1922, was a forerunner. By the middle of the decade, by which time Germany had been released from the strictures upon her tariff autonomy in the Versailles Treaty, the movement had begun to gather impetus in Europe, with Germany and France constituting the pivot. The unfavorable trend of events in the field of foreign trade and commercial policy, coupled as it was with other untoward developments, led, in 1927, to a world economic conference which fully recognized the dangers inherent in the rapid rise of trade barriers and sought earnestly to institute measures to halt the trend. In the main these measures were unsuccessful. Almost everywhere the upward trend continued. In the United States it was manifested in the months of hearings and debate, inaugurated long before the onset of the depression, which culminated in the Tariff Act of 1930 (the HawleySmoot Act).

It is quite true that, in spite of rising trade barriers, there was an increase in the total volume of international trade during this period, much of it resting upon foreign lending of a type or under conditions which proved to be uneconomic. So long as means, however precarious, could be found to inject some sort of stimulus into the world economic anatomy and enable it to increase production, an increase in international trade was a natural concomitant. Nevertheless the increase in international trade lagged seriously behind that in production, rested upon insecure foundations, and was far from adequate.

It was far from adequate because the conditions that had developed in the international financial structure were such as to require the development of a greatly increased volume of international trade in order to provide the debtor countries with the necessary flexibility in their international-payments position with which to enable them to meet their international obligations. Those conditions were, in themselves, chaotic in the extreme; and the pursuit of discordant policies in the field of international trade added gravely to the complications. On top of the enormous debt burden left by the war, including reparation payments, international lending had been resumed on a vast scale and with little regard to the basic economic implications involved, particularly as related to the prospects of repayment. Much of this lending went into wasteful and uneconomic uses. Not only did the United States pour out funds on a vast scale; but other countries, notably Britain, France, and some of the smaller countries, exported vast sums of capital, chiefly in the form of short-term investments which left them in a highly overextended and tenuous position when the financial crash finally came. All of this served as an artificial stimulus to economic activity. in both debtor and creditor countries which tended to gloss over and conceal the growing weaknesses in the whole position.

In the United States it seemed for a time that a magic formula had been discovered whereby a great creditor country could (1) severely check the total volume of its imports by imposing extremely high duties on competitive and semicompetitive products of foreign origin; (2) collect payment of war debts from countries whose means of payment both for their current import requirements and for servicing their debts had to be chiefly in the form of exports of goods; and (3) continue without let or hindrance to export its vast domestic surpluses on an undiminished or even expanding scale. For several years it was possible, by resort to new lending, to keep the inherent absurdity of this conglomeration of conflicting policies below the surface; but it was a species of magic which, as events proved, could not last.

Such was the highly discordant and confused state of affairs in this realm that developed in the twenties. While all this was happening there were, as well, failures to deal, or deal successfully, with pressing internal economic problems in many countries; so that, both internationally and internally in many countries, the stage was gradually set for the collapse which came late in 1929.

In its earlier stages this relapse took the form of a severe business recession in which world trade fell, in quantum, by some 10 or 15 percent below the 1929 level, and in value (owing to the collapse of prices, especially prices of foodstuffs and raw materials), by nearly two-fifths. But with the acute breakdown, in 1931, of the international credit and monetary systems and the disruption of the internal banking and financial structure of many countries, the downward spiral of world trade dropped sharply to the point where, by the first quarter of 1933, the quantum of world trade was only about two-thirds, and the value only about one-third, of what they had been in 1929. Meanwhile international lending had almost entirely ceased; and with the break-down of the whole monetary and trade system came a vast decline in production and employment throughout the world.

Never has the futility and the folly of attempting to deal with an international problem by means of purely nationalistic measures capable only of complicating

the problem, been better demonstrated than it was in this period; and what happened in the field of international trade affords an excellent illustration. In their frantic efforts to protect their monetary stability and their financial solvency, many nations began to adopt rigid controls over imports while at the same time endeavoring by various expedients to force their exports. Prohibitive and discriminatory tariffs, quotas, exchange controls, multiple currencies: these and other devices, conceived and applied with Machiavellian ingenuity, ushered in a period of economic warfare of almost savage intensity. Retaliation and counterretaliation set up a vicious circle of trade annihilation. Multilateral trade relationships rapidly gave way to a system of bilateralism which strait-jacketed and constricted trade down to a mere fraction of its earlier volume.

