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and should be renewed beyond its present expiration date, namely, June 30, 1958: Be it
Resolved, That the board of directors of the New Orleans Cotton Exchange respectfully request that Congress approve the renewal of this program tor a substantial period by or before its expiration date;
Resolved further. That a copy of this preamble and resolutions be sent to the Senators and Representatives in Congress from Louisiana with an earnest request for their cooperation.
Testimony On Behalf Of Caterpillar Tractor Co. To The Finance CommttTee Of The United States Senate On The Reciprocal Trade Agreements Program
The facts and opinions which we shall offer will, we believe, clearly indicate why it is to the particular interest of Caterpillar Tractor Co. and its people to favor freer international trade—more imports as a means to more exports. It is not, however, sufficient to appraise a matter of such importance only in the narrow context of the well-being of one company plus all who in one way or another are favorably affected by its operations. The major consideration must be the welfare and security of the United States as a whole. Insofar as it relates to the affairs of Caterpillar, our presentation should, accordingly, be regarded as more in the nature of a case study than an appeal for direct help by one concern. The facts we cite are believed to be of general application to many other concerns and industries.
In its years of formation, Caterpillar had 2 small plants and employed 2,500 people. Today the Caterpillar organization, which encompasses the United States parent and 9 wholly owned subsidiaries, has 7 domestic plants, located at Peoria, Joliet, and Decatur, 111.; Davenport, Iowa; Milwaukee, Wis.; San Leandro, Calif.; and York, Pa. Two more plants are under construction, one near Peoria and the other at Aurora, 111. Four major parts warehouses and 10 emergency parts depots are strategically located throughout the United States. Five other plants are located in Australia, Brazil, and Great Britain. A small subsidiary operates an emergency parts depot in Canada.
At the peak of business in 1957 employment in the entire organization reached a total of 41,500, of which 38,700 were engaged within the United States. Now, in June 1958, this domestic employment has shrunk by 13,800, of which 12,900 were laid off because of decline in business (the balance being attributable to normal attrition).
Worldwide sales have ranged from a low of $13 million in 1932 to a high of $686 million in 1956. In 1957 they were $650 million. For the present purpose however, the more significant aspect of this growth is the extent to which it has been derived from increasing foreign business. In 1956 sales to foreign countries were 37 percent of the total. For 1957 the percentage climbed to nearly 42 percent, and in the last quarter of that year, when a rapid business decline had set in, foreign business exceeded 50 percent of the total. Whereas domestic United States sales fell 13 percent for 1957 as a whole, foreign business increased 9 percent.
Impressive as these figures may be, they do not tell the whole story. In the early part of 1957 our manufacturing capacity was inadequate to meet all demands, and machines were being rationed to dealers. Beyond that, dealers and customers in many foreign countries were, as they still are, unable even to place orders because of exchange controls and other forms of import limitations imposed by their own governments. The major cause of such restrictions is the lack of United States dollars in the hands of countries which need and want the products of American industry. Without such limitations and with a climate more favorable to international trade, the volume of our exports would certainly be substantially higher in amount and larger In proportion to our total business than it was in 1957.
Now, what does this mean to Caterpillar—to those who are related to It as employees, dealers, customers, suppliers, shareholders—to our plant communities—to the United States?
Without its export business, Caterpillar would not need the valuable services of at least 40 percent of its people employed in the United States. At the peak of 1957, this would have meant about 15,500 people. Perhaps even more currently important: had exports not held up better than domestic sales during the latter part of 1957, we would have been obliged to lay off about 4,000 more people or to place more people on a 4-day week for a longer period of time.
Using a 40 percent ratio as a rough approximation of that proportion of our United States production attributable to sales outside the United States, it may also be estimated that, without such business, our domestic payroll for 1957 would have been about $75 million less than it was. Without inclusion of the many supplementary benefits, this payroll totaled $189 million.
The people we employ directly are, however, only a part of the total employment created by the Caterpillar enterprise. In each of our plant locations the needs and purchasing power of our people call for all the usual services which go Into the existence and support of a balanced social community. And our purchases of the goods and services of others are a source of major employment in the plants and plant areas of our 5,400 suppliers, most of which would be identified as "small business." The magnitude of this extended effect is indicated only roughly by the volume of our noncapital domestic purchases which in 1957 totaled more than $350 million. Of this amount, for example, $67 million went to the purchase of 434,000 tons of steel in various forms. To the best of our information, this tonnage would require the employment of about 3,500 people in the steel industry. If further examples were to be quoted for other commodities obtained from many smaller industries, the proportion to which some are dependent upon our business would be impressively great.
