tion to us through such measures as export quotas. We must also be prepared to counter the inflationary effects on us of the policies of other countries, even when adopted for other reasons-as with the cutbacks in production, and selective embargo, by the oil producers.

Because this set of problems is so new, however, it is virtually ignored in both the legislative basis for Ú.S. trade policy and the international arrangements which seek to regulate world economic relations. The Trade Reform Act cannot ignore needed improvements in dealing with the traditional problems of trade policy, such as adjustment assistance for workers dislocated by imports, and I will comment briefly on some of those issues later in my statement. But the primary goal of any new legislation should be to enable U.S. trade policy to cope with the primary international economic problems of today: inflation at home, and the inflationary impact on us of the policies of other countries.

There are several ways in which the Trade Reform Act should be amended to this end. Šome changes would deal with the risk that other countries will seek to deny us access to their resources, and some would deal with our own policies which might impede such access.

First the Mondale-Ribicoff amendments should be added to the legislation. The basic purpose of these amendments is to foster the negotiation of new international rules to govern export limitations, just as international rules have governed import limitations throughout the postwar period. If the import precedent were followed, countries would have to justify internationally any resort to export limitations, apply them only for temporary periods, and provide compensation to countries injured by the move or accept retaliation from them-which is why the amendments quite properly would also authorize the United States to retaliate against unfair export controls levied by others. No international rules could be expected to work perfectly, of course, but their existence would almost certainly deter precipitate action in resort to export controls.

As a result, the United States would face less risk from the actions. of other countries. That risk is real, as long as inflation continues and shortages tempt suppliers to limit exports, both to permit domestic consumption of their own resources and to raise world prices for their output. At the same time, such rules would lessen our own temptation to resort to export controls except when they were clearly and justifiably needed.

In short, the world should negotiate new rules and institutional arrangements to prevent trade wars of export controls, just as it negotiated the GATT after World War II to prevent trade wars of import controls. National efforts to export inflation are no more likely to succeed in the long run than past national efforts to export unenployment, but they could wreak havoc in the interim and raise major problems for both national economies and overall relations among countries. The negotiations of such new arrangements should be a priority U.S. objective in the forthcoming multilateral trade negotiations, as called for by the Mondale-Ribicoff amendments.

Second, section 123 of the act, which authorized the President to suspend import barriers to restrain inflation, should be expanded.

As already noted, both the United States and numerous other countries have taken a number of ad hoc measures in this direction. Such steps make imminent sense. They increase the supply of available goods and hence counter inflation in a fundamental way-unlike the artificial restraint of inflation through price controls, and opposite from the shortages of goods and acceleration of inflation triggered by import controls.

In the United States, barriers to imports were raising our consumer prices by at least $20 billion as recently as 1971. Fortunately, that cost has been reduced by the lifting of the oil and meat quotas. But sizable costs remain from the whole array of tariffs plus the remaining quota restrictions on textiles, steel, dairy products and several smaller items.

Section 123 of the bill would authorize the President to reduce tariffs and increase the level of import quotas to restrain inflation. This is a major and highly desirable innovation in U.S. trade law. However, the authorization is limited to 30 percent of total U.S. imports at any given time and a duration of 5 months for any product, and excludes any agricultural products under import quota.

I recommend that all of these restrictions be struck from the Trade Reform Act. All imports should be subject to elimination of all tariff and nontariff impediments, for a period to be determined by the President to fight inflation. If time limits are deemed necessary, they should run for at least 2 years to encompass the boom phase of the normal business cycle. Domestic groups which might be injured by such actions are fully protected by section 123(b)(1), which requires the maintenance of existing import barriers for any products where injury might result from their reduction.

Third, section 331 should be amended to require injury to a U.S. party before countervailing duties must be levied against the export subsidies of a foreign government.

As already noted, the use of export subsidies is declining around the world as countries seek to export their inflation rather than their unemployment. Nevertheless, some export subsidies remain and the United States needs a clear policy to cope with them.

However, in an inflationary climate there will be many instances in which the United States should welcome the benefits to its consumers provided by foreign export subsidies. Hence it should countervail against the subsidies only if they injure the workers and firms which compete with the subsidized imports. Such a policy has traditionally been followed with regard to dumping of products by foreign firms, which also subsidize U.S. consumers.

Regrettably, chapter 3 of title III of the Trade Reform Act does not incorporate an injury test for the application of countervailing duties. In fact, for the first time it would authorize countervailing against duty-free imports, with an injury test only when required "by the international obligations of the United States." I recommend that an injury test be required for any application of countervailing duties, on dutiable and nondutiable goods, so that U.S. inflation can be reduced by foreign export subsidies except where U.S. producers of competitive products would be injured in the process.

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Fourth, Title V should be liberalized to further facilitate imports from the developing countries.

The developing countries are a major potential aid to U.S. efforts to fight inflation. Unlike virtually all industrial countries, many of them have unutilized labor which could be profitably employed if markets existed for their output. Thus there is natural fit between our need for more goods and their need for jobs.

In addition, many of these developing countries control the supply of key primary products. They are much more likely to seek to raise the price of these commodities, increasing our inflationary problem. if they are unable to meet their own needs for jobs and export earnings by developing their manufacturing sectors. Hence our own antiinflationary effort could be doubly boosted if we increase our imports of manufactures from the Third World. And recent international discussions suggest that we and the other industrial countries may have to provide more access to our markets for the manufactured goods of the developing countries if we are to win their acceptance of new rules to govern our access to their primary products.

