Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

232. Minutes of Meeting of the Cabinet Committee on Export Expansion¹

Washington, April 7, 1964.

1. The meeting was opened by Secretary Hodges, Chairman of the Committee. He asked members for their opinions of how long the favorable surplus of some $7 billion (on an annual basis) of exports over imports, which we had experienced in the three months period, December–February, could be held.

Under Secretary Murphy indicated that one factor in the improvement was an increase in Agricultural exports. The Department of Agriculture expects agricultural exports to total about $6 billion for 1964, which would be substantially above the experience of recent years. He looked for an upward trend of agricultural exports in future years even without the benefits of the Kennedy round, although there may be some short-term contraction of recent high levels. A successful negotiation with improved terms of access would strengthen the upward trend.

Secretary Hodges then asked Assistant Secretary Holton to present his analysis of the recent improvement in exports in relation to imports. Dr. Holton stated that the spread of exports over imports in the December–February period was running at an annual rate of about $7 billion. While this is encouraging, Dr. Holton said it cannot be expected to continue since a good share of the increase in exports was a result of unusually large shipments of agricultural products. Moreover, unusually stable import volume which is an important factor in the $7 billion surplus is not expected to continue since the stimulus of the tax cut will no doubt increase the demand for imports.

On the optimistic side, however, Dr. Holton pointed out that when a 3-months moving average is used, the figures indicate a steady month-by-month gain in exports starting in the middle of 1963. This is closely related to the increase in industrial production which has occurred in Europe beginning in mid-1963.

2. Assistant Secretary Holton then presented charts which reflected the pattern of exports of the United States over the last ten years, indicating first of all the more rapid growth of exports to the industrialized areas of the world relative to the rest of the world. In 1963, the industrialized areas accounted for about $13.7 billion out of the $22.3 billion total. Looking at the industrialized markets alone, it is apparent that the sales to Western Europe have increased much more rapidly than have sales to Canada, although Canada increased its buying from the U.S. rather substantially in the last half of 1963. The exports to Japan in 1963 were running about 2–1/2 times as high as they were in 1953 and 1954, although they still only account for about $1.8 billion out of the $13.7 billion total exports to the industrialized countries.

About $3.5 billion of the $13.7 billion exports to the industrialized areas consists of agricultural commodities and this, as a share of total exports, has not changed significantly over the last decade. Looking at non-agricultural industrial materials exports to the industrialized areas, the growth has been relatively slow and exports of nonferrous metals and of steel mill products have actually declined very significantly over the last three years or so. The exports of machinery, however, have increased about 55 per cent, 1963 over 1959, and this is one of the more promising product groups on which the export expansion effort is concentrating.

The exports of consumer goods (excluding autos) to industrialized areas is still very small, only about $700 million out of the $13.7 billion. Exports of these consumer goods to Canada were falling off but showed improvement in the second half of 1963. The rate of increase of consumer goods exports to Western Europe has been quite promising. The rate of increase in the exports of consumer goods to Japan has been very great, but total consumer exports in 1963 to that country amounted to less than $40 million.

Merchandise exports are expected to rise from the $22.3 billion level achieved in 1963 to about $24.5 billion in 1964, an increase of about 10 per cent. This forecast is particularly sensitive to the rate of increase in industrial production in the industrialized countries of the world. Imports are expected to rise from the $17.2 billion level in 1963 to about $18.7 billion in 1964, an increase of 8 per cent. If this forecast should prove accurate, the trade balance would increase from $5.1 billion in 1963 to $5.8 billion in 1964.

3. Secretary Hodges then called on Assistant Secretary Behrman to report on the status of recommendations of the White House Conference on Export Expansion held September 1963.

Dr. Behrman said the White House Conference produced about 110 recommendations which have been grouped into three categories.

