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Department of State bulletin (Volume v. 46, Jan- Mar 1962) online

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schedules and has already modified in a favorable
way the rates for two major industries.* In addi-
tion the President will be pressing the Congress to
approve proposals for special tax allowances for
new investment. More generally the monetary
authorities have been endeavoring to keep down
the interest rate on long-term borrowing, so im-
portant to major business investment.

In many respects more fundamental than cap-

* For liackfrroniid, see Bulletin of Oct. 30, 1961, p. 730,
and Mar. 5, 1962, p. 3S1.



472



Department of Stale Bulletin



ital put into buildings and machines is that de-
voted to training scientists, engineers, and skilled
workers. Failure to replace a machine or build a
new factory can be remedied in a year or two at
most; to train a scientist or engineer takes almost
a generation. And without them we cannot invent
the new products, develop the new seeds and fer-
tilizer, design the new machines, or operate the
automated factories that are so essential to main-
taining our present trade advantages. Hence the
economic importance of the President's program
for expanding educational opportunities and
particularly for increasing the output of scien-
tists and engineers.

Overall, however, even the most up-to-date
United States products can only compete abroad
if their costs are reasonable. No Government
action can substitute for the producer's effort to
cut costs, to eliminate frills, increase efficiency, and
to price competitively. But the Government can
and is helping. The President's plan for a bal-
anced budget in fiscal year 1963 will avoid pressure
of Government expenditures on the price level.
The President's Labor-Management Committee is
actively engaged in seeking ways to avoid the
wage-price spiral from starting again. The
recent wage guidelines suggested by the White
House have received a remarkably warm welcome
from all quarters. Lower United States tariffs
can render an important assist to i-eaching this
goal, as industries and unions faced with foreign
competition will be cautious about increasing
wages and prices so rapidly as to invite larger
imports. These efforts have so far met with con-
siderable success, as prices of United States goods
have held relatively stable for an unusually long
period.

But most important just now is to insure that,
as these efforts produce results, foreign markets
for these products in which we are specially com-
petitive will be open for United States exports.
This is the heart of the President's new trade pro-
gram. We must be able to offer the tariff con-
cessions necessary to secure the cuts in trade
barriers by others that will provide adequate
opportunities for the output of our own most
efficient industries, the products of our farms and
mines and factories. We propose to lead fi'om
our known strength. We propose to operate
on the principle that the best defense is a strong
offense. I think our whole history supports the
view that this is truly the American approach.



Recent Experience in Trade Expansion

This may seem to be a plausible theoretical case,
but is there any evidence it could work in practice?
Can we expand our exports? Aren't we pretty
much priced out of world markets ? Are we good
as exporters in these more sophisticated fields?
Can we hope to expand our exports more rapidly
than our imports? No one can of course predict
the future, but our recent experience is certainly
encouraging.

In the past 10 years our exports have doubled,
a greater rate of increase than in imports or gross
national product, and last year almost reached
$21 billion. They exceeded our imports in 1961
by nearly $6 billion. Last year we sold $700 mil-
lion more to the Japanese than they to us. In a
key category of highly manufactured goods like
nonmilitary machinery and vehicles we sold
abroad in 1960 four times as much as we imported.
Even to important "low wage" competitors in this
field, like the EEC [European Economic Com-
munity] and Japan, our exports of these items
exceeded our imports.

In 1960 we sold abroad over $4 billion worth of
machinery, nearly $3 billion of transportation
equipment, almost $2 billion of chemicals. And
from our mechanized and efficient farms we ex-
ported about 15 percent of total output, including
roughly half of our rice, wheat, and cotton produc-
tion and large volumes of feed grains, soybeans,
and poultry.

