96-006 -73 - pt. 7 - 16

Mr. ULLMAN. Mr. Stewart, let me congratulate you on a most thorough paper, and a very able presentation. I wasn't able to hear all of it but I have looked at your paper. It has been done with great competence.

Now the bells have rung and we need to vote. I have some questions that I would like to direct to you, but I think that we will wait until after a brief recess so that the members can vote.

The committee will stand in recess.

[A recess was taken.]

Mrs. GRIFFITH [presiding]. The committee will be in order.
Mr. Gibbons will inquire.

Mr. GIBBONS. Madam Chairman, before we go any further, let me ask that we put Mr. Stewart's appendix in the record because I think it contains very valuable information. I hate to load up the record but I think the people reading this record at some date in the future ought to have access to this.

I would ask unanimous consent that the appendix to Mr. Stewart's statement be included along with his full statement.

Mrs. GRIFFITHS. Are there objections?

I would like to ask at the same time that the staff be asked to prepare a request of the administration that a point by point response be made to Mr. Stewart's comments on the bill.

Are there any objections?

Then we will do that. Their answer will be put in the record at this point.

[The material referred to follows:]

COMMITTEE ON WAYS AND MEANS,

Hon. GEORGE P. SHULTZ,

Secretary of the Treasury.

HOUSE OF REPRESENTATIVES,
Washington, D.C., May 24, 1973.

DEAR MR. SECRETARY: On May 22, 1973, Mr. Eugene L. Stewart, General Counsel of the Trade Relations Council of the United States, Inc., testified extensively before the Committee on Ways and Means on H.R. 6767.

During the course of that testimony, a Member of the Committee requested and received unanimous consent that I be directed to write to you to request that you provide the Committee on Ways and Means with a response to the principal points made by Mr. Stewart in his direct statement to the Committee. It is the intention of the Committee, in turn, to afford Mr. Stewart an opportunity to comment upon your response.

I enclose a copy of Mr. Stewart's 120-page direct statement along with a copy of his 46-page appendix, together with a copy of the pertinent portion of the transcript of the record for May 22, 1973.

In accordance with the above directive, it would be appreciated if you would provide the Committee with your response or comment with respect to each of the principal points made by Mr. Stewart in his statement, in sufficient time for Mr. Stewart, in turn, to give us his observations on your responses.

Sincerely yours,

JOHN M. MARTIN, Jr.,

Chief Counsel.

OFFICE OF THE SECRETARY OF THE TREASURY,
Washington, D.C., June 5, 1973.

Mr. JOHN M. MARTIN, Jr.,
Chief Counsel, Committee on Ways and Means, House of Representatives, Wash-
ington, D.C.

DEAR JOHN: Secretary Schultz has asked me to reply to your letter of May 24 regarding the testimony of Mr. Eugene Stewart before the Committee on Ways and Means on H.R. 6767.

As you know the Administration has set up a task force under the direction of Ambassador William Pearce to manage the Trade Reform Act in the Congress. Ambassador Pearce, will therefore be coordinating the Executive Branch response to Mr. Stewart's statement. You can expect to receive the Administration's reply to your request directly from him, in the near future. With best wishes,

WILLIAM L. GIFFORD,

Assistant to the Secretary for Legislative Affairs.

[The following was subsequently received:]

RESPONSE TO MR. STEWART'S "CRITIQUE OF THE PROVISIONS OF H.R. 6767" Section 2. Statement of Purposes

Mr. Stewart objects to six out of the ten purposes listed in section 2 of the proposed Trade Reform Act of 1973. These objections are grounded neither in fact nor logic. Each of the objections is responded to in order of its appearance in his paper.

Subsection (a)

The Administration trade bill states as one of its purposes:

"(a) To provide authority in the trade field supporting United States participation in an interrelated effort to develop an open, nondiscriminatory and fair world economic system through reform of international trade rules, formulation of international standards for investment and tax laws and policies, and improvement of the international monetary system;"

It is a fact that negotiations have begun on the reform of various aspects of the international economic system. This reform will be distinctly and definitely beneficial to the United States.

The Stewart objection to reform is based on two false notions. The first is that the faults of the current system somehow benefit the United States, that barriers to trade, distortions in international investment, inadequate international cooperation on tax matters, and the lack of agreed international monetary rules operate in favor of United States business and labor. The second error in reasoning that the Stewart paper is based upon is that our tariff wall is a "treasure" that would be yielded up by U.S. negotiators "to attempt the achievement of nebulous objectives."

