In accordance with your request of January 27, 1954, I am transmitting a
memorandum which contains the Department’s comments on the recommendations
of the Randall Commission.
Since receipt of the Report we have given consideration to the question of
the Administration’s approach to the Report as a whole. It is our strong
view that, on balance, the wisest course for the Administration to pursue
would be to accept the program proposed in the Report as the new take-off
point for the reformulation of our foreign economic policy. Otherwise, we
run a substantial risk that the advantages created by the generally
constructive nature of the Report will be dissipated.
In recommending this course of action, we wish to note that there are many
individual recommendations in the Report with which the Department would
have disagreed if they had not formed a part of the carefully balanced
“package” which the Report represents. We feel, however, that these
differences should be submerged in the interest of achieving progress in the
constructive reformulation of our foreign economic policy as a whole.
The Department’s detailed comments, contained in the attached memorandum,
must be viewed in the light of the general position stated above. These
comments are made largely in order to indicate omissions and isolate
ambiguities. However, if the Administration
[Page 51]
should decide, in the end, to reopen any of the main
issues covered in the Report, our comments on some points would be more
extensive and more critical.
[Attachment]
Comments on Specific Recommendations
1. Page 8. Economic aid. The Department feels
that, in practice, the recommendations with respect to economic aid will
need amplification in order to provide a somewhat clearer basis for
actual operations.
Under present policies, the assistance included in the Mutual Security
Program on a grant basis is based on security grounds. Part of these
grants are for the purpose of helping some nations, who cannot
themselves sustain the burden, to support military forces essential for
our security. Another part—moderate in amount—represents a critical
supplement to larger programs of development undertaken by some
countries with their own resources. These latter programs are believed
to be consistent with the Commission’s thinking that “where our security
is importantly involved … moderate grants in aid may serve the national
interest of the United States.”2
In many underdeveloped areas, the relationship of our security to
programs of development is direct and immediate. The basic maladjustment
of underdeveloped countries is the result of the pressure of their
peoples for accelerated economic development and the insufficiency of
their domestic resources and foreign exchange availabilities to do the
job which must be done. The security of the United States will be
greatly enhanced if these peoples are convinced that free society holds
more for them than does communism. The United States has, therefore,
regarded economic aid as a weapon in the fight against world communism
as well as an expression of essential United States humanitarianism.
With respect to the recommendation that economic assistance should be in
the form of loans rather than grants, there may be some cases where
substantial economic aid to a country will be warranted in the interest
of the United States and where any loans made would have to be in a form
not meeting ordinary banking standards. The problems and difficulties
which such loans would
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involve,
however, are so serious that we consider that these need to be
reemphasized.
There are also a number of major problems with respect to economic grant
aid on which the Report does not touch. Reconstruction aid in situations
such as Korea represent one group of such problems. The problems
involved in the agricultural surplus disposal program also present
difficult and important issues.
Finally, when considering the foreign aid section of the Report, note
should be taken that the Commission did not address itself to the
question of extension of economic assistance in association with other
nations. This question is of considerable significance both because of
existing United Nations programs of that type and because of the
President’s proposal of April 16, 1953,3 in which he asked the
American people to contribute a substantial portion of the savings of
international disarmament to a fund for world reconstruction and
development. As a follow-up to the President’s proposal, the United
States sponsored a resolution,4 which was adopted by the United Nations
General Assembly, asking all governments to make a similar pledge.
2. Page 16. United States foreign investment.
There are several additional suggestions for stimulating foreign
investment which the Report does not cover and which merit careful
examination. These include: the use of technical assistance in helping
countries to improve the “climate” for private investment and to provide
better information concerning investment conditions and opportunities;
improvements in the administrative and procedural aspects of the
guaranty program, in order to make the program more attractive both to
investors and to borrowing countries; greater use of bilateral tax
treaties, aimed at defining the particular foreign taxes that qualify as
a credit against United States domestic taxes and defining the treatment
of temporary tax concessions offered by the foreign government to new
investment; greater use of the authority of the Export-Import Bank to
guarantee loans made from private sources, on a contingent liability
basis; and the possibility of joint participation by the Export-Import
Bank with private enterprise (American or foreign) which would not
invest in the absence of the Bank’s participation.
