Attached is a report, submitted on behalf of the Executive Branch in response
to your request, for the use of the Subcommittee on Foreign Trade Policy.
This material is supplemented by the more detailed reports4 from the various
Departments concerned and the Office of Defense Mobilization, prepared in
response to your separate requests to them.
It is hoped that the attached paper together with the reports from the
various Departments and Agencies will be useful to the Subcommittee.
[Enclosure]
7
FOREIGN ECONOMIC POLICY AND THE TRADE AGREEMENTS PROGRAM
I. Objectives of Foreign Economic
Policy
The broad objective of United States foreign economic policy is identical
with that of our general foreign policy and, in fact, of the over-all
policy of the United States Government: to protect and advance the
national interest, to improve the security and well-being of the United
States and its people.
This broad objective of our foreign economic policy has three major
components:
A. To promote the economic strength of
the United States.
This is the traditional objective of foreign economic policy: expanding
foreign markets for the products of our factories, mines and farms;
insuring ready access to overseas sources of supplies needed by our
economy; permitting the nation to take reasonable advantage of the
economies which flow from specialization in production throughout the
world; improving conditions for U.S. citizens to invest and do business
abroad.
Foreign trade is one of the most important business activities of the
United States. Statistics tell an impressive story of the vital role of
our international commerce. It is estimated, for example, that the
families of at least 41/2 million American workers, or about 7 percent
of our labor force, gain their livelihood from foreign trade. A
commensurate share of the profits of American business firms is
traceable to foreign trade activities. As for exports alone, the value
of U.S. goods marketed abroad last year exceeded that of all non-farm
home building, or of consumer purchases of automobiles, or of farmers’
gross receipts from either crops or livestock.
Exports comprise about 9 percent of the value of our production of
movable goods—8 percent for manufactured goods and 11 percent [Page 60] for agricultural products. For
many specific commodities, the proportions of U.S. output sold abroad
run substantially higher than the average—for example, according to the
latest available annual figures in each case, about 19 percent for
trucks, 40 percent for tracklaying tractors, 11 percent for machine
tools, 26 percent for construction and mining equipment, 14 percent for
coal, and between 25 and 40 percent for cotton, wheat, rice, fats and
oils, and tobacco. The vital importance of exports in such cases is
beyond dispute; and even among those manufacturing industries with
below-average ratios, the great majority depend upon foreign markets for
at least some significant share of their sales, profits, and jobs.
It should be noted that the available ratios for many specific
commodities seriously understate the true importance of export markets
for their producers, since they cover only exports of an industry’s
products in the form in which they leave that country. Much of an
industry’s output may be exported only in some other form after further
processing by other industries, or, even though not physically exported,
may be utilized by other industries in production for export. This is
particularly true of such primary manufacturing industries as iron and
steel or nonferrous metals.
Through foreign trade the United States obtains from abroad a wide range
of goods which are not otherwise available here at all or in adequate
quantities for industrial needs or consumer demand. Many of these
imports are vital to keep factory wheels turning and assembly lines
moving. We obtain from foreign sources about one-sixth of our crude
petroleum, almost one-fourth of our iron ore, one-third of our copper
and rubber, over one-half of our raw wool, and the great bulk of our
supplies of tin, nickel and newsprint. Most of our supplies of various
ferroalloying ores and metals come from abroad as do industrial
diamonds, mica and asbestos.
Altogether, about one-fifth of the crude and semi-manufactured goods
imported by the United States in 1956 were officially classified as
strategic materials for stockpiling purposes, and another one-fifth
consisted of materials (other than those in the stockpile group)
obtainable wholly or almost exclusively from foreign sources. Many other
raw material imports also represent high proportions of U.S.
requirements, and still others supplement predominantly domestic
supplies to an important degree.
Imports of foods and manufactured goods bulk smaller in the total than
those of industrial materials. Nevertheless, every American household
enjoys the variety contributed to our established consumption pattern by
imports both of foreign foodstuffs and manufactured consumer goods.
[Page 61]
B. To promote the economic strength of
the rest of the free world.
This objective has become of major importance within the past decade. We
recognize, first of all, that a prosperous world brings economic
advantages to our own country. Furthermore, foreign economic growth is
necessary for the establishment and maintenance of stable, peaceful and
friendly societies abroad. Economic stagnation is a source of unrest
which can threaten political stability and, eventually, the peace of the
world we are so earnestly seeking to make durable and just. The moderate
leadership groups which are in power in most of the less developed
countries are under tremendous pressure to speed millions of their
countrymen into the Twentieth Century. Failure of these leaders to
achieve reasonable economic progress would result in these governments
being replaced by others more extreme, more likely to be totalitarian,
either of Communist or indigenous origin, and more likely to resort to
violence as a means of achieving their objectives. Economic strength
abroad also is a prerequisite to the building of solid military forces
with which to deter potential Communist subversion or aggression.
