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in compliance with this principle has given rise to considerable misunderstanding and even to the assertion that the United States is thus required to generalize to all nations the concessions it gives to specific nations in specific agreements, without obtaining any advantages in return.
This assertion is not accurate. The agreements themselves, of course, provide that the United States and the other party to the agreement will, in all trade matters, accord to all of each other's products treatment which as favorable as that which they give to similar products imported from any other country. This is something for something, as every foreign trader knows. As between the United States and countries with which it has not concluded reciprocal trade agreements, the unconditional most-favored-nation principle actually means, in simple language, that the United States applies trade-agreement tariff reductions to products covered by such reductions when imported from any country that does not place American export trade at a disadvantage; that is, to any country which, in return, accords to our trade customs treatment at least as favorable as the treatment accorded to similar products of any other country. This, too, is something for something, as every foreign trader knows.
Germany, in 1935, terminated the most-favored-nation provision of the commercial treaty between that country and the United States and entered into discriminatory bilateral trade agreements and otherwise discriminated harmfully against our trade. For that reason the products of Germany, and later of German-occupied territories, were denied the benefits of concessions made under trade agreements. For a time, because of flagrant discriminations against United States trade, the application of trade-agreement reductions to Australian products was withheld. Although our trade-agreement reductions were of relatively sinall interest to Australia, since they did not relate to Australia's prid. cipal export products, that country ended these discriminations and thereupon we again applied our trade-agreement rates to such minor Australian products as came within the description of articles subject to reduced rates of duty in trade agreements with other countries.
The nondiscriminatory principle works both ways. The United States gives a pledge against discrimination and receives a similar pledge in return. All our international trade benefits by this policy.
The United States does not throw away bargaining power by this policy. It is the general rule in negotiating with a given country to grant concessions only on products of which that country is our principal supplier. Thus, the trade agreement with Argentina grants concessions on certain low grades of wool of which Argentina is the chief supplier but which do not apply to the finer wools imported from Australia. That leaves bargaining power for a trade agreement with Australia.
A contrary policy of discriminations might use up valuable bargaining power in the process of getting rid of foreign discriminations resulting from our own discriminations.
Discriminations by one country breed retaliatory discriminations in other countries. The result is harmful both to trade and to general relations between countries. The nondiscriminatory principle, like that of reciprocity, is the property of no one party. It is an old principle. In the case of the United States, it dates in practice from the days of George Washington. It was adopted by us formally as the unconditional most-favored-nation principle in 1923, when the Honorable Charles Evans Hughes was Secretary of State. It is a thoroughly sound principle, of immeasurable value to American foreign trade and to our friendly relations with other countries, which should be retained.
Although the several agreements heretofore negotiated embody protective clauses covering all or at least most of the following points, the Business Advisory Council earnestly recommends that every reciprocal agreement stipulate definitely that the interests of the United States will be protected against abnormal changes in foreign exchange, and that its benefits will be denied to any country which may block in a discriminatory manner exchange transactions with the United States after agreements are made, or which subsequently confiscates American property. Protection should also be given American industry, labor, and agriculture from dumping, forced labor, export subsidies, etc. The Business Advisory Council moreover earnestly recommends that administrative agencies of Government should move promptly to enforce the protective provisions of all reciprocal trade agreements whenever such provisions may be violated by the countries concerned.
PAST HISTORY OF COUNCIL ACTION
The previous recommendations of the council supporting the act are to be found in the report of January 12, 1940, on reciprocal trade agreements program, a copy of which is attached. All the reasons advanced in this cogent document remain valid, and they may be summarized as follows:
1. The act is a safeguard to our national welfare and to American standards of living.
2. The results of the trade agreements should be tested in terms of their effect on the national economy as a whole and not solely in terms of any particular pressure group of limited economic interest in labor, agriculture, or industry.
3. The international economic interests of American citizens are quite ag valid subjects of national policy as the activities of American citizens at home; and that in this respect, trade and investment in foreign countries are essential to maximum national prosperity.
