The CHAIRMAN. Are there any further comments? Mr. RYDER. I have none. I would be glad for you to ask any further questions you may want to ask. The CHAIRMAN. Thank you very much, Mr. Ryder, for coming, and for the useful information you have given us. Mr. RYDER. Thank you, sir. I have been glad to be of assistance to you, and if there is any way in which I can help you further, let me know. (Tables 9, 10, and 11 in the Statistics Section of the Exhibits provide additional statistical data on duty rate reductions.) The CHAIRMAN. We shall recess until 10:30 tomorrow morning. (Whereupon at 5:30 p. m. an adjournment was taken, to reconvene at 10:30 a. m., on Thursday, April 3, 1947.) INTERNATIONAL TRADE ORGANIZATION THURSDAY, APRIL 3, 1947 UNITED STATES SENATE, The committee met at 10:30 a. m., pursuant to adjournment, in room 312 of the Senate Office Building, Hon. Eugene D. Millikin (chairman) presiding. Present: Senators Millikin (chairman) and Bushfield. The CHAIRMAN. The hearing will come to order, please. Dr. White, would you kindly state your full name and your occupation. STATEMENT OF HARRY D. WHITE, UNITED STATES EXECUTIVE DIRECTOR, INTERNATIONAL MONETARY FUND, WASHINGTON, D. C. Mr. WHITE. Harry Dexter White, and at present I am the United Senator BUSHFIELD. Doctor, I am glad to meet you, sir. The CHAIRMAN. Doctor, the proposed charter for the ITO defines certain relationships between that Organization and your Fund. We would appreciate any comments you care to make on the subject. Mr. WHITE. Senator, I came here at your invitation, prepared to answer questions that I could on the Fund's activities, and so I have not any prepared statement, so my remarks will be quite "off the cuff." The CHAIRMAN. I think that is even better, sometimes, than a prepared statement, if a man knows what he is talking about. Mr. WHITE. Fine. We are interested in those aspects of the ITO that bear on some of the Fund activities, and we have considered some of those aspects rather carefully. In fact we have participated through our representatives in the discussions on the particular points at some of the more recent conferences. The area which is covered by the International Trade Organization that touches on Fund activities and responsibilities relate, chiefly, if I remember correctly, first, to the exceptions specified in the draft charter to the provision that countries may not undertake, through any device other than tariff or taxes, to restrict imports. of One of those exceptions important for the Fund is that if the balance payment situation warrants a modification of the trade balance, then a restriction of imports through one device or another may be applied. The CHAIRMAN. If a particular currency became scarce, for example, you might have to apply certain import or export restrictions in order to bring the thing back in balance; is that correct? Mr. WHITE. Quite so, Senator, though I think that relates more to the question of discriminatory restrictions. They are closely related. but for convenience one might treat them separately. The second point of interest to the fund bears on that subject of discrimination. Discriminatory treatment may take the form of either adjustments of import quotas or foreign exchange permits being granted in one fashion rather than another. The International Monetary Fund articles of agreement already cover the question of discriminatory treatment when it involves the use of foreign exchange, and the ITO is attempting to pursue a parallel course with regard to devices other than those involving foreign exchange which can be used to implement discriminatory policies. (The articles of agreement referred to appear as exhibit VIII-C.) The CHAIRMAN. I was going to say, roughly speaking, you can accomplish the same restrictive results by exchange restrictions as you can by direct import restrictions, or export restrictions, or tariffs, or other deals in commodities themselves; is that not correct? Mr. WHITE. That is largely true, Senator, but with varying degrees of effectiveness depending on whether you use one device or another and depending on the special situation. There are times, for illustration, when you might get much more effective results by setting a quota on imports than on rationing foreign exchange permits, because in many cases it may be easier to evade foreign exchange control than import control. At other times, the reverse might be true. The CHAIRMAN. If you cheapen or render more expensive any one currency in terms of other currencies, you accomplish some of the effect which would be accomplished by a reduction in tariffs; is that not correct? Mr. WHITE. Very true, Senator. The CHAIRMAN. So that I assume the provisions of the charter that have to do with certain defined collaborations between the Fund and the proposed Organization are intended to close restriction gaps which might affect the monetary problem, and might be related at the same time to the trade problem. Mr. WHITE. I think I agree with what I believe is the general principle which you are stating, but to make sure, might I put it this way, and see if we are in agreement? The CHAIRMAN. Yes. Mr. WHITE. That because there are at least two ways of attempting to accomplish changes in foreign trade, by prohibiting through agreement one course of action, you do not necessarily prevent the attainment of the objective, since there is another way left open by which the country can operate. The CHAIRMAN. I agree entirely with that. Mr. WHITE. I think that is what you had in mind? Give us a brief summary, if you will, please, of those powers which the fund has which might affect the inflow or outflow of trade from any given