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STATEMENT OF WILLIAM L. CLAYTON, UNDER SECRETARY OF

STATE FOR ECONOMIC AFFAIRS

Mr. CLAYTON. Yes, sir; I would like to do that, Mr. Chairman.

Mr. Chairman and members of the committee, I have a short prepared statement which I would like to read for the record, and following that I would be glad to try to answer any questions that might be asked me about this subject.

The CHAIRMAN. I should say that this whole hearing has been called on short notice, with the idea of getting ahead with the busi. ness for the purposes stated in Senator Vandenberg's letter, and that will account perhaps for the Secretary's failure to have copies of his remarks and will perhaps account for cther materials which will be missing for a few days.

Mr. CLAYTON. The machinery for international economic cooperation has not yet been completed. The International Bank for Reconstruction and Development and the International Monetary Fund which were created at Bretton Woods are ready for business. But the third and perhaps most essential part of the machinery for economic cooperation is the International Trade Organization which is now being created.

The broad purpose of the International Trade Organization is to aid in expanding the volume of international trade which is so essential to the prosperity of this country and other countries. The achievement of this purpose is essential to the successful operation of the Bretton Woods agreements, a fact that was specifically recognized by Congress in the act approving these agreements. Without the Trade Organization, a vital part of the machinery for economic cooperation would be missing.

The charter for an International Trade Organization was formulated by the Preparatory Committee for a World Conference on Trade and Employment, this Committee having been established by the Economic and Social Council of the United Nations. The present draft is the product of the first meeting of the Preparatory Committee held in London in October and November of last year. The Government officials who met at London were experts designated to formulate a draft for consideration by their respective governments and peoples. Neither this Government nor any other government is committed to the draft as it now stands.

The draft charter formulated at London has been widely studied by interested organizations and persons throughout this country. We recently completed hearings in seven cities in order to get the criticisms, suggestions, and views of those who have studied the draft. We have found that the need for an International Trade Organization is widely recognized and approved. We have received a large number of constructive and useful criticisms which we are now studying.

The Congress must eventually determine what part the United States is to play in this critically important field of economic cooperation, and what commitments the United States Government should undertake to this end. I am therefore very glad that the Committee has afforded an opportunity for consultation at this formative stage.

The charter of the International Trade Organization would, broadly speaking, do two things. In the first place, it would lay down the rules to be observed by member countries and set forth their obligations respecting measures affecting their trade with other members. In the second place, it would create an international body to facilitate the operation of these provisions and to promote such further action or agreements as will promote mutually profitable trade.

It is important to realize that we are not creating a superstate to instruct governments on how to conduct their external or internal economic affairs. We are proposing only that this trade body be created as part of the structure of the United Nations to serve as a medium for consultation to facilitate the carrying out of commitments which would be agreed to in advance by the governments concerned and which would

be set forth in the articles of agreement that constitute the charter of the organization.

Heretofore nations have acted unilaterally in taking action vitally affecting their economic relations with other countries. When other countries were hurt by such action, as was usually the case, they retaliated and in the end all were hurt and all were mad. The International Trade Organization is to be a forum where such actions can be discussed around the conference table before they are finally taken just as contemplated political and military actions are discussed in other organizations of the United Nations which have been set up for that purpose.

I should now like to comment briefly on the draft of the charter now before you.

The general purposes of the organization are set forth in chapter I. I do not think that many people would find fault with the objectives. Such disagreements as there are relate to the means for attaining these ends.

One possible exception is the stated objective of reducing tariffs and other trade barriers and the elimination of all forms of discriminatory treatment in international commerce. There are, of course, differences of opinion on this subject.

This stated objective, however, reflects the policy laid down in the existing law of the United tSates. It is the same as that of the Hull trade agreements program as authorized by the Congress in the Trade Agreements Act.

