There is a general principle set up here, and the plan is to work as fast as may be to attain the time when the quota system may be discontinued.

Under present conditions, quantitative controls are applied throughout most of the world in one form or another and for one reason or another. To get rid of them is a major aim of our foreign policy. I just want to say there that we have to think of this matter from two aspects. I say, one is, we might for certain reasons want to put on import controls, but we have to remember that our export trade last year amounted to about $10,000,000,000. Of this, commercial exports were $8,000,000,000 and we have to cope with import controls in all of the countries of the world against that trade. We have to think about that trade and not think only about what import quotas may mean in the way of protection of our domestic industries for the domestic market. We have got to think what import quotas mean in the way of cutting down our exports to all parts of the world, if they are applied in other countries.

It must be recognized, however, that under present conditions, we cannot get rid of all quantitive restrictions at once. The rule against such restrictions must of necessity be qualified by a number of exceptions. It is unfortunate that this must be so, but under present conditions it is necessary.

The most important exception is that which permits countries faced with a shortage of foreign exchange to limit imports to what they can pay for. This exception is necessary because countries which were devastated or whose economies were disrupted by the war are not now, and for some time will not be, in a position to earn, by exports or otherwise, the foreign exchange necessary to pay for all that they would like to import. Imports must, therefore, be rationed. Such countries must for the time being do without imported luxuries and other non-essentials in order that available foreign exchange may be spent on food, raw materials, equipment and other things which they must have to live and to reconstruct their economies. This necessarily requires a strict limitation on the imporation of products which they can do without.

The Draft Charter, therefore, includes rather elaborate and complicated provisions on balance of payments matters which parallel provisions in the Monetary Fund Agreement. In essence, their purpose is to permit import restrictions for so long, and only so long, as a country's balance of payments position requires. The provisions in the charter are designed to ensure that these restrictions will come off when they are no longer needed. One of the most important functions of the Trade Organization in consultation with the Monetary Fund will be to keep the situation of each country under review to see that this is done.

I would only add by way of general comment of these provisions that only by the expansion of international trade to the maximum extent of every country's ability to do so can these balance of payments restrictions be gotten rid of. It is only as countries in financial difficulty are able to export and obtain foreign exchange that they will be able to relax the restrictions imposed for balance of payments reasons. The proposed charter not only obligates countries to remove such restrictions as soon as they are able, but provides the means of doing so at a much earlier date than would otherwise be possible.

Without a charter along the lines of the present draft, balance of payments restrictions on imports would tend to create vested interests and would become permanently imbedded for protective reasons. The CHAIRMAN. Would you mind repeating that?

Mr. CLAYTON. Without a charter along the lines of the present draft, or without the action that is expected to be taken under the charter, balance of payments restrictions on imports would tend to create vested interests, and would become permanently imbedded for protective reasons.

The CHAIRMAN. What you are saying is that either via monetary exchange or via the restrictive devices that you have been suggesting, you can control world trade?

Mr. CLAYTON. That is right.

The CHAIRMAN. You can do it one way or the other?

Mr. CLAYTON. You can kill it almost by those devices, and the point that I am trying to make here, Mr. Chairman, is that there are many countries today which are compelled to put on these restrictions. They simply cannot let their people buy everything they want to buy. They cannot let them buy all of the automobiles and all of the refrigerators and radios they want to buy, because the country may have only enough foreign exchange to pay for the food and the raw materials and the things they must have to live. Therefore, they must put on those restrictions.

However, we look forward to the time when their situation may be such that they can remove those restrictions and let their people have more freedom to purchase, but the trouble is, if you have them there too long and you do not have some arrangement for removing them, they become imbedded in the economy and they will stay there because meantime you have had vested interests built up that want to use them for protective reasons and not for the reason that they were originally proposed.

Senaor LUCAS. What is that arrangement, Mr. Clayton, for removing those restrictions?

Mr. CLAYTON. Senator Lucas, it is provided here in this International Trade Organization that these quantitative restrictions and import quota systems and so on must be done away with in time. Senator LUCAS. Does that depend upon the good faith of each government that goes into this International Trade Organization?

