the so-called associated African territories that we now ought to free our hands, go to the policy that Congressman Reuss, Senator Douglas, and I supported some years ago, and give ourselves the opportunity, at least the authority, to negotiate with respect to common markets and free trade areas?

Mr. ROTH. I do still believe that the principle of reciprocity is a critical one. I am not convinced that at this point, pursuit of the possibility of a multination trade area, either NAFTA or MAUTA, is realistic or perhaps desirable. On the other hand, as we say in our report, the world of economic matters is changing rapidly. It could be that a time might come when this is desirable. And this, Senator, by the way, ties into something else you spoke of-the relationship we have with Latin America and the whole preference issue. The way in which our current negotiations on preferences goes could be an important factor in the kinds of problems you raise. As you know, President Johnson decided to attempt to negotiate a generalized scheme. I myself do not think that preferences are that important, but I agree they are of some importance to the developing country. A generalized preference scheme would take the place of the special preferences that the African countries have with Europe, and would be extended across all products, with some exceptions, to all countries by all developed countries.

Senator JAVITS. That is the LDC's?

Mr. ROTH. The LDC's.

Senator JAVITS. That is the less developed countries?

Mr. ROTH. Right.

This, it seems to me, if you are going to have preferences, is the most reasonable way to proceed. What worries me about this country-as a reaction to the European situation-giving special preferences to Latin America, just as it worries me when Europe gives them to Africa, is that then economic policy, trade policy, gets closely intertwined with foreign policy. To a certain extent, I think this problem of separation between trade policy and political policy was in the minds of the Congress when they took the negotiating function, the trade function, out of the State Department and set it up as a separate entity.

Senator JAVITS. Incidentally, do you strongly believe that we should continue that framework of operation? That is, that we should have a separate Representative for Trade Negotiations outside of the State Department?

Mr. ROTH. Very strongly. The chairman, however, made a good point, and that is maybe the title is wrong. I think perhaps it is. Because it is not just a negotiating function, it is a trade policy function. Senator JAVITS. But nevertheless, you want it kept separate? Mr. ROTH. Yes, I think that is right.

Senator JAVITS. In the White House, under the President?
Mr. ROTH. Yes.

Senator JAVITS. Coming back to the main thesis, what do you say to the fact that we have tried operating with liberal trade policies such as you describe for a very long time-indeed, I think in all fairness, since the end of the war. Now, we find that with an inflationary bulge in our country, which is very small considering other countries' level of inflation-British, French, Latin American, Brazilian, et cetera—

but it is big for us, although relatively speaking very small, but our whole export surplus, for all practical purposes, has been eroded.

Does that not indicate that although we may not like it and though it may not be optimum, we have to move to some other posture? We can't continue to beat the same old horse, which is that we are the optimums, we are the idealists, we will remain on this level even if everybody else departs from it completely, and there is very little chance of bringing it back? You have the Common Market in Europe. We are trying very hard for a common market in Latin America to change the Latin American free trade association with its present built-in rigidity into a common market.

There are free trade areas of course, you have your common market in Central America-being discussed all over the world in a very active way. Aren't we just King Canute in trade policy, even though you are right and I agree with you, we are running a government and a world and not an academic class at one of the universities? What do you say to that? I am making it intentionally provocative, because I think it is very rare that we have this opportunity to be with you, and we want to get the best of your thinking.

Mr. ROTH. Let me give you an example. First, let me say that I think progress that has been made in trade, in an international institutional sense, among other things, has been important and good. and there are some clear areas which I would like to come back to where we have to continue making progress. But for instance, should anything like the Brandt-Debre plan, and De Gaulle's most recent suggestions relate to that earlier plan, it seems to me

Senator JAVITS. You said Debre. Whose was the first name you mentioned?

Mr. ROTH. Willy Brandt.

The possibility of a looser free trade area than the Common Market, including the United Kingdom and perhaps other countries in Europe, if something like this ultimately came into being-I would assume it probably would not, but if it did, it would seem to me this would have very serious implications for American trade policy and what our attitude should be. I think, as I understand your question, it is a kind of flexibility that the U.S. Government should have in being able to meet new circumstances such as this when they come along. And I think that is right.

Representative REUSS. Could I just interrupt you, Senator Javits, long enough to ask one question?

