uation of this nation and that of Hungary, Czechoslovakia, or other countries which are under the control of these people.

They say they have broken away from the Communist philosophy, and that this matter of trade encourages better relations with this country. Well, Hungary went through that process, at one time. Perhaps such things are weakening; but, as I said in discussing the wheat deal, we have no assurance that this will solve the problems.

Then came the autobahn incidents and the Khrushchev threats and his statements to the businessmen that he is determined to take us over; and recently we have seen Tito make a complete turnabout. At one time he was trying to export the Communist philosophy; but whenever it became expedient for him to change, he changed; but now he is back in that camp. Where will he be tomorrow?

I was talking with my 12-year-old son about this matter; and he said to me:

Daddy, I guess we are going to help build them up, so they can turn around and kill

Mr. MORSE. Will the Senator tell me how many members of the Finance Com

mittee shared his view?

Mr. HARTKE. I cannot say at the present time. I know there were more than myself. I wish it clearly understood that the action was not unanimous. I know that what I have said is contrary to the opinion of some of my older advisers. They counseled and told me that I should not do this, that I had the wrong idea. I hope I am in error.

Mr. MORSE. The letter of the Senator from Virginia [Mr. BYRD] at least represents the majority opinion of the committee.

Mr. HARTKE. There is no question about that. It represents a substantial majority of the committee.

Mr. MANSFIELD. Mr. President, will the Senator yield?

Mr. MORSE. I yield to the majority leader.

Mr. MANSFIELD. First, the proposal of the committee would not give any special or preferential treatment.

So far as the balance of trade is concerned, I would refer to the remarks of the distinguished Senator from Oklahoma [Mr. MONRONEY], who, as a representative of this body, was in Yugoslavia only a few weeks ago. He told us what the effects of American imports into that country were.

I also point out that, as contrasted with other satellite countries, there is not a Russian soldier on Yugoslavian soil. Yugoslavia is not a member of the Comicon organization, nor is it a member of the Warsaw Pact.

This is a coldblooded proposition. Do Senators desire that Yugoslavia veer toward us or go toward Moscow? Do Senators want the 70 percent of Yugoslavia's trade with the West retained or increased, or do they want to reverse the percentage? That is all. Senators must make up their minds on that question. Mr. HARTKE. Mr. President, will the Senator yield?

Mr. MORSE. I wish to make a brief statement and then I shall yield the

floor. We are greatly indebted to the Senator from Ohio for bringing up the amendment because, in my judgment, this is the first time, within my memory, we have really had the question clarified in debate in the Senate. I believe that we now understand the issue as we never understood it before.

cussion in the Foreign Relations ComAlthough there was a very helpful dismittee, I understand it here even better than I did in the Foreign Relations Committee.

The Sen

from Ohio, that we have taken care of I point out to my friend, the Senator Tito in the amendments already adopted as far as AID is concerned. ator's amendment offered yesterday in regard to Communist nations handles the AID matter. We are dealing with is all the difference in the world between a question of trade and not aid. There

the two. I cannot see how we can take

the position that we should trade with Russia in wheat, with Hungary in corn, and other nations behind the Iron Curtain, and then support the amendment.

I support that kind of trade for several reasons. I wish to mention two very important ones now.

First, I supported the wheat program, and I shall support the corn program with Hungary because I think we should stop cheating the American people. That is exactly what we would do if we did not enter into trade relations, because either the wheat of some other nation, or, in many instances, our own wheat or corn, would reach them anyway, though not sold by us. We know that a good deal of it is converted into flour by our allies and sold behind the Iron Curtain, and we do not benefit as a result of the process.

So from the standpoint of merely the materialistic trade features involved, I do not think we can justify cheating the do not think we can justify cheating the American people out of trade behind the Iron Curtain in nonstrategic, noncombatant goods.