In my opinion, the carrying out of this purpose on a selective, product by product, basis in accordance with the carefully devised procedures developed during 13 years of experience with the Trade Agreements Act, is indispensable to economic recovery in the world and to our own prosperity.

The statement on this subject in the purposes of the organization has, however, no operative effect. The steps for carrying out this purpose are laid down in a later section of the charter to which I shall presently refer.

Chapter II, relating to membership, looks toward world-wide partipation in the organization.

Chapter III relates to employment. This chapter gives recognition to the fact that trade may be seriously affected by changes in the level of business activity and employment in important member countries. In recognition of the importance of this fact, members obligate them

selves to take action designed to achieve and maintain full and productive employment and high and stable levels of effective demand within their own jurisdiction.

The term “full and productive employment” is defined in the report of the preparatory committee as meaning the maintenance of useful employment opportunities for all those able and willing to work. As you know this is the language of our own Employment Act of 1946. Neither the organization nor any member is given any right to dictate what measures a country will take to this end. The obligation of each member is to take measures appropriate to its political, economic and social institutions." The end in view is exactly the same as that of our own Employment Act of 1946.

I may just add, at this point, Mr. Chairman, that the responsibilities in connection with this chapter relating to employment devolve upon the economic and social council direct instead of the International Trade Organization.

Chapter IV covers the subject of economic development..

This chapter did not appear in the original United States draft which was used as a basis for the discussions in the London meeting. It was added because a number of the underdeveloped countries felt that provisions dealing explicitly with this subject are a necessary and proper part of an International Trade Charter.

The chapter recognizes the importance to all countries of bringing about industrial and general economic development everywhere and in particular in those countries whose resources are as yet relatively underdeveloped.

The chapter provides for relaxation of commitments with respect to tariffs and restrictions on imports, in particular cases, with the approval of exporting countries affected after negotiations with them, and with the permission of the trade organization.

The procedure is such that there cannot be any general and widespread application of restrictions on trade to protect industries in underdeveloped countries which have no real prospect of developing and which would only be a burden on consumers and work injury to foreign exporters.

You will understand at once, Mr. Chairman, what is meant by that, that is intended there shall be no encouragement in the way of protection of industries not properly suited to the countries where they are expected to be established. If the industry is not an efficient one, it is not a natural one and cannot, in time, compete without heavy protection. The intention here is that such an industry should not have protection to get established because in the end it would only be a burden on the consumers and on others involved.

Senator HAWKES. May I interrupt to ask who is going to determine whether that industry is one that should be kept alive or not?

Mr. CLAYTON. To begin with, Senator Hawkes, we are dealing primarily with the establishment of new industries in underdeveloped countries. This chapter was inserted on the request of countries that feel that largely in the next few years they should develop their industries, as for example, India, certain South American countries, and other countries that have not developed to any considerable extent.

Senator BUSHFIELD. Do you mean to say, Mr. Secretary, that it has no application to our own United States ?

Mr. CLAYTON. Not this particular section; no, sir. It applies particularly to underdeveloped countries. The main obligation in the charter, gentlemen, is to negotiate trade agreements for reduction of tariffs and the elimination of restrictions and discriminations. Nobody can say under this charter, or in this organization, how much or how far tariffs should be reduced. That remains within the province of each individual country. There is an obligation to negotiate.

Senator HAWKES. May I pursue that other question? You did not answer my question. Who is going to determine that an industry should or should not be started in that country?

Mr. CLAYTON. Certainly the International Trade Organization will not determine it.

Senator HAWKES. Well, who will?

Mr. CLAYTON. The people involved, the country and the people who are building the industry. If it is a Government industry, the Government will determine it. If it is private, the private people will determine it.

Senator HAWKES. In other words, if they determine it contrary to the will of the International Trade Organization or suggestions that come from there, then they cannot have any protection; is that right?