country. Mr. WHITE. An enumeration of the powers which might affect the trade balance? The CHAIRMAN. Take your own head on it. I am trying to get some information in the record so as to point the parallelism where it exists, and develop any differences where they exist, so that the Senate may have some facts in the record to show the reason for collaboration between the two agencies. Mr. WHITE. That is a broad question, Senator, and I will try my best to supply a comprehensive answer, but I am afraid I may ramble a bit. The CHAIRMAN. Go ahead and ramble. Mr. WHITE. One of the important ways of influencing the balance of payments or the trade balance of a country is to alter foreign exchange rates. The fund, as you remember, has the authority, under certain conditions to reply to a country requesting an alteration in its exchange rates because the country feels such alteration is necessary to correct what is called a "fundamental disequilibrium," to say to that country, "In our judgment the alteration is necessary," or "In our judgment it is not necessary". In other words, the fund can concur, or it can withhold concurrence. And if it withholds concurrence, and if the member country does not accept the fund's views, there are certain consequences which follow, of varying degrees of effectiveness. The fund can go so far as to declare the country in default. The CHAIRMAN. And to withdrawal, as I recall it. Mr. WHITE. The country can withdraw at any time, or in extreme cases the fund can force a country to withdraw. The CHAIRMAN. Yes. Mr. WHITE. That refers to the case when a country requests a change in its currency parity. But the fund's authority goes further than that. It may extend to situations in which the fund is not being asked to approve a change in currency parities. The fund may say to a country that is coming to the fund to acquire foreign exchange: "You are using the fund's resources in a manner which, in our judgment, is prejudicial to the other members, or to the resources of the fund, and the reason why you apparently are being forced to resort to the resources of the fund is because there are in your country some basic maladjustments not being corrected.” And it may be that one of those basic conditions which needs correction is an alteration in foreign-exchange rates, or it may be something else. It may be, for illustration, that the country in question is pursuing an inflationary policy making it difficult for it to maintain its position in the export market. It may be importing so much that it no longer has the foreign-exchange reserves to spare, and it is coming to the fund for foreign exchange. Coming to the fund, under this hypothetical case that I am assuming, would not help correct the situa tion which is giving rise to the need for more aid. The country might thereby jeopardize the fund's resources, in the opinion of the fund, and so the fund might say, after appropriate consultation and discussion, that "We think there is required some modification of credit, or price policy, or commercial or fiscal policy, so as to put a stop to the drain on your foreign-exchange resources and to the requests to the fund." The fund can thus help bring about changes in a member country's foreign trade by many ways. The CHAIRMAN. Please give us a kindergarten illustration of how variations in exchange rates affect imports and exports. Mr. WHITE. Let us suppose a member country has rapidly rising prices. As the result of those rapidly rising prices, the country may be unable, in the months to come, to maintain its level of exports, because other countries find the prices when converted into their own currency are higher than prices they would have to pay for similar goods purchased either at home or somewhere else. They naturally reduce their purchases from the country having rising prices. The country in question likewise finds that because the prices at home are rising more rapidly than in many other countries, imports are more attractively priced than their domestic goods, and so the domestic consumers import more and buy less of the goods produced at home. The end result of that process is that the country is buying much more, selling much less, and has to use more of its foreign exchange reserves or borrow some. On a specific commodity, for example, say gloves. The CHAIRMAN. Yes. Mr. WHITE. The country may be a large glove exporter. It finds that the people in other countries who have been importing their gloves begin to buy elsewhere. The CHAIRMAN. In other words, the American purchaser of, let us say, French gloves, has to put up too many dollars to get the French exchange necessary to purchase those gloves? Mr. WHITE. Yes. Though in the particular case cited, not because the exchange rate has changed, but because the price of gloves is rising in France. The CHAIRMAN. But if, by fiat, the exchange rates were halved or doubled, it would have the effect, roughly, of doubling or of halving the price of the product to the importer. Mr. WHITE. Roughly, and for a time, probably. The CHAIRMAN. Yes. Mr. WHITE. The price may be rising to the American importer of gloves for one of two reasons. It may be because the price in France is rising, and the American importer has to buy more French frances for a given amount of gloves, if francs cost the same; that is one reason. The CHAIRMAN. That is right. Mr. WHITE. Or it may be that he has to pay almost the same number of francs for a given amount of gloves. The CHAIRMAN. Yes. Mr. WHITE. But he has to pay more cents for each franc. The CHAIRMAN. That is right. If, today, the dollar will buy 100 francs and the purchaser of the French gloves in this country buys on |