The most conspicuous, but by no means the only, practitioner of this system was Germany. By Germany the system was used as a means of making economic tributaries of her less powerful neighbors in central and eastern Europe, for the dual purpose of achieving greater self-sufficiency and of rebuilding her armaments. By using blocked marks as a means of exacting what amounted to forced loans from the countries from which she imported, Germany was able to obtain selective imports needed to facilitate the development of her armament program, and was able to do this without diverting a corresponding amount of her energies from armament production to the production of an equivalent amount of goods for export. By the time the present war broke out, however, she had about played out this string, her malign purposes having meanwhile been fulfilled. Other nations used, and some are still using, the bilateral system principally for other purposes. Whatever the object and wherever it may be employed, it is a system which should be done away with as soon as possible in a world in which international trade is to be permitted to contribute its full part to the general expansion of world economy and the rise of living standards thus made possible. * * * In particular, two things are to be emphasized in this experience. First it showed conclusively that policies of economic warfare, carried to the extremes to which they went in the interwar period, lead inevitably toward declining prosperity and lowered living standards for all countries. Second, it showed that the problems of international trade and international finance are so closely interwoven that their solution must be approached conjointly, and that the pursuit of commercial policies which promote rather than hamper the flow of international trade is an indispensable part of that solution.

Mr. JENKINS. Let me bring you to the point now. You have agreed, practically, that I am right in my statement that you laid this groundwork and tried to justify it. The first Federal trade agreement was passed in '34, was it?

Mr. EDMINSTER. The Trade Agreements Act was passed in '34. Mr. JENKINS. When, in this country, did W. P. A. come along? Mr. EDMINSTER. Perhaps you can give the answer to that. I don't know the exact year.

Mr. JENKINS. Wasn't it after 1934?

Mr. EDMINSTER. It might have been-about '35 or '36. I don't recall.

Mr. JENKINS. What I am trying to show is that you have absolutely no justification for giving the impression that the Federal trade agreements have contributed to the prosperity of this country in any one detail. If you can give that detail, I would like to have it, but I am just pointing out to you that the depression that set in in '33 continued right along, and the only thing that relieved it was the borrowing of public money and handing it out through W. P. A. and through relief. If there ever was a time until the war clouds came when there was any basic difference between the situation in '29 and '30, I would like to know when it was, and your predecessor on the stand here, Mr. Sayre, said emphatically that we had not solved the unemployment question yet, and he painted a rather dire picture of it. Now, you come along and make us think that what was done then has done us a lot of good, and I come back to my original question. Cite us a few instances.

Without making a speech, tell us what the trade treaties have done that contributed to our prosperity.

Mr. EDMINSTER. I was answering your question in two parts. I had completed my answer to the first part when you made these observations.

Coming to the second part, since it was necessary to take some action to try to better the situation with regard to international trade as one of the causes contributing to this very adverse economic situation in this country, the Trade Agreements Act was passed. I have not said that all of the depression was caused wholly by the situation with regard to international trade, and I would not for one moment attribute all of the improvement that has taken place since 1934 to the Trade Agreements Act. If that is what you want me to say, I will be very glad to say that. I don't claim that. But I think that it was a very constructive measure, that it was calculated to deal with a very difficult problem which needed remedy and which is till in need of treatment.

Mr. JENKINS. My colleague just calls to my attention a statement by Mr. Sayre. It says:

We had the depression coming on before the Hawley-Smoot tariff was ever passed. I think myself the depression is the aftermath of the Great War, and is in large measure caused by the Great War.

That is Mr. Sayre's statement.

Now, I am glad we have come back to earth. My colleagues had to take you down from the clouds when you first started your testimoney, and now we are down where I think you belong, and if you have anything else to say and can answer my question as to how, in general language, that I might understand it and know, you justify the Federal trade agreements from the standpoint of having been of any great benefit to the country.

Mr. EDMINSTER. Yes, sir, Congressman. I don't think you want me to take all of the time to do it, but I would say that there are quite a number of pages of the report of this committee in 1940 devoted to that subject and that the case is pretty fully stated there, of which instances have already been cited, in the testimony at these pending hearings. If you want a specific instance right now, offhand, from me, I will take the case of Canada. I think it was shown very clearly in the testimony yesterday that the agreement with Canada did bring very tangible and important benefits to this country as well, of course, as to Canada. I don't want to go over all the details of that; I don't even remember all the details at the moment, but I think that the record on that as of yesterday was sufficiently clear.

Mr. JENKINS. Let me ask you a question. As you have stated, and we know the limitation of the reduction, the law limits it to 50 percent. Is it not a fact that in some cases the duty has been cut below 50 percent, the effective duty, by reason of the formation of cartels and by reason of the liberalization of currency? What has been your experience and the experience of your Board as to whether there has been much or many instances where the effective rate has been lowered more than 50 percent?

Mr. EDMINSTER. If I understand the purport of your question, you are not asking whether there has been an actual reduction of the rate under the trade-agreements program by more than 50 percent. As was pointed out yesterday, that legal limitation is very carefully observed. You are not meaning to suggest that the law has been violated.

Mr. JENKINS. No. Here is what I mean to suggest. I have the impression, and from very good sources, that an agreement is made right close to the 50-percent line, and that afterward certain implied breaches of the contract are permitted by the other contracting party, with the result that the effective reduction is more than 50 percent, and that your Board hasn't done much about that. Those that complain don't get much sympathy.

