Mr. BROWN. There are a good many where it is more, but it is at least that much.

The CHAIRMAN. But they have preference, and they are given preferential treatment?

Mr. BROWN. That is right.

The CHAIRMAN. What is it on sugar, do you recall?

Mr. BROWN. It is something like 17 cents.

Marine chronometers were left out of the Geneva agreement. Therefore, the President could have proclaimed the rate under the 1930 act, that is, 65 percent. But because of the fact that we could not, under the law, increase the Cuban rate by more than 50 percent of the rate existing on January 1, 1945, we could only put the Cuban rate up 50 percent. And because we had agreed not to increase the absolute margin of preference on any item, we could not put the original most favored nation rate back all of the way up to 65. We could only put it up to 452.

The CHAIRMAN. So this amendment is made to enable you to give full effect upward?

Mr. BROWN. Yes; because as you see, 50 percent up is usually a smaller amount than 50 percent down would be, so it has a limited effect.

Mr. THORP. I would like to make sure that the Cuban point is clear. It is a complicated point of percentages and absolute amounts, and therefore what happens is that if you have a lower set of rates with 20 percent between them as a difference, and you move both of those rates up 50 percent, the gap, which is still 20 percent between them, is a gap which is wider in absolute amount than the gap which you had in the first place. But we have agreed not to increase the absolute gaps in any preferences, and therefore what happens is that under the present regulations we can raise the Cuban rate 50 percent, but the other rate we cannot raise more than perhaps 45 percent, in order to maintain the absolute gap. And what we want to do is to be able to get relaxation from the Cuban situation so that it can be raised up to the point where it is just the same absolute preference.

Senator MILLIKIN. What is the impact of this on the sugar situation? Mr. THORP. There is no impact on the sugar industry.

Senator MILLIKIN. I will take the fault on myself exclusively. I got thrown off on a curve a little while back, and if we might get a written explanation of this paragraph, with illustrations, I would appreciate it.

Mr. BROWN. We have a memorandum here which gives two illustrations, or three illustrations. I think it is a fairly clear illustration. Senator MILLIKIN. Would you put it in the record?

Mr. BROWN. Yes.

(The memorandum is as follows:)

EXPLANATION OF PROPOSED AMENDMENT TO SECTION 350 (b) oF THE TARIFF ACT DESIGNED TO REDUCE CUBAN PREFERENCE COMPLICATIONS

Under the 1934 trade agreement with Cuba, as amended, the United States agreed, generally, to continue the preferential regime under the treaty of 1902, by (1) according to duty-free treatment of certain articles of Cuban origin which were dutiable when originating in other countries, and (2) providing, in the case of all other Cuban products, preferential reductions from the rates applicable to products of other countries, the preferential margins, the maintenance of which was agreed upon in the trade agreement, varying from 20 percent to 50 percent of the lowest rate applicable to other countries.

The general agreement on tariffs and trade represents a concerted effort on the part of the United States and the other contracting parties to that agreement to obtain the elimination or reduction of tariff preferences accorded by certain of these countries, such as the tariff preferences in the British Commonwealth and between the United States and Cuba. Consequently, in the negotiation of this agreement the United States undertook to eliminate certain tariff preferences accorded to Cuba and to reduce other such preferences. The United States also agreed, along with all the other contracting parties, not to increase preferences on any product above the absolute margin' of preference existing on a specified date which, in the case of the United States and several other countries, was the date of the beginning of the Geneva negotiations on April 10, 1947.

However, as a result of questions arising from the specific limitations in section 350 of the Tariff Act upon the President's authority to proclaim modifications of customs treatment, full effect was not given, in the proclamations giving effect to the general agreement and the contemporaneous supplementary agreement with Cuba, to all modifications of the preferential treatment of Cuban products, or to all modifications in the rates applicable to other countries, which the Cuban and other governments had indicated were acceptable.

An example is the situation with respect to parts of certain standard marine chronometers. The rate on such articles under paragraph 368 (c) (6) of the Tariff Act of 1930 was 65 percent ad valorem which had been reduced to 321⁄2 percent pursuant to the trade agreement of 1938 with the United Kingdom, effective in 1939. Thus on January 1, 1945, the rate applicable to products of the United Kingdom and products of other countries to wheih the trade-agreement rates were applicable was 321⁄2 percent and the rate applicable to such articles produced in Cuba was this rate less 20 percent thereof, or 26 percent ad valorem.

