economic union of six countries of Western Europe-Belgium, the Federal Republic of Germany, France, Italy, Luxembourg, and the Netherlands.5 The Rome Treaty provides, among other things, for the gradual elimination of all tariffs and quotas on trade among the six member countries and for the establishment of a common external tariff for the Community-in other words, the complete abolition of tariffs and other restrictions within the Common Market and the fixing of a single common tariff toward outside countries.

The six EEC countries are all contracting parties to the GATT, which contains explicit rules regarding customs unions, rules which are applicable to the Common Market. One of the most important of these GATT rules stipulates that the external duties and other regulations of commerce imposed at the institution of a customs union must not on the whole be higher or more restricted than the general incidence of the duties and regulations of commerce applied by the individual countries prior to their union. In other words, the formation of a customs union is not to be accomplished by generally increasing tariffs and other trade restrictions toward outside countries.

On the other hand, the GATT recognizes that the establishment of a single or common external tariff for a customs union to replace the several tariffs of the member countries is likely, in some instances, to involve increases in particular duties which are bound against increase in the GATT schedules. Accordingly, provision has been made in GATT article XXIV, paragraph 6, for orderly procedures for renegotiation of such bound duties. These procedures, while taking account of decreases in duties which may be made in arriving at a common external tariff for all the members of the customs union, provide for the granting of compensatory tariff concessions to offset increases in bound rates.

These GATT rules and procedures are to receive their first real test during the forthcoming tariff conference.

Perhaps a hypothetical illustration will help to point up some of the problems to be resolved in these negotiations. Many of the duties of the Common Market's external tariff will be estab

For an article by John A. Birch on the Common Market, see ibid., July 20, 1959, p. 89.

lished by a simple arithmetical average of the duties presently applied by the individual countries. Under this formula, for a product on which the present duty is, say, 10 percent in the Benelux countries (Belgium, Luxembourg, and the Netherlands), 30 percent in France, 15 percent in Germany, and 25 percent in Italy, the Common Market duty would be 20 percent. Assuming that only the 30 percent or the 25 percent duty had been bound against increase, it is clear that the reduction of the French or Italian duties to the Common Market duty would involve no GATT problem. If, however, the 10 percent duty had been bound against increase in the Benelux schedule to GATT, a problem would arise as to whether the increase of this 10 percent duty, to the rate of 20 percent in the new EEC schedule, was offset by the decreases in the duties of the other members of the Community. There will also very likely be cases where it could reasonably be maintained that an increase in a bound duty for one product in the EEC schedule has been offset by a decrease in duty in that schedule on another product of comparable trade importance.

These and similar problems will be involved in the forthcoming tariff renegotiations with the EEC countries. At this stage no change in the U.S. tariff will be involved.

(2) Renegotiations of Existing Concessions

In addition to the renegotiations of bound duties with the Common Market countries, the first stage of the tariff conference (i.e. beginning in September 1960) will also include such renegotiations of particular tariff concessions in existing schedules as contracting parties may wish to undertake under article XXVIII of the GATT.

The procedures developed by the Contracting Parties under article XXVIII have provided a remarkable combination of stability and flexibility for the tariff schedules of the GATT. Under these procedures, on the one hand, there is in substance an agreement by agreement by the Contracting Parties to continue to apply generally their respective schedules for successive 3-year periods by refraining from using, except at the end of such periods, the right provided for in article XXVIII to modify or withdraw concessions.

On the other hand, recognizing that not every one of the thousands of tariff rates bound in the

schedules could forever remain unchanged, article XXVIII does in fact authorize any contracting party, at the beginning of each 3-year period, to modify or withdraw particular tariff concessions in its schedule by renegotiating such concessions with the contracting parties primarily affected.

During the first stage of the forthcoming tariff conference, it is expected that some of the contracting parties will wish to make use of article XXVIII in order to make certain adjustments in their schedules on January 1, 1961, which will begin the next 3-year period of continued application or "firm validity" of the GATT schedules.

Under article XXVIII a country which desires to modify or withdraw existing tariff concessions may do so at the beginning of a 3-year period by negotiation and agreement or consultation with the countries with which the concessions were initially negotiated and with such other countries as are determined by the Contracting Parties to have a substantial trade interest in the particular products affected.

