TRADE AGREEMENTS EXTENSION TUESDAY, JANUARY 18, 1955 HOUSE OF REPRESENTATIVES, Washington, D. C. The committee met at 10 a. m., pursuant to recess, in the committee's main hearing room, House Office Building, Hon. Jere Cooper (chairman) presiding. The CHAIRMAN. The committee will please be in order. The committee is happy to extend a very cordial welcome to the Honorable Sinclair Weeks, Secretary of Commerce. The Chair understands that the Secretary is accompanied by Mr. Harold B. Corwin, Deputy General Counsel, Department of Commerce. Of course, Mr. Secretary, on any questions as to detail that you may desire to refer to your associate there, it will be entirely agreeable with the committee. We have had the pleasure of having you with us before. STATEMENT OF HON. SINCLAIR WEEKS, SECRETARY OF COMMERCE, ACCOMPANIED BY HAROLD B. CORWIN, DEPUTY GENERAL COUNSEL The CHAIRMAN. You are now recognized and may proceed with your prepared statement without interruption. Mr. REED. We are delighted to see you here this morning. Secretary WEEKS. Mr. Chairman and members of the committee, I appreciate the opportunity to give the committee my views on the bill before you to extend the trade agreements legislation. The current legislation in this field expires on June 12 of this year. In his message to the Congress on January 10, the President requested legislation which would permit the negotiation of trade agreements over a 3-year period. During the 3-year period, the President has proposed that he have authority, subject to procedural safeguards including the peril point and escape clause provisions of the existing legislation, to take any one of three alternative forms of action with respect to a given commodity, either (a) to reduce the tariff rate by not more than 5 percent of the present rate in each of the 3 years, or (b) in the event that the commodity is not being imported or is being imported only in negligible volume to reduce the 1945 tariff rate by not more than 50 percent over a 3-year period, or (c) in the event that the existing tariff rate is more than 50 percent ad valorem or its equivalent to reduce the rate to not less than 50 percent over a 3-year period. I support the legislation, H. R. 1, which has been introduced to give effect to this recommendation both on broad grounds of national policy and because I believe it would be of substantial advantage of the foreign and domestic commerce of the United States which I am charged by law to foster, promote and develop. In the world in which we live, our security is importantly dependent not only on the military strength but also on the economic strength and stability of our friends abroad. In turn, the economic strength and stability of the rest of the free world requires our allies to purchase large quantities of nonmilitary goods in addition to the goods which they require from us for their armed forces. Americans of all parties feel that we should for the most part limit our grant aid to the financing of military purchases and of technical assistance. Our friends abroad share this conviction. National security, therefore, requires that other countries earn the dollars to finance their nonmilitary purchases. One of the most important potential sources of increased dollar earnings is expanded trade with us. I should be the last to suggest that the present level of our tariffs is an important deterrent to imports. As a matter of fact, despite the remaining high tariffs on some products, our tariffs are among the lowest in the world. Nevertheless, governments and businessmen of other countries consider our actions in the tariff field and, in particular, our willingness to negotiate trade agreements as one of the most important pieces of evidence of our desire to let them pay their way in their trade relations with us. The legislation before your committee has thus developed over the years symbolic importance from every viewpoint. The proposals of the President will meet these foreign policy necessities. The 3-year extension as contrasted with the shorter extensions of previous years will evidence the stability of our intentions. The proposed negotiating authority will demonstrate our willingness gradually to accept further modest declines in our tariff rates and gradually increasing imports. The enactment of the legislation before your committee will thus serve to make the direction of our foreign economic policy clear to the free world. Apart from these important foreign policy considerations, we Americans sometimes forget that we have an important stake in foreign markets and a thoughtful examination points to the fact that our prosperity is importantly dependent upon healthy two-way international trade. The best way of getting at the significance of our export trade for the economy is to express it as a percentage of our gross national product. In 1953, when our gross national product was at the all-time high of $365 billion, our exports of goods and services including military aid valued at $21 billion came to almost 6 percent of the total. This figure is not impressive when compared with the exports of some of the important trading countries of Europe which may run as high as 25 percent of the gross national product. In our economy, however, no one factor makes an overwhelming contribution to our economic well-being. The