Second, we are not alding Tito. We are trying to get to the Yugoslav people. We are trying to demonstrate to them

the superiority of our system of economic freedom to their system of economic enslavement. In the long run that is the way we must whip communism if we are to do so. That is the way we need to do it. The arguments that were advanced here today by the Senator from Idaho [Mr. CHURCH], the Senator from Oklahoma [Mr. MONRONEY], the Senator from Missouri [Mr. SYMINGTON], the chairman of the committee, the Senator from Arkansas [Mr. FULBRIGHT], the majority leader, the Senator from Montana [Mr. MANSFIELD], and others, have almost put us in an unanswerable position in support of the committee amend

ment.

I shall support the language of the committee for the reasons stated. But I wish to stress that we have made it perfectly clear to the world that we are not supporting Tito. We have made it clear to the world that we have faith in our system of economic freedom manifested by our private enterprise trade.

Imagine the good that we do when we get our goods behind the Iron Curtain. What do Senators suppose those people do? They do not take the goods mutely. They talk about them. They arouse a good deal of discussion. This process leads to a recognition of the superiority of our economic system over others.

had the trade-treaty relationship for a Furthermore, as was pointed out by the chairman of the committee, we have long time. As the Senator from Illinois [Mr. DOUGLAS] has said, we are not giving anyone any preference. No preference is involved. No nation would get. long existing so-called favored-nationany advantage. We are continuing a benefit to peoples. It is the people that clause program, which will prove to be of we ought to be interested in, so long as And we are doing a pretty good job of we place in the bill the necessary checks upon Soviet governments themselves.

that.

Several Senators addressed the Chair. The PRESIDING OFFICER. The

Chair recognizes the Senator from Ohio.

Mr. LAUSCHE. Mr. President, the issue has now resolved itself into the responsibility of determining where Tito stands. I wish to read to the Senate statements made by Tito and Khrushchev at their latest meeting of the Supreme Soviet of the Russian Republic on December 11, 1962. Khrushchev on declared:

Someone started to assert that Yugoslavia

is not a socialistic country. May we please ask one question. If Yugoslavia is not a socialistic country, what kind of country is it?

That was Khrushchev speaking. He continued:

We know that there are no feudal landowners nor capitalists in Yugoslavia. We know that Yugoslavia has no private capital, no private enterprise, no big landowners, and

no private banks.

I am reading Khrushchev's statement about Yugoslavia. Still speaking, Khrushchev said:

We see that the Communist Party of Yugoslavia and its leaders are directing their

What?

the institution of socialism.

Khrushchev went beyond that to state: Therefore, if we start from the impartial laws of Marxist-Leninist theory, it is impossible to deny that Yugoslavia under today's regime is not a socialistic country. This fact is a starting point in our politics, and on this fact we base our relations with Yugoslavia as a socialistic country.

Though I stand alone, and every Senator continues to argue that Yugoslavia is not socialistic, I will not change my position.

All I ask is that Senators consider the evidence presented by Khrushchev at that meeting of December 11, 1962, in Moscow.

I delve a bit further into the statements of Khrushchev made at a Communist Party meeting in East Germany in January 1963. At that meeting Yugoslav delegates were considered persona non grata, but as active members with equal rights their speeches were greeted with special warmth.

The meeting of January 1963 followed the December meeting of 1962 in Moscow. At the meeting in East Germany in January of 1963 Khrushchev stated:

We believe that it would be in the interest of our parties and in the interest of international communism to reestablish the unity of the Communist Party of Yugoslavia with its brother parties in ideological problems on a Marxist-Leninist basis. Our duty

This is Khrushchev speaking

is to help a party which has made an error or has deviated from the principles of international communism as set forth by Marx and Lenin. We should help such a party understand its error and, when correction has been made, this party should again be given a dignified place in the family of brother parties.

The Senator from Indiana from Indiana [Mr. HARTKE), with all his humility, and his objective to decide this question on the basis of what he believes is a course in the best interest of the United States, has refused to be dominated by immediate expediency and has refused to be duped by the words of Khrushchev and the words of Tito.

