Mr. CARNAHAN. Would you agree that the improvement of the economic status of the peoples over the world will make perhaps a greater contribution to world trade than merely the adjustment of the machinery of trade?

Mr. LUKENS. May I explain that in a practical case? I think trade barriers, many times, unreasonable trade barriers, result in an uneconomic industry being established in a country. For instance I only name the tire industry because I know of this: I think it is unreasonable for an American tire manufacturer to go to a country abroad and get them to put up a prohibitive duty in order that they may have exclusive rights, and then they put up a tire plant. That tire plant can make, in a very short time, the entire requirements of the country. Then two other American tire companies, in order to not be excluded put a factory in that same country so they have factory facilities enough to produce all the requirements in a very short time.

Now, I think the people of that country pay for that prohibitive duty (because all manufacturers hide behind duties) and it puts up the price of the other country's products so they are not competitive in world trade. Therefore, I will say trade barriers do definitely prohibit the economic standard of a country from rising. Does that answer you?

Mr. CARNAHAN. You would contend, then, that the noneconomical company, operating under Government protection, is not really raising the standard of living of the masses of the people?

Mr. LUKENS. I would say it is lowering the standards of the masses because if a country binds their people to buy a product, then all your products go up and they must charge more for their exportable products and therefore become noncompetitive throughout the world. Mr. BURLESON. Would the gentleman yield there?

Mr. CARNAHAN. Yes.

Mr. BURLESON. Do you harmonize what you have said about tires with the Point IV conception?

Mr. LUKENS. I thought I might be misunderstood, but I gave that as an example. I believe in Point IV up to an extent. I believe industry and capital in America will go abroad-I think this might exclude agriculture. I think agriculture has a chance to do something, but I think industry and banking will go abroad when they have some vision of security. I do not think the Point IV program will work out as much as some people think, except that private industry and capital will go abroad, but not in a country where they have no security at all and will be discriminated against in every respect.

Mr. BURLESON. As I see it, that still makes your view somewhat inconsistent, if your concept of the Point IV program is that our American capital must have some assurance it is going to make some money in a particular foreign venture.

Mr. LUKENS. No; not money. I think it would be absolutely wrong for any government to guarantee return on investment of any company going abroad under Point IV. I do not think industry or capital wants it or asks for it. All they ask is that their property will not be confiscated or that they will be treated with the same rules and regulations as the local concern.

Does that answer you?

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Mr. BURLESON. It is not exactly my idea that business would want no more than that. I think they want all they can get. If they are going to spend their money they will want a return and they will want it guaranteed with every safeguard they can put around it.

However, if the concessions and advantages are given our foreign investors, whatever it would take, if you were favorable to the Point IV concept, then some governmental agency, some place, must decide whether or not it was a profitable enterprise, and whether they were given the safeguards, would it not?

Mr. LUKENS. I think industry should decide itself whether a country has the population to put an industry in. I mention a very small country where an uneconomical manufacturing process was started. I gave that example to prove that sometimes it is disadvantageous when a country has not progressed enough to start manufacturing. It does place those people in that country in a noncompetitive position to sell their goods in world markets.

Mr. BURLESON. You did not say whether you favored Point IV or not, but I wanted to understand better your reference to capital ventures in foreign countries.

Thank you, Mr. Carnahan.

Mr. CARNAHAN. The main thing in world trade, the high level, certainly depends upon maintaining an economic standard of high level throughout the world.

Mr. LUKENS. That is true.

Mr. CARNAHAN. That is certainly the purpose of Point IV.

Mr. LUKENS. That is right. I think the economic standards of the people of the world must be raised if the world is to progress, because of greater production.

Mr. CARNAHAN. And it must be raised if we maintain our present position in world trade at the point it is now.

Mr. LUKENS. Unquestionably. Unquestionably.

Mr. CARNAHAN. That is all, Mr. Chairman.

Chairman KEE. Dr. Judd, have you any questions?

Mr. JUDD. Mr. Lukens, you say that, first of all, the South American country would not be permitted to apply such a quota. How would the ITO prevent it from applying such a quota if it wanted to, even though it would have to break its word if it did so?