richness and diversity of our economy is its strength. Gross receipts from farming in 1953 were only equal to about 8.5 percent of the gross national product. Thus, this important component only made about one and one-half times as much of a contribution to our economy as did the exports of goods and services. Another very important component of the gross national product which is frequently looked to to determine whether our economy is functioning properly is nonfarm residential construction. In 1953, this housing component of our economy was a little over 3 percent of the total or only slightly over one-half of the total of the exports of goods and services. Other new construction representing a little over 31⁄2 percent of our gross national product was also overshadowed in its contribution to the total by the exports of goods and services. The export trade contributions to our total economy also compared favorably with such investment components of our gross national product as business expenditures for capital equipment which represented a little over 61⁄2 percent of the product and consumer purchases of durable goods which were a little over 8 percent of that product. The key significance of exports to our economy is reinforced by a consideration of their relationships to some of our most important and progressive industries. During the 3 years of 1949 to 1951 one-half of our exports came from industries which sold more than 10 percent of their output abroad. One-third of our exports were accounted for by products which rely upon foreign markets for more than 25 percent of their sales. Machine tools, tractors, construction and mining equipment, oilfield machinery, and textile machinery made 20 percent of their sales in export markets. This ratio has been maintained in more recent years by all the industries just mentioned, with the exception of the machine-tool industry. Everyone recognizes that export markets are of central importance for some of our major agricultural products such as cotton, wheat, rice, and tobacco. In the crop year 1952-53, we exported about 25 percent of our wheat and 20 percent of our cotton production despite the fact that this was a year of comparatively low exports. In the preceding 5 years, we exported, on the average, about one-third of these crops. In 1953, we also exported 56 percent of our rice, 22 percent of our tobacco, 61 percent of our inedible tallow, and 17.5 percent of our lard. I certainly do not have to labor the point before this committee that these exports must be paid for. This committee, which has had various proposals affecting the trade-agreements legislation before it for over 20 years, is aware of the fact that as our grant aid to the rest of the world is reduced and ultimately eliminated, we must increase our imports unless we are willing to see our exports decrease. I am sure that in view of the contributions which exports make to our economy, we cannot afford to permit them substantially to decrease. In an expanding economy, we should rather look forward to increasing exports and increasing imports of goods and services to pay for them. This is only another way of saying that we should continue the tradeagreements legislation for the same reason as it was started in the first place, as an important export-promotion measure. Several studies by the Department of Commerce find that exports to trade-agreement countries increased more from depression levels of the early thirties than did exports of commodities to countries with whom we made no trade agreements. From this depression low with a gross national product of $65 billion of which merchandise imports were 2.6 percent and merchandise exports 3.1 percent, our imports and exports have increased both in terms of absolute value as well as in percent of gross national product to where in 1953 with a gross national product of $365 billion these same imports stood at 3 percent and exports at 4.3 percent. There can be no doubt that there has been a net gain to our economy from reciprocal trade agreements even though there has been a shortage of dollar exchange since World War II financed to the extent of 20 to 33 percent of the total exports by aid programs. President Eisenhower's program for expanding world trade, in which pending bill H. R. 1 is an important element, had its genesis in the historic statement of President McKinley on September 5, 1901, from which I quote: By sensible trade arrangements, which will not interrupt our home product, we shall extend the outlets for our increasing surplus. A system which provides a mutual exchange of commodities is manifestly essential to the continued and healthful growth of our export trade. We must not repose in fancied security that we can forever sell everything and buy little or nothing. If such a thing were possible, it would not be best for us or for those with whom we deal. We should take from our customers such of their products as we can use without harm to our industries and labor. Reciprocity is the natural outgrowth of our wonderful industrial development under the domestic policy now firmly estab lished * * * The period of exclusiveness is past. The expansion of our trade and commerce is the pressing problem. Commercial wars are unprofitable. A policy of good will and friendly trade relations will prevent reprisals. Reciprocity