C. To build and maintain cohesion in
the free world.
Our present foreign policy is built upon a web of relations among
virtually all of the free nations. Through the North Atlantic Treaty
Organization and the Baghdad Pact, through the Organization of American
States, through a variety of other organizations and treaties, we have
undertaken to work with friendly countries in building our common
strength and in defending ourselves against Communist aggression.
These ties have not been and could not be purely political or military.
Without adequate economic support they would be weak and unreliable.
Modern power depends upon the basic economic strength of the nations
involved. This in turn depends upon the efficient use of domestic and
foreign resources, and is reduced when each nation tries to build on its
own resources alone.
Moreover, economic disputes can weaken or destroy political and military
alliances. For most countries, it is vital to have easy access to
foreign markets and foreign sources of basic materials and capital. The
jobs and well-being of their people depend on it. Most of our allies are
particularly sensitive to this because they depend much more on foreign
trade than does the United States.
Countries of the free world are under external and internal pressure to
align themselves with the Communist bloc or at least to become neutral
in the great power struggle between Communism and the way of life
represented by the democracies. To oppose this [Page 62] pressure the United States has used its economic
resources and political leadership.
The most difficult problems are posed in the developing countries,
particularly those in Asia and Africa. Between our country and those
countries today are vast differences in culture, language and social
tradition as well as economic attainment. Mutual confidence must be
established. This cannot be achieved by words alone.
By working together with the free world countries for their and our
economic advancement and for the building of a durable and just
international economic order, we can do much to achieve our broad
aspirations as a nation. We can demonstrate the community of interest of
the peoples of the free world. We can encourage the growth of the idea
of democratic and limited government and the basic values on which this
rests.
II. The Role of Economic
Policies
To achieve these objectives the United States Government has followed
three basic economic policies: the expansion of trade, in both goods and
services, through the gradual and reciprocal reduction of unjustifiable
governmental and private barriers; the promotion of private investment;
and the provision of mutual assistance. These policies and their roles
are discussed below.
These three policy subjects, however, do not begin to exhaust the immense
range of economic matters that are dealt with in our international
relations. There is the complex and difficult field of aviation policy.
There are problems of shipping, telecommunications, agricultural surplus
disposal, currency exchange, East-West trade, and special problems
surrounding key commodities such as petroleum, cotton, wheat, and
rubber. Our participation in United Nations economic programs is a
subject in itself. Foreign policy today is pervaded by economics, and in
all these activities the Government seeks closer cooperation with other
peoples to the mutual advantage of them and us.
These various components of foreign economic policy are inextricably
interrelated. Actions taken with respect to one have a bearing on one or
several other components. None can be treated in isolation. They form an
integrated whole.
A. Expansion of trade.
The trade and financial policies of the United States Government are
designed to help to achieve all three basic objectives of foreign
economic policy; to increase the economic strength of the United States,
to increase the strength of other countries and to promote the unity of
the free world. To the fullest practicable degree [Page 63] they call for the gradual and reciprocal reduction
of unjustifiable public and private barriers to trade and payments.
Governmental restrictions have in the past throttled mutually profitable
world commerce to the detriment of the United States and of every other
nation. To remove unjustifiable barriers and to promote the productive
interchange of goods and services is a major task of United States
policy.
This task is undertaken primarily through the trade agreements program
including the General Agreement on Tariffs and Trade (GATT) and through the International
Monetary Fund (IMF). Through the trade
agreements program we seek the gradual, selective and reciprocal
reduction of tariffs and the elimination of quantitative restrictions on
imports and of other governmental barriers to trade. Through the Fund,
we seek the promotion of a sound financial basis for the development of
international economic relations, including the maintenance of
equitable, stable exchange rates, the provision of short-term financial
resources to countries short of foreign exchange, and the elimination of
governmental restrictions on international payments. Experience through
the years has demonstrated clearly the superiority of multilateral
discussions and negotiations over bilaterals in achieving the objectives
of United States policy in these fields.
By removing or reducing barriers to foreign trade, the United States
contributes materially to its own economic advancement and,
simultaneously, to that of other countries. When foreign nations
reciprocate in tariff reduction, as they must do, and remove
restrictions on international payments, the stimulus to our and their
economies is increased.