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3. Pages 28–32. Agricultural policy. The
recommendations of the Commission clearly point in the right direction
but this is a field in which a somewhat greater degree of specificity is
necessary. In implementation of the Commission’s recommendations, it
would be necessary to consider, for example, the standards to be applied
in restricting foreign imports and subsidizing exports: Should such
import restrictions be designed so as not to deprive imports of the
share of the domestic market they would have enjoyed in the absence of
the domestic program; should a representative base period be employed in
making such determinations; should we reexamine the criteria established
in Section 22 of the Agricultural Adjustment Act;5 where imports
represent a large part of domestic consumption and where the support of
domestic prices would unduly encourage the use of substitutes, should we
use income support instead of import restrictions; and should we in some
specific way limit the share of the world market we preempt by our
subsidized exports, including our sales by the United States Government
at lower than purchase prices? Should the extent of our import
restrictions and export subsidies be determined unilaterally, or should
they be the subject of international negotiation?
4. Pages 35–36. Instability of raw material
prices. The Department agrees with the recommendations of the
Commission concerning the measures and policies that will be most
conducive to reducing the excessive instability of raw material prices.
It assumes, however, that the Commission recognized that many of these
measures can be applied only gradually and will take a substantial time
to achieve their purpose. It assumes, also, that this fact was at least
one of the reasons why the Commission deliberately avoided closing the
door on all international agreements to stabilize
prices in the following recommendation: “The Commission does not believe
that extensive resort to commodity agreements will solve the problem of
price instability …”
In point of fact, there will probably continue to be very few commodities
in which the countries affected have sufficient desire for international
action of this kind to result in an agreement and even fewer where the
peculiar circumstances make an agreement both expedient and workable.
Nevertheless, the United States cannot afford to adopt the attitude that
it will not under any circumstances participate in such an agreement,
regardless of the economic hardships that may be suffered by producing
countries and regardless of the political and strategic
consequences.
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5. Page 45. Buy American Act.6 The first part of this
recommendation, proposing the amendment of the Buy American Act, is
ambiguous as to a major point, namely, what is meant by the concept of
treating other nations “on an equal basis”. If this criterion were to
rule out nations which cannot accept United States bids because they
cannot afford to pay for the materials in dollars, the field of its
applicability would be narrow and the effect would be contrary to the
Commission’s clear intent to provide some liberalizing action in the Buy
American field. Moreover, consideration needs to be given to the
question of how to reconcile the approach implicit in the Commission’s
recommendation on this point with that implicit in its recommendation
elsewhere, that the United States continue to follow an unconditional
most-favored-nation policy with respect to trade matters.
6. Page 50. President’s powers to reduce tariffs.
The Report does not consider the special problem of the tariffs
applicable to goods which are appraised on the basis of the American
selling price, e.g., coal-tar dyes. The question will have to be faced
in connection with the meaning of paragraph c of this recommendation,
which relates to the reduction of tariffs over “50 per cent ad valorem”.
The special group of commodities which are appraised on the basis of
American selling price commonly have an ad valorem incidence of 200 or
300 per cent in terms of normal valuation methods, even though the apparent rates, as recorded in the Tariff
Act,7 run at
about 30 or 40 per cent in most cases.
7. Page 53. Organizational provisions of the GATT.8
At present, most of the GATT’s
provisions represent a multilateral trade agreement, and have nothing to
do with organization. Is it intended that the scope of these substantive
non-organizational provisions should be circumscribed in any way? In
particular, is there any intention to limit agreements on substantive
provisions which embody broad trade policies, such as the general
principle against import and export restrictions?