With respect to the first of these points, the United States has benefitted immeasurably from a reduction in both foreign and domestic barriers to trade. over the last three decades. The world's trading nations went the route of unreasoned protection in the 1930's, and it is an experience that no one would seriously advocate repeating. The costs are too terrible. The world has outgrown this narrow and injurious view. But while much progress has been made, there is more that needs to be done. Our goods face some serious obstacles abroad, some tax and investment practices also discriminate against continued U.S. production of goods for foreign markets, and there is no assurance through adequate monetary rules that exchange rates will not again impair the competitiveness of U.S. goods. Therefore negotiations are needed to come to agreement on what practices must be altered to allow goods to move more freely both here and abroad.

The novel concept of a "precious and dwindling" national "treasure" in the form of a high tariff wall also deserves scrutiny. Under this odd theory, our "treasure" was greatest in 1930 when prohibitive tariffs severely restricted world trade. The discussion of a "treasure" obscures the fact that tariffs are simply taxes on businesses and individuals that reduce trade. The barriers that we place at our border to reduce imports of foreign products that our consumers demand is matched by a foreign barrier that reduces U.S. exports of goods demanded abroad. The net result may well be fewer jobs in the United States and fewer jobs abroad, with both sides producing less efficiently at a higher cost. The United States committed itself to a common sense economic road in 1934 consisting of letting countries sell what they produce best. Europe learned this lesson very well. Her intra-European trade in industrial products is going to be wholly free in the near future. If there was national treasure in the form of those national tariff walls, it has been squandered as quickly as possible by sixteen countries across the Atlantic. Indeed, in view of their action in their self interest, it would be the worst possible time for the United States to look in

ward and conduct itself in accordance with spurious concepts of national treasure.

The United States must either join in a mutual reduction of trade barriers or suffer the consequences of exclusion from the benefits that others will enjoy. The point of mutuality of benefit deserves some emphasis. The Stewart paper erroneously assumes that U.S. concessions are unreciprocated. The benefits to the United States of the lowering of foreign barriers is carefully ignored. For four decades, the United States has worked with success at removal of foreign barriers. Our exports have grown markedly. The trade agreements program has not been and will not consist of a unilateral reduction in barriers by the United States. A further general point deserves to be made with respect to assumptions. The Stewart paper assumes that United States industry is weak and vulnerable to imports. In fact, the remaining U.S. tariff barriers to trade are dwarfed in impact by other economic factors. A primary factor is relative currency values. The average U.S. tariff wall is far lower than the increased advantages that U.S. domestic producers have received from recent exchange rate changes. Even if United States industry were weak and vulnerable, tariff reductions would no longer have the impact or importance that they once had. But the assumption that the United States economy is not competitive is untrue, as well as both dangerous and self-defeating. It is not based on any economic reasoning or evidence. Its propagation can only result in the United States foregoing the benefits which reform of the international economic system can bring.

With specific reference to several further points raised in the Stewart paper on section 2(a) of the trade bill, regarding the following purposes:

1. "reform of international trade rules".—Although the criticism is unclear, it apparently is suggested that the Administration intends to "pay all over again for an attempt to improve GATT". The only payment for revision of international rules is to make binding commitments where others agree to be likewise bound. Domestic authority is necessary to make new rules workable, however. For example, authority to impose balance of payments measures to cooperate with other countries is necessary under a proposed International Monetary Fund rule. Likewise the authority to liberalize import restrictions is necessary under the proposed rule if the United States is in balance of payments surplus. It is reasonable that there be domestic authority under our trade laws to implement new rules that we want others to adhere to.

2. “formulation of international standards for investment and tax laws and policies."-The trade bill seeks authority in the trade field to lower barriers in return for foreign countries lowering their barriers. There is no intent to grant trade concessions for benefits for the United States unrelated to trade. Purpose (a) does recognize, however, that there is an interrelated effort to develop an open, nondiscriminatory and fair world economic system which involves several fields. Thus while trade negotiations resulting in lower trade barriers will benefit the international monetary system, trade negotiations will not have the full desired effects if tax, investment and monetary distortions continue to impair open and fair trade.

3. "improvement of the international monetary system".-Trade and monetary arrangements are linked by fact. When the dollar was over-valued, our goods were at a serious competitive disadvantage at home and abroad. After the exchange rates were realigned, our goods could compete fairly only where the absence of trade barriers allowed such competition. An example of barriers that block this competition is trade in many agricultural commodities.