The United States over the years has taken the lead in this program. We
have undertaken this task not only because our foreign commerce is
greater than that of any other country, but also because of our basic
philosophical attitude towards the role of government in economic life.
The general philosophy underlying the GATT and the IMF is a
practical application of the emphasis in our political thought on the
importance of limiting the role of government in economic life and
expanding the opportunities for individual choice, initiative and
experimentation.
GATT and the IMF are important forums for considering differences which
now frequently arise between friendly nations in the area of trade and
payments. These differences are largely created as governments,
attempting to protect the industrial, agricultural or financial
resources of their countries, adopt measures which come in conflict with
the objectives of other nations.
Finally, there are U.S. Government policies designed to reduce or
eliminate abroad non-governmental barriers to trade, that is, private
restrictive business arrangements, and to encourage free [Page 64] competitive enterprise. Policies in these
fields are designed to aid American businessmen to operate more freely
in foreign commerce and to strengthen the economies of the free world
countries.
B. Private foreign investment.
In the interest of United States economic growth—the development of
foreign markets and sources of supply—and in the interest of assisting
foreign economic growth, the United States has encouraged the outflow of
private capital. Private investment not only provides financing but it
also takes with it the managerial, entrepreneurial and technical talents
which are essential for successful enterprise but are seriously lacking
in the less developed countries.
Some of the measures employed, such as Treaties of Friendship, Commerce
and Navigation, are designed to improve the investment climate abroad.
Others, such as loans to business from the International Finance
Corporation and the Export-Import Bank, and the removal of tax
impediments, offer a direct stimulus to United States private capital to
go abroad.
As the less developed countries achieve a substantial degree of economic
growth and as they achieve a greater degree of trust in us and
confidence in themselves, the opportunities for private capital will
grow. The opportunities are already large in much of Latin America. In
the long run, private capital can reduce the demands on the United
States Government for financial assistance to foreign countries.
C. Foreign economic and technical assistance.
The Marshall Plan, the United
States economic assistance programs for the underdeveloped countries of
the free world, the technical cooperation programs, the Export-Import
Bank and the International Bank for Reconstruction and Development have
been major factors in the growth of both economic strength and a sense
of community in the free world.
The success of the Marshall Plan in
Western Europe was striking. Economic output quickly reached and
exceeded pre-war levels. Economic nationalism, which in the pre-war and
immediate post-war periods dominated European governmental policy, has
had serious setbacks. Quantitative restrictions upon European trade have
been substantially reduced. Limitations on the use of the major European
currencies, particularly in the non-dollar world, have been virtually
eliminated. U.S. economic aid there, of course, has ceased.
The problems of the less developed countries are much more difficult than
those of Western Europe. Many of the former are already overpopulated in
relation to their low levels of production. Moreover, the populations
are growing rapidly as death rates fall [Page 65] sharply with the introduction of low-cost health
measures. Capital is lacking and domestic savings are low. The labor
force needs to acquire the basic skills required for a modern economy;
these requirements vary from learning to read simple instructions to the
strengthening of high-level manpower resources, especially managerial,
supervisory, technical and scientific talents. A business or
entrepreneurial class must be created or enlarged. In general, basic
changes in attitudes and institutions are necessary. Many of these
problems can only be resolved slowly and require long-term and
persistent measures for their solution.
III. The Trade Agreements
Program
Modern U.S. trade policy has its roots in the Trade Agreements Act of
1934.8 Our trade policy rests on the doctrine of reducing
unjustifiable government interference to allow international trade to
expand in response to market forces. Foreign trade allows nations to
take advantage of the specialization of production which is the
distinguishing feature of modern economic life. It is the international
counterpart of the domestic specialization of function which has been
one of the foundations of U.S. national strength.
As discussed above, foreign trade is of great importance to the American
people both as consumers and producers. The world’s largest economic
power, the United States, is also the world’s largest foreign trader. We
have a large stake in a healthy, expanding international trade.
As important as foreign trade is to U.S. employment, production and
consumption, it is even greater importance to most of the nations of the
free world which cannot match the size and diversity of U.S. natural and
human resources. For the major industrial countries such as the United
Kingdom, West Germany and France, the ratio of exports to gross national
production is three to four times as great as for the United States. For
smaller advanced nations, such as Belgium, the Netherlands, Sweden and
Switzerland, it is five to nine times as great. For many of the
underdeveloped countries, exports are the single largest component of
the market part of their economy.
