ourselves and get an importation of food that then climbed beyond the requirements to the point where it might impair the ability of our domestic producers to do the utmost that they could for it, it might even go that far; could it not?

Secretary DULLES. Yes; I think those are rather theoretical conditions given the fact that our present problem is how to get rid of our surplus food, but as you point out, theoretically you could develop I suppose, a dependency upon foreign food imports which would be dangerous, but that is highly theoretical at the present time. We have still got Senator Byrd's apples to live off of.

The CHAIRMAN. I wish we could export some of these apples. We would like all of the information, Mr. Secretary, you can give us as to what areas this would cover or could cover. I think this is quite important in the consideration of this bill.

Secretary DULLES. I think the peril point works pretty well.

The CHAIRMAN. It works pretty well in some cases, but the President has not approved the recommendations of the Tariff Commission. Secretary Dulles. I think perhaps you refer to the escape clause but not the peril point.

The CHAIRMAN. Either one.

Would you furnish a list to the committee of all the actions taken under the escape clause and the peril point?

(The material referred to was subsequently submitted for the record as follows:)

TERMINATION OF TRADE AGREEMENTS

The bilateral trade agreements are all subject to termination on 6 months' notice by either party. A country party to the General Agreement on Tariffs and Trade may, under definitive application of the agreement, withdraw on 6 months' notice. However, the agreement is currently being applied by the United States on a provisional basis and the United States could, accordingly, withdraw on 60 days' notice.

PRESIDENT'S ACTION ON ESCAPE-CLAUSE REPORTS SENT TO THE PRESIDENT BY THE TARIFF COMMISSION

1. In 25 cases, the Tariff Commission has decided in favor of escape-clause action. These cases and the President's disposition of each are shown below:

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2. In five cases, the Tariff Commission divided evenly on the question whether serious injury was caused or threatened. These reports were sent to the President, who broke the tie in each case by voting with the group which found no ground for action. These cases are:

Handmade blown glassware

Spring clothespins (third investigation)

Wood screws (third investigation)
Fluorspar (second investigation)
Para-aminosalicylic acid

3. President's action on peril-point findings: Peril-point investigations have been made and transmitted to the President on all articles considered for possible tariff concession in negotiations carried out at times when this procedure was in effect for trade-agreement operations. No agreement concluded while perilpoint legislation was in effect has contained any concession making effective a rate below a peril point found by the Tariff Commission.

In the supplemental negotiations with Venezuela in 1952, when the President did not have authority to break ties by his vote, a concession was granted on petroleum in a case in which the Commission divided evenly in its finding. The details of this action were reported to the Congress at that time. In addition it may be noted that in the 1956 tariff negotiations, the Tariff Commission found that existing duties on three items were inadequate to avoid serious injury, and the President was successful in negotiating only one of the three proposed inA report was also transmitted to the Congress concerning the other two, namely certain tungsten alloys and violins and violas.

creases.

Secretary DULLES. Yes, sir.

The CHAIRMAN. Have it show what the President has done and so forth?

Secretary DULLES. Yes.

The CHAIRMAN. And other information we would like to have is copies of the agreements that have been made with these forty-odd nations, showing expiration dates and so forth.

Secretary DULLES. Yes.

(The material referred to has been supplied to the committee and is retained in the committee files.)

The CHAIRMAN. Senator Flanders?

Senator FLANDERS. Mr. Secretary, your statement was a very adequate statement it seems to me of the importance of reciprocaltrade treaties from the international standpoint, and its importance is one which I think I have recognized over the years.

I do a this moment find particular interest in the paragraph at the foot of page 6 from your statement. I will read it;

Why then should we insist upon the reargumentation of its merits every 3 years or oftener and lead our friends abroad to fear we may suddenly reverse our trade policy? The Trade Agreements Act has become a symbol around which other free world countries develop their trade policies and make their plans.

Greater stability in our program would certainly mean greater stability in their programs.

Can there be any doubt that such stability would benefit us all.

Now that last question is one which raises some questions in my mind. You would want to be sure, would you not, that reciprocal-trade policies which have been followed and which this extension of the law will permit us to follow are helpful to the internal prosperity of the United States. That is in your mind?

Secretary DULLES. Yes, sir.

Senator FLANDERS. As well as the support of our foreign relations. Secretary DULLES. I think that one has to take into account obviously both the impact of this upon our foreign relations and also upon our domestic economy.

