President. A 3-year extension would expire precisely in the middle of these projected negotiations, and whether they could continue would depend upon a further extension of the program by the Congress at that time. Clearly, this would create a wholly unsatisfactory bargaining position for the United States; and there is real doubt that we would even begin negotiations under those circumstances.

Equally important with the 5-year extension is the 25 percent tariff reducing authority contained in H. R. 12591. The European community will reduce its internal tariffs 30 percent over this period of time, and if we are to enjoy approximate equality for our exports to the European market, we must be able to reduce our tariffs by at least that 25 percent. Western Europe is the most important single market for our Nation's exports, and it is of critical importance to the future of our foreign trade that we maintain our present position in that

area.

The Soviet economic drive toward underdeveloped countries is another development which has reached serious proportions in the last year or two. In the face of this offensive one of our major economic defenses will be our willingness to accept on a reasonably liberal basis imports from these underdeveloped countries-imports not only of essential raw materials but of the whole range of goods which these countries export, and upon which depends their foreign exchange position. Obviously, unless we are prepared to cooperate closely with these countries in satisfying their basic needs, their governments will be under heavy pressure to entertain the prospect of close relations with the Soviet bloc.

Finally, an adequate trade agreements extension is essential for our own economic welfare and growth. Expanding foreign trade is one of the major elements in an expanding United States economy. We cannot hope to increase our standards of living and provide jobs for the annual increase in our working population unless we are prepared to provide the economic climate for trade expansion.

The writer has had some direct experience as an adviser to the United States delegation to the GATT. I have become convinced that the Trade Agreements Act provides a workable and vital instrument for the achievement of our foreign economic objectives. From my own observation the negotiations under the GATT have been conducted by the American representatives with great care and with full regard to the interests of American industry, labor, and agriculture. This has been a sound program for some 24 years, and we cannot now afford to renounce it by adopting a 1958 extension which is neither adequate to our current needs nor expressive of the policy we wish to pursue. In my opinion, amendments to this bill, which would provide for only 1-, or 2-, or 3-year extensions; 5-, or 10-, or 15-percent tariff reducing authority; or drastic limitations on the President's discretions in escape-clause cases, will have the effect of making the legislation essentially meaningless. An extension of that kind would continue the program in name only.

May I, therefore, again urge the committee to recommend to the Senate approval of H. R. 12591 without amendment. Sincerely,

HENRY J. HEINZ II, President.

STATEMENT BEFORE SENATE FINANCE COMMITTEE IN SUPPORT OF EXTENSION OF THE TRADE AGREEMENTS ACT BY LAMAR FLEMING, JR., HOUSTON, TEX.

My name is Lamar Fleming, Jr. I am a resident of Houston, Tex. I am chairman of the board of Anderson, Clayton & Co., a corporation whose principal business is dealing in cotton in this country and abroad, ginning, and seed crushing.

I served on the Commission on Foreign Economic Policy (Randall Commission) as Vice Chairman, and I attended the session to revise the General Agreement on Tariffs and Trade as an adviser to the United States delegation in 1954-55. Judgment of the merits of a trade policy for the United States must be in terms of the welfare of the American people, of present and future generations. For this purpose, I believe we can define welfare as achievement of the fundamental human desires for material well-being and personal freedom.

The civilized man recognizes that there are limits beyond which unbridled personal freedom becomes infringement on the freedom and well-being of others, and he submits, therefore, to reasonable restraints, imposed by his own sense of good manners and the laws of society. He recognizes, also, that a great deal

of his well-being comes from maintenance of public order and security and from publicly provided services like roads and schools, which he enjoys as the effect of concerted action of all society, and that, therefore, it is just that he bear his share of the costs and burdens of them, in the just measure of the benefit he derives. The sum of it is that he enjoys the fullest measure of worldly goods and freedom as a team player for what our forefathers called the common weal, rather than as a lone wolf. The test of this is whether the net effect of his surrender of goods and freedom to society is the enjoyment of more goods and freedom in the ultimate.

The basic purpose of protective tariffs is to enable certain producers to sell us their goods for more than we would pay were we permitted to buy like foreign goods duty free. This diminishes the value of our goods and services in exchange for the protected goods; and it abridges our freedom as buyers. What are the compensating benefits?

