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Mr. REED. I asked Mr. Clayton for some very definite information with regard to the South American countries and their tariff system as related to their economy. He very kindly furnished me with a list here, on page 174 of our hearings; and I asked him what percentage of the income of each country was made up by customs duties, that is by their tariffs, and it is rather interesting.
I see here that Argentina in its budget for 1939 collected 38 percent from customs duties, without which of course it could not have operated its government. In Bolivia, the customs duties supplied 40 percent or a little over 40 percent. In Brazil, it was 27.2 percent; Chile, 32 percent. In Colombia it was 44 percent. Costa Rica was 31 percent; Cuba, 24 percent; Dominican Republic, 24 percent; Ecuador, 23; Salvador, 53; Guatemala, 54; Haiti, 82; Honduras, 35; Mexico, 14; Nicaragua, 27; Paraguay, 40; Peru, 19; Uruguay, 37; and Venezuela, 36.
Now, then, if we enter into a trade agreement with those countries, as they are planning to do at Geneva, starting from the very beginning as though there had been no trade agreements and cutting down the present rates 50 percent or substantial percentages, just how are these countries there going to make up the rest of revenues necessary to run their governments?
Miss NORTHROP. It has always been characteristic of the LatinAmerican governments that they get a very large percentage of their revenue from customs duties. Not any one of the Latin-American governments has gone very far in raising internal revenue through income taxes, for instance.
I should assume that two things may happen: Revenues of all countries through customs duties increase either because of the rate or because of the volume of trade, and it will not necessarily follow that, if we are successful in getting a progressive and multilateral agreement to reduce tariffs, that their customs duties will necessarily fall, because if the volume of world trade increases, they may have the same amount.
Also, it is true that if the amount falls, some reorganizacion of their internal finances would be necessary, and I think probably, for all of their internal strength, would be to the good.
Mr. REED. You think that that should be a part of our philosophy, under a good-neighbor policy, to put them in a position where they have to reorganize their whole financial system in order to meet a request of a large powerful Nation such as ours?
Miss NORTHROP. If we write a trade agreement with the LatinAmerican countries, we will bargain as effectively as they will bargain; and if we each bargain effectively, they will go as far as we are willing to go in reducing rates.
In other words, it is their own determination as to how far they will go in relationship to how far we will go. It is not anything else, and that I think is the beauty of the trade-agreement program. It is not anything that this country, because of its power and its size, is forcing on another country. It is something which permits two countries to make up their own minds as to how far in their own interests they would go. Therefore, I do not think it does follow that we are forcing them to do anything.
Mr. REED. Is it not a fact that what a large group in this country wants to do is to force down their rates and to be able by peaceful penetration to get access to the raw materials in South America?
Miss NORTHROP. I think that we do buy the raw materials of South America in large quantities, the typical terms of trade has been that we buy more in Latin America than we sell to them; but I think our producers of manufactured and finished goods would like to be able to sell more finished goods in Latin America than they have in the past.
Therefore, I do not think it really follows that what we are trying to do is to exploit the raw material situation in Latin America. I think those Latin-American commodities do come in duty free, such as coffee, for instance.
Mr. REED. I think that that is subsidized to some extent, as I understand.
Is it not true that many of those South American countries are endeavoring through a tariff system not only to collect the revenue, but they set up certain barriers, we call them barriers, in the hope that they can create a balanced economy by the development of industries?
Miss NORTHROP. I think the Latin-American countries as a whole, as a group, are attempting to industrialize. I think that they should attempt to industrialize, and I think the whole world will be better off if we can raise standards of living by that process.
Mr. REED. I think that they should be permitted, without any interference on our part, in doing what we did; and we should not assume the attitude that England did, to try in every possible way with all of her power to prevent us from developing any industries and simply becoming a raw material country for her. I think that they should have that opportunity.
Now, the question is, how far does this good neighbor policy go, when we go in there and put the pressure on so that we can get their raw material down there, and so that they can erect their own plants without letting them in on the board of directors or letting them have anything to say about it?