What is the arrangement between Khrushchev and Tito? I will give my understanding of it. It is that Tito shall have some semblance of independent liberty within Yugoslavia, and that he shall not be obligated directly to Moscow by what is done within Yugoslavia. But from that point on there is a different picture. Tito's responsibility is to go to Africa, to the Far East, to the Caribbean, and to South America, and there to state, "We are a neutralist, nondependent nation of Red Russia, and we urge you to adopt our system of government." The ultimate end will be socialization in South America, in Africa, in the Middle East, and in the Far East. And after a brief pilgrimage into a socialistic era there will come an era of communism inescapably.

Looking at the Tito-Khrushchev relationship from the other side, we can see that in return for his absolute subordination to Soviet interests and for his

In support of what I said a moment ago I wish to quote Khrushchev. This is what Khrushchev said:

It is understandable that between us there can be no perfect congruence in our answers to all the questions we meet in our Communist Party work. Since the problems in the struggle to build the new socialistic society differ in each country, different approaches and methods are necessary in practical life.

These words were spoken in December 1962 at the Moscow meeting between Khrushchev and Tito.

What did Tito answer at that same meeting to the words of Khrushchev? He said:

We agree with Comrade Khrushchev's report on the relationship between our countries. We aim toward the same goal, to build a new socialistic society first and then a Communist society.

Senators who argue that there is no purpose to build a Communist society in the world are stretching their thinking and speculating without taking into consideration the words either of Khrushchev or of Tito.

I quote further the words of Tito: Because world peace is a condition for the attainment of our goals, our positions on all international problems are identical.

That is Tito speaking, declaring that the positions of Red Russia and of Yugoslavia are identical on all international problems.

On all the problems which are serious troublemakers in the world, such as peace, peaceful coexistence, disarmament, colonialism, and Germany, our points of view are identical.

I ask Senators how, by any stretch of the imagination, it can be said that there is a separation between the thinking of is a separation between the thinking of Tito and of Khrushchev, between the Communist Party of Yugoslavia and the Communist Party of Red Russia?

On one thing they are in agreement; that is, they wish to block the establishment of the center of communism in Peiping instead of in Moscow. That fight, of course, is serious. I believe it is a fight which will eventually inure to our benefit.

If we take all the foregoing statements into consideration, how can an argument be made that Yugoslavia is different, that Yugoslavia does not want a Communist nation in the world? My answer is that it cannot be that way.

Mr. DOMINICK and Mr. HARTKE addressed the Chair.

Mr. LAUSCHE. I yield first to the Senator from Colorado.

Mr. DOMINICK. I appreciate the courtesy of the Senator from Ohio in yielding to me. I wish to add my voice to what he said on the relationship between Tito and Khrushchev. I do not tween Tito and Khrushchev. I do not believe there is any doubt of that, if we examine the historical documents.

I should like to go a little further than that in connection with the pending amendment, if I may.

The amendment is not designed to affect our export trade in any way whatsoever. It would not stop our export trade in any way whatsoever. It would

provide that the President may not give special tariff concessions for imports into this country from a Communist country.

Since when has the United States adopted a position of writing into its laws special tariff concessions for Communist countries? That is what we shall be doing unless we adopt something similar to the amendment offered by the Senator from Ohio.

This procedure would not cut trade. It would not affect the basic situation. If the amendment should be adopted, all it would do would be to say that we will not give to the Communist countries special tariff concessions.

It seems to me that there has been no explanation given-neither our imbalance of trade nor anything else-which bears on this point. If we should increase our imports from Communist countries we would not help in respect to our loss of gold and we would not help in respect to our balance-of-trade problem. All we would do would be to make them worse.

It seems to me that the least we can do is to say that although we may trade with the Communists we are not going to give them special concessions, to make sure that they can expand and grow. I thank the Senator from Ohio.