In the beginnings of our Republic, Hamilton's answer was that we needed to nurture infant industry until it developed the capacity to relieve us of our then great dependence on manufacturers from Europe, the availability of which had been interrupted by wars, blockades, and legalized piracy periodically during his lifetime. Whatever the merits of this answer then, there are no infant industries in the United States today, if we exclude those born of new invention which are infants wherever situated.

A modern variation of this answer is assurance of essential supplies against the eventuality of war. This justification has been invoked for products ranging from military hardware to chocolate bars. It is a difficult one for the scantily informed citizen to evaluate. Only those with the top responsibility for our defense and the information indispensable thereto are qualified to judge what we will need and have time to use in a war with the all-obliterating weapons that now are available.

An answer sometimes heard is that no one need be discriminated against in a pervasive protectionism that shields all from foreign competition-industry and mining by tariffs; agriculture by tariffs, price supports, and quotas; labor by immigration restrictions and minimum-wage laws. If this answer had no other flaws, it still would be damned by the fact that what it contemplates is a regimented welfare state, whose impracticability has been proven over and over again, throughout history. But it has obvious particular flaws. Since its aim is high prices and wages, its effect would be inflationary. No protection has been devised for the white-collar man or those dependent on pensions or fixed income, who suffer always in times of high prices or inflation. No protection is feasible for our productions that serve the export marketsother than Government subsidies and gifts, of the order recently applied to our agricultural exports, which condemn themselves by the fantastic enormity of the cost.

Even if all-pervasive protection were feasible, it would require a horde of Government functionaries for administration of it; and we taxpayers would have to support them. Moreover, even-handed apportionment of all-pervasive protection, with equal justice for all, would be beyond the limits of human intelligence and conscience.

Congress had a long experience with the difficulty of formulating protective programs with fairness and equity to all. The trouble is that by no means all are desirous of any protection and that only small fractions of the people are desirous of any particular protection. So there never was a majority interested in adoption of every schedule of a Tariff Act. In these circumstances, the mustering of a majority for a catchall, omnibus bill depended on a trade between countless factions, each swapping votes for the whole bill in order to get the votes of the others for its particular schedule. The essence became vote trafficking, not equity.

This produced some bad tariff acts; but a more harmful product was a degeneration of the legislative system. It showed the way for unrelated small minorities to win particular privileges for each by conspiratorial combination resulting in an aggregate 51 percent majority for a catchall, omnibus bill. The use of this device has spread beyond tariff legislation, into agricultural, fiscal, and other important legislative fields. It threatens the effectiveness of any suffrage of the remaining 49 percent, as well as the basic integrity of the legislative system.

Congress moved against this cancer in enacting the Trade Agreements Act of 1934, lifted the fixing of individual tariff schedules from its functions. In

the interest of preservation of legislative integrity, let us hope this step will never be retraced.

To evaluate the interests of the American people in trade policy, I suggest that we consider what the elements are of enlargement of human welfare. I think the clearest fact of all is that it has moved hand in hand with the growth of specialization.

The first man's diet was limited to what he could gather from nature, in the raw. Some division of tasks developed with formation of the family, and more when the family grew into a community. Special aptitudes were developed, such as for hunting, fishing, herding, and cultivating the soil; and the aggregate increase in usable products was such that the availability of them per person and the variety and quality also increased. Specialization

spurred discovery of additional useful natural resources and of means to convert them to useful form, further increasing the quantity and range of enjoyable goods. Members of the family pooled or swapped the products of their several proficiencies.

The natural resources available to the first family or community were those locally at hand, of which it had discovered the presence and usefulness. The development of communication and transport between communities and places made recources of the one available to the other, through exchange of goods. Also it generated exchange of knowledge and proficiencies between communities, as well as specialization by communities in production of surpluses from the resources with which nature had especially endowed them, to exchange with other communities for products of the resources of their special endowment. So each produced the products of its natural comparative advantage to exchange for goods it could not produce at all, or could produce only with natural comparative disadvantage. This was specialization on the geographic scale.

Swapping goods was an awkward means of trade within the community, and more so between communities, since it required the coincidence of parties to the trade, each wanting the products of the other, at the same time. So the business began of the trader, who sought out the goods desired by some and customers for the goods of others and bridged the time-lags and distances between the desire and the availability. Traders found the need of a medium of interim settling of accounts, something easly transportable and not perishable. Pelts and precious stones were among the early mediums giving way eventually to coins of precious metal. This established the institution of money.