ị think that one of our great strengths is to let those countries develop and let them become strong and friendly, but I do not see where this good neighbor policy is, for us to step in there and try to whittle down their tariff rates to the point that we can push in there with various things from this country and gradually crush them. I do not believe in that.
Miss NORTHROP. I do not believe in that either, and I do not think that that is a part of the reciprocal-trade-agreements idea or even the negotiations that are going on now. I think that what we have done is to say that we will all sit down around the conference table and develop agreed-upon rules of the game.
Now, the proposed International Trade Organization does have a whole section which deals with the specific industrial problems of countries that are just beginning late in relationship to the other industrialized problems; and if you take, for instance, the infant industry argument for the tariff, it is true that some of these industrialized countries just now are beginning to have babies; and I should suppose that under agreed-upon rules laid down that we would be expected to cooperate in that kind of thing just as we would expect them to meet us halfway with whatever terms are worked out around the conference table.
Mr. REED. Did you know that the word has come through from Geneva that the countries that are meeting there have not come prepared in any way with statistics to enter into any trade agreements as between themselves, which leaves it entirely where we make the concessions? We get no benefit of the concessions which they might make under the generalization clause. What would you think of that?
Miss NORTHROP. I have not heard that information. I think that the beauty of the idea of all sitting around and working out trade agreements with each other, as well as with us, is good. Again, if I may use an analogy, of trading marbles, when I was a little girl I did that. The more people you could get in, the more you could start trading, and could start trade moving. The reciprocal trade agreements which the United States makes with other nations, even if we do it just with each of the 18 nations and they do not do it with each other, will, with the use of the most favored-nation clause, generalize whatever agreements we make.
Now, then, I do think that the International Trade Organization requires each nation which will become a member of the Organization to make a reciprocal trade agreement with each other nation; and under the most favored-nation treatment, even if they cannot do it right now, they will be required to do it later, and those results will be generalized.
Mr. REED. Why should we do it now?
Miss NORTHROP. I think that we should do it now for two reasons: Because the United States is the largest single industrial Nation in the world, and the policy of the United States is so important to everybody else that unless the United States takes this position, no other country in the world will even begin to eliminate trade barriers.
I cannot overemphasize the power of the United States in the rest of the world, and I think that it is up to us to determine the fact that these nations, rather, that our policy is cooperative. We want to reduce artificial barriers, and we will go so far, and we will expect returns from other nations for that. I think it is awfully important for us to begin because we are the biggest.
Mr. REED. Have you studied, or your organization that you represent, the barriers that have been thrown up against international trade?
Miss NORTHROP. I have, sir, individually. How many of the details of all of those barriers have gone down to all of our 10,000,000 members, I cannot say.
Mr. REED. I was not carrying it that far, but I thought probably that you as the spokesman for this group, and because of the fine position which you occupy and the course which you are teaching to the students, possibly had a list of all of these barriers and the effect of those trade barriers and the motive for those trade barriers.
Miss NORTHROP. I can give you a list of them by name and with some illustrations, if you would like.
Mr. REED. I wish that you would do that.
Miss NORTHROP. Let us begin. We have tariffs, quotas, embargoes, subsidies, licenses of all kinds, exchange controls, clearing agreements, barter deals, preferential trading which gives one country a specific preference as over and against another, and many other kinds of financial discriminations.
Now, of all of those, the tariff under the use of the most-favorednation principle, is the most generalized and probably the least disastrous, although the height of the tariff, nation by nation, is a trade barrier of great difficulty. Quotas are simply the operation of someone saying, "We will take 10 bushels of apples a month, and that is all, and we will take those apples country by country.'
In other words, a quota system limits trade much more drastically, both by country of origin and by amount, than a tariff which operates under a generalized most-favored-nation principle.
Mr. REED. You do not believe in quotas then?
Miss NORTHROP. I certainly do not. And if we start a tariff as one kind of a trade barrier, someone else who gets into difficulties with international balances of payment might have quota systems, and a quota system is worse and more directly harmful.
Mr. ŘEED. Suppose that you have free trade. Would you believe in quotas then?
Miss NORTHROP. Well, the idea of free trade and quotas just does not go together. If you had free trade, you would have free trade with no barriers.