• First, are general recommendations relating to increased productivity, maintenance of labor-management peace, reduced taxes, price/wage stability, foreign language teaching, greater interest by organized labor in export expansion, and the potentials for achieving full employment represented by the export expansion program. While no time limit has been set for achieving the general objectives, the Administration has had the tax cut enacted, is sponsoring industrial modernization conferences, and has announced language institute grants of $6.8 million for fiscal year 1965.
• Second, are recommendations relating to increased export promotion. The Bureau of International Commerce opened a fifth U.S. trade center in Milan, Italy, in January 1964. A sixth is scheduled to open in Stockholm, Sweden, in early 1965. In addition, funds have been requested for two more trade centers. The number of commercial trade fairs and industry-organized/government-approved trade missions has been increased for 1964. New programs for mobile trade fairs and sample display centers will be under way soon. A target of 10,000 new exporters was recommended by the conference. The Commerce Department has identified over 5,000 nonexporting manufacturers and has contacted over 1,200 of them.

The Commerce Department has held four regional conferences with the commercial officers overseas in 1964; seven such conferences have been held since 1961. The 1964 conferences took place in Frankfurt, Germany; Beirut, Lebanon; Lagos, Nigeria; and Nairobi, Kenya.

AID and the FCIA have taken steps, as recommended by the White House Conference, to simplify the credit information required for insurance and investment guarantees. AID has also revised its procurement regulations.

The third category comprises basic policy recommendations such as tax incentives for exports, changes in anti-trust policies as they apply to exporters, elimination of discriminatory freight rate disparities, liberalization and expediting of export financing, etc. These recommendations call for fundamental policy decisions and constitute the major unfinished business of the White House Conference.

4. Administrator Bell led the discussion on AID policies as they affect long-term commercial interests of the U.S. This discussion was divided into three categories: (1) Administrator Bell indicated that he was prepared to consider criteria which would give priority in AID programming to projects with the greatest long-term export potential. He asked the assistance of the Commerce Department in developing appropriate criteria. A joint Commerce/AID working group will examine this question and attempt to come up with recommendations for submission to the AID Administrator. (2) Mr. Bell directed his attention to the AID policy of “last resort” financing. This policy, designed to assure that AID finances projects only when no other country or other source of credit is available, has had some unfortunate results. Other industrialized countries have moved in with offers of loans for prime commercial projects with interest rates higher than AID’s but lower than Ex-Im is prepared to offer. They call these offers their contribution to the development assistance effort but it results in long-term commercial ties for their exporters to the exclusion of U.S. firms. Administrator Bell said the “last resort” policy of AID contributes to this problem and should be re-examined. To change the policy, however, would require prior clearance with Congress. He said that the Commerce Department paper on the subject² over-simplifies the legal problems involved in changing the policy. (3) Mr. Bell indicated that there is evidence that a “gap” exists in financing projects in LDCs, between the relatively hard terms of the Ex-Im Bank and the soft terms of AID. Secretary Dillon agreed that such a problem might exist, but that more work is needed to establish its dimensions. Mr. Bell stated that in his view, AID should not attempt to deal with this problem as this would require AID to continue in a country essentially for reasons of export expansion. Instead of AID, the Ex-Im Bank or other agencies of Government should do this job.

Mr. Linder said that credit availability is a secondary consideration to the main effort in the export expansion field which is to encourage more American manufacturers to enter the export market. He stated that Ex-Im, AID, and PL 480³ now assist more than 20% of American exports. Mr. Linder also said the evidence presented to date regarding the alleged gap in our financing arrangements does not indicate any serious problem. He pointed out that if we want the Europeans to share the burden of AID, we must let them finance their exports. It was agreed that the issues involved in export financing required further study.