Mr. LUKENS. That is right. They would join the ITO with the understanding the quota could not be applied without giving advance notice and showing justification for it.

Mr. JUDD. Suppose that the ITO charter were amended, as it can be amended by just a straight two-thirds vote and no requirement for ratification by the constituent members, what out would a disagreeing nation have-nothing except to withdraw; is that right? Mr. LUKENS. That is right.

Mr. JUDD. Do you know of any other charters or constitutions that can be amended by a straight two-thirds vote without notice, no year of study, or anything else, just at any time, when two-thirds of the members decide to amend it, they can change the rules?

Mr. LUKENS. I think all trade associations are of that nature, if that answers you. I do not know of any trade association that prohibits the amendment of its constitution or bylaws or charter by voting and without limitation as to time limit.

Mr. JUDD. And it does not have to be ratified by a percentage of the members?

Mr. LUKENS. You stated the charter also would have to be amended by a certain proportion of their members.

Mr. JUDD. No; that is the point. Two-thirds can vote and then it is amended.

Mr. LUKENS. I know of associations where they have difficulty in getting their members to vote and they have the same provision as this; as long as two-thirds vote. They find it hard to get a 100-percent vote. I am talking about trade associations.

Mr. JUDD. I never knew of a governmental agency, especially an intergovernmental agency, interstate, interprovincial, international, where an amendment to the basic constitution did not have to be referred back to the constituent members for ratification by a substantial majority. In our constitution, three-fourths of the States have to agree to it.

Mr. LUKENS. I frankly am unqualified to comment on that matter. Mr. JUDD. Of course, the charter says they have to accept it, but it goes into effect without such acceptance. I mean all they can do is abide by that or resign.

I see Mr. Brown shaking his head. May I ask him about that? Chairman KEE. Certainly.

STATEMENT OF WINTHROP G. BROWN, DIRECTOR, OFFICE OF INTERNATIONAL TRADE POLICY, DEPARTMENT OF STATE

Mr. BROWN. The charter says members may adopt an amendment by a two-thirds vote. The amendment goes into effect for the members which accept it when two-thirds of the members have accepted it. A member does not have to accept an amendment. The resolution which you have before you expressly states that the resolution will not. authorize the acceptance of any amendment which alters the obligations of the United States without reference to the Congress.

Mr. JUDD. It says, "The conference 'may' determine that the amendment is of such a nature that the members which do not accept it within a specified period after the amendment becomes effective shall be suspended from membership in the organization." It can kick them out if they do not accept the amendment?

Mr. BROWN. They can also waive that requirement. If we should decide not to approve an amendment, we would be free to withdraw if we wanted to or apply for a waiver of that.

Mr. JUDD. It was felt better to let a nation get out if it did not accept, rather than require that the amendment be submitted to the individual members and approved by their regular ratifying bodies? You see, it is true that the executive branches of two-thirds of the various members would have had to approve in order to pass the amendment but most countries, including our own, require that actions of the Executive in treaty matters be ratified by the legislative body. This waives that whole ratification procedure.

Mr. BROWN. No, sir. I am sorry; it does not. As you say, the Executive representative of the United States on the board would indicate our position on the amendment. Obviously, if he had any doubt that it would be ratified, he would vote against it, or if he

thought it was against our interests. But it would not become effective: for the United States until the Congress had acted.

It was obviously necessary to have some procedure for amending the constitution of the organization which could not be prevented from going into effect if some one member or two members felt they did not like it-in other words, we did not want to have a veto situation on the part of the minority of the members with respect to something which seemed to be in the best interests of the great bulk of them.

If we, for example, proposed an amendment and it were accepted by two-thirds of the members, we would feel that it would be not right if, say, Czechoslovakia, or some other minority group, said, "We don't agree; we won't accept it; therefore, the charter must remain the way it is and never be changed."

On the other hand, we did not feel that it was right and proper to sign a blank check on behalf of the United States which would give the organization the power over our objection to impose new obligations on the United States.

