STATEMENT OF KERMIT GORDON, STAFF CONSULTANT, COMMITTEE FOR ECONOMIC DEVELOPMENT

Mr. KERMIT GORDON. I think it is perfectly fair to say there is nothing at all in the charter under which the ITO could require the United States to go beyond the ordinary administration of the Trade Agreements Act as it now stands. As a matter of fact, I think that the United States has already fulfilled its tariff reduction obligations under the charter through the General Agreement on Tariffs and Trade and other bilateral tariff negotiations, and I do not think that there is anything in the charter under which the ITO could require a further specific tariff reduction by the United States.

Mrs. BOLTON. I am having a study made of it as it is my understanding as well as that of several other members of the committee, that under the present set-up, we would be obliged to agree. That would be a very serious thing to us.

You can realize, Mr. Lazarus in my district with so many industries needing exports, that I am exceedingly interested in exports. I am interested also in careful scrutiny of imports, because of the possibility of interference with the jobs available to the labor of my district and of this country.

How are we going to find the ways around these problems? I am interested particularly in your comments on the California pottery as being the real cause which has interfered with the pottery in Ohio, because we have been given quite another angle on it. You see, nothing happened to the pottery of Ohio in those long-established factories until General MacArthur sent in a lot of cheap Japanese pottery. Then they had to shut down. California pottery has been manufactured for some time!

Mr. LAZARUS. As a matter of fact, all types of pottery and China were very scarce up to a particular point, and the advent of the Japanese china into this country helped dispel a scarcity that was present in nearly every line of goods and it came to a point where inventories gradually caught up with demand and then things were judged much more on their merit from the standpoint of styling, quality and everything else, which they could not have been under a scarcity market.

Now I think it is true with all of us. I am sure that in retailing, the greatest alibis in the world are things which we say are beyond our control. If retailers could control the weather they would be in a very difficult position, because they would have no alibi left when they got through as to why their sales were bad. But not being able to control it, they blame it.

As a matter of fact, from our observation, wherever we have an industry with competition that results not only in lower prices, but in new fashions and so on, there you have the real type of thing that increases the standard of living in this country. If only three or four concerns were going to make television, and the price of television still remained at $500 a set and $600 a set, television would never have general acceptance in this country. But every time it goes down a price bracket-from quantity manufacture, from new improvements, from new inventions-a new group of people use it, and that has developed a certain change in living.

It therefore seems to us that you cannot, at any time, figure either imports, exports, or even the whole local economy on the basis of something that is static.

Nobody before the war could have envisaged the use of the things that we have and the colossal quantities in which they are being used in the United States today. They would say that if they had been used in this postwar period, all of the savings accumulated during the war would have disappeared. Well, now, that hasn't been true at all, has it? Instead of that, the savings are still intact, people still increase their savings, and yet the usage goes up all of the time. The whole consumption here is not static. It is dynamic.

Considered from that angle, then, this document becomes a very important one in our judgment. That is why we believe in it as strongly as we do.

Mrs. BOLTON. Do you feel it is a clear document?

Mr. LAZARUS. No, we do not feel it is a clear document at all.
Mrs. BOLTON. Would you like to see it clarified?

Mr. LAZARUS. I do not know if it can be. I think it is only going to be clarified from the standpoint of its use and in meeting certain situations. We think there is great opportunity for it to be clarified because it will be implemented with an organization whose responsibility is its clarification, and to see that it is being used in the right way.

Mrs. BOLTON. With the situation as it is today, supposing it were to continue without ITO for another year, what do you think would be the result of that?

Mr. LAZARUS. I think we would be having perhaps better conditions here and worse conditions there.

The reason I have been in favor of ITO, to the extent that I am able to understand it and I am no technician-is that it provides a framework in which people are going to trade. It is the same sort of a thing to me as is a set of baseball rules: you are in the diamond and you are going to do certain things.

up.

Mrs. BOLTON. But you want to make sure those rules will hold

Mr. LAZARUS. The rules will change from year to year and they do in every game that goes on.

