at this absurd price only because world conditions have destroyed the growers' markets in vast sections of the globe." There are two main reasons for this dumping. First, France has lost the n arkets of Russia, Germany, and Italy, and has an overproduction of champagne. Secondly, the devaluation of the frane is the main factor in this dumping. When the trade treaty agreement was entered into the State Department advised that the tariff had been reduced from $6 to $3 per gallon and that this reduction amounted to about 61 cents per bottle on a bottle which retailed at that time from $5 to $7. Evidence had been introduced showing that this would not le ruinous competition for American champagne and the reduction of 61 cents per bottle would not bring imported champagne into the price range of the domestic. On June 15, 1936, the effective date of the trade agreement, the rate of exchange was 6.586 dollars per hundred French francs. In June of 1937, the rate of exchange dropped to 4.440 dollars per hundred French francs. The average rate of exchange during 1938 amounted to 2.880 and today it is approximately 2.25. In view of this devaluation it is now possible for importers, department stores, and retailers to purchase in France champagnes for as low as $3.50 per case and lay it down in New York at a lower price than the American manufacturer can afford to sell it to the jobber. French champagne, including all duties, taxes, and transportation, cost the importer about $13 per case, while the actual cost to the American manufacturer including taxes is a minimum of $13.50, not including any profit or selling expense. Our market, therefore, is flooded from coast to coast with these French champagnes underselling our American products and creating a condition which may possibly result in the bankruptcy of our American firms. It was only on February 23 that the New York Times carried a release in which Senator Georges Portmann pressed the Commerce Minister of France to obtain concessions from the United States in compensation for the war expenditures France is making in America. In part he stated as follows: "There has been some agitation (United States) for breaking the trade agreement with France. Certainly we know that constitutional rules exist forbidding a reduction of more than 50 percent below the tariffs of 1930 but the war has created entirely new conditions. In view of our large war purchases in that country can we not find means to send a larger amount of our wines there? May I ask that the Commerce Minister use his utmost efforts to obtain from the Washington Government a lowering of tariff duties and taxes on our wines which could stimulate the consumption of them over there by making prices lower for the consumer?" Such a program, if adopted, would complete the ruination of the American champagne industry. From the foregoing facts it is therefore evident that this industry has been a victim of the Reciprocal Trade Agreements Act, and we respectfully urge that the act should not be renewed. J. HOWARD PROPER, General Counsel, American Champagne Guild, Inc., New York, N. Y. EXHIBIT I.--Statistics showing the production and tax-paid withdrawals for champagne, sparkling wine and artificial carbontated wine from July 1, 1933, to Dec. 31, 1938 These figures are compiled from the annual reports issued by the Alcohol Tax Unit of the Bureau of Internal Revenue. EXHIBIT II.-Comparison of tax-paid withdrawals of American champagne and sparkling wine for the fiscal years ending June 30, 1937, and June 30, 1938, with duty-paid imports of French champagne for the same periods The committee will recess until 10 o'clock tomorrow morning. (Whereupon at 4:45 p. m. recess was taken until the following day, Friday, March 1, 1940, at 10 a. m.) EXTENSION OF RECIPROCAL TRADE AGREEMENTS ACT FRIDAY, MARCH 1, 1940 UNITED STATES SENATE, The committee met, pursuant to recess, in the Finance Committee Room at 10 a. m., Senator Pat Harrison (chairman) presiding. The CHAIRMAN. The committee will come to order. The first witness this morning is Mr. W. L. Clayton, of Houston, Tex. Mr. Clayton is representing the American Cotton Shippers' Association. STATEMENT OF W. L. CLAYTON, HOUSTON, TEX., REPRESENTING AMERICAN COTTON SHIPPERS' ASSOCIATION The CHAIRMAN. Tell about your concern and the nature of your business, who are you, and your reaction to the reciprocal trade agreements. Mr. CLAYTON. My firm is Anderson, Clayton & Co., cotton merchants I appear here, Mr. Chairman and gentlemen, as a representative of the American Cotton Shippers' Association, with general offices at Memphis, Tenn., and also on my own account as a cotton merchant and a citizen. Practically all the cotton merchants in the South belong to the American Cotton Shippers Association through its affiliated State associations. This association at its last four annual meetings has endorsed the reciprocal trade-agreement program. I wish now to strongly urge the extension of the Trade Agreements Act. Cotton is peculiarly an article of world commerce. The commercial production of cotton is limited to a comparatively small part of the earth's surface. It is consumed throughout the world. In the United States, more than 50 percent of our cotton production is normally exported in competition with the production of numerous other cotton-exporting countries. Obviously, if tariffs on goods imported into the United States are raised so high as to substantially reduce the volume and value of such imports, foreigners have fewer dollars with which to buy our cotton and other commodities and must turn to other sources of supply. This is what happened following the enactment of the Smoot-Hawley tariff bill marking the third substantial increase in tariffs since the World War. World buying power in the United States was thereby substantially destroyed. Agriculture was bound to be the chief sufferer in this situation. In 1930, the year the Smoot-Hawley bill was passed, the rest of the world, through its merchandise exports to the United States, had a little over three billions to spend in this country. They actually spent in that year nearly half of that sum, or nearly one and a half