100.4 FEP/1–2754

Memorandum by the Under Secretary of State (Smith) to the Administrative Assistant to the President (Hauge) 1

  • Subject:
  • Department of State Comments on Recommendations of the Randall Commission

In accordance with your request of January 27, 1954, I am transmitting a memorandum which contains the Department’s comments on the recommendations of the Randall Commission.

Since receipt of the Report we have given consideration to the question of the Administration’s approach to the Report as a whole. It is our strong view that, on balance, the wisest course for the Administration to pursue would be to accept the program proposed in the Report as the new take-off point for the reformulation of our foreign economic policy. Otherwise, we run a substantial risk that the advantages created by the generally constructive nature of the Report will be dissipated.

In recommending this course of action, we wish to note that there are many individual recommendations in the Report with which the Department would have disagreed if they had not formed a part of the carefully balanced “package” which the Report represents. We feel, however, that these differences should be submerged in the interest of achieving progress in the constructive reformulation of our foreign economic policy as a whole.

The Department’s detailed comments, contained in the attached memorandum, must be viewed in the light of the general position stated above. These comments are made largely in order to indicate omissions and isolate ambiguities. However, if the Administration [Page 51] should decide, in the end, to reopen any of the main issues covered in the Report, our comments on some points would be more extensive and more critical.

Walter B. Smith

[Attachment]

Comments on Specific Recommendations

1. Page 8. Economic aid. The Department feels that, in practice, the recommendations with respect to economic aid will need amplification in order to provide a somewhat clearer basis for actual operations.

Under present policies, the assistance included in the Mutual Security Program on a grant basis is based on security grounds. Part of these grants are for the purpose of helping some nations, who cannot themselves sustain the burden, to support military forces essential for our security. Another part—moderate in amount—represents a critical supplement to larger programs of development undertaken by some countries with their own resources. These latter programs are believed to be consistent with the Commission’s thinking that “where our security is importantly involved … moderate grants in aid may serve the national interest of the United States.”2

In many underdeveloped areas, the relationship of our security to programs of development is direct and immediate. The basic maladjustment of underdeveloped countries is the result of the pressure of their peoples for accelerated economic development and the insufficiency of their domestic resources and foreign exchange availabilities to do the job which must be done. The security of the United States will be greatly enhanced if these peoples are convinced that free society holds more for them than does communism. The United States has, therefore, regarded economic aid as a weapon in the fight against world communism as well as an expression of essential United States humanitarianism.

With respect to the recommendation that economic assistance should be in the form of loans rather than grants, there may be some cases where substantial economic aid to a country will be warranted in the interest of the United States and where any loans made would have to be in a form not meeting ordinary banking standards. The problems and difficulties which such loans would [Page 52] involve, however, are so serious that we consider that these need to be reemphasized.

There are also a number of major problems with respect to economic grant aid on which the Report does not touch. Reconstruction aid in situations such as Korea represent one group of such problems. The problems involved in the agricultural surplus disposal program also present difficult and important issues.

Finally, when considering the foreign aid section of the Report, note should be taken that the Commission did not address itself to the question of extension of economic assistance in association with other nations. This question is of considerable significance both because of existing United Nations programs of that type and because of the President’s proposal of April 16, 1953,3 in which he asked the American people to contribute a substantial portion of the savings of international disarmament to a fund for world reconstruction and development. As a follow-up to the President’s proposal, the United States sponsored a resolution,4 which was adopted by the United Nations General Assembly, asking all governments to make a similar pledge.

2. Page 16. United States foreign investment. There are several additional suggestions for stimulating foreign investment which the Report does not cover and which merit careful examination. These include: the use of technical assistance in helping countries to improve the “climate” for private investment and to provide better information concerning investment conditions and opportunities; improvements in the administrative and procedural aspects of the guaranty program, in order to make the program more attractive both to investors and to borrowing countries; greater use of bilateral tax treaties, aimed at defining the particular foreign taxes that qualify as a credit against United States domestic taxes and defining the treatment of temporary tax concessions offered by the foreign government to new investment; greater use of the authority of the Export-Import Bank to guarantee loans made from private sources, on a contingent liability basis; and the possibility of joint participation by the Export-Import Bank with private enterprise (American or foreign) which would not invest in the absence of the Bank’s participation.