Mrs. BOLTON. This is a very serious game.

Mr. LAZARUS. I think it is a serious game, but it is a serious game either with ITO or without it.

Mrs. BOLTON. Do you think it is safer with it than without it?
Mr. LAZARUS. We think it is.

Mrs. BOLTON. In spite of the cloudiness of the instrument and in spite of the confusion, in spite of the completely differing opinions in the matter that we have heard around this table in the past few weeks? Mr. LAZARUS. We think it is safer. CED thinks it is safer, after careful consideration.

Mrs. BOLTON. Thank you very much, Mr. Chairman.

Chairman KEE. Mr. Fulton, have you finished with your exami

nation?

Mr. FULTON. No, I wanted to go a little further. I like this witness very much.

Chairman KEE. We have other witnesses that we would like to get to today.

Mr. FULTON. It would run a little longer than 5 minutes for me, but I think it is very important to discuss this article 11 and article 12, because we have not had as lucid a witness on these two articles which I think are very important. I think the Committee for Economic Development should itself have the juxtaposition of other openminded views.

Mr. LAZARUS. I will say this, Mr. Fulton: The Committee for Economic Development will have a transcript of the statement you have made on articles 11 and 12 today, and will give it serious consideration: and, I am sure, if you had the opportunity, if you would extend that for them, they would appreciate it enormously and would use it in all of their deliberations when they are discussing this. A CED report is going to be prepared, in the not-too-far distant future, on that whole subject.

Mr. FULTON. Perhaps I could say to Mr. Lazarus this: I have already decided in my mind's eye to reread your statement on consumption in this country as it affects our tariff and our imports. It has opened new fields to me as, shall I say, a progressive Republican. That the economy is not static, and it is a case of getting as many goods as economically as we can, so that we have high consumption in this country.

Could we go back to articles 11 and 12 for just a few minutes, Mr. Chairman?

Chairman KEE. You may proceed, Mr. Fulton.

Mr. FULTON. I think we are making some progress, here.

Chairman KEE. I hope you will make it as brief as possible, because we have other witnesses here waiting.

Mr. FULTON. Article 12, as you know, does recognize this-and I will tell you some of the advantages of it shortly: It recognizes the importance of the contribution which international investment, both public and private, can have in promoting the economic development of our own country and of other countries, developed or underdeveloped.

Do we agree on that?

Mr. LAZARUS. Yes.

Mr. FULTON. Secondly, that the extent to which the flow of international capital can be stimulated, in the various members, affording other members and their nationals the right to investment opportunities, that is a great gain both for our country and for other countries. That is recognized by this article 12, too.

I am not trying to catch you on anything.

Mr. LAZARUS. Oh, no; we understand that.

Mr. FULTON. That is the general advantage of article 12.

On the other hand, it recognizes the right of each member-this is a protection-to take safeguards necessary to insure that foreign investments are not used as a basis for interference in its internal affairs. That is the particular item that Mrs. Bolton has just spoken about: that the charter in no way intends to interfere with legitimate internal matters for the safeguard of a particular country, and in this case the United States.

That is a gain; is it not, also?
Mr. LAZARUS. Yes.

Mr. FULTON. Another gain of article 12 is, it leaves to each member the determination of whether and to what extent and on what terms it will allow future investments. Otherwise, as Mrs. Bolton adequately points out, you could have other countries telling us how to run our economic life. That is a gain under article 12, too; do you not agree? Mr. LAZARUS. Yes; if we admit that they might.

Mr. FULTON. It gives each member the right to prescribe and give effect, on just terms, to requirements of ownership of existing and future investments.

May I comment there that that language is indefinite; but, on the other hand, the actual terms can be set out under multilateral or bilateral treaties, which it is intended shall be used in addition to articles 11 and 12. Is that not correct?

Mr. LAZARUS. We would think so.

Mr. FULTON. It is specifically expected under the charter, and especially under articles 11 and 12, that treaties or other agreements relating to the opportunities for finding security for investment will be made by this country and other countries, to promote the movement of capital and to promote foreign investment and trade.