Mr. EDMINSTER. Oh, I don't think that there have been any abuses of that sort. I am not aware of any serious abuses on that score. Of course, under the provisions of the agreements, there are adequate provisions to take care of any matters of that sort. We have an antidumping statute, and we have a bounty-countervailing statute by which the Government can always act to countervail any action of that sort taken by the other country. There is nothing in the trade agreements negotiated with any country that prevents us from doing that. On the contrary, authority is very carefully preserved to us, under an agreement, to take any special countervailing action that may be necessary, under either the antidumping statute or the bountycountervailing provision of the Tariff Act.

Mr. JENKINS. Am I safe, then, in assuming that there is no serious handicap that confronts an individual who feels aggrieved by reason of this fact? In other words, you think that your Board cooperates as much as possible to relieve the situations like that?

Mr. EDMINSTER. We would, of course, if it were brought to our attention, immediately communicate the matter to the trade-agreements organization, with a view to seeing what action, if any, should be taken in connection with a trade agreement.

Mr. JENKINS. Let me go a little further. What do you do when it develops that the other contracting party cannot carry out his part of the contract-cannot and will not? Do you vitiate the contract? Do you have authority to declare it null and void? Suppose a country finally refuses.

Mr. EDMINSTER. If you were acting under the bounty-countervailing provision of the Tariff Act or the antidumping statute, you would go ahead and put it in effect if you thought that the action was warranted, and the other party is obligated, under the terms of the trade agreement, not to consider that a violation of the agreement.

Mr. JENKINS. Let me ask you this: I think this is the most common way by which these countries violate the explicit terms of the contract. They have an export duty.

Mr. EDMINSTER. I was speaking of export subsidies and aids given to offset, to try to get below, our effective duty rate. I thought that was what you were talking about, rather than export duties or restrictions by the other country.

Mr. JENKINS. So we understand it thoroughly and exactly, here is the pottery business. You have fixed a rate, and it is up near 50 percent, and Japan or some other country goes to work and pays a bounty to its manufacturers, and in that way it practically nullifies the contract, and the producer in Japan doesn't care anything about the tariff because, whatever it is is made up to him by subsidy from his government. What do you do in those cases?

I suppose you would be justified, of course, in canceling the contract and canceling everything that goes with it. What is the effective program?

Mr. EDMINSTER. Of course, we don't have a trade agreement with Japan.

Mr. JENKINS. I know that we have no agreement with Japan but I mean any country.

Mr. EDMINSTER. If we had a trade agreement with them, and if it were found that, as a fact, under our antidumping statute or our bounty countervailing statute, either one, that a subsidy was being paid-if that were the finding and it were also found, in the case of the antidumping statute, that injury was being done to domestic industry-under the bounty countervailing statute action is mandatory once it is found that a bounty or subsidy is being paid on the goods shipped to this country; you don't have to find actual injury-in either of those cases there would be nothing in the agreement which would prevent us from taking the action required under the law. Mr. JENKINS. That is all.

The CHAIRMAN. Mr. Disney.

Mr. DISNEY. First, to correct the record, in the discussion between the witness and our distinguished tariff expert from Virginia, Mr. Robertson, a big protest was made by the zinc interests with reference to the agreement with Canada, and not a thing on earth was done about it.

Mr. ROBERTSON. It is safe to assume that a case was not made out. Mr. DISNEY. The expert from Oklahoma avows that he was more familiar with the facts in the case than the gentleman from Virginia could possibly be, because he studied it for weeks and months, and he makes the exactly opposite statement. We were met with an impasse down in the State Department.

The war came on; the demand for zinc became so great that the zinc business, which was practically fading out, got back in better shape.

I believe that is a correct statement of fact, that nothing was done. I keep coming back, Mr. Edminster and I have discussed it with you personally to this matter of procedure. I realize that you folks down there have decided that the plan you have got is the very best procedure by which it may be handled, and you make a very splendid case in that regard. But my judgment is that if, after you had concluded, on the particular product just mentioned, what your plan should be, and had then heard the protests, before completing the agreement, given the opportunity on the part of industry to present its case and show the fallacy of the action taken, the attitude in the Department would have been more lenient and more responsive to the showing made by the Department.

So it comes to this, and I would like to get your views-I think I know what they will be when you state them, but I think the record ought to state them-that when you arrive at the stage where you are about to make an agreement, after all, your conference is with the foreign nation, but after that stage has arrived, that you advise the interested parties what you are about to do, and have the additional information to be furnished, so as to negate, if they can, what you are about to do.

That entails, of course, additional work, but it might produce a much more satisfactory situation in the long run. I haven't been able to get away from that idea, even though I have talked with gentlemen like you, who feel that the present plan is best. Of course the man or the department that inaugurates a system is prone to back up his