These figures do not suggest we cannot compete,
that our costs or wage rates are out of line. And
an opportunity for future growth clearly exists,
especially in the European Economic Community,
for which the President is seeking especially ex-
tensive bargaining authority. If the United King-
dom joins, it will represent a market which im-
ported in 1960 from third countries over $30
billion of goods, more than twice our own figure.
During the past 3 years its industry has grown
at a rate of 8 percent per year. The EEC has also
noted that its imports from third countries have
increased recently by 10 percent per year. Our
exports of manufactures to it expanded by two-
thirds from 1957 to 1960. We sold them in 1960
over a billion dollars' worth of farm products.

With reasonable reductions in tariff barriers this
huge market should grow even more attractive for
U.S. exporters. Needing machinery and equip-
ment to keep up its rapid rate of industrial expan-
sion and just entering the phase of mass purchases



March 79, 1962



473



of consumer durables in which we have experi-
enced an efficient mass output, it will be needing
more and more the things we make best. There
is every reason to believe that with their rapidly
expanding purchasing power and their rising costs
we can, with energy and skill and wise policies,
continue to boost our exports to them and do so
more rapidly than they can expand their exports
to us. This is why we think we can look to the
President's trade program to contribute im-
portantly to an improvement in our rate of
growth, in the volume of employment, in the levels
of our incomes, and in the strength of our balance
of payments.

But if we do not act now, new patterns of trade
and investment will become frozen behind their
tariff walls and we shall gradually lose the oppor-
tunities opened up for us by this gi-eat new market,
except for those larger United States companies
which can jump the tariff wall and build plants
in the area which will give jobs to European
workers.

Need for Markets for U.S. Agricultural Products

What I have said so far may appear perhaps to
have emphasized industrial products and markets.
Actually, United States commercial agriculture
meets all the requirements for an American growth
industry. Its present extremely high rate of pro-
ducti\aty is based on the same assets of large
capital investment, of extensive research, and of
highly skilled application of the results of that
research. Unfortunately this growth has out-
stripped markets.

For this reason we have here again an important
challenge to our ability to find outlets for Ameri-
can products. And here again the format ioTi of
the EEC is altering the conditions of our access to
one of the most important of our existing export
markets. While trade barriers within that market
are being lowei'ed, barriers against imports are
being maintained. Agricultural production is a
highly protected area in most countries of the
world, with strong political support behind this
protection and many means of protection oilier
than tariffs in use.

The six states of the EEC, in developing a com-
mon agricultural policy for the chief products of
the area, are not turning their backs on the prin-
ciple of protection, except insofar as they modify
the form and extent of protection now gi^en to



various groups of producers within the area. The
exact levels of support for the various products
under the common agricultural policy have not yet
been set, but it now seems clear that the average
level of protection, which has been high relative
to our own, will not be significantly reduced. For
most of the products covered, moreover, it has
been decided to use variable import levies as the
central protective device, supplanting all other ex-
isting forms of protection. Tlie levy will be set
to bring the price of the imported product up to
the domestic level or, in some cases, perhaps
slightly above.

The elimination of import quotas, mixing reg-
ulations, bilateral agreements, and the other non-
tariff restrictions which have hindered our past
access to the Western European agricultural mar-
ket is welcome, but the new fonn of protection
may unfortunately tend to leave as only residual
suppliers the outside sellers of agricultural prod-
ucts like ourselves. Among the products afl'ected
are wheat and flour, feed grains, pork, and poul-
try. Our objective must be to limit the level of
these variable levies, so that internal support prices
will not be fijced so high as to encourage expansion
of production within this area to levels which are
wholl}' uneconomic and out of line with costs else-
where and especially in the United States. This
objective is made more urgent by the fact that the
European countries, led by France, are starting to
experience the revolution in agricultural produc-
tivity to which we have shown the way, and high
support prices will lead quickly' to surpluses which
will not only hurt outside suppliers but may, \n
some cases, compete with them in third markets.

Factors Favoring Expansion of Agricultural Trade

In the course of the tariff negotiations which
we are just concluding with tlie EEC wc have ob-
tained some important concessions which will im-
prove, on balance, our access to its markets for
cei-tain agricultural products — among them soy-
beans, tallow, hides and skins, certain fruits and
vegetables, and cotton, our single most important
expoi't to the EEC. For those important com-
modities covered by the common agricultural
policy, including wheat and feed grains, we have,
however, received a standstill agreement, pending
further negotiations.