treaties are in harmony with the spirit of the times; measures of retaliation are not. If perchance some of our tariffs are no longer needed for revenue or to encourage and protect our industries at home, why should they not be employed to extend and promote our markets abroad? If these words were valid in 1901 they are much more so in the year 1955. Undoubtedly President McKinley made this historic proposal because of the detrimental effects which he perceived in the logrolling approach to our tariff problem. The Trade Agreements Act is a businesslike method of evaluating possibilities for trade expansion and using these possibilities in negotiations with other countries so as to obtain for the United States the maximum trade benefit. The bill under consideration by your committee is designed to provide this administration with an opportunity for effective negotiation and over a period of 3 years in order that these negotiations may have some degree of stability, without which the President is deprived of the bargaining power which he must have to make such negotiations meaningful. H. R. 1 is not essentially a tariff reduction bill, but rather authority designed to put the President in the position to conduct effective and profitable multilateral tariff negotiations. The authority sought is permissive and there is no intention conveyed by this bill to require any tariff reduction. There is, in fact, implicit in the authority, an obligation to negotiate in such a way as to maintain adequate tariffs so as to avoid imperiling American industry by opening our doors to excessive imports. The authority sought for maximum reductions in terms of our current tariff levels for manufactured goods is in the main relatively small, about one-seventh of the existing duties. Considering that the rates on most manufactured products range from 10 to 35 percent ad valorem, a 5-percent reduction in the existing rates means, in the case, say, of an item subject to 20-percent duty, a reduction of only 1 percentage point ad valorem per annum for 3 years. I am sure that a reduction at this rate over a period of 3 years could not work serious harm on efficiently managed United States industries and, if perchance our generalization is ill founded, the damaged industry has recourse to escape-clause action. There are also other means granted to the American producer to protect him against injudicious administrative actions such as the Tariff Commission's peril point findings. There is available other legislation, such as antidumping laws and countervailing duties on products subsidized by country of origin. And, in addition, we have the President's words in his first state of the Union message to the effect that this objective, "must not ignore legitimate safeguarding of domestic industries, agriculture, and labor standards." I am completely confident that in this respect his views have not changed. In summary, may I say that unless we are to give up entirely the reciprocal trade treaty idea, we must reinstate it on the statute books so that it has some degree of permanency and stability and 3 years would seem to me to be the practical minimum. Additionally, if we are to make any gesture whatsoever toward encouraging trade, the modest approach incorporated in H. R. 1 would again seem to me to be the minimum. This approach is selective, permissive, and no previously available safeguards are either eliminated or changed in the slightest degree. The Secretary of Commerce is charged with the responsibility not only of fostering and promoting our domestic commerce but of fostering and promoting our foreign commerce as well. My personal experience has been in the manufacturing field where in some instances a protective tariff is indispensable. I cannot be consistent with long established conviction and assert otherwise. I do assert, however, that these matters are usually a question of degree, and in the instant case the President's own words assure all Americans that there is no intent to ignore the legitimate safeguards we have normally relied on to protect industry and labor standards in this country. Increasingly now, America must look abroad for its sources of raw materials and increasingly does the world look to us as a source of important manufactured and other types of products. Our leadership in the world must be statesmanlike, not only in the political and military fields but also in the field of economic relations and commercial trade. Should we fail to live up to the responsibilities of our leadership in any one of these fields, our success in the others may easily be jeopardized. The CHAIRMAN. Does that complete your statement, Mr. Secretary? Secretary WEEKS. It does, Mr. Chairman. The CHAIRMAN. I desire to congratulate you on this splendid. statement. We appreciate your helpfulness and the information you have given the committee. Are there any questions? Mr Reed, of New York, will inquire, Mr. Secretary. Mr. REED. Mr. Secretary, on page 3 of your statement, you state: In 1953 when our gross national product was at the all-time high of $365 billion, our exports of goods and services including military aid valued at $21 billion came to almost 6 percent of the total. Mr. Secretary, if you exclude military aid, Government economic aid, and all other forms of Government finance abroad, what per |