800.00 TA/6–1752
Memorandum by the Acting Assistant Chief of the Commercial Policy Staff (Weiss)1 to the Assistant Chief of Development Policy, Investment and Economic Development Staff (Rosa)2
- Subject:
- Developmental Assistance to Competing Foreign Industries
This memorandum is with reference to your query as to our attitude regarding the extension of assistance by the U.S. government for the development of industries abroad which might compete with American industries either in the U.S. market or in foreign markets.
As I indicated to you in our discussion of the problem last week, in our view we should not, as a general matter, refuse to give developmental assistance to a foreign industry merely because such an industry might compete with a U.S. industry. In our judgment a decision to assist the development of a foreign industry should be based primarily on whether the industry in question is an economic one or not, that is whether in the light of the resources available in the particular country the industry shows promise, once it has been given some initial assistance, of being able to stand on its own feet and compete against products from other sources of supply without artificial means of support. If the development of such an industry results in increased competition for American firms, that competition will simply have to be accepted as incident to the process of development. In fact, in view of the great diversification of [Page 257] the American economy we must anticipate that manufacturing industries abroad are highly likely to be either directly or indirectly competitive with some U.S. industry.
In any particular case considerations other than those indicated above may have to be taken into account in determining whether to grant assistance to a competitive foreign industry. We would not be so unrealistic as to suggest, for example, that assistance be given in a particular case if it would result in such acute domestic pressures as to jeopardize one aspect or another of the U.S. Government’s developmental program. Such cases will have to be examined individually and a judgment made as to what the appropriate course of action should be.
In support of the general thesis that developmental assistance should be given to foreign industries so long as they are economical even though such industries may compete with U.S. industries, I should like to call your attention to Section 403 of the TCA Act.3 That Section provides that the test for the suitability of granting developmental assistance shall be “whether the assistance applied for is an appropriate part of a program reasonably designed to contribute to the balanced and integrated development of the country or area concerned.” This test does not contain any injunction against assisting industries which compete with American firms. In fact, it to some extent implies the opposite since, in view of the highly diversified character of the United States economically as noted above, it would be extremely difficult to develop a program which would assure a “balanced and integrated development of the country or area concerned” without stimulating to some degree competition with American industry.
Finally, I should like to emphasize again one aspect of the problem which we discussed in my office, namely that we should avoid giving assistance to foreign industries which will be unable to maintain themselves on a long run basis without some form of artificial protection such as quotas, tariffs, or other restrictive devices. Assistance in such cases is not only undesirable for the obvious reason that it conflicts with this government’s efforts to reduce the barriers to trade and to achieve a more economical and productive use of resources. It is also undesirable because it will create domestic criticism of, and will impair domestic support for, this government’s policies and programs in the fields of trade, finance and economic development. We have already been subject to considerable criticism because of the extensive restrictions, largely stemming from balance-of-payments difficulties, which American businessmen [Page 258] have encountered abroad. This criticism is bound to be intensified, and properly so in my judgment, if we give assistance to an uneconomical industry and then find ourselves faced with various types of restrictions against imports from the United States and elsewhere in order to protect the industry in question.