In fact, trade with the United States alone is of significant proportions
for many countries. Over two-thirds of total exports of Colombia, Mexico
and Cuba go to the United States. For Canada the ratio amounts to 60
percent, while for Brazil and the Philippines it is at least 50
percent.
[Page 66]
For many particular commodities the United States is the dominant market.
For example, Chile sends two-thirds of her total copper production to
the United States; Cuba sells us half of her sugar; Indonesia sells
one-quarter of her rubber; Bolivia, one-third of her tin; Brazil, over
one-half of her coffee production.
Even Western European countries with relatively large markets on the
continent depend to an important extent on exports to the United States.
Specific industries depend heavily upon the American market. For
example, Switzerland exports to the United States over half of her total
production of Emmenthaler and Gruyere cheese and over one-third of her
production of watches and watch movements; United Kingdom sends about
one-third of her total production of Scotch whiskey to America; Portugal
exports about 40 percent of her cork production to this country.
These facts suggest the extent to which the United States has come to
occupy a dominant role in critical segments of the economies of many
foreign countries. A decline in sales to the United States fundamentally
affects income and savings abroad. The availability and growth of the
American market is of vital importance to them.
The trade agreements program is designed to contribute to the development
of mutually beneficial international trade. In so doing it plays an
important role in the achievement of our foreign economic policy
objectives. Experience with the program since 1934 demonstrates this
conclusively. The Executive Branch strongly favors continuation of the
trade agreements program including the extension of the Trade Agreements
Act. The life of the program should be extended by the Congress for a
sufficient period to provide the essential stability to the program and
adequate authority to vouchsafe and expand the gains that have been made
in world trade.
The trade agreements program is designed to be realistic and practical.
It is recognized that abrupt lowering of barriers to trade can create
serious problems in our own as well as foreign economies. Some U.S.
industries are particularly sensitive to import competition. A sudden
increase in imports may have relatively important effects on their
output, profits and employment. The fact that these industries tend to
be localized in particular areas of the country increases the magnitude
and seriousness of the problem. Thus, the policy of the U.S. Government
has been one of gradual and selective tariff reduction, one which gives
public consideration to each item before any reduction in tariffs is
made, and which provides opportunity for reconsideration when serious
injury occurs or is threatened.
The case-by-case approach to tariff reductions permits the Executive
Branch to administer the program in a way to provide reasonable
assurance that serious injury will not be threatened any [Page 67] industry as a result of a tariff
negotiation. The peril point findings of the U.S. Tariff Commission, as
required by the Trade Agreements legislation, play an important role to
this end. Likewise, provision for reconsideration of a tariff reduction
when serious injury does occur or is threatened makes possible the use
of appropriate measures for the removal of such threat or serious
injury. The Executive Branch subscribes fully to the principles
underlying both the peril point and the escape clause provisions of the
Trade Agreements Act.
The special consideration given in the Act to protecting essential
defense industries has the full support of the Executive Branch. So also
do the limitations on imports of agricultural products as provided for
within the trade agreements program, and in the controlling legislation,
in those instances in which this country has a policy of supporting
domestic prices and as a result limits the production or sale of the
domestic products.
The GATT has been the instrument by
which thirty-five nations, accounting for 80 percent of world trade,
have agreed to reduce tariffs and to eliminate quantitative restrictions
and other harmful discriminatory practices. It has provided a forum
where governments can discuss their trade problems and submit
complaints. In this forum differences of policies can be discussed and
discord among friendly countries can be reduced. The effectiveness of
the GATT can be greatly increased by
establishment of an administrative unit, the Organization for Trade
Cooperation. The Executive Branch will again urge the Congress to
authorize membership in the OTC.
The results of the trade agreements program have been gratifying in terms
of reductions in unjustifiable trade barriers, the expansion of world
trade, the economic growth of the entire free world, and the development
of closer, friendlier international relations. Continuation of this
record of achievement depends on the ability of the United States to
carry on a constructive program. This is in our own interest as well as
that of the entire free world.
Much has been accomplished but much remains to be done. Moreover, there
is always the danger that if momentum is lost there will be a lapse into
economic nationalism around the free world. This lapse may be confined
to individual countries or may be expanded to groups of nations which
would have as a major objective discrimination against American
goods.
Regional trading plans of all sorts are being proposed throughout the
world. Whether such plans, particularly the European Common Market and
Free Trade Area, will contribute their full potential to the development
of world trade or become restrictive depends very largely on the
attitudes and outlook toward trade adopted by [Page 68] the member countries. In part, this depends on the
example the United States sets in its own trade policy.