Mr. McGOVERN. Mr. President, if the Senate were to pass the amendment offered by the Senator from Ohio to cut off our trade with Yugoslavia and Poland, it would be a major disaster of American foreign policy. I can think of nothing that would make the Kremlin happier than for us to drive Poland and Yugoslavia closer to Moscow and away from the West.

I do not approve of the regimes in Poland and Yugoslavia, but if we are ever to encourage the cause of freedom in ing these countries from the West. Eastern Europe, it will not be by isolat

I ask unanimous consent that background material on this subject prepared by the State Department and an article by former Secretary of State Christian Herter be printed at this point in the RECORD.

There being no objection, the background material and article were ordered to be printed in the RECORD, as follows: THE U.S. INTEREST IN MOST-FAVORED-NATION TREATMENT FOR YUGOSLAVIA AND POLAND INTRODUCTION

Since World War II the United States has been faced with a critical choice of two tenable alternative lines of policy in dealing with the problem of Eastern Europe. The first was to assume that the Soviet Union and the countries under its domination constituted a permanent monolithic bloc-a bloc so cemented together with the dogma of militant communism that all hope of weaning the Eastern Europeans away from Soviet domination was hopeless. The consequence of such a policy decision would be to throw in the towel, to abandon the peoples of Eastern Europe to the mercies of a Soviet tyranny and limit ourselves to pious platitudes about our confidence in their ultimate independence and freedom.

The other course was to assume that the instinct for freedom runs strong in the hearts of men everywhere and that by keeping alive and expanding our contacts with the Eastern European countries we could encourage their inherent national and individual aspirations and leave open to them

the road to the West. This was a difficult and complex course to follow, for among other things it required that we approach the subject peoples through their authoritarian governments. But it is the choice we made, and the history of Eastern Europe in recent years gives ample evidence that it was the right choice.

As Secretary of State Rusk pointed out in a statement before the House Foreign Affairs Committee on April 5, 1963:

"Trends toward diversity-and fragmentation-are evident in the Communist movement generally. Trends toward 'destalinization' are visible in all the Eastern European Communist states except perhaps Albania. Nationalism remains a vigorous force in Eastern Europe-a force which we need to take into full account in our own attitudes and policies."

Today, however, the pursuit of such a policy is threatened by a new development of our own making-a clause in the Trade Expansion Act of 1962. Section 231 of that new legislation instructed the President of the United States as soon as practicable to deny trade agreements benefits to any country "dominated or controlled by communism." Under this law the "most-favored-nation" treatment which we had hitherto granted to Yugoslavia and Poland would now have to be withdrawn.

What is MFN treatment?

Under the most-favored-nation (MFN) policy the United States extends to all countries any tariff concession which has been negotiated with a single country or a group of countries, provided they do not discriminate against us. MFN treatment has been a cornerstone of the nonrestrictive trade policy of the United States since 1934. A nation which is denied such treatment by us is at a considerable trade disadvantage in relation to all other nations which deal with us on an MFN basis.

Under U.S. law since 1951 the Soviet Union, Communist China, and all Sovietdominated countries have not received MFN treatment. However, under a determination made by President Eisenhower in 1960, MFN treatment was restored to Poland as an element of our determined national policy to increase that country's ties with the West. Yugoslavia and the United States extend MFN treatment to one another under an 1881 treaty.

To deny MFN treatment to Poland and Yugoslavia now would threaten the U.S. policy of more than a decade which has sought to keep alive active relations with the peoples of Eastern Europe in economic,

political, and cultural fields. It would cripple our objective to reduce the dependence of these peoples on the U.S.S.R. and to make it possible for a nation under a Communist government to achieve political independence from Soviet domination. It would sap those measures which can contribute ultimately to the freedom of these peoples from the Communist yoke.

If, on the other hand, we keep these links open, there will be a continuing opportunity to develop good will for this country, encourage the growing assertion of nationalism in Eastern Europe, and increase the margin for action independent of Moscow. Let us look at some of the results of this positive policy in both Yugoslavia and Poland and the danger posed to those results by this new restrictive aspect of the trade legislation.