In such renegotiations a key guiding principle of article XXVIII provides that the negotiating countries will endeavor to maintain a general level of reciprocal and mutually advantageous concessions not less favorable to trade than that existing prior to the negotiations. In line with this principle the country desiring to modify or withdraw existing concessions usually seeks during the negotiations to obtain the agreement of the other countries concerned by offering "compensation" in the form of new concessions on items of comparable trade interest to the latter. However, if agreement is not reached that the compensation is adequate for the modification proposed, the latter countries are authorized to withdraw equivalent concessions initially negotiated with the country making the modification.

(3) Negotiations for New Concessions

The second stage of the tariff conference is scheduled to open early in 1961 and will be largely concerned with negotiations among contracting parties for new concessions. During this stage, negotiations will also be undertaken with countries invited to "accede" (i.e. to become contracting parties) to the GATT.

The forthcoming conference will be the fifth round of general tariff negotiations undertaken by the GATT contracting parties. Previous rounds

were held at Geneva in 1947, at Annecy, France, in 1949, at Torquay, England, in 1950-51, and again at Geneva in 1956.

As in previous conferences it is expected that a substantial number of the contracting parties will participate in the multilateral tariff negotiations, particularly since these negotiations will afford an opportunity to exchange concessions with the European Economic Community and thereby reduce to some extent the external tariff of the Common Market.

Preparations for Negotiations-The procedures for the negotiations will follow the general pattern established in previous tariff conferences sponsored by GATT, with some adaptations, particularly those made necessary by the fact that the six member countries of the European Economic Community will no longer participate in the negotiations separately but as one entity.

In preparation for the conference each country that desires to participate submits to each other participating country with which it wishes to negotiate a preliminary list of the products on which it intends to request tariff concessions at Geneva. By August 1, 1960, the countries are to submit lists indicating the tariff rates they request. Each participating country is expected to be ready, on the opening day of the negotiations, to announce its "offers"-the concessions it is prepared to offer to other participating countries in the light of the concessions it is requesting. During this period of preparations, participating countries are expected to refrain from increasing tariffs or adopting other protective measures designed to improve their bargaining position in the negotiations.

Bilateral Bargaining-Initially, the negotiations will be conducted on a bilateral basis between negotiating teams representing pairs of countries, although the European Economic Community will be handled as one entity. When two countries are ready to begin negotiations, each will give to the other a list of the concessions it is prepared to offer. In making up its offer lists each country generally initiates negotiations with the country that is, or is likely to become, the principal or an important supplier of a particular product. As in the past, negotiations will be conducted on a selective, product-by-product basis. This procedure affords an opportunity to take account of the needs of individual countries and of particular industries. Participating countries will be

free not to grant concessions on particular products, and in granting concessions they may agree to reduce an import duty or to bind it against increase at the existing level or they may undertake not to raise a duty above a specified higher level.

No country is expected to grant unilateral concessions or to grant concessions without receiving adequate concessions in return. On the other hand, it is understood that the binding against increase of low duties or of duty-free treatment shall in principle be recognized as a concession equivalent in value to the reduction of high duties. Multilateral Phase-Although the negotiations are carried out in detail on a bilateral basis between pairs of countries, several procedures and devices will be employed to make the negotiations in fact multilateral. Thus, when offer lists are exchanged between the various pairs of negotiating teams, copies will also be sent to the delegations of all other participating countries. In this way each country, in determining the concessions it is finally prepared to make, can take into account those indirect benefits it may obtain from all the other negotiations as a group, since all contracting parties obtain the benefit of any concessions granted by one country to any other country.

Moreover, at the very beginning of the conference there will be established a Tariff Negotiations Committee, composed of representatives of all participating countries. The function of this committee will be to coordinate and facilitate the negotiations and thus to bring about the fullest possible multilateral effort to achieve the desired objectives. Upon the completion of the negotiations this committee will be responsible for drawing up the document which will incorporate the new concessions into the GATT and under which each contracting party will obtain a contractual right to all the concessions negotiated by each pair of countries.