4. The act provides for consideration of the "specific and practical commercial considerations of vital importance to large sections of our industry and agriculture” and, therefore, the council urged active and constructive cooperation with all interests involved. The recommendations with respect to these considerations were later implemented by hearings under the Trade Agreements Act intended to do what the council report recommended, namely, to assure "decisions which are calculated to conserve and foster enterprise to the benefit of the broadest interests of our economy.”
After the review of the entire program of the trade agreements as against other alternatives, and in the light of such statistics as were available, the council advocated the continuation of the reciprocal trade agreements as the most practical means available of adjusting tariff barriers so as to augment the exchange of manufactured goods, products of the soil, and of minerals, with the object of maintaining high standards of living at home and of promoting American foreign trade and international good will. The council was specifically concerned to see that the most-favored-nation principle should be continued as the basis for negotiating trade agreements with due consideration of its effect on domestic industry and agriculture, and American investments abroad.
PRESENT RECOMMENDATIONS The Business Advisory Council urges that in addition to these points the present state of the world requires support of the trade-agreements program on fire grounds:
1. The passage of this act at this time is a primary means of promoting a policy by Government that relies upon increasing trade through private enterprise rather than through public barter and management of international trade. This is, of course, of vital importance to the whole free enterprise system in which this council is basically concerned.
2. It stands as the one substantial contribution that this country can now make to an assurance of a return to trade practices which will permit the restoration of an international gold standard for clearing trade balances in the post-war world. This country has a very substantial stake in this matter, too well known to require comment.
3. It is claimed by those opposed to the program that the reciprocal-tradeagreements policy is primarily put into the hands of the executive department, and thus escapes control by Congress. This is a misleading claim, both in the light of (a) present practice, and (b) the alternatives to the present program:
(a) The renewal of the act every 3 years permits a review of trade-agreement policy and congressional control in terms of the actual workings of the act. The hearings which are held under the act permit substantially the same representation of interests as is secured in congressional tariff acts and on a much more balanced basis of evaluation.
(6) The alternatives to this policy are in all probability a return to rigid tariff policy through cumbersome congressional action, or an extension of Executive control through the fiscal agencies of the Government, which, under post-war pressures, might readily be warped into the most extreme form of Executive domination, comparable to the necessary war measures of control which now exist. Congress, in countering this type of action, would have either to destroy the fiscal agencies concerned, or to bring them under a type of pressure, the results of which can be easily foreseen.
4. The scope of the agreements is strictly limited in the act and is subject to reasonable congressional scrutiny and review. On strictly constitutional grounds
there can be no question that Congress always has the power through legislative action to override any agreement made, if the necessary support is forthcoming. The virtue of making trade agreements by this method, however, is that a period of stability is assured for a sufficient number of years to permit a real test of tariff policy. Any interference by Congress within this period should be taken only on extraordinary and unusual grounds.
5. Above all, the council recommends the continuance of the act as a symbolic declaration to the entire world that in the post-war period we intend to favor economic intercourse between nations on a liberal and flexible basis rather than by extension of war controls or by reliance upon protecting our economic interests by policing the world through force.
The council is convinced that the alternatives to the trade-agreements policy all lie down the road toward totalitarianism either through a relapse into international anarchy in trade relations, as was the case toward the end of the 1920's and the early 1930's, or alternatively to set up imperialistic standards of world domination through national-socialistic economies and direct military control. There is no middle ground between these extremes that does not require the use of trade agreements along the lines of the Reciprocal Trade Agreements Act.
BUSINESS ADVISORY COUNCIL REPORT ON RECIPROCAL TRADE AGREEMENTS PROGRAM
(Approved by the Business Advisory Council, January 12, 1940)
1. The Business Advisory Council favors businesslike and scientific methods in tariff making as indispensable to safeguarding our national welfare and the American standards of living.
2. The council wishes to reemphasize its belief that the results of trade agreements must be regarded in the light of their effect on our national economy as a whole and not solely in the light of their effect on a given segment of industry or agriculture.
