Mr. COOPER. That was in executive session. Is not the public entitled to know what the hearings are being held for?

The CHAIRMAN. I think everyone who is here is familiar with that. Mr. COOPER. It is customary for the chairman, at the opening of these hearings, to state the purpose for which the hearings are held. The CHAIRMAN. The purpose of this meeting is to hear Mr. Clayton explain how the reciprocal trade law has been operating during the past 13 or 14 years, and we also want to know something about what it is proposed to do at Geneva. Now I trust everybody understands the purpose of this meeting. These hearings will continue for some time, and we will hear both sides.

Mr. EBERHARTER. This is not then in the nature of an investigation, is it?

The CHAIRMAN. This is merely exploratory.

Mr. EBERHARTER. Of the general subject?

The CHAIRMAN. Yes, sir. We will proceed, Mr. Clayton.

Mr. LYNCH. Mr. Chairman, I have a point of information. Do we anticipate having any legislation enacted before Mr. Clayton goes to Geneva? Is that why we are having this hearing at this time? Mr. GEARHART. Mr. Chairman

Mr. LYNCH (interposing). I would like to have my question answered. Do we anticipate formulating any legislation at this time. relative to the Geneva Conference?

The CHAIRMAN. There is none before us at the present time.
Mr. LYNCH. Do we anticipate formulating any?

The CHAIRMAN. The Chair never anticipates. We will meet every issue as it arises. You may proceed, Mr. Clayton.

Mr. FORAND. Mr. Chairman, I would like to get some information before Mr. Clayton begins. Did I understand the chairman to state that both sides would be heard, which would mean that those people who are not connected with the Government but who are interested both for and against this question will get an opportunity to be heard? The CHAIRMAN. The gentleman understands correctly.

Mr. FORAND. Thank you.

Mr. CLAYTON. Mr. Chairman and members of the committee, I have a brief statement prepared here which I should like to read, and then I will be glad to try and answer questions.

The CHAIRMAN. I understand that there are no copies available at the moment?

Mr. CLAYTON. They will be here in a very short time.

The CHAIRMAN. You may proceed, Mr. Clayton. We can only sit this morning until 11 o'clock.

Mr. CLAYTON. It is my understanding that the Committee on Ways and Means is instituting these hearings and has requested my appearance here in order to obtain information with regard to the reciprocal trade agreements program which has now been carried on for 13 years under the Trade Agreements Act of 1934.

The committee is, I believe, concerned with how the program affects the economic welfare of the United States. The committee can hardly be interested in a rehash and review of the past. On each of the four occasions on which the Trade Agreements Act has been renewed by the Congress this committee and the Senate Finance Committee have thoroughly reviewed and examined the purpose, operation, and re

sults of the program. In the course of these examinations hundreds of American citizens have appeared before the committees and given their views. These citizens have included businessmen, representatives of labor and agriculture, consumers, and others.

Every conceivable question, relevant or irrelevant to the program, has been asked and answered, in the course of those hearings. Every shade of opinion has been fully aired. In the course of the last 3 hearings some 10,000 pages of testimony before this committee have been received and printed. In 1945 alone the printed record of this committee's hearings extended to over 3,000 pages.

The committee hearings have been followed by extensive consideration and debate on the floor of each House of Congress. On each occasion the Congress has renewed the authority of the President to enter into reciprocal-trade agreements for the purpose, as stated in the act, of expanding foreign markets for United States products. That authority is exercised under certain precisely defined guides and limitations laid down in the act itself. There has been no intimation that the authority has been used beyond those limitations and guides. I assume, therefore, that the committee's interest lies in the present and the future, rather than the past, except as the past foreshadows the future. On that point, I may say that during the operation of the reciprocal trade agreements program the national income materially increased, the increase was reflected both in cash farm income. and in wages and salaries paid in industry. Employment increased, especially in those enterprises which, by reason of their efficiency and other advantages, create the most jobs and pay the highest wages. These industries have found their foreign markets expanded through the reciprocal-trade agreements.