5. The President arrived. After the swearing in of the National Export Expansion Coordinator, the President welcomed the Cabinet Committee emphasizing the importance he attaches to its deliberations and stating that he looks forward to receiving the Committee’s recommendations. The text of the President’s remarks is attached.⁴

6. Secretary Hodges asked Secretary Dillon if he would care to comment on the recent favorable developments in the export situation and our international balance of payments. Secretary Dillon said that we have programs well established now which should achieve the maximum in balance of payments savings as a result of government expenditures. Therefore, additional improvements in the balance of payments must come through the reductions in net capital flows and even more importantly, through increased exports. He indicated that while the first quarter of 1964 would show our international payments to be almost in balance, the figures for the entire year 1964 would likely reflect a deficit of about $2 billion. He emphasized that to offset the effects on our trade balance of the tax cut, greater effort would be needed to promote export expansion.

7. Deputy Assistant Secretary Kuss (DOD) presented a summary of the military export program. He reviewed: Defense expenditures abroad compared to receipts from military sales; the military sales history and potential, both short and long-term; sources of credit financing for military sales; and the major actions taken by the Executive Branch which resulted in the sharp rise in military exports during the FY 60–62 period. Military sales have increased from an average of approximately $380 million per year in the FY 51–60 period to slightly above $1.5 billion annually during FY-62 and 63 as a result of the initiative and emphasis of Secretary McNamara and Secretary Dillon.

To sustain the program at its high level, he said, requires

1) vigorous Executive Branch action to promote military sales;

2) an active program of Government and industry cooperation; and

3) continued availability of credit.

Secretary Rusk stated that while State supports the Defense military export promotion program, some countries and areas of the world, such as Latin America and Africa, require application of special policy considerations before we should encourage or promote the sale of military products.

Mr. Bell asked why Defense does not use lower interest rates, more in line with AID loans, when using their Military Assistance Program Credit Fund as a credit source. Mr. Kuss explained that

1) the rates of 4.5–5 percent were starting figures for negotiations and that actual sales negotiations may bring the rates down;

2) normal interest rates are now always detrimental to a sale. The most important aspects generally are—price, quality, availability and support capabilities—in which the U.S. is most competitive. And

3) the high interest policy can be used to discourage sales of military products to countries where political considerations weigh against the sale of such equipment.

8. Secretary Rusk asked the Committee to consider the role USIA can play in the export program. He suggested this subject be added to the agenda for the next meeting and that USIA be invited to participate. He also urged the Cabinet Committee to meet again at an early date to probe more deeply the policy issues which need consideration.

9. Secretary Udall reported briefly on the outlook for coal exports. He said we were now exporting at the rate of $500 million a year, but this performance could be improved substantially if certain obstacles could be overcome. Among the problems are rail and ocean freight rates and non-tariff barriers—particularly quotas—which have been raised against the importation of coal.

10. Secretary Hodges asked Mr. Goldy to outline the plans for organizing the Committee’s work. Mr. Goldy said that with the concurrence of the full Committee, he would establish an Executive Committee at the Assistant Secretary level to develop facts and issues in depth for consideration when necessary by the principals of the Cabinet Committee. He said this would follow the pattern of the Balance of Payments Committee. He stated he intended also to establish interagency working groups as necessary to focus on specific problems such as those which were mentioned on the agenda. He said he would like to keep the arrangements as informal as possible so as to achieve maximum flexibility in getting on with the job. There was general concurrence in this approach to the Committee’s organization.

11. The Chairman concluded the meeting, saying the next meeting would be scheduled as soon as the necessary staff work is completed.

1. Source: Washington National Records Center, RG 40, Secretary of Commerce Files: FRC 69 A 6828, Export Expansion-Interagency Committee. No classification marking. The source text bears no drafting information. The Chairman of the Committee, Secretary Hodges, presided at the meeting, which was held in the Fish Room of the White House. A list of the 25 attendees is not printed. The source text is attached to a May 12 memorandum from Acting Secretary of Commerce Roosevelt to the President’s Special Assistant for Congressional Relations, Lawrence F. O’Brien, which reviews the status of the Committee.
2. Not further identified.
3. The Agricultural Trade Development and Assistance Act, approved July 10, 1954; 68 Stat. (pt. 1) 454.
4. Not attached, but printed in Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1963–64, Book I, pp. 444–446.