3. The council recognizes that national interests require that in tariff making, consideration be given to the international economic interests of American citizens as well as to the activities of American citizens at home. An enlargement of our opportunities for trade and investment in foreign countries is now essential to maximum national prosperity. These ends the Business Advisory Council believes will be served by an extension by Congress for a reasonable period of time of Executive power to negotiate and proclaim trade agreements provided for in the Trade Agreements Act originally approved June 12, 1934.
4. Since these agreements in a much higher degree than customary in international negotiations involve specific and practical commercial considerations of vital importance to large sections of our industry and agriculture, we urge an active and constructive cooperation with all interests involved. In the case of concessions which are to be made, our people are entitled to be assured of decisions which are calculated to conserve and foster enterprise to the benefit of the broadest interests of our economy.
5. The council thus reaffirms the support which it gave in May 1938 to the efforts of the Government to promote our foreign trade through the instrumentalities of the trade-agreements program.
The necessity for the continuation of the trade-agreements program is emphasized when the alternatives are contemplated. Support for or opposition to the program must in final analysis rest on some fundamental conception of purpose and procedure in which domestic political issues play no part.
First with respect to procedure. No one, we believe, should wish to return tariff making to a system unduly influenced by sectionalism, group, and class influences.
This result would follow either a failure of Congress to extend the Trade Agreements Acts or an introduction into the Act of a requirement that every individual agreement negotiated by the executive must be submitted to Congress or to the Senate for ratification. Our reciprocity experience, particularly with the Kasson treaties, demonstrates that the requirement that such individual agreements must receive the approval of Congress merely precipitates another tariff discussion in Congress with all its political, regional, and class difficulties.
Such procedure precludes the development of a consecutive commercial policy such as this country needs. The council, therefore, favors a policy under which Congress after laying down the principles and defining the limits which are to guide negotiations with foreign countries leaves the executive free to negotiate and proclaim individual agreements.
As long as the administrative handling of this program is subject to congressional review or adjustment at reasonable periodic intervals, we have no fear of undemocratic abuses of the powers placed in the hands of the executive.
Turning to the question of substantive policy, we conceive the purpose of the program to be the gradual and scientific adjustment of tariff barriers in this and in other countries to the end that there may be a more unrestricted and greater exchange of manufactured goods, products of the soil, and of minerals. The alternative to the present trade-agreements program is a greater dependence on self-containment leading to a reduction in the standard of living and to economic isolation. Such act would tend to bring a degree of regulatory control destructive of free enterprise and of the democratic processes which we prize so highly. The logic of this tendency is found expressing itself in those countries which have endeavored to control their economies in this fashion.
Blocked or controlled exchanges, barter agreements, embargoes, military blockades, and bilateral negotiations seriously impede economic progress. Unfortunately there have been in certain countries an increase in the number of measures of this character, adopted for military and for economic reasons.
The trade-agreements program of the United States Government has been our answer to this movement. The leadership which we have thus assumed against destructive trends and toward a sound development of mutually beneficial trade should not now be surrendered. It is not the province of this report to consider the details of individual agreements. Available statistics demonstrate, however, that the the trade agreements now in force have materially improved American trade and therefore have contributed to national prosperity and to an improvement of our national standard of living.
Moreover, they have contributed to international good will. The principles which they have reduced to practice should be kept alive not only because of their immediate benefit but also because they will become a point of departure for economic reconstruction at the end of the hostilities which now unhappily disturb the world. When nations begin to discuss constructive measures for economic and political peace the United States Government should not be without the flexible procedure provided in the trade-agreements program in making its contribution to the economic rehabilitation of the nations. In our opinion it would be disastrous for the United States at this time to abandon its leadership in the struggle against excessive economic nationalism. The problem of reconstruction to be faced after the war will vitally affect this country and the trade-agreements program, as has been indicated, will provide an essential instrumentality for the reestablishment of sound and constructive commercial policies.
