Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 1

411.0031/2–2553

Memorandum by the Assistant Legal Adviser for Economic Affairs (Metzger) to the Deputy Legal Adviser (Tate)¹

confidential

[Washington,] February 25, 1953.

• Subject:
• Renewal of Reciprocal Trade Agreements Act and Related Problems—A Current Appraisal

During the past few months there has been a considerable amount of re-examination within the Department of the policy of the United States with respect to foreign trade. This re-examination has been stimulated by a number of factors including the expiration on June 12, 1953 of the President’s authority to enter into new trade agreements under the Trade Agreements Act, the study of this subject by the Public Advisory Board set up by President Truman, the continuation of balance of payments difficulties of the major European trading countries at a time when various types of financial assistance from the United States are being, or are likely to be, reduced substantially and, since last November, the forthcoming change of Administration.

I. Reciprocal Trade Agreements Extension

Since the original enactment of the Trade Agreements Act on June 12, 1934² the policy of the United States with regard to foreign trade has become largely centered around that act and the agreements concluded pursuant to it. Under the act the President is authorized to proclaim limited reductions in duties, and, in very general language, other regulations as to trade, in order to carry out trade agreements. The authority to conclude new agreements to be carried out under this Act expires periodically and has in each case been renewed following examination by the Congress of action by the Executive under the statute. Agreements in effect are not directly affected by the time limitation upon the President’s authority to conclude new agreements, although the statute requires that, following an initial period of not more than three years, agreements must be terminable on not more than six months’ notice.

Pursuant to rather general language in the original statute elaborate procedures were gradually developed with respect to the negotiation of trade agreements. The policy-making body with respect to trade agreement matters is the Interdepartmental Trade Agreements Committee, now constituted by Executive Order, the chairman of which is the Chief of the Commercial Policy staff in the Department of State. Its membership consists of representatives from the Departments of the Treasury, Defense, Interior, Agriculture, and Commerce, Labor, and from the Mutual Security Administration, and of a Commissioner of the Tariff Commission (acting in an individual capacity). Operating through interdepartmental subcommittees when considering matters requiring a large amount of research, this committee examines in detail practically all questions relating to trade-agreement matters, and, where appropriate, makes recommendations to the President as to action to be taken.

Tariff Rates

The original Trade Agreements Act authorized the President to increase or decrease rates of duty by not more than 50% of the existing rate or to provide for the continuation of existing customs treatment, that is, the so-called binding of rates against increase or the binding of duty-free treatment. As World War II was drawing to a close, trade agreements legislation in 1945, extending for three years the President’s authority to conclude agreements, authorized reductions in duty of 50% of the rate in effect January 1, 1945, that is reductions to 25% of the 1934 rate in cases in which the latter had been reduced by the full 50% permitted in the original legislation. This authority has been utilized for the major trade agreement negotiations in connection with a General Agreement on Tariffs and Trade, at Geneva in 1947, at Annecy, France, in 1949, and at Torquay, England, in 1950–51.

A major negotiating problem which is expected to arise in the near future will be our first tariff negotiation under the Trade Agreements Act with Japan, the application for the accession of which to the General Agreement is now under preliminary consideration by parties to that agreement These parties are also examining in a preliminary manner various proposals for general schemes of tariff reduction under which participating countries would make certain percentage reductions in the average rates of their tariffs applicable to specified categories of products. The extent of flexibility which a country would have under these plans to retain high duties on particular products depends, to a large extent, upon the number of products included within the various categories to which the percentage of reduction would be applied.

These possible negotiations within the next few years, together with the growing emphasis on the need for more exports from European countries to dollar areas, particularly the United States, at a time when direct financial assistance is being reduced, have led to examination of various possibilities of including in the Trade Agreements Act additional authority for the reduction of tariffs. Considerable authority still remains for the reduction of duties on various imports of particular interest to Japan as a result of the policy usually followed in the negotiation of trade agreements of not granting concessions to one country covering products of which another country is the principal supplier.