Accordingly, while some of our suppliers—and many of their supporting industries and services—may not themselves be exporters, we, in effect, are either directly or indirectly exporters for them. And so it is with everything we consume in the processes of production, including the facilities for production. Were it not for our export business, we would not require that 40 percent of our purchased materials, supplies, and services. Neither would we or our suppliers need the additional productive capacity which we and they have been building in order to meet prospective long-term demands.
All of this points to the fact that the jobs of millions of Americans are "protected" not by tariffs designed to obstruct the inflow of foreign goods but by the ability of companies like ours to export. The old days of the walled fortress are gone forever. If we are to help our country by helping ourselves, we need more opportunity to export, not less.
The record of our own company, and that reported for United States exporters as a whole, shows very substantial gain in foreign business in recent years, and we have mentioned how this had to be obtained in spite of a number of unfavorable factors. In more propitious circumstances most of us could have done better, meaning we could have used more United States materials, employed more American labor, made more sales, earned more profit, and paid more taxes. Now we are all facing further handicaps which will affect exports adversely for, at least, three reasons:
(1) The current business downturn in the United States is having a related depressing effect upon the economies of a number of other countries;
(2) The need for imported raw materials and other goods has declined because of reduced consumption within the United States; and
(3) The monetary amounts which are earned by foreign countries through their sales into this country have declined because of the compounding of the lower volume at the lower prices induced by the lessened demand.
Now, deliberately to restrict imports beyond the unavoidably natural causes would not only harm friendly foreign countries, It would operate almost directly to increase the decline in United States exports. And within the United States, it would also lead to prices higher than would otherwise be the case. That, in fact, is usually the very basic purpose of "protection" from imports. As we think in matters of this kind, the test of validity of principle would certainly ■seem to lie in the effect upon the consumer—upon the great mass of all the people. Obviously, from the viewpoint of the consumer, lower prices are preferable to higher prices—and this is especially so in times like the present.
When a tariff protects an industry by keeping out foreign competition, it may keep people at work in that industry. But at the same time, It prevents the foreign country from earning dollars and thereby prevents it from buying the product of some other American company. Just as many people are kept out of work elsewhere as are kept in work in the protected industry, and the net effect is no gain in national employment—merely a shift. But the unprotected who are injured are not readily identifiable—and are not always themselves directly aware of how much they are losing. Theirs is a case which calls for an understanding Congress able to appraise the clamor of the few against tine silence of the many.
We realize that much of what we have said represents an oversimplification of a fairly complex matter, but the basic fact remains: If both United States exports and foreign investments are to be sustained and expanded, there must toe more, not less, opportunity for foreign countries to sell whatever they may have to offer to the United States markets. The one and only sound way for any country to obtain dollars is the same outside as it is inside the United States: earn them in the process of creating wealth—by providing goods or services for which the American people will pay dollars.
It is, accordingly, fitting that international trade be made a matter of national policy—aided by a system of law and order which places first importance upon the security of the United States. But total security is made up of many parts, and two of these at least must be considered only in a manner which recognizes their necessary mutuality: military security and economic security. The two are or should be made complementary, and it is sometimes difficult to distinguish between them. They must be consistently coordinated if action on the one is not to impair or defeat action on the other.
Thus, we understand it to be the policy and purpose of the United States to wage peace with all of the means available. Among these are the various activities carried out under the mutual security program: direct military aid. defense support, technical and economic assistance, and others. Accordingly, if we, on the one hand, find it appropraite to extend this kind of aid to any country—building it up so that it may be stronger as an ally or as a customer—there would seem to be little point, on the other hand, of tearing it down under a weakening of the reciprocal trade program.
We also understand that, in one way or another, several friendly foreign countries were induced to start or to increase production of certain metals or other commodities when these were needed for our national security purposes. For the moment that need has passed. But is that really a good or honorable reason why we should now turn on our friends and add to their already growing balance-of-payments difficulties by imposing the additional handicap of higher traiffs, lower quotas, or some other form of restraint upon their opportunities to help themselves?