Before the introduction of money the man who produced more than he consumed had to keep his savings in things such as herds or land or houses. Now he could keep his savings in money liquid and ever available for investment or lending. This was the beginning of liquid capital the financial base of the great specialized economic expansion of modern times.

The greatest specialization of production of all time has occurred in the United States; and the highest levels of material welfare in history have come with it. Several explanations are evident. There is the tremendous wealth and variety of natural resources within a single political jurisdiction without intervening customs barriers differences of currency or substantial differences of laws embracing 170 million relatively affluent customers. There is the fact that these massive resources and this great home market have made possible here as nowhere else the development of a highly specialized technique of mass production in which great investment in plant and machines substitutes the energies of nature for human effort and provides wholesale productions at unit costs below those in other countries, notwithstanding wage scales higher than in other countries. There is the impetus which are specialization and industrialization received from the needs of the two great wars of this century. There is the great generation of savings and capital here, nurtured by relative confidence in the dollar compared to other currencies, which encourages Americans to save and attracts others to leave their savings here providing generous funds to finance our industrialization. There is the coincidence that this growth has occurred in an era of almost explosive invention and scientific and technological progress. There are our superior publicly provided services, which have blossomed with our economic growth and contribute to it-particularly by reducing the waste of our scarce and costly man-hours. Finally there is our blessed record of immunity from invasion.

The benefits of our massive resource, mass market, massive capital, mass production, and advanced specialization constitute great comparative advantages for Americans. Our resources of land, climate, and water also are great com

parative advantages in a world so many of whose inhabitants are land starved; and these advantages are complemented by the advances of our times in agricultural mechanization and technology and in our publicly provided services.

Where lies the opportunity for our children and our investments in the presence of these rich comparative advantages? I believe the question answers itself; the opportunity lies in exploiting the comparative advantages.

Our children will prosper most if they devote themselves to the tasks for which nature and fortunate circumstances provide Americans with comparative advantage-largely tasks in which the specialized efficiencies of machines and technology spare the use of scarce and costly man-hours. They will prosper less in productions in which we are handicapped by natural comparative disadvantage, such as of resources or climate, or by limitations of the scope for substitution of energies of nature for human effort, regardless what sacrifices other Americans may make to protect them. In pursuing the tasks of American comparative advantage, they will want an ever-increasing range of materials, to reap the benefits of continuing invention. Some of these materials will be available only from foreign sources, and others will be available at lesser cost from foreign sources than domestic sources. It will be detrimental to our children's prosperity if United States trade policy denies them access to these foreign sources or makes the access expensive. Their greatest opportunity will be to specialize in the productions of American comparative advantage and to exchange the surplus of their products with the rest of the world for the products of its comparative advantages. They will benefit most by applying themselves to the productions in which machines, technology, and capital most will multiply the products of their efforts, buying from the less fortunate peoples of the world the things of which manual labor is the greatest component of cost. The trade policy which will permit the greatest use of these opportunities in the ultimate will be a policy of free trade. In time, I believe the interests of the American people will become so convincing that the conclusions will be irresistible, and that free trade will become our policy as it became the policy of England, in similar circumstances, in the third decade after Waterloo.

However, an abrupt shift from the ultraprotectionism of 1930 to free trade would have been too drastic a shock; and I believe that an abrupt shift from the moderated protectionism of today to free trade would be too drastic.

The Trade Agreements Act provided for gradual mitigation of tariffs, accompanied by reciprocal mitigation of foreign tariffs or other impediments against acceptance of our products. Its operation helped to restore our foreign commerce and lift our economy from the depths of the depression of the thirties. It has helped the revival of our foreign commerce since World War II and has helped to secure mitigation or removal of restraints by other governments on imports and payments for our goods, which otherwise would have lingered beyond the period of war-induced necessity. It provides the mechanism for continuing mitigation of our tariff policy and negotiation of mitigations of the protectionist devices of other nations.

Purely on the basis of American self-interest and through the spectacles of domestic considerations, I believe the case is convincing for extension of the Trade Agreements Act for the proposed 5-year period. I regret that the proposal is not to extend it indefinitely.