For example, in addition to the possibility of permitting rates to be cut by 50% of the rate in effect on some new base date, as January 1, 1953, thought is being given to authorizing the reduction of duties between 30% ad valorem and 40% ad valorem to 30% ad valorem, duties between 20% ad valorem and 30% to 20% ad valorem, et cetera. Any such formula as the latter raises problems as to specific duties, that is, duties imposed at so much per unit of measure, and duties which are in part specific. Either the above formula could be applied to the ad valorem equivalent of the specific duties on a particular date, or some other formula, as that of authorizing 50% reductions, would have to be applied to them.

The existing Trade Agreements Act, which was originally enacted during the depression in 1934, gives as the one purpose for concluding the agreements the expanding of markets for exports from the United States. In negotiating trade agreements under this act an attempt has usually been made to strike a fairly even balance between the concessions obtained for United States exports and the concessions granted for exports from other countries. In view of the particular need currently for exports to the United States from other countries in balance of payments difficulties, it is believed by many that this criteria of even balance and emphasizing only markets for United States exports, is no longer adequate.

In addition to the consideration of much broader foreign policy objectives as purposes for which trade agreements may be entered into under the Trade Agreements Act, consideration is also being given to the possibility of tariff reductions being made, either by Congress or the Executive other than as a part of negotiated trade agreements. One proposal has been that Congress reduce to 50% ad valorem, or the equivalent thereof, all rates in excess of that rate and that the Executive be given authority thereafter to reduce any tariff rate to 10% ad valorem (or to 12½ ad valorem which is understood to be the approximate average level of our tariff) or to the ad valorem equivalent of any such rate in the case of specific duties. At least one-half of this reduction by the Executive would have to be pursuant to trade agreements of the type heretofore concluded; the other half could be reduced by the Executive without requiring the usual type of trade-agreement commitment from the other country. Since some of the measures which the United States may wish to try to persuade other countries to adopt, such as reforms in their internal fiscal policies, are not the type of measures to which they would be willing to bind themselves in formal agreements, it has been proposed that the Executive be given this authority to make unilateral reductions in particular cases, presumably where other countries adopt such measures, without formal commitments on either side.

Another rather complicated proposal for unilateral action would be the grouping of products into related classifications, and the determination of the average rate now applicable to products in each group. Then the rate for all products in the group would be fixed at 40% ad valorem if the average were above 40%, at 30% ad valorem if the average were between 30% and 40%, et cetera. Special treatment would be given to specific rates, to rates which were wholly or partly specific, and to rates on products of particular strategic significance.

In view of the talk of an early adjournment by Congress and in view of the importance of some of the other trade problems which are discussed below, there may, be considerable likelihood at this session of a simple extension of the authority to conclude trade agreements, or at least of action without increased authority to reduce tariffs. Some opportunity may be presented for adding to the law in some form one or more of the following new bases for tariff reduction:

1. Unilateral reduction by the Executive other than pursuant to formal trade agreements;

2. Authority to reduce particularly high rates to a specified level without regard to limitations applicable to other reductions;

3. Authority to make a series of relatively moderate reductions, each successive reduction being permissible only after the next preceding reduction has been in effect for a specified time; or

4. A broadening of the purposes for which trade agreements may be entered into.

II. Related Problems

1. General Agreement on Tariffs and Trade

Although the provisions of the Trade Agreements Act itself are directed principally to authority to reduce duties, the Act also authorizes the modification of import restrictions, the imposition of new restrictions and the continuation of existing customs treatment. Most of the 30-odd bilateral trade agreements which were concluded between 1934 and 1946 contain, in addition to provisions putting into effect the reductions and bindings of duties, rather extensive provisions relating to other trade controls, many of them designed to protect the tariff concessions from impairment. The most important of these were prohibitions, with specified exceptions, against the imposition of quantitative restrictions on the importation of products on which tariff concessions had been granted, most-favored-nation treatment with respect to duties and restrictions on importation, and national treatment as to the taxation of imported products. Occasionally various provisions of this nature had been referred to with approval in the reports of Congressional committees recommending extension of the President’s authority to enter into new trade agreements.