The trade agreements have not, of course, been the sole factor in this economic advance. But ordinary common sense recognizes that important and profitable American industries have been able to sell more of their products in foreign markets because foreign countries, through reciprocal-trade agreements, have reduced their trade

barriers.

American workers and farmers who benefited by those expanded foreign markets have, in turn, been better customers in the domestic market for American products. American industrial activity and living standards have been raised by increased imports, at more reasonable prices, of things from abroad which American industry and consumers need.

The United States is today facing a world economic situation different from any which we have ever faced before, and far more difficult. Since the end of the war the trend in many countries is toward more extensive controls of trade by government agencies and more actual participation in trading operations by governments.

This is not the sort of climate in which our type of foreign trade, carried on by private businessmen, can expand and prosper. In this kind of climate the volume and direction of trade is determined by what government allows, not by demands of a free market. Let me make it clear right at the start, therefore, that one of the primary objectives in our postwar trade program is to create the conditions under which private American traders will have maximum opportunities to expand their trade abroad with a minimum of governmental interference, and that we need a vigorous expanding, two-way foreign

trade as an extension of a dynamic domestic economy has been demonstrated beyond dispute.

In this situation circumstances have brought the United States into a position of world economic leadership and the responsibility that goes with it. We did not seek this position but we cannot abandon it without serious results for ourselves and for the rest of the world. We have emerged from the war as the giant of the economic world. What we do or do not do with our power will determine the course of events not only in this country but throughout the world. By working with other countries we can reestablish the pattern of world economic relationships which we want, and which will enable our own national economy and our own American system to continue and develop.

If we are to exercise our economic strength and our leadership in shaping events as we want them, we must act immediately. Things are moving too rapidly to permit us the luxury of sitting back and hoping that matters will turn out all right while we follow a policy of doing nothing. Delay and inaction now will be fatal to our objectives just as surely as wrong and misguided action will be fatal. The rest of the world is not going to wait for us. Unless we move rapidly and vigorously to establish in world commerce the principles upon which we can best advance our own economic interests, we are going to leave a vacuum into which, inevitably, will move an economic system based on principles alien to our ideas, injurious to our interests, and highly restrictive on the volume of world trade.

If we act quickly, and with courage and vision, we can do much to prevent existing governmental restrictions and controls on trade throughout the rest of the world from becoming more burdensome. We can help to turn the tide in the other direction, so that United States traders will not find their foreign markets and their foreign sources of supplies fenced off by new and more burdensome tariffs, quotas, and import and export license systems.

We can take the leadership in preventing conditions under which foreign governments take more and more control of commerce, actually participate more and more in trade, and make new bilateraĺ and discriminatory deals among themselves which will have the effect of shutting out American traders or putting them at competitive disadvantage.

If we do not act decisively and effectively now, it will be increasingly difficult for private American businessmen to carry on foreign trade under such conditions. They will be compelled to seek the assistance of their own Government in dealing with foreign governments. The United States Government will find itself bargaining and bartering, country by country, and month by month, to get foreign markets for American goods and foreign supplies for American industry and con

sumers.

Governmental regulation of and participation in foreign trade is a long step in the direction of governmental interference with domestic business, with production, prices, and consumption. The trade agreements program will minimize Government intervention in private trade both foreign and domestic and should be vigorously supported by believers in free enterprise.

Unless the United States quickly throws its economic power into the balance in favor of more liberal and expanded world trade in private hands, we shall lose the initiative and fall back into a defensive

action against trade developments throughout the world that will be highly disadvantageous to the whole United States economy.

For 13 years the trade agreements program has been used by the United States as a means of checking and preventing, so far as possible, the growth of foreign barriers and discriminations against United States trade. Until the last war, the effort was reasonably successful. We obtained not only reductions in foreign trade barriers but also commitments for nondiscrimination against United States trade from 29 of the countries with which we trade.

In addition, through the authority in the Trade Agreements Act to withhold trade agreement benefits from countries which might discriminate against us, we were able in most cases to protect American foreign trade from being placed at serious competitive disadvantage in the markets of those countries.

