AUGUST 30. 1962

PAGE 18243

THE TRADE EXPANSION ACT

Mr. MUSKIE. Mr. President, the Senate Committee on Finance is nearing the close of its deliberations on the Trade Expansion Act of 1962. Shortly we will be called upon to cast our votes on this vital legislation.

Three weeks ago, I introduced an amendment to H.R. 11970, which has been referred to the Finance Committee. Subsequently I testified before the committee in support of that amendment. Because I believe this amendment is of general interest and importance to my colleagues, I ask unanimous consent that the text of my testimony be printed in the RECORD at this point.

There being no objection, the statement was ordered to be printed in the RECORD, as follows:

STATEMENT BY U.S. SENATOR EDMUND S. MUSKIE, OF MAINE, IN SUPPORT OF HIS AMENDMENT TO H.R. 11970, THE TRADE EXPANSION ACT OF 1962, BEFORE THE SENATE COMMITTEE ON FINANCE, AUGUST 14, 1962

Mr. Chairman, first may I express my appreciation to you and the members of this committee for giving me an opportunity to appear before you at this time. I know your sessions have been long and grueling, and I recognize that you still have the hard job of drafting and reporting this important legislation. I hope my testimony will provide a constructive contribution to your deliberations.

My comments will be brief, and to the point. At the conclusion of my testimony I shall be pleased to answer any questions you may wish to direct to me.

On Thursday, August 2, 1 introduced an amendment to H.R. 11970, the Trade Expansion Act of 1962, which would give the President specific authority to enter into orderly marketing agreements with foreign countries, where such agreements would serve to protect domestic manufacturers from disastrous increases in imports from foreign industries producing articles under substandard wages and working conditions.

This proposal, in my opinion, is consistent with the objectives of the President's program for expanded trade; it is in line with his "adjustment assistance" program for workers and industries injured as a result of our trade policies; and it would provide meaningful protection for a substantial group of industries confronted with low-wage competition from highly industrialized and efficient operations overseas. At the same time, it would not shut the door to foreign trade, but would assure foreign manufacturers an opportunity to share in the orderly growth in our domestic market. It would provide a tool for the President to use, in those cases where the tool is practicable, in halting market chaos and in giving domestic manufacturers a "breathing space" in which to adjust to changing competitive conditions.

I have been pleased by the bipartisan support this proposal has received, including the cosponsorship of Senators BARTLETT, of Alaska, CHAVEZ, of New Mexico, COTTON and MURPHY, of New Hampshire, DODD, of Connecticut, PASTORE and PELL, of Rhode Island, WILEY, of Wisconsin, LONG of Missouri, and RANDOLPH, of West Virginia. Other distinguished Senators, on both sides of the aisle, have indicated their willingness to vote for the amendment. I hope this committee will adopt the proposal as a part of its recommendation to the Senate.

In speaking to you, today, I want to stress the fact that I believe very firmly in the importance of trade, not only as a factor in the maintenance of the free world economy, but also as a vital ingredient in our own development and growth. I recognize, however, as the President has done, that trade cannot be expanded without some dislocation -- some injury, if you will -- to certain segments of domestic industry.

My recommendations can be considered in two parts. The first is an examination of the special problems of low-wage competition, and the second is the specific remedy which I propose as an addition to those already specifically provided to the President.

The essence of the free trade argument is that competition is good for everyone. It encourages efficiency, economical allocation of resources, better quality, and lower prices. These are the ingredients of the free enterprise system in our domestic economy. What is often overlooked is the fact that the free enterprise system succeeds only where one has a more or less homogeneous community, where there is mobility of capital and labor, and where certain minimum standards are maintained with respect to wages and working conditions, trade practices, and so forth.

The Fair Labor Standards Act is first and foremost a humanitarian document, designed to insure a decent standard of living for each person willing and able to work. It is also a device for protecting employers who pay their workers decent wages from unfair competition by those who pay substandard wages and impose poor working conditions on their employees.

In the arena of international trade we cannot impose an international fair labor standards law. But we can recognize that the problem of wage cost differentials does exist.

The European Common Market has recognized this factor, and has taken steps to minimize the problems it creates, as did the earlier Benelux Economic Union, formed by Belgium, Luxembourg, and the Netherlands.

In creating the Benelux Union difficulties were encountered in reconciling the economies of Belgium and the Netherlands. In many instances, wages in the Netherlands were considerably lower than wages in Belgium and, in consequence, money costs of production in the Netherlands tended to be lower than costs in Belgium.

The agreement of July 1953, establishing the Benelux Union, recognized these differences, and measures were adopted to raise the general level of wages in the Netherlands. At the time, this was not too difficult because of the favorable balance-of-payments position of the Netherlands.