During and after the second World War the United States took the leadership in attempting to work out a multilateral code of international trade practices to be administered by an organization. A preparatory committee, to work out the charter of this organization for submission to a world conference, was set up by the Economic and Social Council of the United Nations in 1946. That preparatory committee decided at its first session in 1946 that, in addition to work on the draft charter for the International Trade Organization, negotiations for reduction of tariffs should be undertaken at its second session to be held at Geneva in 1947, without waiting for completion of the charter. The report of a drafting committee set up by this first session contained a preliminary draft of the agreement which might be concluded at the end of such tariff negotiations, which would provisionally contain most of the articles of the draft charter relating to commercial policy. These were in general an elaboration, on a multilateral basis, of the general rules and exceptions thereto contained in bilateral trade agreements. The draft tariff agreement also provided for an interim trade committee to carry on various administrative functions in many respects parallel with the functions relating to commercial policy which it was envisaged would subsequently be carried on by the organization under the draft charter.

On the eve of the Geneva Session of the preparatory committee, the Finance Committee of the Republican 80th Congress held hearings on the draft of the Charter to be considered at that meeting. In the course of such hearings some attention was given by the committee to the draft tariff agreement. The view was expressed by Senator Milliken, then and now Chairman of the Finance Committee, that although it had been stated that the Charter of the International Trade Organization would be brought back to Congress, as had been the charters of numerous other organizations, the tariff agreement was an attempt to set up a comparable organization without obtaining Congressional approval. The Finance Committee was assured that this would not be done, and that no provisions of the tariff agreement would purport to override existing legislation.

The tariff agreement was negotiated in 1947 under the name of the General Agreement on Tariffs and Trade and came into effect in January 1948. The references in the draft to action by the interim trade committee were changed to action by the contracting parties to the agreement acting jointly, and provision was made that most of the general rules applicable to trade, as distinguished from the tariff concessions for which there was more specific authority in the Trade Agreements Act, would be applicable only to the extent not inconsistent with existing legislation.

It had been anticipated that upon the entry into force of the Charter for the International Trade Organization most of the general rules governing trade contained in the General Agreement would be superseded by the comparable provisions of the Charter, and that the General Agreement would remain principally as an agreement applying the tariff concessions negotiated from time to time. However, the International Trade Organization was never set up, and these general rules have remained in the General Agreement. The contracting parties to the General Agreement have held eight sessions to consider various problems under the agreement relating both to the tariff concessions and the general rules as to trade. They have also held two longer sets of tariff negotiations for the addition of new contracting parties and new tariff concessions, and now have a number of committees to work on matters pending or arising between sessions.

Due to this early situation as to the relationship between the General Agreement and the International Trade Organization Charter, to the scope and complexity of the general trade provisions in the multilateral general agreement, and to some extent to the wide imposition by other countries of restrictions on exports from the United States, which are justified on balance-of-payments grounds under terms of the agreement, many questions have been raised both in Congress and in business groups, regarding the agreement. A number have related to the legal authority for some of its provisions, while others are based on policy considerations. The questions usually single out the General Agreement itself, as distinguished from the trade agreements program as a whole.

This feeling was reflected in the statement in the Senate report in 1949 recommending extension of the President’s authority to conclude new agreements, following a detailed examination of the General Agreement by Senator Millikin³ and officers of this Department, that the favorable report “is not intended to commit the Congress on questions raised by the incorporation of general regulatory provisions in the multilateral trade agreement recently concluded at Geneva or on any other aspect of our foreign trade program”. This was followed by a statement that full consideration of such matters would no doubt be undertaken when the International Trade Organization Charter was submitted to Congress.

The Trade Agreements Extension Act of 1951, extending, with amendments, the President’s authority to conclude new agreements, contains a separate article stating that “the enactment of this Act shall not be construed to determine or indicate the approval or disapproval by the Congress of the Executive Agreement known as the General Agreement on Tariffs and Trade”.

In addition to these general questions, a problem exists with respect to the financing of participation by the United States in the activities of the contracting parties. Since there has been neither express Congressional approval of the agreement nor authorization for any appropriation for this purpose, participation has been financed through the general international contingencies appropriation of the Department of State. If questions should be raised with respect to a continuation of this practice during consideration of the budget of the Department of State considerable embarrassment might be caused to the participation by this country in the activities of the contracting parties.