Senator JAVITS. Surely.

Representative REUSS. You have said that the Brandt-Debre proposal for a free trade area of Europe rather than a common market could have serious consequences for the United States. Might it also not provide a genuine opportunity, namely, to join the free trade area ourselves and thus move toward a worldwide free trade area which eliminates the autarchic barriers that our child, the Common Market, has constructed? Would that not be a happy state of affairs?

Mr. ROTH. Well, if in effect what proposed is really, really just the continuation of expanding the areas of free trade, certainly. But it is a question of how you get there. I am inclined to feel, given the pressures of the problems, that you get there by a continuation of rather difficult, hard-nosed, lengthy negotiations on particular problems.

Could I just, Senator, come back to one thing you said apropos of our declining surplus and trade problems? One thing that I have been convinced of in the last year and a half, particularly after the balanceof-payments prices a year ago last fall, was the close interrelationship between trade policy and monetary policy, and the tendency, given certain rigidity in the monetary system, for governments such as the United Kingdom, France, others, to look to trade measures in order to take care of the adjustment process. It seems to me that the kind of movement toward greater liquidity, greater flexibility in the monetary system has to be pressed terribly hard as a major part of U.S. policy in order to take care of the trade problems. There are trade measures for adjustment permitted in the GATT, and I think they should be further examined. They can be used under certain circumstances to help the adjustment process. But it always seems to me that they should be secondary, very secondary, to improvement in the monetary field.

Senator JAVITS. Mr. Roth, is it not a fact that the modern tendency is toward the so-called range of weapons theory and that, therefore, we should vest the President with the necessary authority beyond the authority which we have traditionally given him of reciprocal negotiations? Indeed, I feel so strongly about it that perhaps the alliance with Mr. Reuss may be revived with me instead of Senator Douglas as the protagonist here in the Senate. Therefore, I would like very much to get your views.

Mr. ROTH. Senator, I think you are correct. I would like, Mr. Chairman, if I may, to repeat myself. We were talking earlier about the fact that Congress agrees, American industry agrees, that the major area we should be concentrating on in trade is the nontariff barrier area. Yet this is an area where the Executive cannot come to the Congress and ask for specific advance authority because they do not know what authority to ask for. It is too complicated, too complex. You have to negotiate before you know what authority you need. Therefore, we suggest that perhaps it might be desirable to have a sense of the Congress resolution. At least, it would give the President some backing. Because as you know, in the ASP situation, and really to a certain extent, in our dumping negotiations-where we felt we did not have to come back to the Congress-in both these instances, a number of Senators felt that the President acted without proper con gressional authority. So this raises this difficult problem: If you cannot ask for specific authority beforehand, and yet if you come back on an ad referendum basis and there is resentment that you acted beyond your authority, how do you get out of this difficult hole in what is generally acknowledged to be the most important trade area? I think this comes right back to what you said.

Senator JAVITS. My assistant reminds me that in 1963 I sponsored exactly such a "sense of the Congress"_resolution for the minority on the Joint Economic Committee, since I am the ranking member. But I will say this and then I will be through, in order not to detain the proceedings. I understand my good friend, the Secretary of Commerce, is waiting.

There is a middle ground that we will be considering in the Foreign Relations Committee, this and many others. The middle ground will be that the sense resolution we are afraid of. We have had it in Vietnam

24-833-69-pt. 3-13

on the sense resolution and the dog-eared copy that the President is said to have carried around in his pocket for months. And also, of course, there is the treaty ratification which the executive branch finds sometimes too difficult to accept, and the built-in veto in the Senate by filibuster and so on. Therefore, it seems to me that the reorganization procedure may be the suitable way, because it is often forgotten that you have a cloture provision built in to the reorganization law by law, so that it can't be filibustered, and the time limits are narrow so you cannot destroy the effect of the negotiation by just delay. I only throw that out as a possibility. Perhaps the Congressman and I will collaborate in some other way to work out a definitive means. But that may be the reasonable constitutional way to deal with the situation.

Mr. ROTH. I have not suggested that the sense of the Congress is the right way to go. I have problems with it, too. But we wanted to dramatize the issue which, as you say, is a terribly important one. Senator JAVITS. We have no trade legislation now.

Mr. ROTH. That is right.

