as our words, that expanded trade is a vital element iu our common defense and our common achievement of world peace.

Americans for Democratic Action urges that your committee and the Congress extend the present Trade Agreements Act as requested for at least 1 year without amendment. We believe such action is clearly in the national interest.

The CHAIRMAN. We thank you very much for your statement. The next witness will be Dr. C. T. Murchison, economist, representing the American Cotton Manufacturers Institute, Washington, D. C.

Mr. MURCHISON. Mr. Chairman, and gentlemen of the committee, in view of the circumstances, would it be greatly presumptive on my part to ask that I be permitted to postpone my statement until tomorrow?

The CHAIRMAN. We are perfectly willing to hear you, sir. We try to conclude all of the witnesses scheduled on each day by the end of that day. If you are not feeling well, we will do anything for you. But as far as we are concerned, we will be glad to hear you.

Mr. MURCHISON. In view of the shortness of the time, I think it would be unfair to you. The industry which I represent has spent a great many months working on this problem, and I cannot possibly reduce my argument, my presentation.

The CHAIRMAN. I will not ask you to. You may go all the way through it, through every word of it.

Mr. MURCHISON. I feel rather embarrassed to make that request, Mr. Chairman. Perhaps I should file my statement.

The CHAIRMAN. No, sir. We would like to hear you, if it is all right with you.

Mr. MURCHISON. It certainly is all right with me.

The CHAIRMAN. All right. We will just take the time and we will listen to you. We can see from this paper that you have done a great deal of work.

Mr. MURCHISON. Thank you, Mr. Chairman. I will proceed as rapidly as possible, abbreviating the statement.

The CHAIRMAN. You do not need to do that. We will follow you very closely. We have your paper here.

STATEMENT OF CLAUDIUS T. MURCHISON, ECONOMIC ADVISER, THE AMERICAN COTTON MANUFACTURERS INSTITUTE, INC.

Mr. MURCHISON. My name is Claudius T. Murchison, and I am appearing before the committee on behalf of the American Cotton Manufacturers Institute, Inc. I am sure we are all familiar with that organization which represents about 85 percent of the country's total spindleage, and which has about two-thirds of the total American cotton consumption which is by far the greatest textile industry, cotton textile industry, in the world. We are twice as great as India, which is second in importance, twice as great as the combined output of the United Kingdom and Japan. In fact, we consume 40 percent of all the cotton consumed in the free world and, naturally, we do not wish to be sacrificed as a tariff policy gesture.

During the past years the textile industries of the world have been rebuilt, have recovered very rapidly, and the total productive capacity of the world is greater than it was prior to World War II.

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Within the past 2 years, the Japanese industry has virtually completed the rebuilding of its plants and equipment. The United Kingdom has made great progress. The countries of Western Europe have more than recovered their losses from the war. So that in the meantime, world supplies of raw cotton have become adequate for all countries and is actually in surplus supply relative to the current rate of consumption.

These developments are of great interest to us from the point of view of future export possibilities and also in terms of imports into the home market.

I am now on page 3, Mr. Chairman, in the middle of the page. I will stick to the text more closely.

Our industry has long been sensible of the great dangers as well as the great opportunities which spring from the rapid changes in the world trade picture. As early as 1936, only 2 years after the adoption of the trade agreements program, our industry was inundated by a great tidal wave of cotton goods imports from Japan. American tariff policy was unable to cope with that danger, which was then recognized even by the State Department, and it became necessary for the industry to seek relief through private negotiations with the Japanese industry itself. For legal reasons, negotiations of this type can no longer be engaged in by private industry and, wholly aside from this consideration, the day has long passed when international conditions make such an approach possible or desirable.

The international textile conferences which have been held since World War II in Japan, in England, and the United States, finally culminating in the world textile conference held in Buxton, England, last September, have concerned themselves with the great objective of expanded world consumption and the alleviation of trade barriers and uneconomic national procedures which serve to reduce trade and consumption.

In this long and intimate contact with the immediate problems and practices of the international cotton-goods trade, we have derived an understanding which is broad and realistic. On the matters which are now before this committee, and on the issues which relate to the future foreign trade policy of the United States, we feel that we can speak from more than passing knowledge and from more than average understanding.