From the above it seems clearly evident that a meeting of the minds with respect to the General Agreement, perhaps with various amendments, should be reached between the Executive and the Congress. The Executive has felt that the President has had ample authority under the Trade Agreements Act and his general authority with respect to the conduct of foreign relations to enter into the General Agreement and to modify its provisions from time to time as amendments were considered appropriate. Consequently, it would seem preferable to have Congress merely authorize appropriation for participation by the United States in the agreement, or to authorize participation in the contracting parties as an organization. Any such authorization would of course entail a detailed examination of the agreement by the Congress. It might, of course, be quite difficult to obtain from the Congress approval in such a form leaving full discretion with the Executive, even with more or less informal Congressional proposals for amendment of the agreement.

It seems likely that, following a minute examination of the General Agreement, Congress would want to express itself in a formal manner as to the agreement as such, presumably approving it subject to its being amended in important respects. Such action might cause considerable difficulty. In the first place, very important parts of the agreement are the schedules of tariff concessions, which on the part of the United States, are clearly within the prior authorization given to the President in the Trade Agreements Act. A basic purpose of that act has been to place tariff making in the hands of the Executive rather than of Congress, and subsequently approval of the whole General Agreement by the Congress would raise important questions as to whether a review of Executive tariff making was not being brought back into the Congress with its attendant dangers. Moreover, such positive action by the Congress now approving the whole agreement would appear to cast serious doubt as to the prior legality of at least parts of the agreement, which has been considered by the Executive as having been validly in effect since 1948.

Finally, if the exact text is approved it might be specifically required, or argued by implication, that all protocols of amendment or modifications of the agreement, of which there have been a considerable number (in many instances the modifications have been either relatively minor or of little concern to the United States), should themselves receive formal Congressional approval before they could be accepted by the United States. Such a procedure would greatly delay action by the United States on these documents and appear to take up an unnecessary amount of the time of both the Executive and the Congress.

An approach to this problem to which consideration is now being given, which might be a compromise if it seems impossible to obtain simple authorization, is to add to the Trade Agreements Act, either with some express reference to the General Agreement or in a manner applying to all trade agreements, relatively general standards covering general rules as to trade and some of the more important exceptions thereto, which would have to be included in the relevant agreements under that Act. At the same time authorization might be obtained for an appropriation either for participation in the General Agreement or, more generally, for participation in continuing administrative arrangements for carrying out a trade agreement. It is hoped that the formulation of such standards by Congress, which might well require the amendment of the General Agreement in some respects, would be considered by the Congressional critics of the agreement as sufficient participation by the Congress, and that the more formal submission of the agreement as such for approval could be avoided.

It is felt by some that the general rules as to trade in the General Agreement, as well as in the International Trade Organization, are too complicated, and it has been proposed that the General Agreement be reduced to an agreement putting into effect the tariff concessions. It would then be supplemented by a purely consultative organization with respect to trade matters which could make recommendations as to the general rules but without any binding rules and exceptions such as are now in the General Agreement. The general feeling within the Department seems to be that this would be a most unfortunate backward step. In the first place, many of the general rules in the agreement are important to prevent, or at least limit, evasion of the tariff concessions through the imposition of other trade controls. Moreover, most of the detailed rules and procedures, including provisions for action by the contracting parties acting jointly, relate not to the laying down of additional obligations but are exceptions to relatively simple general rules.

There are practically no instances in which the contracting parties acting jointly could tell the United States that they must take certain action; on the other hand, the United States has utilized in many instances provisions of the agreement permitting flexibility, notably to obtain a complete release from its obligations to Czechoslovakia under the agreement, in order to put into effect Congressional desires. In practice the contracting parties attempt to assist individual countries in working out their difficulties with each other, frequently making recommendations as well as interpretations of the General Agreement. Of course, as in the case of participation in almost any multilateral agreement, the United States becomes only a minority of one when questions of interpretation are involved.

Although the authority of the contracting parties acting jointly is generally limited to the interpretation of obligations which an individual party has undertaken in the agreement, rather than to placing any new requirements upon a party, there are a number of instances under which sanctions may be applied in the form of retaliatory action by injured contracting parties which would not otherwise be permitted under the agreement. In most cases the retaliation must be approved by the contracting parties acting jointly. These retaliatory provisions have been utilized very sparingly, but it is felt that their existence gives a vitality to the conduct of business by the contracting parties which would be absent if their meetings should be replaced by a purely consultative body.