Mr. REED. Suppose that free trade results in the depression of your industries, because they are sending in too great an amount, and certain countries are sending in too great amounts? Would you resort to a quota then under any circumstances?
Miss NORTHROP. I should like to see adopted as a general principle in the nations of the world that no nation would do any of these things against another nation, except under generalized rules laid down. Further than that, I do not see how we can go, because the postwar world, this world we are starting now, is so wrapped up, that, and I use the words "maze" and "welter," we have got to begin straightening it out. All I can say now is that we ought to lay down rules wherein no nation uses these weapons against another.
Mr. REED. Do you believe in subsidies to get rid of our surpluses, so-called?
Miss NORTHROP. I do not believe, generally speaking, in subsidies. I think that there should be rules about subsidies in international affairs and international trade.
Mr. REED. Do you know how many subsidies we have in this country?
Miss NORTHROP. We have a cotton subsidy, and whether we have any other, I doubt it.
Mr. REED. We have the equivalent of a subsidy on tobacco.
Miss NORTHROP. I had not thought so, but I would have to check that information.
Mr. REED. Do we have an embargo on letting tobacco seed get out of this country?
Miss Northrop. We might have, I would have to check that. The details of the tobacco trade, I really do not know.
Mr. REED. And we subsidize the shipment of wheat abroad, do we not?
Miss NORTHROP. I do not believe we do now, do we?
Mr. REED. I would like to ask you another question. I would like to get your views on the question of cartels. I would like to get your opinion on the question of cartels.
Miss NORTHROP. International cartels exist for the purpose of maintaining a price structure, allocating markets, really controlling the direction and flow and the terms of trade. These international cartels, operating under private ownership by private management, I think must be brought into some regulation and some control on international agreements. The cartel section of the International Trade Organization seeks to put the policies of cartels under control. A cartel is a monopoly, sir, and all of us who talk about the American way of life dislike, or do not believe in, the continuation of monopoly in pricing. Insofar as that distorts price, trade on an international basis, it must be subject to international rule, and that is, I think, one of the important sections of the International Trade Organization, of the proposed charter.
Mr. REED. If you had international free trade, or anything very close to it, would that not stimulate overproduction everywhere, in trying to go in and take the markets by cutting prices constantly? Would that help us?
Miss NORTHROP. I cannot talk about free trade without talking about competition, because they are part and parcel of the same thing. Now, if we did that, a perfectly competitive economic system on a world-wide basis, there would not be any of the problems of overproduction, because you would stamp out a bad producer very quickly, at least in theory. We have never had it, and we do not have it now, and with varying degrees, we have abilities on the part of various kinds of producers or nations to control production so that you can get overproduction now, where you cannot under competition.
Mr. REED. What type of industry in this country, because of its inability to compete with the price of foreign countries, sometimes called inefficient, would you eliminate?
Miss NORTHROP. That is a big question. I do not know the answer actually. I do not know what are the most inefficient industries in the United States. I am not even willing to say that even if we have a completely inefficient industry, there might not be some reasons we would want to maintain it for some reason. What they are in number I should assume would be fairly small in relation to the total.
Mr. REED. Do you believe as Mr. Henry Wallace that any industry in this country that cannot survive without a tariff is inefficient and should therefore be dispensed with?
Miss NORTHROP. I am not sure that, with the way in which the world is organized economically now, the possibility of control over markets and the terms of trade, all industries that actually now need a tariff to support themselves are inefficient.
I think that it is possible if you take a large producer abroad, it might be possible for him to manipulate pricing so that he might be able to undersell in a wholly illegitimate way.
That is the part of the International Trade Organization where we want to get a definition of that kind of illegitimacy.
I do not think you can actually say that every industry if it turned to tariffs to meet production and in order to maintain itself is necessarily more inefficient.
My tendency would be to scrutinize it very carefully because I would suspect they were. That is all I can say without a detailed study industry by industry.
But it is true, sir, that with the way in which groups of power in the economic sense can distort the terms of trade now, you cannot draw those simple conclusions you did draw earlier when we had a much more competitive system than we actually have.