The solution, therefore, is that the organization may agree to an amendment and that amendment, if it changes a member's obligations, does not become effective for any member until it is ratified by that member under whatever procedure that member chooses to select. In our case it will be action by the Congress.

Mr. JUDD. I want to make sure about that. It says:

It will be effective for the members accepting the amendment after two-thirds of the members have notified the Director General of their acceptance.

Mr. BROWN. "Acceptance," as far as the United States is concerned, means acceptance by the Congress. In other words, the charter does not prescribe the method of acceptance by the individual member.

Mr. JUDD. That word "acceptance" means the Secretary of State notifies the Director General of the ITO that the United States Congress has ratified?

Mr. BROWN. Yes, sir.

Mr. JUDD. That is what you mean by acceptance?

Mr. BROWN. What the Secretary of State would do would be notify the Director General that the United States has accepted. In the legislation which this committee is considering, the Congress specifies that the way in which the United States will accept it is by congressional action and only by congressional action.

Mr. JUDD. We would have two alternatives one would be to withdraw and the other would be to stay in, but that amendment would not apply to us?

Mr. BROWN. If the organization agreed we could stay in without accepting the amendment. If the organization does not agree, we would have to withdraw or, as you say we would have the option originally of withdrawing if we thought the amendment was very undesirable.

Mr. JUDD. Mr. Chairman, I did want to ask one more question of Mr. Lukens. He says, "To qualify for a quota for balance of payments means the country would have to open its books to the scrutiny of the International Monetary Fund and prove that its reserves were in serious danger of depletion." Do you think most governments. whose reserves are in serious danger of depletion would want to have that information get out? Would that not immediately destroy the

confidence that the people within the country, as well as those in other countries, have as to the stability and financial solvency of the government in question?

Mr. LUKENS. The very fact that the overseas government takes steps to restrict imports gives evidence that their financial position. is not desirable.

Mr. JUDD. Yes; but that is different from making the figures public. Mr. LUKENS. I do not believe the figures would be made public if disclosed to the International Monetary Fund.

Chairman KEE. Dr. Judd, will you yield.

Mr. JUDD. Certainly, Mr. Chairman.

Chairman KEE. I think section 5 of House Joint Resolution 236, the bill under consideration, answers your question with reference to the acceptance of an amendment.

Section 5 says:

Nothing in this joint resolution shall authorize the President or any person acting on behalf of the United States to accept any amendment to the charter under paragraph 2 of article 100 thereof without the authorization of Congress. Mr. JUDD. When you say the authorization of Congress, it has to be something passed by both Houses of Congress.

Chairman KEE. I would take it it would mean exactly that, a joint resolution by both Houses.

Mr. JUDD. Not ratification by the Senate as our own constitutional machinery sets up.

Chairman KEE. No; by both Houses.

Are you through?

Mr. JUDD. Yes.

Chairman KEE. Mr. Burleson

Mr. BURLESON. No questions Mr. Chairman, thank you.

Chairman KEE. We thank you very much Mr. Likens for your splendid statement.

Mr. LUKENS. I appreciate the opportunity of appearing before you. Thank you.

Mr. JUDD. Mr. Chairman, may I have included in the record a statement by the Manufacturing Chemists' Association, Inc.?

Their secretary wrote to me and said he had to be at Geneva representing the chemical industry at the ILO meeting and asked if I would have his statement on ITO inserted in the record.

Chairman KEE. Gentlemen, without objection the statement will be inserted in the record.

STATEMENT OF M. F. CRASS, JR., SECRETARY, MANUFACTURING CHEMISTS' ASSOCIATION, INC.

The Manufacturing Chemists' Association, Inc., and Chemical Alliance, Inc., whose combined membership represents in excess of 90 percent of the tonnage of heavy and fine chemicals produced in the United States, have followed with intense interest, but with increasing concern, the negotiations between this country and others in London, Geneva, and Habana, which have resulted in the Habana Charter for an International Trade Organization.

The original concept and purpose of an international trade organization, as first made public by the State Department in 1945, were received generally with enthusiasm by the chemical industry. How