YUGOSLAVIA

The 1948 break

In 1948 Yugoslavia refused to submit to the discipline of the Soviet-dominated international Communist movement and broke with the Cominform. Until then the world had been led to believe that the Soviet bloc was monolithic, sharing the same aims, purposes, methods, and ideas. Yugoslavia's action shocked the Soviet world and gave hope and strength to nationalist forces inside the Soviet bloc. Yugoslavia's determination to run its own Government in its own way encouraged greater independence of Moscow among other members of the Communist bloc and has continued to act as a divisive influence. The uprisings of 1956 in Poland and Hungary, Albanian defiance of the Soviet Union, and disputes between the U.S.S.R. and Communist China all have been influenced by Yugoslavia's independent action.

The results

Let us examine some of the effects within Yugoslavia of that country's independent

course.

English has replaced Russian as the most widely taught foreign language. American and other free-world books are freely available. A wide variety of American newspapers and magazines are also available on newsstands and in libraries. Voice of America broadcasts are not jammed. In 1953 a law attempting to normalize relations between church and state provided for state assistance to religious communities, which are thriving. Church ceremonies following civil marriages are now permitted. Only 12 percent of the farms were socialized; the rest remained in private hands. Private cooperatives similar to those of the West, rather

than Soviet-style collective farms, are being formed to increase farm size and efficiency.

The regime in Yugoslavia, of course, continues to be Communist. But there are important differences from the Soviet-style communism. Yugoslavia is not insulated or isolated from the West. It permits a measure of freedom unknown to the Soviet Union. Significantly, it is not part of the international Communist conspiracy. Intensely nationalistic itself, it encourages nationalism elsewhere among the captive peoples and has also cautioned other nonalined countries against becoming too dependent upon the

Effect of denial of MFN treatment There can be no doubt that the denial of most-favored-nation treatment will have a severe impact on Yugoslavia's trade and will consequently influence Yugoslavia's ability to pay off her debts to the United States. Yugoslav payments to this country in 1963 will amount to an estimated $10 million. Under our mutual MFN agreement Yugoslavia has developed a substantial trade in products on which the United States has made tariff reductions to other countries in trade agreements. Denial of MFN now means that rates on these products return to the high tariffs established in the restrictive Tariff Act of 1930. Of the total Yugoslav exports to the United States of $39.2 million in 1961-the most recent year for which the complete figures are available-the rate of duty will be increased on 94 percent; the rate will remain the same on only 6 percent. Some of the principal products on which the rates of duty will increase are:

Yugo

rates of

Yugo

slavia

slavia

Imports,

paid by

will pay

1961

under

1930 tariff

Yugoslavia

under

1930 tariff

POLAND

Encouraging independence

Out of upheavals in 1956 in Eastern Europe, the Gomulka regime came to power. While loyally Marxist and a full participant in the Soviet bloc, the Polish leadership sought a measure of independence in internal policy and also sought to develop closer relations with the West. President Eisenhower, faced with the policy choice of ignoring this trend or seeking to encourage these nationalist efforts, chose to give them limited support. As a result, from 1957 to 1959, we provided $61 million to Poland through the Export-Import Bank as credits to purchase raw materials, agricultural commodities, and machinery. Under our Public Law 480 from 1957 to 1963 we made it possible for Poland to purchase $477 million worth of our surplus agricultural commodities. Finally, in December 1960 we granted Poland MFN tariff treatment.

ber of Polish visitors to the United States has

risen from a few dozen in 1955 to almost 2,000 during 1962, many times the number of visitors from the other European Soviet-bloc countries. About 10,000 Americans visited Poland during 1962.

Polish agriculture has not been extensively collectivized. Actually only about 13 percent of the land has been put into state farms, and much of this land had not earlier been in peasant hands.