There are considerations which reach beyond our domestic economy, that must be taken into account.

The American people and Congress are agreed that, in the present state of the world, it is wise for the United States for reasons of its own interest and security to make substantial sacrifices to reinforce the resistance of other nations to the encroachment of totalitarian statism, and to help other nations to maintain governmental solvency, integrity of currency, and balance of international payments, as well as to develop resources valuable to their economies and many of them important to us as sources of needed materials. A part of the background is concern for the national security, which will be the more solid if grounded in a concerted, organized effort for common security, embracing many nations and their resources. A part of it is the importance to our economy of broad markets everywhere and the growing importance to us of foreign sources of many materials, some of them awaiting development.

Since the war, we have spent great sums in aid to other countries, under the headings of military aid, economic aid, and agricultural surplus disposal. This is taxpayers' money, and the cost is running in the neighborhood of $5 billion annually.

In the main, this foreign aid is in the form of goods for which we do not receive payment in dollars. If we imported more goods, paying for them in dollars, clearly we could collect dollars for more of the goods that now are given away at the expense of our taxpayers. If we imported more goods, the prospect of returns on American private investment abroad and foreign loans would improve, and the volume of such investments and loans would increase; and clearly this, too, would diminish the need for gifts at the expense of the taxpayer. So it is clear that increased imports offer the principal means of diminishing the burden on the American taxpayer for foreign aid, until such time as improved conditions in the world terminate the need for it.

Since we regard a concert of nations dedicated to joint security and resistance against totalitarian statist encroachment as a necessity for our security, we have to look at certain problems through the spectacles of other nations. It is humiliating to the people of any nation to depend on gifts from another nation. Self-respect demands even exchange, in which each nation earns and pays for what it receives. So the satisfaction of the craving for self-respect which all peoples feel depends on our taking from other nations in the aggregate as much as we give them. This does not necessarily mean that the exchanges of goods must exactly balance. It does mean that they must be close enough to a balance so that the flows of investment, loan, and service accounts can bridge the difference. In the interest of the success of our concert with other nations, this has to be our goal, and the other nations have to know it. Therefore, a reliable and constant liberal direction in our trade policy is requisite to the success of that concert.

There is another aspect of world developments which we would do well to take account of. The benefits of our mass market and mass production have not gone unnoticed elsewhere. The more advanced foreign nations generally would like best of all to be embraced within our mass market through worldwide adoption of free trade, or at least through adoption of it reciprocally between themselves and us. But they cannot realize this desire until we acquiesce.

In the circumstances, groups of other nations are creating their own mass markets. The greatest in terms of population is the one behind the Iron Curtain, which already exists. The greatest in terms of resources is the European Common Market, which France, Italy, Germany, the Netherlands, Belgium, and Luxembourg have formed, obligating themselves gradually to eliminate tariffs between them within about 12 years. England, the Scandinavian countries, Austria, Switzerland, and Portugal are negotiating with the Common Market countries for a kind of associate membership, the whole to be called a free-trade area. The United Arab Republic may become the nucleus of another common market; and preliminary studies are in course of the feasibility of a Latin American Common Market.

The nations of the European Common Market have agreed to adopt uniform external tariff rates, which will involve increases in some cases and decreases in others. They are committed, as contracting parties in the General Agreement on Tariffs and Trade (GATT), to negotiate with the other parties to the general agreement on any changes adversely affecting the latter. The major steps in the determination of their external tariff rates will occur during the next 5 years. They are obligated to negotiate with us, so long as they and we are parties to the general agreement.

If we fail to extend the Trade Agreements Act, under the authority of which our Government became a party to the general agreement, it will be notice to the other contracting parties that we no longer will be wholehearted member of it. if indeed we continue to be members at all. The general agreement would be an empty shell without participation of the world's greatest trading nation; and whether it continued at all or only as a shell would be unimportant. In neither event would the obligation of the European Common Market nations of reciprocal negotiation with us be of impressive validity. Moreover, the lapsing of the act would leave our Government without authority to make concessions reciprocal with those we might want from the Common Market nations.

Under these conditions, it is of the utmost importance that the negotiating authority of our Government be extended through the full 5 years of the negotiating phase of the Common Market.

(The committee was adjourned at 1:30 p. m., to reconvene at 10:05 a. m., Thursday, June 26, 1958.)