UNCONDITIONAL MOST-FAVORED-NATION PRINCIPLE
The unconditional most-favored-nation principle, introduced into our com mercial treaty structure by Charles Evans Hughes when Secretary of State has become under Cordell Hull an active instrument for the establishment of equality of commercial treatment in world commerce.
Although criticism has been directed against the automatic generalizations of concessions to third countries entitled to most-favored-nation treatment, a more careful examination of the principles of trade negotiation indicate that this is sound policy. In negotiating trade agreements our Government adheres to the policy of granting major tariff concessions only on items of which the negotiating country is the principal supplier to the United States. In addition, it has introduced other provisions in trade agreements which protect all elements of our economy from unfair advantages which may accrue to third countries as a result of the unconditional most-favored-nation principle.
The affirmative advantage of this principle, however, must not be overlooked. It is a constant protection against discrimination which might arise at the time a trade agreement goes into effect or which may subsequently arise. In addi. tion, at the same time that the United States Government generalizes concessions all other countries with which it has most-favored-nation treaties extend to the United States concessions made to other countries. A statistical analysis of existing trade agreements shows that many reductions in the tariff rates of foreign countries have benefited our commerce through the automatic operation of the most-favored-nation principle.
When negotiations begin under the principles of the trade-agreements program our negotiators consider not merely the effect of concessions made to the particular foreign country with which negotiations are being carried on but also the effect of any concession upon our entire commerce. In other words, negotiations under the trade-agreements program are in effect negotiations of multilateral arrangements and concessions are made and received, having in mind their total effect after their generalization upon our domestic economy on the one hand, and on the other upon our expanding foreign trade.
THE OVER-ALL PROBLEM OF OUR DOMESTIC ECONOMY
The council favors the trade-agreements program because it offers a scientific and flexible method, free from undue local political pressure, for appraising the over-all problem of our domestic economy, as well as the effect of concessions upon local and group interests.
Our great exporting interests-industrial, agricultural, and mercantile-are finding in the trade-agreements program protection against discrimination and other restrictions by foreign governments as well as a means of stabilizing reason. able tariffs. Resulting enlargement of foreign markets tends to create prosperity in enterprises engaged in export trade which in turn expands the home market in the United States for the products of our stockman and farmer, as well as for the goods of our manufacturers.
The flow of our people's savings abroad, particularly into productive enterprises, is closely related to the growth of trade. An integral part of any policy which looks toward trade expansion is the full support of the rights of American investments in foreign countries. We believe, therefore, that our Government in negotiating trade agreements with other countries might well place greater emphasis on the fair treatment of American investments as an important consideration in granting tariff concessions.
These agreements, in a much higher degree than customary in international negotiations, involve specific and practical commercial considerations of vital importance to large sections of our industry and agriculture. Because mistakes may be irreparable, we urge an active cooperation with all interests involved in any given case and that there be increased consideration of facts and arguments before conclusions are reached. Our people are entitled to expect that in determining concessions which are to be made, the United States Government will base its decisions upon careful analyses of competitive factors and effects on markets, and so conserve and foster enterprise to the benefit of the broadest interests of our economy.
Mr. CAREY. Mr. Chairman, that is the full presentation. If there are any questions, I shall be glad to answer them.
The CHAIRMAN. That completes your statement, Mr. Carey ?
Mr. KNUTSON. Do you appear at the request or suggestion of the State Department ?
Mr. CAREY. No, sir.
Mr. KNUTSON. The reason I ask is, I understand that they have called upon a number of exporting manufacturing concerns which have rather benefited from these trade extensions to appear here. In other words, they sent out an SOS. You are not in that category?
Mr. CAREY. No, sir.
Mr. KNUTSON. I see. Does your company in peacetimes export any considerable part of your products!
Mr. CAREY. Yes, sir; it has for a great many years. We do a worldwide business, but our export from the United States is not a very large proportion of our total domestic business. We also operate plants in Europe.