Basic freedom of worship is possible for Roman Catholics, who make up 95 percent of the population. Religious education for children as well as a Catholic university and seminaries are permitted. A number of religious holy days are observed as national holidays.

To an extraordinary degree Poles young and old freely and openly express their sympathy for the West, for Western culture with which Poland has abiding links, and they enunciate those aspirations for freedom which have inspired the Polish people for centuries.

Probable effect of MFN withdrawal Since most of Poland's exports to the United States are products on which the rates of duty have not been lowered in trade agreements, removal of MFN treatment would affect a relatively small percentage of Poland's sales to us. An analysis of Polish trade with the United States in 1961, the first year since the restoration of MFN treatment to Poland, indicated that about 12 percent of Poland's sales to the United States would be affected. This does not reflect accurately, however, the trade Poland has continued to build up in 1962, for which only preliminary figures are available. The percentage of Poland's exports to be affected would therefore be somewhat higher.

The following table indicates the volume of United States-Polish trade in recent years:

United States-Polish trade
[Millions of dollars]

Unit

Unit

MFN rates of duty

1930

Tariff Act

Percent...

Cents per pound... Percent.. .do...

Willow baskets and bags..

Cents per pound.. Percent..

0.08 2212

0.32

40

$417

251

411

Calf hides, wet salted..
Glass Christmas tree ornaments.

Withdrawal of most-favored-nation treatment from Poland will not have as marked an effect on Polish trade with the United States as is the case with Yugoslavia. But its effects will nonetheless be serious. The granting of most-favored-nation benefits to Poland in December 1960 followed upon an agreement by Poland to pay $40 million over a 20-year period to American nationals whose property was nationalized in Poland. With other obligations to us, Poland's payments reach almost $11 million annually. The capacity to pay these dollars to us depends on Poland's

ability to obtain dollars, and trade earnings are the source. Additionally, the granting of most-favored-nation treatment did underwrite our faith that Polish nationalism could intensify and develop. Withdrawal is not only a financial but a psychological blow to such hopes.

About Polish hams

Sale of Polish hams in the United States has been much publicized. Our imports from Poland in 1961 amounted to $41.2 million. Of this amount, canned hams and other canned pork products accounted for $26.1

million, or 63 percent. But no tariff concession has ever been made on the ham products, and the tariff rate on Polish hams would not be increased even though most-favorednation treatment is denied. The following chart presents an interesting analysis of U.S. pork and ham production, and the relation of our purchases from other countries. The quantity of Polish hams imported into the United States in recent years has been about 10 percent of total U.S. ham production. All canned hams and other canned pork products coming into the United States have to pay a duty of 32 cents per pound.

tend MFN treatment to Yugoslavia and Poland, we must anticipate rapid deterioration of our relations with these two countries and the loss by the United States of its position there. There is little doubt that the forces for freedom in both countries would be seriously damaged, as these countries are abandoned to the Soviets.

The alternative to our present policy of engagement in Eastern Europe can only be one of withdrawal. Such a negative and defeatist policy cannot serve U.S. interests. Our quarrel after all is not with the people of Poland and Yugoslavia but with communism-an alien political system which presently controls their Governments. Cutting off the President's authority to extend MFN treatment only reduces our capacity to deal with these Governments in ways that can benefit the people and serve free-world interests.

Christian Herter, former Secretary of State and currently President Kennedy's special representative for trade negotiations, stated the danger in this manner in a recent article in the New York Times: "Surely this is not the time to walk away from the competition. I can think of few actions on our part that would be more welcome in Moscow than that. If I were Mr. Khrushchev, I would surely heave a sigh of relief if I knew that Poland's and Yugoslavia's windows to the West were being bricked over. Never have the signs of internal disarray been more obvious within the Soviet empire than they are today. Never have the forces of autonomy and independence been more evident."