And won't we need these sources again? Of course we will. But will we be able to regain access? That remains to be seen. Other countries are not going to stand still just because we are having a recession. If they cannot sell to us, they will sell elsewhere. And if they cannot sell to friendly countries, they will sell wherever they can. The Soviet Union is waiting for just sucli opportunities— has said so—and is grasping at them wherever they occur. It seeks to wage its fight for power through every means available and is fully cognizant of the role which international trade can play in world affairs—in alliances and in enmities— in war and in peace. And the Sino-Soviet bloc does not ply its trade on the basis of the principles of western private enterprise. It has larger immediate objectives than the pursuit of profit or the creation of capital. Under the Soviet system, money has a different significance than it does in the free world. Trade loans are being offered at a 2-percent interest rate, terms of repayment are extended beyond what we would consider normal prudent practice; and where mere money interferes, baiter is an acceptable way of accomplishing desired ends. The less-developed countries with disposable surpluses are certainly going to have difficulty resisting Soviet offers to exchange these for wanted goods.
This is all part of a declared and mounting Soviet offensive to beat us, not with intercontinental missiles but with intercontinental trade. Soviet technology and industrialization have been advancing more than has been generally realized. Now the weapons of trade and aid nre being brought up to the front. And we are losing ground—right now. If the outcome of congressional action is not hard practice more compatible with our ideological talk about international security and freer trade, we stand to lose even more heavily in uiany ways.
The Soviet Union and its satellites are not, however, the only threat. If we curtail the ability of foreign countries to buy from us, they will turn to other countries for their requirements. Britain, Germany, Italy, and Japan are friendly to us, but that is not going to stop them from being effective competitors for our business in third-party markets. The seriousness of this kind of threat can perhaps be understood only by those who know what it means to lose a market and then try to recapture. It is at best a long, hard struggle. Sometimes it cannot be done at all.
Sorely it is clear that our defense, diplomatic, and trade policies must all be unified into one cohesive, consistent policy under which all actions are coordinated together for the solid achievement of one goal.
Because we, of Caterpillar, hold these opinions on the subject of international trade, we subscribe to the general principles underlying the trade-agreements program. With more specific regard to the bill now being offered under the President's sponsorship, we would favor, as proposed, extension of the Trade Agreements Act for a period of not less than 5 years.
We believe that the length of the period of extension should be governed by the practicalities of the situation—not, as some have claimed, by the term of any particular Congress. In long-range business planning, 5 years is a relatively short period on which to base elaborate plans involving investment, the development of markets, and all the related activities. In matters of this kind every possible effort should be made to provide a reasonable degree of continuity and stability. A period of less than 5 years could actually be very harmful.
At tbe present time, however, there is an additional special reason why 5 years should be regarded as a very minimum period of extension: the coming Into being of the European Economic Community—the so-called Common Market—■ and tbe prospective creation of a related free-trade area. Particulars of that development, and its significance, are undoubtedly well known to the members of the committee and need not be recited here. Suffice it to say that those who reiv resent the United States are going to have to have plenty of time during the important formative years if they are to negotiate as best they may to preserve for American industry a worthwhile place in the great new integrated market which will arise in Europe. These next 5 years may set the pattern for the next century.
We would also favor the proposed expansion of the negotiating authority of the President. To negotiate without adequate limits of freedom is to wrestle with tied hands; and in the period ahead, those who will conduct the negotiations are going to need all the flexibility as well as all the time which they can reasonably be granted.
This is true not only for all the usual reasons which have justified the reciprocal trade program and for the new special reasons attributable to the coming of the European Common Market. There is still another reason of increasingly serious significance: the great wave of national industrial development which is sweeping the world. Country after country is attempting to raise itself up to a higher standard of living—seeking its own self-determined salvation, working to find more means whereby more people can have more choices on what to do with their lives. Someone has aptly called it the revolution of rising expectations—a revolt against poverty and hunger, and, often, disease and squalor. One of the greatest means being employed for the achievement of goals is the creation of new industry. The evidence is to be found in all directions. And, where new industry is created, it is frequently done only on the agreed condition of, or on the proffered inducement of, protection against imports from other countries—including ours.