Since such chronometer parts were not included in the General Agreement and since the 1938 trade agreement with the United Kingdom was suspended, it would have been expected that the rate applicable to products of countries other than Cuba would increase from 32% percent to the statutory rate of 65 percent. However, under the limitations upon the President's authority to proclaim increases in duty, as amended in 1945, he is precluded from proclaiming a rate for such chronometer parts the product of Cuba, in order to carry out a trade agreement, in excess of 50 percent above the rate in effect January 1, 1945, that is in excess of 39 percent (26 plus 13). Since the absolute margin of preference applicable to Cuban chronometer parts on April 10, 1947, was 6 percent ad valorem (321⁄2 minus 26), the United States could not, consistently with its undertaking not to increase preferences above the margins existing on April 10, 1947, provide for a rate applicable to countries other than Cuba in excess of 45% percent (39 plus 61⁄2). Thus in proclamation 2769 of January 30, 1948, the President proclaimed the rate of 39 percent ad valorem for such Cuban chronometer parts, and 45% percent for like products of other countries. These rates resulted from the limitation upon the President's authority to increase rates and the undertaking not to increase preferences, although the United Kingdom had agreed to an increase in the rate to the statutory rate of 65 percent. Moreover, the Cuban Government had agreed, in the supplementary agreement, to the elimination of the preference since no such chronometer parts were imported from Cuba during specified resent years named in the supplementary agreement. The new proviso to section 350 (b) is designed to permit the increase of the rate on the Cuban product by more than 50 percent of the January 1, 1945, rate (from 26 percent ad valorem to 65 percent ad valorem) in such a case. If any such chronometer parts had been imported from Cuba during the years specified in the supplementary agreement the Cuban Government would have agreed to the maintenance merely of the April 10, 1947, margin of preference (6% percent ad valorem), which would have resulted in a Cuban rate of 58 percent (65 minus 6%). The proposed amendment is also designed to permit, in such a case, an increase in excess of 50 percent of the January 1, 1945, rate (from 26 percent ad valorem to 581⁄2 percent ad valorem).

Notwithstanding the fact that schedule XX of the general agreement provides for an increase in the rate of duty on certain sardines from 30 percent ad valorem,

In the general agreement preferences are measured by the absolute margin rather than by a percentage of the rate applicable to other countries.

86697-49-pt. 1-11

under paragraph 718 (a), of the Tariff Act of 1930, to 44 percent, because of this 50-percent limitation on the authority to increase duties on Cuban products the President, in proclamation 2792 of June 25, 1948, proclaimed a rate of 36 percent for such Cuban sardines and only 42 percent for such sardines of other countries. Thus the limitation prevented giving full effect to the 44-percent rate which had been negotiated.

Because of questions with respect to the scope of the provision in section 350 designed to prevent transferring an article between the dutiable and free lists, the general agreement does not make dutiable any of the Cuban products which had previously been preferentially free of duty. However, the last item in schedule XX, containing the concessions made by the United States, provides that certain of these preferentially duty-free Cuban products should be free, subject to the provisions of the agreement relative to the fixing of margins of preference in the event that the rate to other countries should be modified. Under these provisions an increase in the rate for products of other countries would be dependent on the imposition on the Cuban product of a duty equal to the amount of such increase, in order to prevent a resulting margin of preference in excess of that on April 10, 1947. By the last item in the schedule Cuba has agreed to the imposition of the duty in such cases, and the proposed amendment would remove any doubt as to the authority to impose on the Cuban product such customs treatment which, while still preferential, would be more burdensome than the present treatment. Furthermore, if Cuba should agree to the elimination of the preferential treatment on any of the articles covered by this last item in schedule XX, the amendment would also permit the application to such Cuban products of the same duty as is applicable to like articles produced in other countries.

The above are the principal situations to which the proposed amendment would apply, although it would also permit other types of simplification of the complications which have resulted from attempts to reduce or eliminate Cuban preferences under the limitations upon increase contained in section 350.

The amendment would give the President no new authority with respect to the reduction of duties, and contains no authority to make free any articles which have previously been dutiable. It would only authorize the President, in order to carry out a trade agreement, to increase duties on Cuban products or proclaim duties for Cuban articles which are now preferentially duty-free. It would not, on the other hand, authorize the proclamation of any duty for a Cuban product higher than that applicable to the like products of other countries. In other words, it merely permits the President when providing more burdensome customs treatment for a Cuban product, whether now dutiable or free, to fix a duty therefor at any point between the existing customs treatment for such product and a point no higher or more burdensome than any customs treatment that may be provided for the products of other countries.

It will prevent the limitations on increases in duty from inadvertently impeding the reduction and elimination of tariff preferences by the United States in return for such reductions and eliminations by other countries, and will permit the removal from the United States tariff of complications as to rates, such as those for chronometer parts, for which there is no economic justification. The CHAIRMAN. Are there any other questions?

Senator MILLIKIN. I would like to call Mr. Thorp's attention to the fact that the Tariff Commission, under the escape clause, does establish the peril points.

Mr. THORP. That is correct.

Senator MILLIKIN. I think it should be said, in fairness, that at that stage of the game it has more information than it probably would have prior to the time the trouble developed.

Mr. THORP. Yes, sir.

The CHAIRMAN. Senator Williams, have you any questions?
Senator WILLIAMS. No, Mr. Chairman.

The CHAIRMAN. All right, Mr. Secretary, I think that is all. I suppose that you might be excused if you wish to be. You may have to come back at some later date.