Senator FLANDERS. May I say that I have become disturbed in the last year or so with what seemed to me to be increasing problems toward which our reciprocal-trade policies are leading us. I expressed this in a memorandum of May 12 to Secretary Weeks; a memorandum giving a series of questions.

I am going to talk with him in detail about that, but there are one or two points in it to which I would like to refer at the present time, and for that purpose I am passing a copy over to you. has other copies to pass to others as well.

(The document referred to follows:)

Our clerk here

MEMORANDUM

MAY 12, 1958.

To: Hon. Sinclair Weeks, Secretary of Commerce.
From: Senator Ralph E. Flanders.
Subject: Administration trade policy.

The administration has not made its case for a 5-year extension of the reciprocal-trade treaties on the basis of its present practices in negotiation. The theory of the advantages of reciprocal trade is based on free trade theory which was perhaps most authoritatively developed by Professor Tausig of Harvard in the 1920's. His classical development of that theory was logical for the conditions then existing. Those conditions no longer exist and a new examination of trade policy is required.

Among others the following changes have taken place:

1. Professor Tausig assumed that the gold standard was in active effect with tendency automatically to keep the price levels of the commercial nations within

bounds. The gold standard has gone out of existence and there is no automatic price stabilizer.

2. The assumption was made that when the United States makes purchases abroad, the dollars paid for the purchase have no ultimate value except as they return here to purchase American goods or services. This is no longer strictly true since dollar balances rather than gold balances are now the accepted reserves for giving financial stability to other nations. There is therefore a tendency to retain dollars instead of sending them back to the United States for purchases. 3. There was assumed an elasticity in prices which would take place in such a way as to bring price levels into balance. That elasticity no longer exists. The wage-price inflationary spiral is inflexibly without downward movement, and seems to be uncontrollable in the upward movement. Our economy is thus getting progressively out of balance with the price level of the rest of the world. American products are being priced out of the international market, and the range of goods in which we can effectively compete is narrowing year by year. 4. Another new factor is the increasing exportability of American know-how, equipment, and capital. To the extent that this was done under the Marshall plan, it had the highly successful effect of restoring the economies of the Western European nations. It had a side effect of increasing the effectiveness of European competition. Its present effect is to expand our investment abroad so that we can compete in world markets by manufacturing at lower wage rates abroad and thus regain lost markets from which we have been priced out by our wage-price spiral.

5. We will have to make a new examination of our policy of meeting destructive competition from abroad by raising tariffs and not by establishing quotas. There are commodities in which oriental competition is so severe that raising tariffs to protect our own industries shuts out the competition of European countries which we are, or should be, willing to meet. We have gone halfway toward employing quotas for protection by negotiating them as voluntary restraints on the part of oriental competitors. We may find it necessary to impose where we cannot negotiate.

The above list of changes in the conditions on which classical free-trade theory was based make it evident that we cannot continue without a reexamination of the bases of our policy. Among the lines of study which I would suggest are the following:

(a) Some calculation as to the number of labor hours lost by importing goods instead of manufacturing them, to set against the only figure now offered, which is the labor hours presently employed on exported goods. This latter figure is meaningless without its offset.

(b) Examination of the desirability of basing our trade policy on desired imports, with export business sufficient to pay for them and for exported capital and equipment for our investments abroad.

(c) An examination of the wisdom of our supporting economic areas consisting of nations with resources and industries which on the whole tend to complement each other. An example is the contemplated common-market area in Western Europe. Another example (which I believe to be economically sound) is the "greater eastern Asian coprosperity sphere" which the Janapanese sought most unfortunately to put into effect by force of arms. Our own economic area might well include Canada and a large part of South America. In all these groups and others which might be considered, there is a common interest which leads to mutual profits rather than to economic disruption.

(d) There should also be an examination of the effect of tariff reductions under the reciprocal-trade treaties on small and local industries. We have to ask ourselves the question whether if that effect is severe we are prepared to discriminate against them and in favor of large corporations with varied products which can more easily adapt themselves to handicaps in the marketing of particular products, which consitute but a small percentage of their business.

(e) We should consider whether continued adherence to the classical theories involves, or can be detached from, the necessity for building up the rest of the world while our own economic strength goes down. Can we so manage our policy that the world strength goes up as ours goes up rather than the reverse? The administration has a very serious responsibility in deciding which of our industries shall continue and which shall be marked for more severe and perhaps fatal competition. This is the more serious as it becomes evident that few of our industries will be safe if the wage-price spiral continues.

I therefore propose first that the reciprocal-trade treaties be continued for 3 years only, not 5.

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