Under articles 48-51 of the December 1957 Treaty of Rome, establishing the European Economic Community, it is provided that all restrictions on the movement of labor, capital and enterprises within the Community are to be abolished by the end of the transition period, together with the gradual abolition of tariffs and other restrictions on commerce among the member states. All discrimination based on nationality regarding employment, wages, and other working conditions is to be eliminated.

The Treaty of Rome recognizes that it will not be easy to allow labor, and capital, particularly labor, to move freely among the member states. Accordingly, it provides for a European social fund that is intended to improve the possibilities of employment and to increase the geographic and occupational mobility of labor within the Community.

Thus, there is precedent for recognizing that commerce between countries with widely disparate levels of living presents problems of adjustment that cannot be solved overnight. The idea of adjustment assistance through the social fund is an attempt by the member states to work with, rather than against, the forces of economic adjustment.

This is the underlying argument for the adjustment assistance provisions of H.R. 11970. It is also an argument for additional tools in the control of the pattern of trade to help us work with those forces which will encourage a healthy growth in trade patterns.

I recognize that differences in wage rates, by themselves, do not constitute an adequate yardstick for judging the degree of competitiveness between U.S. producers of a given product and their foreign competitors. To be meaningful, wages must be related to the productivity of labor and to other costs of production, including the cost of raw materials. Highly paid labor that is highly productive is low-cost labor, in terms of the unit of product, as compared with low-paid labor that is relatively unproductive. The test of unfairness of competition is whether the labor involved receives wages and fringe benefits, per unit of output, that are substantially lower than wages and fringe benefits received for comparable labor in this country.

There can be little doubt that a country in which wages are generally low, relative to labor's productivity, is enabled to compete abroad in certain lines of production in which it would not be able to compete in the absence of this advantage. Competition of this kind is particularly troublesome in lines of production in which it is relatively easy to transfer from one product line to another. Soft consumer goods, such as textiles and shoes, are particularly vulnerable. Other industries facing comparable problems include electronics components and the wood-turning industries.

On August 2, this committee heard testimony by Mr. Harold Toor, treasurer of the National Shoe Manufacturers Association, illustrating the problem which arises when an efficient, highly competitive domestic industry is hit by efficient, highly competitive imports from countries where labor output is high and wages are low.

Imports of footwear, leather and nonleather types, have increased 234.5 percent since 1957 -- from 11 million pairs in 1957 to 36.8 million pairs in 1961. For the first 6 months of 1962 they have more than doubled the rate of the comparable period of 1 year ago. They were 6.1 percent of domestic production in 1961, 10.3 percent of domestic production in the first half of 1962, and 15.4 percent of domestic production in June 1962. While imports have been increasing, our exports have dropped from 4.4 million pairs in 1957 to 3 million pairs in 1961.

The impact of such competition must be measured not only in terms of the volume of imports, but also in the rate of expansion and the ability of the foreign competitor to concentrate on certain lines of production and to shift rapidly from one line to another. The key to the problem is market disruption.

Tariffs do not provide an adequate answer to this problem, since the difference in foreign and domestic costs allows foreign exporters to land their product in the United States at 15 percent to 26 percent less than the price of the domestic product. Some other technique must be found to slow down this disruptive change if we are to protect the jobs of the 350,000 to 400,000 workers in the 1,300 factories in 650 communities in 38 of our States.

Another technique is available, and has been used by this administration in the case of the Geneva textile agreements. This is the technique of orderly marketing agreements. Such agreements offer to domestic manufacturers the assurance that their markets will not be taken away from them suddenly, in a situation where they cannot possibly compete. At the same time, the arrangements for such restrictions on imports as are necessary are carried out in a spirit of cooperation between the exporting country and this Nation. Foreign exporters are told that they will not be shut out of the domestic market, but that they will have an opportunity to share in the American market as it grows. They will be given the chance to compete for a fair share of that market.

Last year, I introduced S.1735, the Orderly Marketing Act of 1961. This legislation spelled out the procedures and the formula which would be applicable in the establishment of orderly marketing agreements. My amendment, which I advocate today, carries out the intent of S. 1735, within the framework of the general trade bill.

Under the amendment the President is given the specific authority to enter into orderly marketing agreements with other countries, to arrange for such import restrictions as are necessary to protect domestic industries struggling against a sudden flood of low-wage imports. Such authority is not contained in the legislation, as written. I believe it should be included.

The amendment does not tie the President's hands. It does not say that this is the only technique of adjustment assistance or trade protection. It says only that this is one useful device, the merit of which the President has recognized, which should be available to him in his implementation of our trade policy.