Mr. THORP. I shall be at the command of the committee any time that I can be helpful.

The CHAIRMAN. We will give you notice, Senator Millikin will have further questions; and Senator Lucas desired to ask a very few questions, he said, but he did want to ask you about some matter. You will be notified at some later date in the hearing.

Senator MILLIKIN. Mr. Chairman, if Mr. Thorp could find out and get a little closer information on when we might expect ITO, it might save us an enormous amount of work in this immediate matter.

Mr. THORP. I think that you made that suggestion this morning, and I will have it in mind.

The CHAIRMAN. Will you advise the committee on that point, Mr. Thorp? We will be very glad to have it, and as early as you can get it, too.

Mr. Clayton, you may come forward, and will you proceed? We do not have a very full attendance, but some of the other members will come in during the afternoon.

STATEMENT OF WILLIAM L. CLAYTON, FORMER UNDER SECRETARY OF STATE, DEPARTMENT OF STATE

The CHAIRMAN. Have you noticed, in H. R. 1211, what changes have been made by the House?

Mr. CLAYTON. Yes, sir.

The CHAIRMAN. We will be very glad to hear you, Mr. Clayton, preceding your statement with your prior experience in connection with the administration of the Reciprocal Trade Agreements Act.

Mr. CLAYTON. Mr. Chairman and gentlemen, my name is William L. Clayton, and I am at present chairman of the board of Anderson, Clayton & Co., of Houston, Tex.

In all my business career, Mr. Chairman, I have had to do with international trade. In 1940 I resigned my position as chairman of the board of Anderson, Clayton & Co. and came to Washington to enter public service; and with the exception of about a year, for the next 812 years I was a Government servant; and during all of that period, with the exception of about a year, I was in positions which had to do with international trade and international economic conditions.

I have all my life not only had some experience in these matters, but I have studied them very carefully and watched developments and conditions from time to time, because it was a matter in which I was very much interested.

I think, Mr. Chairman, that in the present circumstances and conditions in the world, the reciprocal trade agreements program and its continuation in its original form, or about its original form, is more important today than it has been at any time in my experience. The Congress has before it today the consideration of a continuation of the ECA, the European recovery program, and has under consideration the authorization and appropriation of some 51⁄2 billion dollars to cover the cost of that program for the next 15 months. We have in consequence heard a good deal about conditions in Europe in the 16 ERP countries. The matter has been discussed extensively in the newspapers, and persons of authority have given their opinions as to the rate of recovery in these European countries.

All of us are wondering whether, in a continuation of the program, the program will be successful in accomplishing its objectives.

Their principal objective is that at the end of the program these 16 countries shall have been restored to a condition of financial and economic independence, coupled with the restoration of a decent standard of living for their people.

Now, I have followed that program rather closely, and I think it is remarkable that the recovery of production has proceeded as fast and as satisfactorily as it has in nearly all of the countries, particularly in industrial production, which is now, as you know, substantially above prewar in volume. The situation seems to be that that improvement will continue for the years to come, the next 2 or 3 years anyway, provided there is a market for the products, for the goods themselves. That market depends on several things, not the least of which, and I think the most important of which, under the present circumstances, is the reduction of barriers and impediments around the world to the movement of goods between countries, not only between these particular 16 countries and the rest of the world but between the other 50 or 60 countries in the world, because we are all, throughout the world, today so closely knit together in these matters that we must have world-wide reduction of impediments and barriers to trade so that goods may move more freely between nations. Otherwise, the necessary expansion in production, distribution, and consumption of goods around the world cannot take place.

I think if markets can be found for the greatly increased and increasing production of these 16 countries in Europe the chances are very good, indeed, that the objective of the ERP will be attained at the end of the 4- or 42-year period. But if such markets cannot be found, it is useless to go on producing goods for which you have not satisfactory markets. In that case, I do not think that the objectives would be attained.

Our exports today are running, of course, very heavily over our imports. We are in the position of giving away that surplus of exports over imports. We cannot go on indefinitely doing so. We must increase our imports as time goes on. We should increase them to help provide a market for the goods of these European countries and other countries and help increase our standard of living and give us greater variety and quality of goods and get paid for our labor and our materials from this country.

So that I feel that it is highly important that the reciprocal-tradeagreements program be continued, and continued in pretty much the form in which it operated so successfully up to last year when the Eightieth Congress placed amendments in the law and changed the procedures under the law in such a way that I think the effect was to very materially and unfavorably affect the program.

Specifically, the Congress provided in the bill passed by the Eightieth Congress that the Tariff Commission or any representative on the Tariff Commission should no longer participate in the Interdepartmental Trade Agreements Committee, the Committee on Reciprocity Information, or the different teams that were negotiating these agreements. I think that that is a very bad provision to take from the program the immediate and direct help of the Tariff Commission, with their experience in these matters.

Then the bill passed by the Eightieth Congress provided that, on all commodities on which trade agreements were to be negotiated (im