UNITED STATES OF AMERICA

APR 27'48

Introduction

The economic foreign policy of the United States is aimed at expansion of trade between nations on a reciprocal and mutually advantageous basis. It is designed to help: (a) increase employment; (b) increase the production, exchange, and use of goods and services; (c) raise living standards in all countries; (d) eliminate trade causes of international friction and hostility; and (e) create economic conditions in the world that will be conducive to the maintenance of world peace.

As evidence of its belief in the importance of this policy, the United States has taken action in a number of important directions. Since 1934 this country has carried on a well-organized program for reciprocal reduction of tariff and other barriers to our trade with foreign countries by agreements with them. This Government is also negotiating numerous treaties of friendship, commerce, and navigation with other countries. The United States has taken a leading part in establishing the Food and Agriculture Organization, the International Monetary Fund, and the International Bank for Reconstruction and Development. To assure the minimum economic and political conditions under which these international organizations can effectively operate and under which our long-range foreign policy can be successfully implemented is the purpose of the Marshall Plan.

Development of the Reciprocal Trade-Agreements Program

Between the two world wars, especially during the depression, practically all governments applied rigid foreign-trade controls. These controls were usually designed to restrict imports into their countries and, at the same time, to force domestic products into foreign markets regardless of supply and demand or the effects on other countries. Some countries took this course because of necessity or fear of another war. Some followed this course through mistaken ideas of nationalistic self-sufficiency and prosperity. A few were delibMarch 21, 1948

erately bent on economic and political aggression and domination.

The measures which were employed included exchange restrictions, bilateral and discriminatory trade-balancing agreements, tariff and other trade preferences, excessively high import duties, and export subsidies designed to dump surplus goods abroad. They amounted to an international trade

war.

Up to about 1928 the American Government and American investors made extensive foreign loans, some of them unwise. Meanwhile, United States tariff policy (in 1921 and again in 1922 the United States raised its tariffs against imports) was making it practically impossible for many foreign borrowers to repay the loans fully through sales of their goods and services in the United States. In 1930 the United States raised its import duties to record levels, through passage of the Hawley-Smoot Tariff Act of 1930.

As a result of this action and other causes, the annual value of United States foreign trade fell from $9,640,000,000 in 1929 to $2,934,000,000 in 1932-a drop of more than two thirds. Many American export industries were shut down and many American workers joined the bread lines. American crop surpluses broke down the home markets. American producers of automobiles, machinery, petroleum products, pork, wheat, cotton, tobacco, fruit, and many other important products were hard hit by the loss of foreign markets. Unemployed workers and struggling farmers dropped out of the domestic market. The same thing was happening in foreign countries. The world-wide depression was intensified and prolonged by the collapse of international com

merce.

Passage of the Trade Agreements Act in 1934

In 1934 Congress passed the Trade Agreements Act since renewed four times-for the purpose of restoring lost foreign markets for American products.

The act authorizes the President to conclude trade agreements with foreign countries and, in

return for reduction of their barriers against American goods, to reduce United States tariffs and other import restrictions on goods from abroad. Since high trade barriers hinder this exchange of goods, it is obvious that other countries can and will buy and pay for more American goods if they can sell more of their own in this country.

The act requires the President to obtain advice and assistance for certain specified government agencies in formulating the agreements. The 1934 act specified the Departments of State, Agriculture, and Commerce, and the Tariff Commission. That act also forbade the reduction of any United States tariff in a trade agreement by more than one half of the rate in effect when the act was passed. The initial term of each agreement is fixed at not more than three years, after which the agreement remains in effect unless either country terminates it on six months' notice.

A very important provision of the act specifies that interested persons or groups shall have full opportunity to present information and views on any agreement before it is concluded. This provision is carried out under Executive orders of the President (see page 5). The duration of the authority given to the President in the 1934 act was limited to three years from June 12, 1934. In 1937 Congress extended this authority for another three-year period; in 1940 for another three years; in 1943 for two years; and in 1945 for three years, or until June 12, 1948.

Renewal and Expansion of the Act in 1945

In extending and amending the act in 1945, Congress enlarged the authority of the President to modify United States tariffs and other important restrictions. Under the amended act he may reduce a tariff rate by not more than one half of the rate in effect on January 1, 1945. Thus an original rate which had been reduced before January 1, 1945, may now be further reduced in a trade agreement by not more than one half of the January 1, 1945, level, but an original rate which had not been reduced before January 1945, may only be reduced by not more than one half of the rate in effect when the act was passed in 1934.

For example:

And could be reduced, in a future trade agreement, only by one half of $1.00 to ..

$1.00 per unit

.50 per unit

added the War and Navy Departments to the list of Government agencies which the President is required to consult before concluding an agree

ment.

Why Congress Increased Authority in 1945

The chief "bargaining power" through which the United States induces other countries to lower their barriers against United States exports lies in the authority to bind against further increase or to reduce United States tariffs-which are the principal American restrictions on international trade-in return. In the agreements made before the act came up for renewal in 1945 the United States had used up much of this bargaining power. United States tariffs on a large proportion of this country's imports from the 28 trade-agreement countries had been reduced to the full extent permitted in the 1934 act.

In trade agreements concluded before January 1, 1945, and on the basis of the value of United States imports in 1939, United States tariff rates had been reduced by the full 50 percent permitted under the 1934 act on 42 percent of dutiable United States imports. On 20 percent the rates had been reduced by less than the permissible 50 percent. On the remaining 38 percent the rates in effect on June 12, 1934, had not been reduced and were still in effect on January 1, 1945.

While comparable foreign concessions had been obtained, there still remained many burdensome foreign barriers which United States exporters wished to see reduced or eliminated. United States import duties on many needed items were, furthermore, still high.

By authorizing the President to reduce tariff rates by as much as 50 percent of the rates in effect on January 1, 1945, the Congress made it possible to offer still further reductions in United States trade barriers in return for reductions in foreign barriers and thus added to the bargaining power of this Government in trade-agreement negotiations.

How Trade Agreements Are Made

The trade-agreements program is administered through an interdepartmental organization representing the Government agencies concerned with the commercial foreign policy of the United States.

Trade Agreements Committee. The Trade Agreements Committee advises and assists the President in formulating and negotiating trade agreements. The Committee must include representatives of all the agencies which the President is required to consult, as well as the Department of Labor and the Department of the Treasury, which administers the United States customs laws. From time to time the representatives of other