Mr. CLAYTON. Of course, in the end, any agreement of any international agreement depends on the good faith of the people who enter into it; but there are certain principles that are stated here, with reference to quantitative restrictions, and certain exceptions that are permitted for certain lengths of time. However, the idea is that they must be removed as soon as possible. And if they are put on for balance of payments reasons, why, obviously, when a country gets in position where it no longer has a balance of payments problem, they should remove them.

Senator LUCAS. If you do not have this kind of an organization, you have no check of any kind, and there is no responsibility upon any nation whatsoever to remove these restrictions if they did not want to? Mr. CLAYTON. That is right. This is an organization that is supposed to keep watch over matters like that, and call representatives of government in for discussion and consultation and to try to get rid

of these restrictions that sprang up during the war, and many of which still remain, to get rid of them as quick as return to anything like normal conditions will permit.

Senator CONNALLY. Has the organization any power to enforce these where they cannot get agreements?

Mr. CLAYTON. I do not think, Senator Connally, that they have got any real power to force them.

Senator CONNALLY. It is more consultation and persuasion and argument?

Mr. CLAYTON. It is consultation and discussion. There are, perhaps, certain sanctions that can be taken in connection with it, and when Mr. Wilcox gets on the stand, why he will be able to go into those for you in full.

The CHAIRMAN. Mr. Secretary, I believe it should be developed at this point that so far as these monetary controls are concerned, it is the aim of this organization to bring itself into relationship with the Monetary Fund.

Mr. CLAYTON. Absolutely.

The CHAIRMAN. And that the Monetary Fund under its charter does have control over the exchange.

Mr. CLAYTON. Yes, sir.

The CHAIRMAN. And the theory of this organization is that by bringing them together into some sort of liaison, they will not work at cross purposes, and will work harmoniously to achieve the objectives to which you have referred; is that correct?

Mr. CLAYTON. That is correct, exactly. I believe I am correct in saying that it is even contemplated here that all of the members of this organization shall undertake membership in the Monetary Fund or enter into special exchange agreements with the organization if they are not members of the fund.

The CHAIRMAN. There is such a provision?

Mr. CLAYTON. Yes, there is a provision of that kind, and there will be the closest liaison between the ITO and the International Monetary Fund. There would have to be.

Without a charter along the lines of the present draft, the balance of payment restrictions on imports would tend to create vested interests and would become permanently impeded for protective reasons. Our trades would have to face these rigid restrictions on their activities throughout a large part of the world for years to come.

The chapter on commercial policy also provides that member countries shall enter into negotiations looking to the reduction of tariffs and the elimination of preferences.

The procedures to be followed in these negotiations are in accordance with those developed during our long experience in the administration of the Trade Agreements Act. As in the case of previous trade-agreement negotiations under the authority of the Trade Agreements Act, these negotiations will involve no horizontal reductions of all tariffs. Tariff concessions will be considered selectively, on a product-by-product basis, after full examination of the position and needs of the producers concerned.

You will note particularly that the draft contains the so-calledescape clause, article 34, under which concessions which cause or threaten serious injury to domestic producers may be withdrawn or modified.

That is a very important provision, Mr. Chairman, of that chapter. Senator BUSHFIELD. Under what provision is that clause provided? Mr. CLAYTON. In chapter 5, the commercial policy chapter, it is provided that in all these trade agreements there may be inserted a so-called escape clause by which, if it develops that a concession causes or threatens serious injury to a domestic producer, the country of that producer may notify the other country that that concession is withdrawn or is modified.

Senator BUSHFIELD. That would be determined by the State Department?

Mr. CLAYTON. The new procedure, Senator, that has been set up for that, in accordance with a recent Executive order of the President, provides that in this country any producer who feels that he has a complaint because he is seriously injured or threatened with serious injury because of a concession in a tariff on imports, may so state to the Tariff Commission which will investigate the matter, and if they think that there should be a hearing on the subject they will call a hearing and that will be a public hearing at which this producer may state his case and bring his witnesses. After full consideration of the matter, the whole matter, the Tariff Commission will then make a recommendation to the President.