billion dollars for our farm products alone. By 1932 there had been such a drastic shrinkage in our imports that the foreigners spent in this country only three quarters of a billion dollars for our farm commodities, or just about half of what they spent in 1930. You cannot shut out imports without also shutting in exports. In 1932 we bought from the outside world just 30 percent as much merchandise as we had bought in 1929. The shrinkage in our outlay for foreign goods of $3,000,000,000 Senator VANDENBERG (interposing). What year was that? Senator VANDENBERG. Everything shrunk in proportion, did it not, all around the world? Mr. CLAYTON. Everything shrank; yes, sir. Surely the advocates of economic self-sufficiency as the road to prosperity in this country could hardly ask for a closer approach than this to their coveted goal. But the other side of the picture is that in 1932 we sold to the outside world just 30 percent as much merchandise as we exported in 1929, a shrinkage in foreign purchases of our goods of three and a half billion dollars. Indeed, 1932 witnessed the lowest point for many years in our foreign trade. It is no mere coincidence that 1932 also established other records in this country not pleasant to contemplate, such as the lowest prices for all time for our farm products, the highest point for all time in unemployment, and the lowest point for half a century in our economic well-being. Incidentally, 1932 was the year in which farmers were losing their homes and farms at so rapid a rate that economic and social disintegration threatened. The only sound and permanent solution of the farm problem is the reopening of the channels of international trade. Only in this way can purchasing power be restored to our agricultural surpluses. The reciprocal trade agreement program is a modest step in that direction. It approaches the subject from the point of view of the best interests of all the people instead of the special interests of groups. Since the passage of the reciprocal trade agreements, our annual volume of foreign commerce has increased in value by 2% to 3 billion dollars, divided about equally between exports and imports. Senator VANDENBERG. What do you base those figures on? Have you the actual figures by years? Mr. CLAYTON. Yes, sir; I can give them to you. Senator VANDENBERG. I wish you would. Mr. CLAYTON. In 1934, the total exports of United States merchandise were $2,100,000,000, and the total imports were $1,636,000,000, making a total of $3,736,000,000. In 1937, the exports were $3,298,000,000, and the imports were $3,000,000,000, making a total of $6,300,000,000. It shows an increase of nearly $3,000,000,000. Senator VANDENBERG. Yes; but the Trade Agreements Act did not generally became effective until along in 1936, while you compare with 1934 and then give all the credit to the Trade Agreements Act. Mr. CLAYTON. I don't intend, Senator Vandenberg, to give all the credit to the Trade Agreements Act, but if you take even 1936, 2 years after the Trade Agreements Act was passed, the exports and the imports totaled $4,800,000,000. Senator TOWNSEND. What was each? Mr. CLAYTON. $2,400,000,000 of exports, and $2,400,000,000 of imports. It just about balanced. That was in 1936. In 1937 they had jumped to $6,300,000,000. Senator VANDENBERG. What were they in 1938? Mr. CLAYTON. $5,200,000,000. Senator VANDENBERG. In 1938 they were $5,000,000,000, and in 1936 they were $4,800,000,000. They are practically the same as they were in 1936 when the trade agreements really became effective. Mr. CLAYTON. The act was passed in 1934. I don't know how soon the agreements became effective. At various times, I presume. Senator VANDENBERG. There were one or two in 1934 and three or four in 1935. They really were not swinging until 1936. The CHAIRMAN. Have you 1939? Mr. CLAYTON. I have the totals for 1939; yes, sir. They are $5,400,000,000 in 1939. Senator VANDENBERG. How was that divided? Mr. CLAYTON. $3,123,000,000 for exports and $2,276,000,000 for imports. Senator VANDENBERG. I make no point of the questions I asked you. I have just come to the conclusion that I can take the available figures on this subject and make a swell speech on any one of four sides. Mr. CLAYTON. You can usually do that, I believe, with any set of figures. The CHAIRMAN. You can do that on anything. [Laughter.] Mr. CLAYTON. Surely this additional trade has been reflected in promoting recovery from the depths to which our economy sank in 1932. The present war is creating some grave new problems for American agriculture, especially cotton. Practically all of our cotton exports go to Europe and Asia. The nations of these continents are either at war or preparing for war. In these circumstances, they are living off of their capital, especially as regards purchases in the United States. They are sending us their gold and liquidating their securities. What will they do for dollars when these things run out, as they must sooner or later? Already there are signs that such precious dollars as these nations can command will be husbanded for the purchase of essential war materials which only the United States can furnish. Tobacco, cotton, and other farm products will more and more be bought in those countries willing to accept goods in payment, thus not only effecting an exchange of goods but also providing cargoes for the ships both ways. Today most of the ships coming to our Gulf ports for cotton come in ballast. Ships are worth at charter $1,000 a day and upwards. Is there any wonder that the foreign buyers of American cotton are turning more and more to other growths? When this war ends, America will find itself in the position of King Midas and finally when we shall have acquired all of the gold in the world, we will be compelled to face the immutable law of international trade, "He who would sell must also buy." Senator VANDENBERG. Meanwhile, what will we do with the gold? Mr. CLAYTON. I cannot answer that. In the end, we must bow to this law or reconstruct our domestic economy in an effort to find other jobs for some twelve to fourteen million persons normally employed in connection with our export and import trades, and |