Nicholas H. Noyes, vice president, Eli Lilly & Co., 740 South Alabama Street, Indianapolis, Ind. Richard C. Patterson, Jr., chairman, Radio Keith Orpheum Corporation, 1270 Sixth Avenue, New York, N. Y. George A. Sloan, 60 Broadway, New York, N. Y. Blackwell Smith, Wright, Gordon, Zachry & Parlin, 63 Wall Street, New York N. Y. E. R. Stettinius, Jr., chairman, board of directors, United States Steel Cor poration, 71 Broadway, New York, N. Y. Hardwick Stires, Scudder, Stevens, & Clark, 1 Wall Street, New York, N. Y. R. Douglas Stuart, vice president, the Quaker Oats Co., 141 West Jackson Boulevard, Chicago, Ill. Walter C. Teagle, chairman of the board, Standard Oil Co. (N. J.), 30 Rockefeller Plaza, New York, N. Y. J. T. Trippe, president, Pan American Airways System, Chrysler Building, New York, N. Y. Sidney J. Weinberg, partner, Goldman, Sachs & Co., 30 Pine Street, New York, Ν. Υ. W. H. Wheeler, Jr., president, Pitney-Bowes Postage Meter Co., Stamford, Conn. A. D. Whiteside, president, Dun & Bradstreet, Inc., 290 Broadway, New York, N. Y. S. Clay Williams, chairman, board of directors, R. J. Reynolds Tobacco Co., Winston-Salem, N. C. R. W. Woodruff, chairman of the board, the Coca-Cola Co., 101 West Tenth Street, Wilmington, Del. D. Robert Yarnall, Yarnall-Waring Co., Chestnut Hill, Philadelphia, Pa. BUSINESS ADVISORY COUNCIL REPORT ON RECIPROCAL TRADE AGREEMENTS PROGRAM (Approved by the Business Advisory Council, January 12, 1940) SUMMARY 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. ALTERNATIVES 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 Act 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 providence of this report to consider the details of individual agreements. Available statistics demonstrate, however, that 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 commercial treaty structure by Charles Evans Hughes when Secretary of State has berome 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 addition, 215171-40-53 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-favorednation 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 reasonable 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 mistake 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 ba-e 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. The CHAIRMAN. It has been requested that an article appearing in the publication "American Exporter," of February 1940, written by Mr. Franklin Johnston, the publisher of that publication-discussing the trade agreements program-be inserted in the records. Without objection, that article will be placed in the record. (The same is as follows:) THE SCANDAL IN THE TRADE AGREEMENTS PROGRAM (By Franklin Johnston, Publisher, American Exporter) Before beginning the discussion of this highly controversial subject, let me introduce myself. For my interest in exposing the truth about the Hull reciprocal tariff policy is not merely academic. I admit I have an axe to grind. Frankly, my interest in the tariff is primarily to foster the prosperity of the manufacturer. The more money American manufacturers make, the better I like it. I am no lobbyist. The some 800 American manufacturers who as advertisers employed my paper last year to help increase their sales, did so for our influence with buyers abroad, not with Congress. This article appears only in those copies of the American Exporter, February 1940 issue, circulating within the United States. These manufacturers vary all the way from small manufacturers feeling their way in export to great corporations with huge export organizations, such as Chrysler, Firestone, General Electric, International Harvester and Westinghouse. Mostly they are makers of finished manufactures. These constituents of mine, if I may call them so, normally average 16% export to total sales. That's two months' production each year. It is often the difference between red ink and black. From 1932 to 1937 these manufacturers increased their exports on an average of 288%. One manufacturer of household appliances, exporting for 59 years, wrote me that exports represented one-third of their total business and were up 735% over 1932. A manufacturer of agricultural machinery reported that their exports were 25% of total sales and showed a gain of 1,062% over 1932. A manufacturer of machinery, exporting for 16 years, with export 20% of total business, reported a gain of 60% over 1932. An automotive manufacturer, with export 40% of total business reported a gain of 720% over 1932. A hardware manufacturer, exporting for 39 years, reported a gain of 400% over 1932. Let me add that when an American manufacturer sells 16% of his product abroad, that means not only that his plant is working two months a year on export, or that his workers gain two months work a year from export, but it also means that 16% of all the raw materials he uses are just as much export as though they were shipped to London, Capetown, Bombay, or Buenos Aires, instead of to Detroit, Chicago, New Haven, or St. Louis, as they may appear on your records. And that means that 16% of the employment in the mines, cotton fields, wool farms, etc., necessary for those exports is just as much due to export as the 16% in the exporting manufacturing plant itself. And that 16% of the groceries sold to workers in those plants is due to export. And so on ad infinitum. THE PURPOSE HERE In view of the controversy raging in Washington over the renewal of the President's authority to enter into reciprocal trade agreements, and the statements being issued by both sides, including Secretary of State Hull, I decided to compile for the benefit of manufacturers, the facts, independently and objectively. Here they are. I hope you will read them. For the subject is vital to your future prosperity. And you will have to read clear through to find the scandal. These figures are not derived from any association or from the Department of State, or any body or bureau which is trying to prove something. In view of some of the current statements being made about reciprocity, I think you will find some of these figures as amazing as Mae West's. The first thing I wanted to verify was to what an extent our exports have really increased from the low point of 1932 to the period when the trade agreement program may be said to have been working under a nearly full head of steam. Below are the figures for some specific industries. These are huge gains. Tremendous gains. Though I have been watching exports for years, these increases, when I delve into history and put them down in black and white, astonish even me. 1939 FIGURES RESEMBLE 1938 Think what those increases mean also in employment of factory workers. Full figures for 1939 are not entirely apropos, because of the effect of the European war in the later months. But those for the first nine months of 1939 show no striking changes from the 1938 figures. In the first nine months of 1939 our total exports of finished manufactures were 5% greater than in the same period of 1938. Since September 1, exports have increased still more, because of war conditions, but this increase is not to be credited to reciprocity. Nothing could be plainer than the fact that American manufacturers and American factory workers are far better off now than they were under the HawleySmoot tariff, unmodified by the Hull trade agreements, so far as their exports are concerned. How U. S. exports in certain industries compare Leather manufactures. Iron and steel semi-manufactures. Steel mill products manufactures. Electrical machinery and apparatus. Household electric refrigerators. Construction and conveying machinery Other industrial machinery Office appliances Printing machinery... Agricultural machinery and implements. Automobile parts and accessories. WAS IT A FAIR PRICE? But what about their domestic business. After all that's 84% of my constituents' business and it would be folly to sacrifice that 84% in order to stimulate the 16%; to make tariff concessions which would make them lose five steps backward for every one forward. Has American industry and American factory labor paid too high a price for these export gains? Here is what has happened to American manufacturing in general since 1932: U. S. index of industrial production: Manufactures Note that as the reciprocal agreements went into effect, instead of our industrial production falling off, it actually increased. WHAT CAUSED 1938 SLUMP? To what an extent the slump in 1938 was due to the Hull agreements and to what an extent it was due to the C. I. O. drive could be a matter of debate. Personally, I think it was John L. Lewis' round. |