Now, I had pointed out to you previously that within this country, under the Taft-Hartley law, business had said that it was unfair under the Wagner Act that only business management should sit down and negotiate and confer on trade matters and employment matters. Therefore, under the Taft-Hartley law, business said, it should be incumbent on labor and labor organizations in this country likewise to sit down and confer at the conference table and cooperate to make an agreement, if possible.

Now, with that as a context, why shouldn't we then in international trade, as a nation, say that we are always willing to sit down and confer at the council table, to try to work out fair and just agreements, just as we have said to labor and management at home: "You must in all good conscience do likewise"?

If that is the case, under the International Trade Organization Charter, there is the obligation to enter into consultation and participate in negotiations directed to the conclusion of mutually acceptable treaties or agreements to carry out international trade under articles 11 or 12.

The way I felt about your statement (see p. 449) was it was very neatly worked out when it says, "By the charter's provisions, the United States would be obliged to cooperate."

Yes; that is correct. But the relative position in which it is stated, to someone who is reading it quickly and without the intelligence with which it was made up, possibly might make that person think that the obligation was to provide funds, materials, equipment, and technology to backward countries under this charter in unspecified

amounts.

Mr. LAZARUS. There is no intention of that at all, Mr. Fulton. I think I ought to make it very clear in this respect: we are not trying to take a position today against foreign investment in underdeveloped countries, as far as the United States is concerned. We take the position that we have because we believe that that question is sufficiently important to deserve a study of its own, and a CED subcommittee is working on it. We believe that these two articles, in this long docu

ment of approximately 106 articles, are dealing with a very important subject, in a-may I call it—not sufficiently significant way.

I do not want to see our opposition to articles 11 and 12 submerge in any way our endorsement of the charter as an instrument. That is the big point I am trying to emphasize here. We are for the charter. We believe that these two articles are simply foreign to the balance of the intent of the remainder of the document. As such, in our judgment, with which you undoubtedly do not agree, we think they are better off as a separate study outside of the charter itself.

The only point I want to emphasize again is that our intention is to appear here in favor of the adoption of the charter. We do not want the opposition to articles 11 and 12 to stand in the way.

Mr. FULTON. If you would look at the history within which the charter has evolved, you will see that it would not be foreign to the area of reference that the charter covers.

May I point out, in order to explain, a few of those things so that you will be able to tell your members the background or the history within which the charter evolves. Of course, we ought to go clear back to the Atlantic Charter. That was the start, originally. I quote from the fourth section of the Atlantic Charter of August 14, 1941:

Fourth: They will endeavor with due respect for existing obligations to further the enjoyment by all states, great or small, victor or vanquished, of access on equal terms to the trade and raw materials of the world which are needed for their economic prosperity.

May I point out to you that it says in that particular article:

with due respect for their existing obligations.

Of course, that holds for the United Kingdom and the United States. Article 5 of the Atlantic Treaty states:

A desire to bring about the fullest collaboration between all nations in the economic field, with the object of securing for all improved labor standards, economic advancement, and social security.

Now, then, in between those two historic documents you knew that there was the lend-lease agreements. We entered into lend-lease agreements to supply, if you will, the sustenance and sinews of war to certain democratic countries the existence of which we were interested in, but we also left it open for other nations of like mind to join, if you will recall. As to the peoples whom we wanted to come into lendlease agreements and who came in, we certainly had with them an open-end agreement which could have been a trade charter if we felt it was adequate.

Under the United Nations Charter, we went much further than the average person believes that we did. If anybody is concerned with obligations, should he look at article 43 of the United Nations Charter, he will see that we have obligated not only to provide the economic sinews of support for security forces but we have also obligated ourselves to provide armed forces themselves at the call of an outside agency, the Security Council.

I quote from article 43:

1. All members of the United Nations, in order to contribute to the maintenence of international peace and security, undertake to make available to the Security Council on its call and in accordance with a special agreement or agree