The Trade Agreements Act puts all the authority in the President, so that the Tariff Commission would make its recommendation to the President as to what he should do under the circumstances and then he would act.

Senator BUSHFIELD. Thank you.

Senator GEORGE. Mr. Chairman, I have a question.

The CHAIRMAN. Please ask it, Senator.

Senator GEORGE. The "escape clause" was first used in Mexico? Mr. CLAYTON. That is right. We first put it in the Mexican agreement, and in the summer of 1945, when the Trade Agreements Act was up for extension by the Congress, I made a commitment for the State Department and for the Trade Agreements Committee that in every future trade agreement we would insert a clause along the same lines as the escape clause in the Mexican agreement, and we will do that.

Senator GEORGE. Yes, sir.

Mr. CLAYTON. I mean, quite aside from the International Trade Organization.

The CHAIRMAN. The improvement in the power is in having the Tariff Commission police the operation under the escape clause? Mr. CLAYTON. Yes, sir.

The CHAIRMAN. To keep in touch with what is happening in this domestic market as a result of imports and to bring the matter directly to the attention of the President when any import seriously injures or threatens serious injury to any domestic industry?

Mr. CLAYTON. Yes sir. That was a procedure which we agreed to on the suggestion of you Senator Millikin and Senator Vandenberg, and it was incorporated in this recent executive order of the President and it will be done in the future.

Senator LUCAS. I presume every other nation has a similar clause. Mr. CLAYTON. It will be in every trade agreement that we will make with any country, and it is in this International Trade Organization

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Charter. I am sure that in the future, particularly if the Charter is adopted, every trade agreement that is entered into by any country will have a clause of that character.

The CHAIRMAN. I think Senator Lucas means that it is a two-way road.

Mr. CLAYTON. Certainly, it has to be reciprocal.

Senator HAWKES. Mr. Chairman, I want to say here that the escape clause is necessary but it has a lot of danger in connection with it. In other words, the thing, as far as I am concerned, that I am interested in doing, is avoiding getting this country into fixes where they have to escape. It is all right to talk about an escape clause, but now you know, Mr. Secretary, that if you escape here, the other countries can do this, and there is ill-will created and that is not what we want. We want to think ahead in this country and we want to stop doing things that will make it necessary for the President to say, "I have to exercise this escape clause and that escape clause," and there is no better way to create ill-will and enmity than to get yourself into a fix.

They put money, millions of dollars maybe, into plants and have gotten ready to do business, and then you say, "April fool, we have to escape; we were wrong and now we want to get out."

That is the thing I am vitally interested in, to see that this country does not get into a fix where we ill-advisedly get into things and then utilize an escape to get out.

Mr. CLAYTON. Well, Senator Hawkes, we are very hopeful because of the very thorough investigation made in these matters, there will be very few occasions on which the escape clause will have to be used. We do think that there are chances for error and there are chances for mistakes in almost anything we do in this world. We do think the escape clause is a useful thing to have in the provisions in case subsequent developments should show that we had made a mistake, and that will give to the producers the means by which they may have it corrected.

Senator HAWKES. I say, Mr. Secretary, that I think it is vitally necessary to have the escape clause, but I hope that we will not rely on the escape clause and let it lead us into a lot of traps.

Mr. CLAYTON. I agree fully with you.

Senator CONNALLY. The necessity for the escape clause is that if situations arise that are not foreseeable, they can be taken care of. Mr. CLAYTON. That is right.

Senator CONNALLY. They may be all right when you make the agreement; but later on, if circumstances are so altered that you may feel like you have to use the escape clause, you have it there.

Mr. CLAYTON. That is correct.

Senator BUSHFIELD. But that would only be used when the industry could show that they should get out?

Mr. CLAYTON. When the producer can show that they have been seriously injured, or are threatened with serious injury, then we can avail ourselves of the escape clause.

The CHAIRMAN. It can also be on the initiative of the Tariff Commission and on the initiative of the President?

Mr. CLAYTON. Yes, sir.

The CHAIRMAN. The relief is not tied completely to a complaint by a producer?