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3. Pages 28–32. Agricultural policy. The recommendations of the Commission clearly point in the right direction but this is a field in which a somewhat greater degree of specificity is necessary. In implementation of the Commission’s recommendations, it would be necessary to consider, for example, the standards to be applied in restricting foreign imports and subsidizing exports: Should such import restrictions be designed so as not to deprive imports of the share of the domestic market they would have enjoyed in the absence of the domestic program; should a representative base period be employed in making such determinations; should we reexamine the criteria established in Section 22 of the Agricultural Adjustment Act;5 where imports represent a large part of domestic consumption and where the support of domestic prices would unduly encourage the use of substitutes, should we use income support instead of import restrictions; and should we in some specific way limit the share of the world market we preempt by our subsidized exports, including our sales by the United States Government at lower than purchase prices? Should the extent of our import restrictions and export subsidies be determined unilaterally, or should they be the subject of international negotiation?

4. Pages 35–36. Instability of raw material prices. The Department agrees with the recommendations of the Commission concerning the measures and policies that will be most conducive to reducing the excessive instability of raw material prices. It assumes, however, that the Commission recognized that many of these measures can be applied only gradually and will take a substantial time to achieve their purpose. It assumes, also, that this fact was at least one of the reasons why the Commission deliberately avoided closing the door on all international agreements to stabilize prices in the following recommendation: “The Commission does not believe that extensive resort to commodity agreements will solve the problem of price instability …”

In point of fact, there will probably continue to be very few commodities in which the countries affected have sufficient desire for international action of this kind to result in an agreement and even fewer where the peculiar circumstances make an agreement both expedient and workable. Nevertheless, the United States cannot afford to adopt the attitude that it will not under any circumstances participate in such an agreement, regardless of the economic hardships that may be suffered by producing countries and regardless of the political and strategic consequences.

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5. Page 45. Buy American Act. 6 The first part of this recommendation, proposing the amendment of the Buy American Act, is ambiguous as to a major point, namely, what is meant by the concept of treating other nations “on an equal basis”. If this criterion were to rule out nations which cannot accept United States bids because they cannot afford to pay for the materials in dollars, the field of its applicability would be narrow and the effect would be contrary to the Commission’s clear intent to provide some liberalizing action in the Buy American field. Moreover, consideration needs to be given to the question of how to reconcile the approach implicit in the Commission’s recommendation on this point with that implicit in its recommendation elsewhere, that the United States continue to follow an unconditional most-favored-nation policy with respect to trade matters.

6. Page 50. President’s powers to reduce tariffs. The Report does not consider the special problem of the tariffs applicable to goods which are appraised on the basis of the American selling price, e.g., coal-tar dyes. The question will have to be faced in connection with the meaning of paragraph c of this recommendation, which relates to the reduction of tariffs over “50 per cent ad valorem”. The special group of commodities which are appraised on the basis of American selling price commonly have an ad valorem incidence of 200 or 300 per cent in terms of normal valuation methods, even though the apparent rates, as recorded in the Tariff Act,7 run at about 30 or 40 per cent in most cases.

7. Page 53. Organizational provisions of the GATT. 8 At present, most of the GATT’s provisions represent a multilateral trade agreement, and have nothing to do with organization. Is it intended that the scope of these substantive non-organizational provisions should be circumscribed in any way? In particular, is there any intention to limit agreements on substantive provisions which embody broad trade policies, such as the general principle against import and export restrictions?

8. Page 72. Currency convertibility. A somewhat firmer understanding is needed of what the Report’s recommendations imply for [Page 55] action on convertibility in the immediate future. Various governments have indicated clearly a serious interest in the early return of their currencies to a convertible status. The United Kingdom and Germany, among others, have already discussed this problem with our Government, and the United Kingdom has elaborated a rather detailed program contemplating a phased return to sterling convertibility.9 The Department believes that if positive and definable progress is to be made toward the goal of convertibility it is important to take advantage of existing favorable circumstances and attitudes which, if lost, may not be recaptured in the foreseeable future. The United States can best do this by responding in a positive and constructive manner to the initiative already taken by other countries, rather than awaiting new initiatives.

The Department accordingly believes that it would be in full accord with the approach and recommendations of the Commission Report for the United States to proceed expeditiously to reach understandings with the other principal countries concerned on: the amounts of credits which might be made available from the Federal Reserve System and which the United States would support for extension by the Fund, respectively, for the purpose of assisting in the establishment of convertibility of sterling and other major currencies; the terms and conditions which the United States should impose in connection with the extension of such credits; specific additional steps by other countries which would warrant commitment of such support.

In view of the similarity of interests between Canada and the United States in this general area, and Canada’s present relatively strong financial position, this Government should explore with the Canadian Government the possibility of supplemental credits from Canada for the purposes here considered.