2. Quantitative Restrictions

In order to protect the concessions which had been granted on particular products in the schedules annexed thereto, most of the bilateral trade agreements contained prohibitions, subject to specified exceptions, against the imposition of quantitative restrictions on the importation of such products. The exceptions usually included permission to impose restrictions in connection with various agricultural programs.

At the time the General Agreement was entered into Section 22 of the Agricultural Adjustment Act, as amended,⁴ required the President to impose restrictions on imports of agricultural products when he found such restrictions necessary to prevent imports from materially interfering with certain agricultural programs, including programs in which domestic production or marketing was restricted. The General Agreement contains a broad prohibition against quantitative restrictions on imports of any product, whether or not included in the schedules to the agreement, but subject to various exceptions. Among these is an exception for agricultural products in cases in which domestic production or marketing is also restricted. However, in such cases the import restrictions may not under the Agreement reduce the proportion of domestic consumption that may be supplied by imports below the proportion thereof during a previous representative period.

Shortly after the General Agreement went into effect Section 22 of the Agricultural Adjustment Act was further amended⁵ to require the imposition of quantitative restrictions if imports were likely to interfere with any price support program, in many of which there are now no provisions for the restriction of domestic production or marketing. At the same time a new subsection was added to the effect that Section 22 should not be applied in any manner which would conflict with an international obligation of the United States. The latter provision, protecting international obligations, has subsequently been practically reversed by Congress so that now it provides, in effect, that no international obligations shall prevent the application of Section 22. Although there have been no proclamations issued under this new Section 22 in order to prevent imports from interfering with a price support program under which there is no restriction of domestic production or marketing, the Tariff Commission now has under consideration a proposed application of Section 22 with respect to wool which would raise problems of this nature if it should lead to Presidential action putting into effect quantitative restrictions on imported wool.

It is recognized that action by the Government which has the effect of maintaining a relatively high price for agricultural commodities tends to make this market a particularly attractive one for imports, and therefore to attract imports which add to the cost to the Government of maintaining its price support program. Recognizing the validity of the arguments for the imposition of some quantitative restrictions in this type of situation, consideration is being given to a change in our policy, which would involve a change in the General Agreement, to permit restrictions in such a case provided they do not reduce the proportion of the American market supplied by imports below that proportion which they would normally have supplied. In other words imports may not come in merely to replace domestic production, but may come in to maintain their proportionate share of any increase in domestic consumption. This new approach would also require a modification of Section 22, which now permits the limitation of imports to 50% of the quantity imported during a previous representative period rather than to 100% of the proportion of domestic consumption supplied by imports during such a period, as would be the limit under the new proposal.

Another important exception in the General Agreement for agricultural interests is that relating to commodity agreements, which covers other raw materials as well. Before World War II the United States was a party to commodity agreements designed to assist in maintaining fair prices for sugar and coffee. Although the substantive provisions of these agreements have lapsed, a conference is scheduled for next summer to consider a new sugar agreement, and the wheat agreement, which has been in effect for about four years, is currently under renegotiation. Some consideration has also been given since the war to agreements on tin and cotton.

In 1947 the Economic and Social Council of the United Nations laid down principles that should be applied in the conclusion of commodity agreements, including the representation therein of both producing and consuming interests. These principles, together with procedures for studies which might lead to commodity agreements, were embodied in a commodity chapter of the International Trade Organization Charter. The General Agreement contains no express statement of the principles, but excepts from the general prohibitions against restrictions on importation and exportation, measures undertaken pursuant to an agreement conforming to the principles laid down by the Economic and Social Council.

The policy of the United States has been to limit commodity agreements to cases in which there was an actual threat of a burdensome surplus. The current thinking, however, is that such agreements may be justified for commodities the general history as to the production of which shows a likelihood that a burdensome surplus might develop at some time in the future, even though there is no present threat of such a surplus.

The basic economic difficulty between the United States and Europe since the War—the serious dollar balance-of-payments deficits of most European countries—has left its mark on the General Agreement and on the operations under it. The Agreement permits the imposition of quantitative restrictions by a country to protect its reserve position, and, in rather vague language, permits countries imposing such restrictions for balance-of-payments reasons to discriminate in their application. These provisions are quite detailed, more as to the procedures which they set up than as to the substantive rules to be applied. They have been the subject of considerable domestic criticism because of the extent to which they permit countries to impose restrictions, even discriminatory restrictions, against the United States.