8. Page 72. Currency convertibility. A somewhat
firmer understanding is needed of what the Report’s recommendations
imply for
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action on
convertibility in the immediate future. Various governments have
indicated clearly a serious interest in the early return of their
currencies to a convertible status. The United Kingdom and Germany,
among others, have already discussed this problem with our Government,
and the United Kingdom has elaborated a rather detailed program
contemplating a phased return to sterling convertibility.9 The Department believes that if positive
and definable progress is to be made toward the goal of convertibility
it is important to take advantage of existing favorable circumstances
and attitudes which, if lost, may not be recaptured in the foreseeable
future. The United States can best do this by responding in a positive
and constructive manner to the initiative already taken by other
countries, rather than awaiting new initiatives.
The Department accordingly believes that it would be in full accord with
the approach and recommendations of the Commission Report for the United
States to proceed expeditiously to reach understandings with the other
principal countries concerned on: the amounts of credits which might be
made available from the Federal Reserve System and which the United
States would support for extension by the Fund, respectively, for the
purpose of assisting in the establishment of convertibility of sterling
and other major currencies; the terms and conditions which the United
States should impose in connection with the extension of such credits;
specific additional steps by other countries which would warrant
commitment of such support.
In view of the similarity of interests between Canada and the United
States in this general area, and Canada’s present relatively strong
financial position, this Government should explore with the Canadian
Government the possibility of supplemental credits from Canada for the
purposes here considered.
Moreover, in view of the value of the European Payments Union as an
instrument for promoting European unification,10 the United States will have to give careful
thought to the relation between the establishment of currency
convertibility and the continued functioning of the EPU.
9. European economic integration. In any complete
reformulation of United States foreign economic policy, our views with
respect to European economic integration need to be stated. Although
some favorable mention is made of Western Europe’s progress through the
OEEC in widening the area of
multilateral trade and payments, the question of European economic
integration—both in the
[Page 56]
wider
OEEC area and within the area of
the European Coal and Steel Community—is not dealt with. The Report is
silent, for example, on our support for the European Coal and Steel
Community and on the United States view with respect to the promising
economic aspects of the European Defense Community and the proposed
European Political Community.
10. Restrictive business practices. One important
area of foreign economic policy with which the Report does not
adequately deal is the problem of restrictive business practices as they
affect international trade; except for a brief reference in one limited
context—that of encouraging international investment—no recommendations
are made with respect to the problem. If reliance is to be placed on the
stimulating effects of competition in international trade, as the Report
appropriately envisages, more progress must be made in the
discouragement of cartel practices. These practices have had a
profoundly adverse effect on attempts of countries to raise the
productivity of their economies; they have constituted direct barriers
to the normal flow of international trade; they have added to the costs
of rearmament in Europe; and they have reduced our supplies of important
raw materials, such as industrial diamonds. A program in this field
needs to be developed.
11. Frivolous and repetitive escape clause
actions.11 It is worthwhile considering
whether to ask the Congress to limit the procedural provisions of the
escape clause so that (a) frivolous cases need not go through the formal
investigation procedures of the Tariff Commission and (b) applicants are
not free to file a new escape clause application immediately upon
rejection of a prior application.
12. Added problems of customs administration. The
Report is silent on a number of issues regarding customs administration
and policy which seem to merit consideration. One is a proposal to amend
the countervailing duty laws so that such duties are applied only where
a domestic industry is being injured. Another is a proposal, mentioned
above, to eliminate “American selling price” as a basis of appraising a
special group of imported articles. Still others include: broadening the
application of the provisions permitting substitution for drawback
purposes; eliminating the provision that the Secretary of the Treasury
may not alter a ruling which would
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favor importers except with the assent of the Attorney General;
eliminating the proof-gallonage basis for taxing imported distilled
spirits; eliminating the discriminatory aspects of certain internal
revenue taxes; and broadening the definition of commodities eligible for
duty-free entry as “works of art”.