I might add there that we have gone beyond the doctrine, in our point of view. We have no interest in preaching, but we are trying to bring together the pertinent factual data of the present world situation, and, from that, endeavoring to arrive at a new approach. The cotton textile industry has appeared before this committee many times, on the occasion of every extension of the law. Throughout the years our position has been consistent. We have accepted the basic principle of reciprocal action in international trade, and the basic principle of most-favored-nation treatment. We likewise accepted the principle which was the cornerstone of original administrative policy, in 1935, that in the making of tariff concessions those industries which were performing efficiently, competitively, and advantageously to the American economy should not be placed in jeopardy by any tariff action.

Unfortunately the policies and procedures of the trade agreements authority, using the term in its generic sense, drifted rapidly away

from certain of these original conceptions. With each passing year our industry, as well as many other industries, was forced to raise its voice in ever louder protest against the procedures of the trade agreement authority which progressively subordinated the interests and the recommendations of American industry, while at the same. time awarding handsome concessions to other countries whose reciprocal concessions were promptly nullified by arbitrary trade restrictions far more effective and destructive than tariff rates.

The idea of reciprocal trade became a hollow shell. The concessions granted were of no effect except on the side of the United States. The most-favored-nation treatment was an empty idea except as practiced by America. The treatment of American industry in the extension of concessions lost sight of the original ideas-efficiency, adequacy, and advantage to our economy-and appeared to be governed by the interests of other countries.

Our industry furthermore believes that the establishment of GATT represented the supreme violation and abuse of the original intent and purpose of the Reciprocal Trade Act.

The unfortunate history of this act, however, in no way weakens the validity of the principles upon which it was established; but it does demonstrate that the triumph of principle depends on the procedure which is followed. Reciprocal action which is the essenceof mutuality is a precious thing. The most-favored-nation principle is a precious thing. In each instance the right to practice it and the right to benefit from it should be earned and protected. Since this was not done, the course of events has been as follows:

The average level of American tariffs as a ratio of duties collected to value of imports has been reduced by considerably more than twothirds since 1938. Fifty-eight percent of total imports in 1952 paid no tariff whatever. The remaining 42 percent of dutiable goods bore and average customs rate of between 12 and 13 percent. On the average our tariffs are relatively low, in fact much lower than the tariffs of many other countries who use as additional protective devices import and exchange restrictions. In addition to progressive tariff reductions, our foreign-aid program has donated since World War II an average of $5 billion a year to supplement the dollar exchange provided by the rapidly expanding imports of goods and services into the United States. In addition we have supplied the major funds for the operation of these several international banking organizations.

While the United States has thus been engaged in the expensive and thankless task of attempting to expand and liberalize world trade, other countries for the most part have pursued opposite tactics. Outside of North America, most countries have established import controls which not only restrict the total volume of imports but determine the types and quantities of the goods to be imported. Complete currency controls have likewise been instituted. The various governments have expropriated from their subjects their holdings of foreign currencies and bank balances, whether accumulated in the past or currently earned from whatever source. These funds are used by the state to finance its own programs or are parceled out to selected licensed individuals in the form of exchange allocations to provide payment for imports of such goods as are permitted entry.

Rates of exchange are arbitrarily fixed and in most cases have norelationship to actual value. The manipulation of exchange often

takes the form of multiple rates which have the effect of changing the value of the domestic monetary unit according to the use which is made of it. The range of valuation may be as much, and often is, as 50 to 200 percent. These multiple exchange rates, as well as other trade restrictions, apply alike to exports and imports. In consequence of the arbitrary and divergent values placed upon domestic currencies, most of them have lost all usefulness as media of international exchange.

Even in the case of the pound sterling, which is the only currency aside from the dollar now used in any considerable degree in international settlements, drastic limitations are imposed according to who has it, what country he happens to be in, and what he tries to spend it for. Generally speaking, and making the appropriate degree of exception regarding pound sterling, the world currency situation is such that even between adjoining countries international settlements can usually be made only in dollars.

In South America, virtually all of the countries make their settlements with each other in dollars. For many countries outside the Latin American area, most international transactions are financed by dollars. Since the dollar alone could hardly be expected to finance the total of world trade on a multilateral basis, the pattern of world trade has been forced into a series of bilateral barter arrangements. Each country can trade with another only to the extent that it can effect a reasonable balance.