Mr. CLAYTON. 'No, sir; there is no authority here to absolutely deny the protection to them. There are, however, provisions for consultation, examination, and in some cases for negotiation where the protective measures which they might want to take are in conflict with other provisions of the Charter. It is stated here as a general principle, Senator Hawkes, that protection to industries that are not located naturally with respect to the resources of raw materials, labor, markets, and other relevant methods should not be established with protection that is expected to be continued for any length of time. This chapter has to do primarily with the establishment of new industries in underdeveloped countries.

Senator HAWKES. I think I, in general, would agree that industries that have no chance of survival and development should not be started, but my point was, I was trying to find out who was going to tell them whether they can or cannot.

Mr. CLAYTON. That authority is not lodged in any central body; the organization comes in only in case of conflict with other provisions of the charter and then generally to assist in finding a solution to the difficulty.

The CHAIRMAN. That subject will receive a very thorough sifting when we come to the consideration of the details of the charter.

Mr. CLAYTON. I was going to say that Mr. Wilcox can go into that matter. Mr. Wilcox is Director of the Office of International Trade Policy, of the Department of State, and had more to do with the initial draft of this charter and in the handling of the matter at the London Conference in October and November than anybody in the Department of State. He can discuss these details, Senator Hawkes, much more competently than I can.

The CHAIRMAN. I think that there are many matters to be gone into in connection with that charter; at least as far as I am concerned. they will be very thoroughly sifted.

Vir. CLAYTON. In those cases in which there is a sound basis for developing an industry in an underdeveloped country, it seems to me to be in our own interest that steps of one kind or another be taken

to facilitate such development. Of course, as you know, gentlemen, this country has its best trade in the most highly developed countries. England has always been one of our greatest customers, and Canada, a country with only 12,000,000 people, is our greatest single customer today. We all know that considering Canada's size and its population it is highly developed industrially. They bought nearly 11/2 billion dollars worth of goods from us last year.

To the extent that the resources of any country are developed, wealth is created in which we and all other countries are bound to share through the processes of trade.

Chapter V on general commercial policy is the core of the charter.

From our standpoint, the most important provisions in chapter V are those relating to quantitative restrictions. The basic provision on this subject is that there shall be no quantitative restrictions on trade, such as quotas, licensing systems, and similar measures of quantitative control.

This provision is of crucial importance for the development of United States and world trade. Quantitative controls are rigid devices which arbitrarily cut off trade and lend themselves to trade diversion and discrimination. They involve a maximum of interference with the operations of private traders by Government officials, who decide what quantities shall be bought and from what sources they shall come. Quantitative controls mean the regimentation of trade.

The abolition of quantitative restrictions will do more to bring about the expansion of our trade and the trade of other countries than any other single step that can be taken in the field of commercial policy.

Senator BUSHFIELD. Mr. Secretary, have we quantitative restrictions now on food products?

Mr. CLAYTON, On imports, you mean?
Senator BUSHFIELD. On exports.

Mr. CLAYTON. I do not think that we have any quantitative restrictions on imports of food. We have a few quantitative restrictions at the present time, but we have never used the system in this country to any considerable extent. It is being used now in foreign countries to a very great extent. They have substituted it largely for tariffs. It is a much more effective way of strangling trade than tariffs.

The CHAIRMAN. The President just yesterday sent us a message urging us to continue export controls on certain items, so the practice to which Senator Bushfield refers is not alien to this country.

Mr. CLAYTON. However, that has to do with the control of exports in times of scarcity, the thing the President has recommended. We are speaking here of quantitative restrictions on imports, to cut down the sales of other countries to the country that is making the restriction.

The CHAIRMAN. The basic principle; is it not the same?

Mr. CLAYTON. The principle is entirely different, Senator Millikin. Quantitative restrictions may be imposed on imports for various reasons. If they are retained for any considerable length of time, it is nearly always for protective reasons. I mean it is to protect home industries. We do not put on restrictions on exports to protect home industries.

The CHAIRMAN. That is precisely what we are doing it for. The President in his message pointed out that we have a great shortage

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