Ground was lost during and after the war, however. It can be regained only through prompt and vigorous action along the same lines as those followed in the trade agreements program in the past.

In the United States we have traditionally depended chiefly on the tariff as a means of regulating our foreign trades. The tariff method is consistent with our ideas on free enterprise and competitive efficiency. Governmental quotas, import licenses, and other rigid controls are not. Neither is state trading. Other countries, not the United States, began to use such devices even before the war started.

The only effective way in which we can get rid of these devices in foreign countries is by negotiating and bargaining. Our import market is tremendously important to almost all the countries of the world, and our tariffs control their access to this market. Therefore, our tariff is our bargaining stock. A tariff slash straight across the board would not be effective use of that bargaining power nor would it be wise. For the past 13 years we have successfully been making selective tariff cuts without injury to our own economy. In return, we have obtained maximum value in the form of reductions in foreign barriers against our exports and foreign guarantees of nondiscrimination against us.

If we hesitate to continue negotiating on this basis, it can only be because we have lost confidence in the strength of our own economy and the effectiveness of ou own economic system. In the absence of all-around negotiated reductions in trade barriers, we face the dangerous alternative of trade regulation by governmental quotas and licenses, a system which seeks as its first objective a sort of static and negative security and makes impossible the expansion of trade by private competition and new opportunities, which is the heart of our own system.

Much of the rest of the world is in economic ruin. Our own strength is not only unimpaired but has greatly developed during the war. Under such conditions can we possibly be afraid to sit down and negotiate with other countries? Is it because we are afraid of imports? We are now absorbing imports at the annual rate of some $5,000,000,000. These imports, far from injuring our domestic economy, are strengthening our industries with essential raw materials and - raising our standards of living.

At its present tempo our economy could profitably absorb a much greater volume of imports. If that tempo is speeded up and our

industries continue to expand, we can profitably accept, in fact we must have, even more imports than we are now receiving. We definitely must have larger foreign markets for the enormous surpluses we are now producing in this country, principally of farm products. There must be, in short, a world-wide, multilateral expansion of world trade under private enterprise on a nondiscriminatory basis. It is within our power, and clearly in our self-interest, to help bring this about.

It is against today's present and growing trade restrictions and discriminations that the United States Government is now proposing to exert its power and its leadership through an international trade program based on the same lines as the reciprocal trade agreements program of the past.

This leadership is not something new for this country. The reciprocal trade agreements program of 1934 was, itself, an exemplification of leadership. During and since the war we have moved farther and farther to the front. In the Atlantic Charter and in our lend-lease agreements it was the United States which insisted on the inclusion of principles looking toward more liberal, nondiscriminatory, and expanding world trade after the war. While the war was still in progress it was the United States initiative which led to the Bretton Woods agreements and the subsequent establishment of the International Bank for Reconstruction and of the International Monetary Fund.

In November 1945 the United States published its Proposals for Expansion of World Trade and Employment, which suggested the establishment of an International Trade Organization and the adoption of a charter or code of principles under which international commerce can expand, multilaterally and on a nondiscriminatory basis, with the fewest possible restrictions, and with resulting increases in employment and production and higher living standards throughout the world.

The proposals were followed by a suggested charter for the proposed International Trade Organization and the United States Delegation in the United Nations Economic and Social Council introduced in the Council the resolution to call an International Conference on Trade and Employment which will consider the establishment of an International Trade Organization and the adoption of a charter for it. United States experts drafted the suggested charter which was the basic document used by the Preparatory Committee set up by the Economic and Social Council, which first met at London in October and November 1946.

It was the United States Government which in December 1945 invited 15 foreign countries, and later 3 additional countries, to meet with us and negotiate, under the Trade Agreements Act, for reciprocal reduction of tariff and other trade barriers and for the elimination of discriminations in world trade.

Through all these measures we have established and begun to exercise our economic leadership, in our own interest and in the interest of the rest of the world. If we step down now, the consequences will be disastrous to us and also to the rest of the world. Therefore, let me tell you briefly how we propose to exercise our leadership in the immediate future.