In connection with the European Recovery Program⁶ the United States has encouraged the relaxation by European countries of their restrictions among themselves while recognizing their right to retain them against the dollar area. There is no doubt that the continuance in effect over a long period of restrictions for balance-of-payments reasons creates a considerable amount of protection for domestic industry and that there are numerous opportunities for abuse of the exceptions. This and other problems relating to these restrictions have been the subject of rather close examination during the more recent meetings of the contracting parties, in a general exploratory fashion rather than through the bringing of particular complaints.

The exceptions permitting the balance-of-payments restrictions require their relaxation or removal when the reserve position has been strengthened sufficiently to warrant such a removal. This provision has led to one particular difficult problem with respect principally to the sterling area discussion of which among the Contracting Parties has been seriously avoided. This is the question whether when the trade position of a particular member of the area, as Ceylon, has improved so that when viewed alone it might be considered as being in a position to relax or eliminate its restrictions on the dollar area it should be required to do so without recognizing its obligations under the sterling area arrangement to make available to the sterling area dollar pool a substantial proportion of its dollar earnings. Although this Government has attempted to reserve its rights with respect to this point, its continued failures to press for relaxation or elimination of restrictions in such cases because of the political implications involved seem to weaken its position considerably. Operations under the European Payments Union may lead to comparable conflicts of policy.

It was envisaged, at the time the General Agreement was drafted, that the balance-of-payments difficulties following the War would in most cases not continue beyond 1951 and many of the complicated provisions of the agreement relating to the application of restrictions to protect reserves were drafted with such a relatively transitional period in mind. Although this situation has not been cleared up as quickly as had been anticipated, the current feeling is that we should continue to consider such restrictions, and the discriminations in their application, as transitional and operate under them in the expectation that the time will come when they are unnecessary on the return of the general convertibility of currencies. Moreover, there is considerable feeling that these balance-of-payments provisions of the General Agreement are unnecessarily detailed and complicated, principally as to procedures for considering the balance-of-payments problems, and that consequently it would be desirable to replace them by more simplified provisions.

Formation of the European Coal and Steel Community, which was supported by the United States for reasons of broad political and military policy, presented particular problems with respect to the discriminatory application of both quantitative restrictions and tariffs. The plan envisages the substantial elimination of trade barriers among the six participating countries with respect to the coal and steel products. Rather broad waiver provisions in the General Agreement were utilized to permit the participating countries to put the community into operation.

A particular problem with respect to quantitative restrictions for the United States has been the conflict between the General Agreement and Section 104 of the Defense Production Act, first enacted in the summer of 1951. This section requires the imposition of quantitative restrictions on the importation of dairy products and certain other specified imports when it is found that certain situations exist for which there is no exception in the General Agreement. Notwithstanding the fact that Congress, in enacting the legislation, stated that it was necessary for the security interest of the United States in language following that of the security exception to the General Agreement, the Executive has not considered that there is sufficient relationship between the controls and our security to justify the restrictions which the Secretary of Agriculture has found necessary under this legislation.

In the case of most of the restrictions which have been imposed under this legislation, the more important of which have been on cheese, the United States has admitted a violation of the General Agreement, and one injured contracting party has been permitted by the contracting parties jointly under the agreement to retaliate against United States exports of flour.

The Executive opposed an enactment of the section, which was inserted in the legislation rather hurriedly at an advanced stage in consideration of the bill. Promptly upon its enactment legislation for its repeal was introduced, but was never passed. In extending the Defense Production Act in the summer of 1952 Congress liberalized the provision somewhat, but without removing the violations of the General Agreement. At that time the Executive had been willing to accept as a compromise language of an earlier act which permitted the imposition of restrictions under situations of surplus or short supply of the products involved. This proposed language follows an exception in the General Agreement applicable originally only to the transitional period prior to 1951, but the application of which is being currently extended by action of the contracting parties jointly.