(4) Negotiations With Acceding Countries

During the second stage of the conference, i.e. beginning in early 1961, along with the negotiations among contracting parties and with the European Economic Community, there will be negotiations with several countries which have been invited to accede to the GATT. Cambodia, Israel, and Tunisia have already indicated a desire to carry out negotiations for accession, and other countries may also participate.

In general the rules and procedural steps for the negotiations for accession are the same as those among contracting parties for new concessions. Thus there will be, first, the bilateral phase with the exchange of lists of offers and requests, followed by the multilateral phase. One difference arises out of the fact that, in granting concessions, acceding governments are expected to take into consideration the indirect benefits which they will receive from the concessions already exchanged between contracting parties in previous tariff negotiations, as well as those which will result from the new negotiations.

United States Participation in the Conference

The United States will participate in the forthcoming tariff conference under the authority of the trade agreements legislation and in accordance with procedures set forth in several Executive orders issued by the President.

Trade Agreements Authority

The Trade Agreements Act of 1934, as extended and amended, gives the President limited authority to enter into trade agreements with foreign countries whereby the United States agrees to reduce, or to bind against increase, tariff rates applying to specified imported products in return for concessions for products exported by the United States. Under the Trade Agreements Extension Act of 1958 the President is authorized generally to reduce U.S. duties, in annual stages, by not more than 20 percent of the rates existing on July 1, 1958. Alternatively, he may reduce any rate by 2 percentage points ad valorem, or he may reduce to 50 percent ad valorem any rate which is in excess of 50 percent. The law likewise authorizes him to agree to "bind" (i.e. continue) duty-free treatment for articles on the free list or to bind existing duties.

The law prescribes three things which must be done before a trade agreement is concluded: (1) reasonable public notice must be given of intention to negotiate an agreement in order that interested persons may have an opportunity to present their views; (2) the President must seek

7 For a two-part article by Mr. Catudal on "Trade Agreements Legislation: A Section-by-Section Analysis," see BULLETIN of Dec. 22, 1958, p. 1013, and Dec. 29, 1958, p. 1050.

information and advice from certain Government agencies having a particular interest in foreign trade; and (3) the President must seek "peril point" recommendations from the U.S. Tariff Commission with respect to the products which are to be considered for the granting of tariff concessions by the United States in the proposed negotiations.

In addition to the foregoing requirements, recent legislation declares it to be the sense of Congress that, during the negotiation of trade agreements, the President should seek information and advice from representatives of industry, agriculture, and labor.

The Interdepartmental Trade Agreements Organization

In carrying out his responsibilities under the Trade Agreements Act, the President is assisted by a network of interdepartmental committees, so organized as to make available to him information and advice from all Departments and agencies of the Government concerned with foreign trade from the technical level up to the Cabinet-and from the general public. Three principal committees have been established by Executive order: (1) the Interdepartmental Committee on Trade Agreements, or Trade Agreements Committee (TAC), (2) the Committee for Reciprocity Information (CRI), and (3) the Cabinet-level Trade Policy Committee (TPC).

The Trade Agreements Committee is responsible for developing detailed information and recommendations concerning the initiation and carrying out of negotiations, as well as for the administration of the trade agreements program generally. The Committee, which, as needed, sets up interdepartmental subcommittees of experts for each country or group of countries with which negotiations are contemplated, is made up of representatives of the following agencies: Agriculture, Commerce, Defense, Interior, International Cooperation Administration, Labor, State, Tariff Commission, and Treasury. The representative

The "peril points" are the rates below which the Tariff Commission finds that U.S. duties may not be reduced without causing or threatening serious injury to the domestic industry producing like or competitive products. If the President concludes a trade agreement exceeding the peril points, the law provides that he shall report to Congress his reasons therefor.

of the Department of State serves as chairman.

The Committee for Reciprocity Information has the same membership as the Trade Agreements Committee, but the Tariff Commission member serves as its chairman. This Committee invites interested persons and organizations, as well as the general public, to submit views in writing and at public hearings regarding possible tariff concessions to be made by the United States in trade agreement negotiations, as well as suggestions for concessions which might be sought from other countries.