YUGOSLAVIA'S FOREIGN TRADE SYSTEM AND THE ECONOMIC EFFECTS OF WITHDRAWING U.S. MOST-FAVORED-NATION TREATMENT FROM

YUGOSLAVIA

EVOLUTION OF THE YUGOSLAV ECONOMY

Ever since it broke with Stalin and withdrew from the bloc in 1948, Yugoslavia has been moving away from centralized direction of its economy toward a system in which market forces play a predominant role. This has meant a progressive shift from the economic practices that prevail in the Soviet Union. Today it is clearly evident that the Yugoslav economy, which incorporates a number of capitalist features and allows for the increased play of market forces, has significantly evolved away from the Soviet bloc model.

Until recently the evolution of the Yugoslav internal economy was not reflected in the international economic policies pursued by the Yugoslav Government. During the postwar period Yugoslavia insulated its economy from the outside world by a complicated system of multiple exchange rates and quantitative controls.

Early in 1961, however, the Yugoslav Government began a series of major reforms, designed to integrate its economy more closely with the cost and price structure of the world market. These reforms were in the best tradition of liberal trade. They were intended to increase efficiency by exposing Yugoslav production to the progressively increasing pressure of international competition.

This process of reform is by no means completed. However, it has already led to a unification of the Yugoslav exchange rate at a settlement rate of 750 dinars (equal to U.S.$1) and has resulted in a significant reduction in quantitative import restrictions, trade discrimination, and bilateralism.

In contrast with the system of total import controls imposed before 1961, about 25 percent of Yugoslav imports now enter the country free of controls. As in the case of Western European countries after World War II, Yugoslavia can remove the remaining quantitative controls only gradually, because of its low line of foreign exchange reserves and high debt repayment obligations. In these respects it also reflects the general problems of a developing country.

The Yugoslav Government has reduced the number of its bilateral trade and payments agreements, and it is seeking, where possible to replace clearing arrangements under those agreements with agreements to settle in convertible currencies. It has eliminated state monopolies from its foreign trade system, and there is substantial competition between enterprises to buy and sell in the most advantageous markets. In all of these respects, Yugoslavia has committed itself to a policy of gradual trade liberalization on the pattern of free world countries.

THE YUGOSLAV TARIFF

adopted a provisional system of tariffs based As a major step in its reforms, Yugoslavia on the Brussels nomenclature. This provisional tariff structure is a reasonable one and not exceptionally high as compared with those applied by other developing countries. Under it, approximately 36 percent of total Most of the balance was subject to duties 1961 imports entered Yugoslavia duty free. ranging from 10 to 40 percent.

PROVISIONAL GATT MEMBERSHIP

Yugoslavia is thus in an intermediate stage in the process of trade liberalization. The reforms it has taken so far has been supported and endorsed by the International Monetary Fund, of which Yugoslavia is à full member. Since May 1959, it has been consulting with the members of the General Agreement on Tariffs and Trade (GATT). On November 13, 1962, Yugoslavia was granted provisional accession to GATT. This action was taken in recognition of the liberalization of the Yugoslav trading system which had already been achieved on condition that the system be further liberalized and that Yugoslavia accept GATT obligations. Those obligations, of course, include the commitment to remove quantitative import restrictions as soon as balance-of-payments obstacles are removed.

In our judgment, Yugoslavia has made commendable progress in moving toward full participation in the liberal world trading system envisaged by GATT. Its progress has followed the general pattern of Western European countries during an earlier stage of the postwar period. It has shown a far greater determination to liberalize than most other less developed countries.

Since it broke with the bloc, Yugoslavia has looked to the West for its commercial opportunities. Over the past decade, it has conducted three-fourths of its foreign trade with the free world. Assuming a continuance of MFN policies on both sides, Yugoslavia is likely to continue to maintain around 70 percent of her total trade with the free world.

NATURE OF YUGOSLAV TRADE

Today the United States is free to compete on equal terms with other free world countries for the Yugoslav market. This market, while not of major dimensions, is still a useful outlet for our exports.