3. No-injury Test

Some of the early bilateral Trade Agreements contained variously worded provisions under which concessions could be withdrawn if imports under them were causing serious injuries to a domestic industry. These culminated in the so-called “escape clause” in the Mexican trade agreement of 1942,⁷ under which concessions could be withdrawn in case of serious injury or threat thereof to a domestic industry resulting from increased imports under the concession. Moreover, during various discussions regarding trade agreement legislation with Congress statements had also been made that the trade agreements program would not be carried out in such a manner as to cause serious injury. In 1945 President Truman wrote to Congress that his administration would follow this policy which had been followed by the Roosevelt administration.

Early in 1947, as a result of discussions between an official of the State Department and Senate leaders in the Republican 80th Congress, an Executive Order was issued providing that all new trade agreements should contain an escape clause along the lines of that in the Mexican trade agreement. It also set up a procedure whereby Tariff Commission would make investigations in cases in which it was claimed that serious injury might be caused or threatened as a result of a concession in an agreement having such a clause and make recommendations to the President regarding the claim. An escape clause of this type is included in the General Agreement.⁸

The Trade Agreement Extension Act of 1948,⁹ passed by the 80th Congress, added a new phase to the no-serious injury approach. In substance it provided that, before a trade agreement should be entered into, the President should submit to the Tariff Commission a list of the products on which tariff concessions might be granted. The Commission should report the extent to which it considered a concession could be granted on each product in the list without causing or threatening serious injury to an American industry. If the President granted a concession on any product greater than that which the Tariff Commission found could be granted without such injury or threat, he should report his action to Congress and the Tariff Commission should transmit its peril point finding to Congress. These provisions were followed in preparation for the trade agreement negotiations at Annecy in 1949, but were repealed by the Trade Agreement Extension Act of 1949,¹⁰ enacted by the 81st Congress before the conclusion of the agreement embodying such negotiations.

The Trade Agreement Extension Act of 1951¹¹ reenacted the peril point provisions with relatively little change, and also added to the trade agreements legislation provisions regarding escape clauses and action thereunder. In rather ambiguous language it laid down the escape clause principles and required the inclusion of such escape clauses in all such future trade agreements. In addition, it directed action toward the inclusion of escape clauses in existing trade agreements and set up a new procedure for Tariff Commission investigations and recommendations to the President under escape clauses. As in the case of peril point findings, the President is not required to put into effect recommendations of the Tariff Commission for the withdrawal of modification of concessions but if he fails to do so he is required to report his reasons to Congress.

Enactment of this legislation was followed by a flood of applications for escape clause action, upon which the Tariff Commission is required to report within one year. In several cases the Commission had failed to recommend action, in three cases (one preceding the 1951 act) escape clause modifications have been put into effect, and in two cases the President had rejected recommendations, questioning and finding of serious injury or threat thereof. President Eisenhower has deferred action, and requested further information from the Commission, in the only case that has come to him for decision.

The reaction abroad, principally in Italy and other Western European countries, to the escape clause actions that have been put into effect has been quite strong. Not only has it been felt that the particular actions interfere with the program for an expansion of exports to the United States by countries so badly in need of dollar earnings, but it is pointed out that the possibility that a future expansion of exports of any product may result in escape clause action has a generally deadening effect upon attempts to stimulate this much needed trade expansion.

In view of the unfortunate effect of these escape clause actions, consideration has been given to various means of alleviating the situation. Some would relate to detailed questions of interpreting such terms as “serious injury” under certain circumstances, or to the scope of the concept of an “industry” which might suffer injury. Another approach has been to have a body composed differently from the Tariff Commission take into consideration both the questions of injury and of the broader public interest which may be involved in escape clause actions. A third approach would be only to permit escape clause action when the economy of the United States as a whole, rather than an individual industry, is suffering injury from the imports.

Finally, some thought has been given to replacing the “no-injury” concept by provision for making payments by the Government to enterprises injured by tariff reductions. These might include various types of assistance to labor, in the form of dismissal wages or retraining programs, and of assistance to capital either through direct compensation for loss suffered by the enterprise or through a low interest loan (on possibly a grant) to help enterprises to readjust themselves in other lines of activity.