Moreover, in view of the value of the European Payments Union as an instrument for promoting European unification,10 the United States will have to give careful thought to the relation between the establishment of currency convertibility and the continued functioning of the EPU.

9. European economic integration. In any complete reformulation of United States foreign economic policy, our views with respect to European economic integration need to be stated. Although some favorable mention is made of Western Europe’s progress through the OEEC in widening the area of multilateral trade and payments, the question of European economic integration—both in the [Page 56] wider OEEC area and within the area of the European Coal and Steel Community—is not dealt with. The Report is silent, for example, on our support for the European Coal and Steel Community and on the United States view with respect to the promising economic aspects of the European Defense Community and the proposed European Political Community.

10. Restrictive business practices. One important area of foreign economic policy with which the Report does not adequately deal is the problem of restrictive business practices as they affect international trade; except for a brief reference in one limited context—that of encouraging international investment—no recommendations are made with respect to the problem. If reliance is to be placed on the stimulating effects of competition in international trade, as the Report appropriately envisages, more progress must be made in the discouragement of cartel practices. These practices have had a profoundly adverse effect on attempts of countries to raise the productivity of their economies; they have constituted direct barriers to the normal flow of international trade; they have added to the costs of rearmament in Europe; and they have reduced our supplies of important raw materials, such as industrial diamonds. A program in this field needs to be developed.

11. Frivolous and repetitive escape clause actions. 11 It is worthwhile considering whether to ask the Congress to limit the procedural provisions of the escape clause so that (a) frivolous cases need not go through the formal investigation procedures of the Tariff Commission and (b) applicants are not free to file a new escape clause application immediately upon rejection of a prior application.

12. Added problems of customs administration. The Report is silent on a number of issues regarding customs administration and policy which seem to merit consideration. One is a proposal to amend the countervailing duty laws so that such duties are applied only where a domestic industry is being injured. Another is a proposal, mentioned above, to eliminate “American selling price” as a basis of appraising a special group of imported articles. Still others include: broadening the application of the provisions permitting substitution for drawback purposes; eliminating the provision that the Secretary of the Treasury may not alter a ruling which would [Page 57] favor importers except with the assent of the Attorney General; eliminating the proof-gallonage basis for taxing imported distilled spirits; eliminating the discriminatory aspects of certain internal revenue taxes; and broadening the definition of commodities eligible for duty-free entry as “works of art”.

Walter B. Smith
  1. Drafted by Acting Director of the Office of Economic Defense and Trade Policy Vernon.
  2. Ellipses throughout in the source text.
  3. The proposal was made in an address delivered by President Eisenhower before the American Society of Newspaper Editors on April 16; for text of the address, see Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1953 (Washington, 1960), pp. 179–188.
  4. For text of the resolution, adopted as Resolution 724 A (VIII) by the General Assembly at its 468th plenary meeting on December 7, 1953, see Yearbook of the United Nations (New York, 1954), pp. 299–300.
  5. Section 22 of the Agricultural Adjustment Act of 1933, as amended in 1935 and subsequent years, authorized the President to impose import fees or quotas in order to prevent imports from materially interfering with the domestic agricultural program. For additional documentation on the relevant legislation, see pp. 114 ff.
  6. Title III of the Appropriations Act of 1933 (Public Law 428), approved Mar. 3, 1933; for text of the Act, see 47 Stat. 1489. The Buy American provisions required U.S. Government agencies in procuring supplies for public use to purchase only domestic materials, provided they were available, unless the domestic supplier’s price was unreasonable, or unless such purchase would be inconsistent with the public interest.
  7. Tariff Act of 1930 (Public Law 361), approved June 17, 1930; for text, see 46 Stat. 590.
  8. Reference is to the General Agreement on Tariffs and Trade (GATT), concluded at Geneva, Oct. 30, 1947, and entered into force for the United States, Jan. 1, 1948; for text, see 61 Stat. (pts. 5 and 6), or Department of State Treaties and Other International Acts Series (TIAS) No. 1700.
  9. For documentation on discussions between representatives of the United States and the United Kingdom on the question of sterling convertibility, see volume vi .
  10. For documentation concerning U.S. efforts to promote European economic integration, see ibid .
  11. Section 7 of the Trade Agreements Extension Act of 1951 (Public Law 50, approved June 16, 1951, 65 Stat. 72), as amended, provided that if the U.S. Tariff Commission found that an article upon which a tariff concession had been granted was being imported in such increased quantities as to cause or threaten serious injury to a domestic industry, the Commission must recommend the withdrawal or modification of the concession, or the establishment of import quotas to the extent necessary to remedy the injury.