Responses may be made to other points raised in the Stewart paper. There is no connection whatsoever in fact or logic between past tariff negotiations and any "disarray" in the international monetary system. Speculation by multinational firms, to the extent that it took place, was not the cause of unrealistic exchange rate of the dollar vis-a-vis the currencies of U.S. trading partners, but reflected the fact that the realignment was required. Furthermore, the failure to exercise any U.S. rights in the GATT or the International Monetary Fund did not cause the current need to reform the international monetary system. The monetary rules need reform because the world has changed since they were written. These rules worked well for decades and it should not be surprising that they would eventually require revision.

There is, of course, no intention to use trade concessions to obtain monetary reform. We will seek in the trade negotiations, however, sufficient trade concessions to allow the monetary system to work effectively across all sectors. Without equitable access to foreign markets, economically realistic exchange rate patterns will not yield full benefits for United States production.

The summary statement in the Stewart paper (at p. 30) is therefore incorrect in several respects: (1) the Administration is not seeking trade concession authority to obtain monetary reform; (2) the United States has never paid for changes in monetary relationships with trade concessions; (3) the United States tariff wall is in no way a precious treasure; (4) tariff concessions do not grant "favored" access to a market, they simply grant access; (5) past trade authority was never designed to be used nor should it have been used for correcting monetary relationships; and (6) "existing U.S. rights under GATT and the IMF Articles" will be and have been exercised in a manner to oppose inequities in the system but they are not sufficient; domestic authority is needed to support international reforms.

Subsection (b)

The Administration trade bill states as one of its purposes:

"(b) To facilitate international cooperation in economic affairs for the purpose of providing a means of solving international economic problems, furthering peace and raising standards of living through the world;".

The point of this clause in the bill's statement of purposes is to indicate that international economic cooperation furthers peace and improves standards of living. Through mutually beneficial trade, the United States and countries with which it has only previously had limited trade should build a more harmonious overall relationship. Through lowering trade barriers on a mutual basis, the United States and its largest trading partners will reduce the chances of economic disputes between us and advance our economic position, directly increasing the standard of living of all. Through cooperation in a generalized system of preferences, the developed countries will help increase the standard of living in the developing countries.

This straightforward and clear purpose of the bill is distorted in the Stewart paper into meaning payment of unilateral concessions ("bribes") by the United States to obtain reasonable behavior from our trading partners ("economic aggressors"). This has never occurred and is of course not intended.

Subsection (c)

The Administration trade bill states as one of its purposes:

"(c) To stimulate the economic growth of the United States and enlarge foreign markets for the products of United States commerce (including agriculture, manufacturing, mining, and fishing) by furthering the expansion of world trade through the progressive reduction and elimination of barriers to trade on a basis of mutual benefit and equity;".

This is the traditional objective of United States trade legislation and it has been singularly successful. It is noted in the Stewart paper that the U.S. share of world exports has declined. This fact is not harmful, and it is inconceivable that any other result could have occurred. At the end of World War II the majority of foreign productive potential lay in ruins. It is natural and would have been tragic if the other countries of the world had not gained in their percentage of world exports. The United States has continued to gain in terms of the value of its exports.

The Kennedy Round of tariff negotiations produced a balanced agreement. Our concessions were not unilateral. They were fully reciprocated. Nor was the value of the bargain achieved "wrested from us in postagreement shenanigans". When the Administration states that tariffs have become less important relative to nontariff barriers, it is not describing a sudden proliferation of a stealthily erected network of barriers to trade which have been set up abroad to deprive the U.S. of its tariff bargain. What has occurred is that as tariff barriers have been removed, other long-standing distortions of trade have become more apparent. These deserve our attention and indeed must be a primary focus of international negotiations.

The results of any international negotiation, just as of a domestic negotiation, are dependent on the benefits to the parties of agreement and the costs to them of disagreement. The proposed Trade Reform Act contains no gifts for our trading partners nor any direct penalties. What is does contain is bargaining authority for the U.S. negotiators to foster the expansion of world trade through the progressive reduction of barriers to trade "on a basis of mutual benefit and equity".

Some response should also be made to the incorrect statement oft-repeated in the Stewart paper that the U.S. after being out-traded at the bargaining table has since failed to protect its rights under existing agreements. In fact, the