In view of the development of the no-injury concept, as previously embodied in the escape clause provision of the 1947 Executive Order and the peril point provision of the 1948 Act, it might be considered doubtful whether substantial change could be gotten. However, realization of the extent to which other countries, particularly in Western Europe, need to increase their exports to the United States would seem to justify the continuing examination of this aspect of the trade agreement program. It might be possible to obtain at least some substantial relaxation in the criteria to be applied under the escape clause.

4. Buy American Provisions

In 1933 legislation¹² was enacted requiring, in quite general language, that Government purchases of goods for use in the United States should be of United States products except where the public interest required otherwise or the cost of such products was unreasonably high. For some time the cost of American goods have been considered as unreasonably high if their prices were more than 25% above the prices of available foreign products.

Recently, there have been a number of requests by Western European countries, notably the United Kingdom and Italy, with respect to the rejection of bids by producers in those countries at a time when we have encouraged the countries to increase their dollar exports. A bill was introduced during the last session of Congress to repeal this buy-American legislation, and the prevailing thinking in the Department is that this would be the best way of taking care of the problem.

Thought is also being given to the possibility of increasing the use of foreign goods through an interpretation that, under existing circumstances, purchase of such foreign products is in the public interest within the meaning of the statute. It has also been suggested that the percentage by which the American price must exceed the foreign price before the American price will be considered unreasonably high might, by interpretation, be reduced below 25%.

The Defense Department Appropriation Act for the present fiscal year has a particular provision which in effect requires not only that American textiles be purchased but textiles manufactured from American raw material.

5. Custom Simplification

The Executive introduced into the 81st Congress a Custom Simplification Bill which had been worked out on an interdepartmental basis to include recommendations made by a firm of efficient experts which had investigated the Customs Bureau, and modifications in customs and internal revenue legislation which would be necessary to put the General Agreement into effect definitively (as distinguished from the present application of some ports only to the extent not inconsistent with existing legislation). No action was taken on the bill in the 81st Congress, but it was re-introduced in the 82nd Congress where it passed the House, with important amendments, and hearings were held in the Senate.

It is felt both that provisions deleted by the House were of considerable importance, that there are numerous other modifications which might be added to the earlier bills, some of them proposed during the Senate hearings and considered quite uncontroversial. Consideration is now being given in consultation with the Treasury to pressing for the passage of a broad bill at this session, although it is recognized that another approach would be to have two bills one with the more uncontroversial provisions with a view to having it passed as quickly as possible, and the other containing additional more controversial provisions.

Considerable interest has been expressed by some countries, particularly Canada, in these bills, but it is feared that they may overestimate the effect of such a bill, especially if it should be limited to the less controversial provisions.

1. Drafted by Walter Hollis of the Office of the Assistant Legal Adviser for Economic Affairs.
2. The Trade Agreements Act (Public Law 316), enacted June 12, 1934, was embodied in Section 350 of the revised Tariff Act of 1930 and entitled “Promotion of Foreign Trade;” for text, see 48 Stat. 943.
3. Eugene Millikin (R.-Colo.), Chairman of the Senate Finance Committee.
4. Section 22 was enacted into law on Aug. 24, 1935, as one provision of the amended Agricultural Adjustment Act (Public Law 318) and was reenacted on June 3, 1937, as part of the Agricultural Marketing Agreement Act of 1937 (Public Law 137). For texts, see 49 Stat. 773 and 50 Stat. 246.
5. Section 22 of the Agricultural Act of 1948 (Public Law 897), enacted July 3, 1948; for text, see 62 Stat. 1249.
6. For documentation concerning the formulation and early operation of the ERP, or Marshall Plan, see Foreign Relations, 1947, vol. iii, pp. 197 ff.
7. Article XI, “Agreement Between the United States of America and Mexico Respecting Reciprocal Trade,” signed on Dec. 23, 1942; for text, see 57 Stat. 845.
8. Article XIX, “Emergency Action on Imports of Particular Products,” General Agreement on Tariffs and Trade.
9. Public Law 792, enacted June 26, 1948; for text, see 62 Stat. 1053.
10. Public Law 307, enacted Sept. 26, 1949; for text, see 63 Stat. 597.
11. Public Law 50, enacted June 16, 1951; for text, see 65 Stat. 72.
12. Title III of the Appropriations Act of 1933 (Public Law 428), approved Mar. 3, 1933; for text of Act, see 47 Stat. 1489.