The Trade Policy Committee was established in 1957 at the Cabinet level to advise and assist the President in the administration of the trade agreements program. In addition to the Secretary of Commerce as its chairman, the Committee consists of the Secretaries of Agriculture, Defense, Interior, Labor, State, and Treasury, or highranking alternates designated by them. The Trade Policy Committee reviews the recommendations of the Trade Agreements Committee at all stages of trade agreement negotiations and transmits these recommendations to the President with any comments of its own resulting from the review.

Preparations for the Negotiations

As in previous negotiations the first step is for the Trade Agreements Committee to establish what are known as "country committees" for each country or group of countries with which negotiations are expected to be carried on. These are interdepartmental subcommittees of experts on our trade with each of the countries concerned.

Preparation of U.S. Offers

Each country committee will make a comprehensive survey of our trade with the country concerned, studying trade statistics for both our imports from and our exports to that country, with a view to drawing up preliminary lists of the items which should be considered in the negotiations.

The chief criterion guiding the work of country committees at this stage is what is referred to as the "principal-supplier rule." For bargaining purposes, each side generally finds that it is most advantageous if its offer of a tariff concession is

made to the country which is the principal or an important supplier of a particular product. After a detailed study of data on imports, exports, domestic production, tariff history, and other pertinent facts available from Government sources on the products concerned, each country committee submits to the Trade Agreements Committee a list of products which it feels should be considered for possible tariff concessions by the United States, together with a summary of the data used in its studies.

During a careful item-by-item scrutiny of the lists of products and supporting data submitted to it by the country committees, the Trade Agreements Committee makes such modifications in the lists as it considers advisable. After this work has been completed for all the countries with which negotiations are contemplated, the Trade Agreements Committee sends to the President, through the Trade Policy Committee, a consolidated list of U.S. import items ("public list") which the Committee recommends for possible tariff concessions during the negotiations. If there are dissents by any agency on particular items, these are brought to the attention of the Trade Policy Committee and, if they persist, to the President.

After the President has approved the list of U.S. import items, it will be published, together with a formal announcement of the intention to enter into trade agreement negotiations, and dates will be set by the Committee for Reciprocity Information for filing briefs and for public hearings to obtain the views of interested persons and groups concerning the proposed negotiations. (The fact that a product is included in the public list does not mean that a tariff concession will necessarily be made on that product in the negotiations.) Simultaneously, the President will transmit the list to the Tariff Commission for peril-point findings on each product, and the Commission will also issue a notice of public hearings. In connection with the announcements it will be made clear that no article will be considered in the negotiations for the granting of a tariff concession by the United States unless it is included in the public list or unless it is subsequently included in a supplementary public list. Every effort will be made to see that the lists and notices get wide public distribution, through the press,

trade associations, and otherwise-for example, through the field offices of the Department of Commerce.

All information presented by the public in briefs and orally at the public hearings will be made available to the members of the country committees and the TAC and to any other persons who may have responsibilities for the conference preparations.

Taking into account all the information received from the public by the Committee for Reciprocity Information and the Tariff Commission, the various country committees will resume their studies of the items under consideration in order to determine whether to recommend that a concession be offered on a particular product and, if so, to what extent. These recommendations, together with supporting data, are submitted to the TAC, which reviews them item by item and accepts, modifies, or rejects them.

How Recommendations Are Arrived At

The decision in each case is based upon a variety of factors:

The Committee considers for each item the relation of imports to domestic production: Are imports a large or small part of the total amount consumed in the United States? Have imports been increasing or decreasing in relation to domestic production?

The Committee takes into account whether the domestic industry is large and diversified or small, located largely in one community, and concentrated on the particular product involved. It also takes into account whether the domestic industry has an export business that must compete in third markets with the foreign product.

The Committee must take into account national security needs for particular products and, in the case of an agricultural product, whether a concession might interfere with a price-support or other farm program.

Depending on circumstances, the Committee may consider whether it would be possible or desirable to make a concession on only part of a tariff category or limit the effect of a duty reduction through the use of a tariff quota or other device.

An important matter considered by the Committee is whether our offers as a whole are adequate to reciprocate for the concessions we may reasonably expect to obtain for our exports.