Title V of the act seeks to do so by authorizing generalized tariff preferences for such products. However, several key limitations to that authorization are now included. The President is required to take into account a number of factors in determining whether imports from particular developing countries are even eligible for preferences, including their actions toward U.S. investments. At least 35-50 percent of the value of the imported product must be produced in the beneficiary country itself. Products subject to import quotas would not be eligible. Preferences would be lifted wherever eligible imports reached a level of $25 million or 50 percent of total U.S. imports of the item-both tiny amounts of U.S. consumption of virtually every product-unless the President explicitly decides "that it is in the national interest" to continue the preferences.

I recommend that all of these limitations be eliminated. Any valueadded requirement should at least encompass value added in all eligible developing countries, not just the country exporting the final product. Products subject to import quotas, such as textiles, should be eligible for preferences; indeed, these preferences would run less risk of causing injury to domestic interests than preferences on any other products by virtue of the existence of the quantitative limits. Most important, any ceilings on preferential imports should be much higher and it would be far better to avoid ceilings altogether, as in the original U.S. preference plan proposed by President Nixon in 1969. The standard escape clause, particularly as modified by this act, would provide the needed safeguards against injury to U.S. workers or firms resulting from an excessive growth of preferential importswhich brings me to my final point.

Fifth, Further improvements in the adjustment assistance program are needed to maintain the antiinflationary trade policy which I have

1 See C. Fred Bergsten, "The Threat From the Third World," Foreign Policy 11 (Summer 1973) and "The Threat is Real," Foreign Policy 14 (Spring 1974).

proposed, because of the problems occasionally caused for particular groups of workers by import flows.

Even in an inflationary climate, where increased imports are clearly in the national interest, equity requires governmental assistance to those particular groups-particularly workers, but sometimes firms or even entire industries-which may on occasion be injured by those same imports. Indeed, the enhanced importance for the United States of unimpeded access to imports enhances the importance of an effective program of adjustment assistance because the only alternative to deal with such injury, restrictions of the imports themselves, is so obviously undesirable. Thus I strongly support the preference expressed for adjustment assistance over import relief in several sections of title II, the several requirements that industry efforts to adjust be carefully scrutinized in determining whether to grant import relief or to maintain such relief after it is initially granted, the numerous requirements that consumer interests be considered in any determination regarding import relief, and the authorization of congressional vetoes of any new import quotas enacted by a President. In addition, H.R. 10710 would reduce the need to resort to import restrictions by significantly improving the adjustment assistance program. However, further improvements are highly desirable and can be implemented at quite modest cost:

The bill provides that workers laid off due to increased imports would receive 70 percent of their previous weekly wage for the first 26 weeks of unemployment, and 65 percent for the remaining 26-65 weeks of eligibility. This level of benefits would represent a significant cutback in the take-home pay of many workers, and should be raised to 80 percent for the duration of eligibility.

The proposed program provides no fringe benefits. Such benefits, particularly health and life insurance, add perhaps 15-40 percent to the real income of most workers. The Federal Government could easily keep such insurance going during the periods of worker eligibility by paying the premiums previously paid by their employers.

To achieve real adjustment and limit costs, early warning of possible trade-induced dislocation is needed. The Government, working closely with private industry and labor, should create a systematic program for detecting new areas where increased imports will lead to problems and which will give them prompt attention.

Adjustment assistance should be available to import-impacted communities, as well as groups of workers and firms.

A new Office of Adjustment Assistance should be created in the Executive Office of the President to run the program. Its administration is otherwise too diffuse to be operated with maximum efficiency.

CONCLUSION

With the proposed changes, along with its other provisions, the Trade Reform Act could take the lead in addressing U.S. foreign economic policy to the problems of the relevant future. It could play a particularly important role in combating inflation. It could provide means to deal effectively with any job losses caused by increased. imports. And it would place the United States in an excellent position

to negotiate new trade rules which would both promote our national economic interests and further the prospects for global economic cooperation-a vital necessity in today's world of unquestionable economic interdependence. My final recommendation is that the committee report the amended bill as quickly as possible, and push for its early adoption by the entire Congress.

Thank you.

Senator MONDALE. Listening to your analysis of the world in which we live where the danger is inflation and not unemployment, and having earlier listened to some of the representatives of organized labor where they are terribly concerned about unemployment, one wonders whether we are looking at the same world.

For example, the auto workers, which have traditionally opposed any kind of quotas, speaking through their president, Leonard Woodcock, last week as I recall, asked for temporary quota protection against the importation of cars on the grounds that the drop in foreign exchange reserves in Japan would probably force the Japanese to try to export furiously their small cars. Then Mr. Meany, testified that there is a very strong movement in unemployment. When I go around the country that is what I hear when I am with union leaders and members. They are very concerned about their jobs.

Now how do you reconcile those two views of what is the major economic problem today?

Mr. BERGSTEN. I must say I have great sympathy with the auto workers. They are victims of two things that were beyond their control. One was the failure of our automobile industry to move as it should have moved to producing the kind of small cars that obviously were in demand by American consumers. And that was coupled with the second factor, the energy crisis, which has so dramatically changed energy cost in this country. A massive transition problem was created for the automobile workers as Detroit is now forced to the production of smaller cars.

But I would think that import restraints would be exactly the wrong way to deal with the issue. Indeed, the only reason that Detroit ever began to produce any small cars whatsoever was foreign competition. The United Auto Workers would be in a much worse situation today if Detroit had not been forced, first by Volkswagen in the late 1950's and then by the Japanese in the late 1960's, to begin producing at least some small cars so that some American demand for that kind of vehicle could be met from domestic production.

If it had not been for the competitive impulse of foreign competition, our automobile industry and our automobile workers would be in far worse shape than they are today. Now that of course leaves open the question of what to do about the present situation where we do have a transitional problem for the automobile workers and, indeed, for our automobile industry, having let itself be in the position it is in today.

I think the answer would be direct support to the automobile workers, which would have been included in the adjustment assistance package of the energy bill which was voted by the Congress recently but vetoed by the President.