To keep our pi-ospects in perspective, it is im-
portant (t) hear in mind, of course, that factoi'S



474



Departmenf of Sfafe Bulletin



favorable to an exjiansion of U.S. agricultural
trade with Europe are at work alongside the oth-
ers which I have mentioned. The first and most
important of these is the expansion in total demand
for foodstuffs and agricultural raw materials being
generated by the fonnation and growth of the
EEC. Economists have long recognized that both
trade-creating and trade-divci-ting forces are set
in motion by the fonnation of a customs union;
the tlieory has been that the trade-creating forces
would in time pretlominate, as access to broader
markets sets in motion the self-generating cycle
of increased investment, increased purchasing
power, and expanded demand. The EEC is a
customs union on a scale never contemplated by
the theoreticians. It has already, at this early
stage, achieved a record of growth and expanding
demand and rising living standards that exceeds
the expectations of its most optimistic proponents.

The effects of rising economic activity and pros-
perity on demand for agricultural products will
vary, of course, from commodity to commodity.
In the case of wheat, higher consumer incomes
can unfortunately have a negative effect on de-
mand. They will, however, lead to substantially
increased demand for many other agricultural
commodities, including livestock products and, in
turn, feed grains and protein feed.

Moreover, in particular cases, economic consid-
erations will exert a moderating influence upon
levels of price supports and, indirectly, of pro-
duction. For example, since the livestock indus-
try is important in the economies of all member
states of the EEC, there will be an incentive to
hold down feed-grain prices as an important deter-
rent to any attempt to achieve a maximum degree
of self-sufficiency in feed-grain production through
raising price supports to the point this would
require.

If the EEC is broadened in time to include the
United Kingdom and the several other countries
now interested in membership, the prospects for
any substantial degree of self-sufficiency within
the Common Market will tend to be reduced and
the economic and political forces favoring re-
liance on low-cost imports rather than high-cost
home production substantially strengthened. The
United Kingdom is the world's largest food-deficit
area, with an economy geared to low prices for
both domestic and imported foodstuffs.

We have here, in other words, both a major



challenge and a major opportunity. A rich and
fast-growing market for agi'icultural products is
offered by the EEC, particularly if it is broad-
ened to include the United Kingdom and other
areas. It is a market that has much to offer for
third-country suppliers, notwithstanding the
somewhat restrictive aspects of the EEC's com-
mon agricultural policy as presently projected —
provided we move quickly and resolutely to seize
the opportunity. A major objective of our na-
tional policy is to do precisely this — to move hard
to maintain and expand our access to that market.
In view of the EEC's rapid progress in agricul-
tural as well as industrial fields, it is imperative
that we get the authority we need now, so that as
soon as possible we can resume negotiations with
the better b'^.rgaining tools needed to insure suc-
cess. For this question of future access to the
EEC agricultural market is a matter of major
current concern to tlie U.S. Government, given
the importance of our farm exports to U.S. agri-
culture, to the U.S. economy as a whole, and to
the U.S. balance of payments.

Provisions of New Trade Expansion Act

The new trade agreements legislation sought by
the administration will be a principal tool relied
upon in this effort, though, of course, we shall
continue to use our rights under the GATT [Gen-
eral Agreement on Tariffs and Trade] to the full
to eliminate existing quantitative restrictions on
exports of our agricultural products. Let me out-
line briefly what the proposed Trade Expansion
Act will provide. It will give the President gen-
eral authority to negotiate reductions in existing
duties by as much as 50 percent. It will give him
special authority for negotiations with the EEC,
whereby he may reduce still further, or eliminate
altogether, tariffs on those categories of products
for which the U.S. and the EEC together account
for 80 percent of world trade or, in the case of an
agricultural product which would not qualify
under the principal-supplier criterion, where such
reduction will benefit U.S. exports of that product.
We are required as in the past to insist that tariff
cuts by others be fully reciprocal so that actually
we get the promised benefits. Another special
provision, designed to help the countries of Latin
America, Africa, and Asia, will permit elimination
of duties on tropical products not produced in sig-
nificant quantities in the U.S., provided the EEC