Over the past several years our trade with Yugoslavia has been as follows:

Value of U.S. trade with Yugoslavia
[Millions of U.S. dollars]

1960 1961 1962

Value of U.S. imports for consumption.... 40.2 39.2 48.3 Value of U.S. commercial exports.. 41.8 57.6 2.22.8 U.S. Government-financed exports 44.2 96.3 131.3

1 Estimated value of shipments under AID programs (including DLF), Public Law 480 (all titles), and Export-Import Bank loans (over 77 percent of the funds authorized under these sources of financing during the last 4 fiscal years (fiscal year 1960-fiscal year 1963) reprepresent loans).

2 The effects of the 1961 foreign trade reform as well as the effects of successive droughts on agricultural production, produced a severe balance-of-payments deficit, which led in 1962 to a 6-percent reduction of total Yugoslav imports, excluding U.S. Government-financed commodities.

Our

U.S. trade reflected in these statistics has been built on the basis of a reciprocal extension by each country of most-favored-nation treatment to imports from the other. commercial exports to Yugoslavia have consisted primarily of general industrial machinery and parts, and of metalworking machinery.

If we withdraw MFN treatment for Yugoslav goods, we would dry up a needed source of foreign exchange for Yugoslavia and would impair her ability to repay her debts to the United States. The repayments scheduled over the next several years will run in excess of $10 million.

Moreover, if we were to withdraw MFN treatment from Yugoslav goods, Yugoslavia would almost certainly refuse any longer to extend MFN treatment to our goods.

What would this mean in trade terms? EFFECT ON YUGOSLAV EXPORTS OF WITHDRAWAL OF MFN TREATMENT BY UNITED STATES Termination of most-favored-nation treatment to Yugoslavia by the United States would mean that the tariff rates on most products that Yugoslavia exports to the United States would return to the rates established in the Tariff Act of 1930. A study based on trade data for 1961 has shown that but for MFN treatment-94 percent of the total value of Yugoslav exports to the United States in that year would have been creased rates would have doubled the rates subject to increased rates of duty. The inof tariff on about 20 percent of Yugoslavia's exports to the United States and would have raised those rates by 250 to 400 percent on the remainder of the affected items.

Tariff increases of this magnitude would undoubtedly price most Yugoslav exports out of the U.S. market, since the same products from other countries would continue to pay the lower rates of duty. With the consequent loss of dollar earnings, Yugoslavia would certainly reduce its purchases of U.S. products. It would be forced to conserve any direct dollar earnings it still might be able to realize from exports to the United States in order to make its scheduled debt repayments to this country. Most probably, it would have to draw upon its earnings of other convertible currencies to meet those payments.

EFFECT ON U.S. EXPORTS OF WITHDRAWAL OF MFN TREATMENT BY YUGOSLAVIA

The Yugoslav tariff provides that mostfavored-nation treatment will be extended to all countries extending most-favored-nation treatment to its exports. Nations receiving MFN treatment pay Yugoslav tariffs at rates about 40 percent lower than would otherwise be the case. There are over 300 duty-free items included on the most-fasuch items on the standard list. vored-nation country tariff list, but only 17 If U.S. goods were subjected to the full Yugoslav tariff, our exports to Yugoslavia would drop to a very low figure. It is clear that our exports will be replaced with the goods of other countries.

GENERAL CONSEQUENCE OF WITHDRAWAL OF MFN TREATMENT

The consequences of withdrawing mostfavored-nation treatment to Yugoslavia should not be overstated. Such action on our part would not by itself reverse the Yugoslav trend toward a system of economic administration approaching that of the free world economies. The Yugoslavs have learned-in great part as a result of their relations with the West over the past decade that rigidly planned Soviet-type economies have their built-in inefficiencies.

At the same time, our withdrawal of MFN treatment would certainly discourage those elements in Yugoslav life that are moving the country toward Western ideas. The Yugoslavs today tend to think and look toward the West-particularly the younger generation. They are anxious to play a