Apart from the voluntary decision of foreign governments, the best available means of minimizing hardships from such practices will usually be through negotiation on a reciprocal basis. The Trade Agreements Extension Act of 1958 will establish the limits of our international bargaining power. This is our timely opportunity to liberalize that power—to give it the greater range and flexibility needed in today's rapidly changing world. This is a time to strengthen our position in collective international bargaining—not a time to weaken it. And we cannot strengthen the United States by weakening the power and authority of those who are to act, on our behalf, to protect and foster the total best interest of our country.
On the other hand, we would not favor the proposed change in the base from which rates of duty could, for purposes of action under the so-called escape clause, be increased by as much as 50 percent over those prevailing on July 1, 1934. The present base, being the rates in effect on January 1, 1945—more than 13 years ago—would seem to have been and still be reasonably adequate for substantially all important purposes. Reversion to the higher rates in effect on July 1, 1934, would be a step backward—wiping out more than a decade of gains following introduction of the trade agreements program in 1934.
We would favor the President's proposal for faster action to provide r«| after proper investigation has disclosed "peril point" justification as prorS under the law. Provided it be sure. Justice should be fast
In this latter connection we would, however, point out that the very exista of concepts such as "peril points" and "escape clauses" operates to Inhibit deter foreign business from attempting to enter the American market In effl these provisions place a limit upon the foreigner's enterprise, for if he sbd succeed in competing effectively with domestic products—to the point where] domestic producer has grounds for protective relief—then he may expect to • his success curtailed by an upward revision of the applicable Import duties. 41 Swiss watches, British bicycles.
We recognize, of course, that Imports may and do operate to curtail dom<f production in certain industries and localities. It is not, however, unusual! action taken in the greater national interest to produce hardship on indivUH or business concerns. The most obvious illustrations of this occur in time' national emergency, and we now seem to be obliged to live in a permanent m of cold-war emergency. Business is not as usual. The times have cbaafl and we all must make the necessary adaptations required for survival and gndfl under conditions as they are—not as we would like them to be.
The world Is no longer as it was 3 years ago; and it will never be the m again. Our country then needed and was given extension of the Trade An ments Act. Today, the need is far greater—in fact it is imperative: and] existence of a temporary downturn in our economy must not be allowed to obSB that vital fact. Anything less than a wholly effective extension of the recipto trade program would be to play into the hands of our enemies—to the detrifl of ourselves and our friends.
This is much more than a dispute between freetraders and protectionists, is not a case of one vested interest against another; or of Democrat va Republican. Nor is it a matter of watches, bicycles, cheese or clothesfl oil, lead or zinc, or tractors. It transcends all these and ranks with mll3| preparedness in this day of the Intercontinental ballistic missile. We • complement the weapons of war with the weapons of peace—and the gros of these is international trade honorably conducted among free peoples.
William Blackie, Executive Vice Prefidf*
Peoria, Ill., June 19, 1958.
Statement Of H. Harvet Pike, President or H. H. Pike ft Co., Irc,
My name is H. Harvey Pike. I am an American citizen, president of H. Pike & Co., Inc., a New York corporation, founded by my father in 1890. joined the company in 1011, since which time except for 2 yeara in the An I have been continuously identified with the field of foreign commerce.
I would like to urge upon you the desirability of a renewal of the Reciprw Trade Agreements Act expiring on June 30 and a strengthening of that pit of legislation. It is of the greatest Importance that as the leading exponent a free economy the United States have a consistent and helpful policy tow* trade among the free nations of the world.
As a great creditor country. It Is difficult to understand the wisdom of J policy which tends to restrict the ability of our debtors to pay us and settle tbi unfavorable dollar balances.
When there are hardship cases of foreign competition in some particnl Industry, it may be desirable to help those in that industry. This might be do in some other way than trade barriers. Surely, however, it is not to the Inten of the country as a whole to Injure our world leadership to help some relatta small segment of our economy.
I strongly urge your favorable consideration of the administration's propo* for the extension of the Reciprocal Trade Agreements Act, and for a period not less than 5 years. It is good business for the United States of AbutIt Is necessary for our standing and leadership abroad.
June 23, 1968.