Senator JAVITS. So if we do a new one, we could conceivably give that authority, with the check and balance of the veto, which is contained in the Reorganization Act.

Mr. ROTH. It is absolutely critical that you have trade legislation this year, I feel.

Senator JAVITS. Mr. Chairman, may I express to Ambassador Roth my appreciation for his expertise and I hope if anything I said was abrasive, you will forgive it, because it was solely designed to elucidate your response.

Mr. ROTH. Thank you. I appreciate this opportunity.

Representative REUSS. Thank you very much, Mr. Roth. You go with our deep gratitude for a wonderful job you have done. Good luck.

Mr. ROTH. Thank you, Mr. Chairman.

Representative REUSS (presiding). Having rung out the old, we will now ring in the new with Commerce Secretary Stans and Treasury Under Secretary Volcker.

Gentlemen, let me say that we thank you for coming up this morning. Let me also say that we have read your testimony. It is very responsive to this committee's inquiry and it will be most helpful. Both statements will be, without objection, included in the record. May I ask you, Secretary Stans, if you will proceed to read your statement or summarize in whatever form you prefer.

STATEMENT OF HON. MAURICE H. STANS, SECRETARY OF COMMERCE; ACCOMPANIED BY WILLIAM H. CHARTENER, ASSISTANT SECRETARY OF COMMERCE FOR ECONOMIC AFFAIRS

Mr. STANS. Mr. Chairman, Senator Javits, gentlemen, I want to say first that I appreciate the opportunity to appear before this distinguished committee. The last time I was here was a little over 8 years ago when I was Director of the Budget, so it gives me particularly great pleasure to testify again, this time as Secretary of Commerce.

Having said that, Mr. Chairman, I would appreciate it if you would permit me to have the rest of my statement read by my asso

ciate, Assistant Secretary Chartener. It happens I have been ill the last 2 days and I would like to conserve whatever strength I can for your questions, if I may.

Senator JAVITS. Mr. Stans, if you do not feel well enough to be with us this morning, the Chair will understand.

Mr. STANS. I think I will be all right so long as I do not have to spend 15 minutes_reading the paper. I will be delighted to stay. Representative REUSS. You will certainly be able to do that and I will ask our old friend, Mr. Chartener, to perhaps set forth the highlights of the Secretary's statement. I have a few questions to ask him and I know Senator Javits has.

(The Secretary's statement was read by Mr. Chartener as follows:) Mr. CHARTENER. I will proceed with the statement set forth by the Secretary.

Your committee has already received the testimony of other administration witnesses. Rather than duplicate their review of the general economic situation, I should like to devote most of my statement to particular items of economic policy of direct concern to the Commerce Department. I note also that your chairman asked me in his letter of invitation to appraise some specific issues of international economic policy.

For that purpose, I shall begin by reviewing recent developments in the U.S. balance of payments and discussing the immediate outlook. I shall then relate this to policy issues and to administration programs, especially for trade and foreign investment. And I shall conclude my remarks by references to one or two departmental matters that seem to be of great importance to the Joint Economic Committee.

I do not wish, however, to minimize the importance that I attach to general economic policies. I feel as strongly as my Cabinet colleagues about the importance of these policies for the national wellbeing. In particular, successful control of inflation in a way that does not jeopardize the sustained growth of the economy is our prime need. In our external economic affairs also, it is imperative that the U.S. position should be buttressed by a more stable price level.

U.S. BALANCE OF PAYMENTS

The 1968 balance-of-payments accounts showed a surplus of $190 million on the liquidity basis, and $1,660 million on the official settlements basis. Both of these figures were correctly described as "soft" by the Republican members of your committee in their statement at the opening of this set of hearings.

The 1968 liquidity surplus was the first since 1957. But it occurred despite a deterioration of the merchandise trade surplus to the lowest level since the year 1937. This trade decline is a matter of very great concern. The 1968 trade surplus, on the balance-of-payments basis, was only $90 million, compared with $3.5 billion in 1967.

The largest single influence on this change was the vigorous inflationary expansion in the U.S. economy. True, actual or threatened strikes in domestic metals industries and by longshoremen at east and gulf coast ports distorted monthly trade patterns throughout the year. However, only about one-fifth of the trade deterioration could be attributed to this source.