The problem of shaking off the world network of trade restrictions is made more difficult by certain policies which many nations have committed themselves to. In some instances they are diverting their exchange proceeds from normal trade uses into the development of domestic projects which are beyond the means of the state. In these instances consumer goods are embargoed or restricted in order to permit entry of capital goods for industrial or transportation development. In certain countries, the exchanges are regulated mainly to support inflated price and credit structures and programs of social welfare and so-called full employment. In other countries the major purpose is to protect inadequate and inefficient industries. In these cases the net result is a curtailment of consumption.

In the case of Cuba, which has been referred to this afternoon, their tariff rates instead of being diminished as a result of the tradeagreements program have actually been doubled in the past couple of years. The same is true of Venezuela, whose rates became three times as high as ours. In the case of Pakistan, the minimum rate on imported cotton goods is 65 percent ad valorem. In India the rate is 100 percent ad valorem on those goods which are allowed entry at all. Some countries utilize their controls very largely to reshape their external economic relations. Exports and imports are regulated in accordance with geographic areas or to attain trade balances with particular countries.

In only a few cases have internal programs or external restrictions been coordinated for the primary purpose of balancing an expanded trade, restoring national solvency, currency integrity, and economic stability. We find those mostly in western Europe, although the same cannot be said either of France or of Italy.

Caught in this pattern, international trade needs much more than an additional supply of dollar exchange. The number of dollars

available to foreign countries has increased rapidly, within the past 2 years, but the growth has not been accompanied by any marked easing of trade and currency restrictions. As a matter of fact, they have become more comprehensive and intensive.

We commonly hear the expression "how do we expect to sell when we do not buy." As a matter of fact our buying has been expanding much more rapidly than our selling. Since 1945 imports have increased on an average of a billion dollars a year. In 1951 and again in 1952 merchandise imports almost reached $11 billion in each year. In those 2 years the dollar exchange provided by imports exceeded by $6 billion the dollar exchange created by the imports of the preceding 2 years.

On the other hand, our exports have not yet broken through the high level reached in 1947. Until last year they have actually sagged from 20 to 30 percent under the 1947 level. The greatly improved supply of dollar exchange, therefore, has gone into repayment of old debts, into financing, the trade of other nations, and into the accumulation of monetary reserves of foreign countries.

Here are some very startling figures, encouraging albeit: The total gold and dollar reserves of foreign countries now stand at $20.4 billion, which is an increase of $6 billion over the level of 1948. During the past year alone foreign dollar reserves increased by almost $1 billion. The countries of Western Europe which are usually referred to as the problem area increased their gold and dollar reserves last year by $14 billion, reaching, and I quote Federal Reserve figures, the grand total of $8.3 billion. And of this amount, $3.3 million were dollar deposits, and the remainder in gold. Even Asia added $200 million to its reserves last year, and that is mainly Japan, the Philippines, and Indonesia. The United Kingdom has more than held its own. I might add here another correction to a common misconception, and that is this huge increase in the American dollars being held is bound to come back to us in the form of demand for American goods. That need not necessarily be true at all, and right now it is not true. Those balances are being used for three other

purposes:

One, the acquisition of gold. Over $700 million in gold from December 10 to March 1 was acquired by foreign countries; secondly, an investment in American securities, 50 percent of the total dollar balances in this country, which amount to over $9 billion invested in securities, and those balances which are active are being used to finance the trade of foreign countries among themselves. That is, checks being written by one country to another, and these deposit balances are having rapid turnovers in what we call the interarea transfers outside the United States, and are not being used to buy American exports.

As a matter of fact, how can these great reserves be accumulated and made bigger and bigger, bigger now than at any time since 1945, and at the same time be used to buy American goods? So that another misconception is the tremendous dollar deficit. Mr. Ivan Rooth, Managing Director of the International Monetary Fund, recently stated that the world dollar deficit in 1952 was only $12 billion. The fact that this greatly improving dollar situation has failed to meet response in an easing of world-trade barriers proves the problem is one of trade and currency restrictions instead of dollar scarcity. The most per