March J 9, 1962



475



takes parallel action. Finally there will be au-
thority to transfer items to the free list M'here ex-
isting rates are 5 percent or less. To facilitate
adjustment to lowered United States tariffs, re-
ductions will be spread over a 5-year period. To
assist firms or workers who find it difficult to ad-
just to increased imports into the U.S., the act will
establish a trade adjustment assistance program.
If it turns out that adjustment is likely to be slow
and difficult, the President is authorized to restore
duties for a period of years.

An important innovation will be that so-called
across-the-board tariff reductions can be made.
This is a "must" if we are to be able to bargain
effectively with the EEC. The Community has
found, both in staging the reduction and elimina-
tion of tariff barriers within its own market and
in its negotiations of reductions in its common
external tariff, that the item-by-item approach is
impossible. An effort to get six countries to agree
on how to handle hundreds of individual items
would fall in the crossfire of internal differences,
whereas agreement has proved possible on progres-
sive moderate reductions in tariffs for broad cate-
gories of products. The United States found
itself handicapped in its recent negotiations with
the EEC because it could not trade concessions on
this same broad basis. It had authority to make
the same 20 percent cut in tariffs offered by the
EEC, but under past procedures for determining
the products on which the President could negoti-
ate, reductions could only be offered on a dispro-
portionately small list of products compared to
the EEC's offer.

In the proposed new legislation — although there
will be a "reserve list" on which products previ-
ously found to require relief from import compe-
tition under the provisions of our trade agreements
law must be placed and to which other items may
be added if cuts seem to the President, after con-
sulting the Tariff Commission, apt to displace
unduly U.S. production and jobs — the range of
possible bargaining will be substantially broad-
ened and we will be able to deal with the EEC on
more equal terms.

If the legislation the President has requested
is enacted, we will use the special authority for
negotiating with the EEC — in combination with
the general tariff-reducing authority — to achieve
a package of reciprocal concessions tailored to the
particular needs of our trade. We want a pack-



age that will assure us improved opportunities to
export both the industrial and agricultural prod-
ucts for whicli our export prospects are best. Our
bargaining power in getting improved access for
U.S. agricultural exports will not depend solely,
or even principally, upon the concessions we can
offer on Europe's agricultural exports to us. As
you know, in agriculture we sell to Europe vastly
more than we buy from them. We would propose
therefore to bargain our tariff cuts for whatever
concessions will best help U.S. exports, whether
agricultural or industrial.

In the meantime, in respect of wheat and feed
grains, we are also currently beginning to explore
the possibilities of some form of a multilateral
agreement which will safeguard access to markets
for exporting countries. A meeting is now going
on in Geneva, under the auspices of the GATT,
to give preliminary consideration to this matter.
Traditionally this country seeks to avoid govern-
mental or intergovernmental controls over trade.
Realistically, however, we have had to recognize
that in the case of many agricultural products, no-
tably wheat, trade is already extensively controlled
by governments, acting individually and on an
uncoordinated basis. The result is a patchwork
of national measures influencing production,
prices, and trade. These have stimulated uneco-
nomic production, shrunk the commercial maikets
open to efficient producers, and piled up hea\'y
surpluses which cannot be sold or even, beyond
a point, given away. The International Wheat
Agreement has suggested that, in such a case, there
may be merit in an intergovernmental arrange-
ment to introduce a measure of control and order
into the trade picture. We would be remiss if we
did not explore the possibilities of a more extensive
and ambitious arrangement than the Wheat Agree-
ment, which might both ease the current trade
problem of major exporting countries and lead to
a more rational structure in the world grains
economy.

