560.AL/5–2247: Telegram

The Under Secretary of State for Economic Affairs ( Clayton ) to Representative Harold Cooley

My Dear Mr. Cooley: I take pleasure in this opportunity to answer your inquiry of May 19 concerning the views of the Department of State with respect to proposed wool legislation. I refer to S.814, a bill to provide support for wool and for other purposes, as passed by the Senate and reported favorably with amendments by the Committee on Agriculture of the House of Representatives.

The bill in the form in which it was reported was not under consideration by the Committee on Agriculture when representatives of the Department testified before that body. We have not had a formal opportunity to present our views on the legislation, as it has been reported.

S.814, as reported with amendments, is intended to achieve three main objectives. First, it directs the Commodity Credit Corporation to support a price to wool producers at the 1946 level until Deccember 31, 1948. This provision is consistent with the proposed long-run program for wool submitted by the President in his memorandum to Senator O’Mahoney March 11, 1946.1 The Department of State believes this section of the bill accomplishes the essentials of the Administration’s plan which recognizes that wool should receive support comparable to that granted to other agricultural commodities.

Secondly, S.814 authorizes the Commodity Credit Corporation to sell its stocks of wool without regard to restrictions imposed upon it by law. This is necessary because Commodity Credit Corporation must be able to sell wool at the market if it is to dispose of its stocks. This is also consistent with the President’s program in the opinion of the Department of State.

Thirdly, an amendment to Section 22 of the Agricultural Adjustment Act has been added to provide for the imposition of fees on any imported article by the Secretary of Agriculture if he finds that imports of said article interfere materially with the wool support program. The accompanying report shows that the purpose of the fee is to increase the price of imported wool to equal the support level for domestic wool. The Department of State advises against the adoption of this amendment. I understand from the Congressional Record that it is proposed to modify this import fee amendment by directing the President, rather than the Secretary of Agriculture, to impose the fees after investigation by the Tariff Commission. This does not remove the fundamental objections to the provision.

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If import fees, which are actually increases in the tariff, are levied, they would be harmful to the interests of the United States in the following ways.

First, the cost to the public in increased prices for woolen manufactures would far exceed the increased returns to the wool growers. The President’s memorandum, previously referred to, pointed out that “it will be more desirable from a national point of view and more dependable for growers to have the Government absorb losses on sales of domestic wool rather than to raise additional trade barriers against imports.” The cost of supporting returns to wool growers must be borne by the public of the United States regardless of the form that support takes. The tariff itself is a subsidy which is collected, like a sales tax, from consumers through raised prices and conveyed to producers by the same means. To talk about avoiding cost to the Treasury is to evade the issue, for the public, and not the Treasury, pays the bill.

A fee will raise the cost of the raw material. This in turn cumulatively increases the cost of doing business at every stage of the production process. Therefore, the final cost to the public as a consumer is far greater under the fee than it would be if raw material prices were not increased by fees and the public, as a taxpayer, paid the subsidy.

In the second place, new import fees on wool would injure the interests of the United States through their effect on our foreign relations. We all recognize the responsibility of this country for leadership, both political and economic, in the postwar world. The United States has taken the initiative in promoting the adoption of principles of economic conduct among nations which would require each country to consider the impact of the economic measures it undertakes on world economic progress. If the proposed amendment providing new import barriers is adopted, the moral leadership of the United States in world affairs will suffer a serious blow.

If at this time, when we are actually negotiating with other countries at Geneva for the lowering of trade barriers, we raise new barriers as this bill proposes, we stand convicted of insincerity.

Wool is a critical item in our current negotiations for an International Trade Organization for the expansion of world trade and employment. Although wool raising accounts for less than one-half of one percent of our agricultural income, it is very important in world trade. It is the most important import into the United States from Australia, New Zealand and South Africa. It is by far their most important source of the dollars they need so badly to buy our exports. If we impose new barriers to this trade, we cannot expect them to cooperate wholeheartedly in creating the type of postwar world we want to have. Without such cooperation, the other British Commonwealth nations would have difficulty joining with us in a mutually advantageous [Page 950] program. Other nations would question the sincerity of our protestations that we do not intend to retreat to economic isolationism.

Let me summarize by saying the Department approves support to wool growers and authority for Commodity Credit Corporation to sell its wool below parity. The Department therefore hopes that the Congress will adopt the proposed bill as passed by the Senate without amendment.2

Sincerely yours,

L. Clayton
  1. See footnote 3, p. 916.
  2. In telegram 448 to Geneva, May 23, describing the voting in the House of Representatives on the wool bill, the ITO delegation was told that “Dept. position made clear informally and in Clayton letter to Cooley, which was read in House. Both sides recognized issue as conflict between international trade and agricultural policies.” (560.AL/5–2347)