We are also prepared to explore, jointly with
other trading nations, ways to improve conditions
of access to world markets for other agricultural
products. If successful, this second type of ap-
proach to current problems of agricultural trade
would not supplant, but would be an important
supplement to, our efforts to open markets through
reciprocal negotiations under the proposed Trade
Expansion Act.



476



Department of State Bulletin



Political Factors

I have emphasized so far only the economic
benefits which the Trade Expansion Act will pro-
vide, throuf^h bieaking down tlie barriers of trade
between the United States and the EEC. There
is an equally important political side of the coin.
If we allow the existing and prospective barriers
to stand, we will soon have two vast markets on
either side of the Atlantic, representing almost
90 percent of the free world's industrial strength,
which are separated and may tend to grow apart.
Increasing economic disunity would make it diffi-
cult to maintain the political unity which is abso-
lutely essential to the free world's security.
Through lowering the barriers, on the other hand,
we can put into double harness the economic
resources of these two great markets, give added
stimulus to the growth in each, and tighten the
political unity of the Atlantic community with
bonds of shared economic interests and reciprocal
economic advantages. The massive and dynamic
economic power attained by the merger of two
markets will be our answer to the Communists'
prediction that the capitalist world will soon
destroy itself in a struggle for markets and to
Khrushchev's boast that he will soon be waving
to us as he passes us by. It will also be our an-
swer to any doubts of the uncommitted nations of
the world as to whether democracy and free enter-
prise really work well enough to be a practicable
pattern to follow in today's world.

From many standpoints the United States looks
with favor on the application of the U.K. to be-
come a member of the Common Market. It will
greatly strengthen this vital free-world bastion
politically and economically. The U.K. will be a
strong force within the Community for liberal
trading relations with third countries, including
the U.S. But its entry could create economic
problems for members of the Commonwealth, now
benefiting from preferential entry into the U.K.
market, and for the U.K.'s partners in EFTA, the
"Outer Seven." Solutions for these difficulties
have been proposed which would enlarge preferen-
tial arrangements with adverse effects on the trade
of the U.S. and other countries. The lowered
duties which could result from our negotiations
with the Common Market under the President's
new program could substantially reduce the seri-
ousness of the difficulties faced by these countries
and thus facilitate U.K. entry without harmful
side effects to U.S. interests.



There is equal need for strengthening our
economic and political relations with countries
outside the EEC, including particularly the less
developed countries. Here again we can expect to
accomplish much through exercise of the author-
ity of the proposed new act. Our negotiations
with the EEC will indirectly give these countries
improved access to that market and help them to
meet the challenge and the opportunity of the new
situation that is unfolding in Europe, for any
concessions in tariffs that we make to each other
will also be extended to them. In addition our
direct negotiations with them will result in an
improved flow of trade between our market and
theirs which will be mutually beneficial.

For just as the welfare of American agriculture
and of the American economy generally is heavily
influenced by the vigor or lack of vigor in our
foreign trade, so the welfare of the whole free
world grows better or worse according to the
course of free-world trade. The economic and po-
litical health of other free-world countries, their
willingness and capacity to resist Communist
penetration, their ability to continue their eco-
nomic development with less and less outside as-
sistance and to repay the moneys already loaned
them, the potential of their hundreds of millions of
underfed and underclothed and undersupplied
peoples to become an expanding market for U.S.
exports, are inextricably dependent upon their
trading opportunities.

Protecting Broad Range of Interests

There are thus, as you can see, many strong
reasons, economic and political, domestic and for-
eign, for the President's program, but there may
nevertheless, I fear, be opposition to it from those
who fear the possible impact of imports upon par-
ticular producers who are, or who consider them-
selves, vulnerable to import competition. It is
implicit in this whole bargaining process that in
order to secure outlets for the products of a high-
wage industry in which the United States has
particular advantages, we shall have to open our
markets more widely for imports in which others



Online LibraryUnited States. Dept. of State. Office of Public CoDepartment of State bulletin (Volume v. 46, Jan- Mar 1962) → online text (page 91 of 101)