THE approval of the Trade Agreements Act on June 12, 1934, initiated a new and interesting chapter in American tariff history. Not only did it bring to an end a policy of exaggerated protectionism running riot under the highest tariff known to American history, but it brought to successful fruition the idea of tariff adjustment through reciprocal agreement with other nations, first attempted with but moderate success under the McKinley Tariff Act of 1890 and the Dingley Tariff Act of 1897. The new legislation was framed upon a combination of three principles -- tariff negotiation by executive agreement; Congressional delegation to the President of the power of tariff adjustment within prescribed limits; and generalization of all tariff reductions (except those granted to Cuba) to the products of all countries which do not discriminate against American commerce. It has proved intensely practical. Already 16 trade agreements have been negotiated under its authority with nations accounting for almost 40 percent of the total foreign trade of the United States.

The trade agreements program has also proved of outstanding significance from a world point of view. Coming into effect just when the economic aftermath of the war and the crash of 1929 were engendering new forms of trade restrictions of unprecedented severity and when the drive toward economic nationalism and trading in exclusive preferences was becoming more and more intense, it has proved one of the most effective programs being carried out anywhere to combat these disastrous tendencies.

The success of a program in large measure depends upon its administration. The manner in which agreements come into being -- how the machinery is organized and how it functions in practice -- is therefore of considerable importance.

I. ORGANIZATION

When the Trade Agreements Act was passed in 1934 the first question which confronted us was a very practical one: What was the most effective kind of machinery which could be devised for carrying out the infinitely difficult and complex task?

Interdepartmental Organization

Already many agencies in the Government were at work on foreign trade problems. Activities were not confined to the Department of State. In the Department of Commerce, the Bureau of Foreign and Domestic Commerce has for years been working to promote and develop the foreign commerce of the United States. To this end it has built up a group of highly trained experts who compile and publish foreign trade statistics, investigate foreign trade restrictions, prepare foreign trade reports and lend assistance generally to Americans at home and abroad engaged in export business. The Tariff Commission, charged with studying the economic and fiscal effects of our tariff, maintains another group of economists and commodity experts engaged in preparing studies and surveys relating to products imported into the United States, and the various effects of specific imports upon competitive domestic production. In the Department of Agriculture, the Bureau of Agricultural Economics is constantly studying foreign agricultural conditions and the consequent trends in foreign demand for American agricultural products. The Treasury Department, which is charged with the collection of import duties and the general administration of our customs laws, is likewise interested in our foreign commercial policy.

These various parts of the machine had in the past functioned individually with relative efficiency; but there was little coördination of their activities and still less unified vision and singleness of purpose in conceiving common objectives and then driving forward to achieve them. The strain of the depression further emphasized the need of greater integration. Accordingly the President on November 11, 1933, authorized the creation of a policy committee of high-ranking officials of the departments and governmental agencies concerned for the purpose of coördinating the commercial policy of the Government and of centralizing in the hands of a single agency the supervision of all government action affecting our import and export trade.

The Executive Committee on Commercial Policy, as the new committee was called, has from that time been functioning with marked success. It meets weekly under the chairmanship of an Assistant Secretary of State, and keeps constant watch over commercial developments. Through subcommittees it makes extended studies and reports upon problems coming within its purview. It advises upon questions of commercial policy referred to it by the President or by the heads of departments. Through the various departments it exercises a constant and potent influence upon the commercial policy of our government.

When the Trade Agreements Act of June 12, 1934, was passed, instead of drawing arbitrary charts and blueprints and creating overnight an elaborate independent organization for dealing with foreign trade problems and for negotiating trade agreements, we gradually built up an interdepartmental organization more or less along the lines of the Executive Committee on Commercial Policy, already functioning smoothly. In order to make full use of the long experience, ripe knowledge and tried capacity of the foreign trade experts already at work in different departments, various interdepartmental committees were set up and intermeshed for handling specific problems as they arose. Out of this interdepartmental organization has grown a spirit of close coöperation between the various departments and agencies -- a spirit which is in itself somewhat unique and wholly refreshing. In place of the petty jealousies which at times mar the interaction of governmental agencies there exists today a valuable spirit of common enterprise in pushing to completion good trade agreements that goes far to make the work a success.

The Committee for Reciprocity Information

One of the problems which we faced at the outset was how to tap in a practical way the vast reservoir of facts and information possessed by men in the actual mills of business, so as to make doubly sure that our negotiations and eventual agreements would rest upon realistic, practical foundations. Section 4 of the Trade Agreements Act provides that before any trade agreement is concluded opportunity shall be given interested persons to present their views. In accordance with these provisions, the President by Executive Order on June 27, 1934, created the Committee for Reciprocity Information, composed of representatives from all the departments concerned in foreign trade, to "function under the direction and supervision of . . . the Executive Committee on Commercial Policy."

This Committee for Reciprocity Information is a most important part of the trade agreements machine. In constant and intimate touch with all aspects of trade agreements policy, it provides a central point of contact between the public and the inter-departmental trade agreements organization. Most of its members also serve on the Trade Agreements Committee. Its chairman is the Vice Chairman of the Tariff Commission, where it has its offices. Through it the information and views which any interested person may care to submit are made available in an orderly manner to the entire trade agreements organization. Being composed of permanent government officials, it is non-partisan in nature and objective in outlook. Its members have no axes to grind. They have but a single object -- to acquire such factual information as has a pertinent bearing upon the specific proposal under consideration. Before commitments are made in any trade agreement, the Committee receives the written views of interested persons and in addition gives opportunity in open hearings for oral presentations. After an agreement has been concluded it welcomes information or views concerning its actual operation or concerning any aspect of the trade agreement program. The information and views thus presented are carefully analyzed and digested, and are systematically distributed to all of the governmental agencies coöperating in the program.

The Trade Agreements Committee

The other all-important body which supervises and energizes the whole program is the Trade Agreements Committee, established by the Executive Committee on Commercial Policy on June 22, 1934. Its membership includes high officials from the Department of State, the Department of Commerce, the Tariff Commission, the Department of Agriculture, the Treasury Department and the Agricultural Adjustment Administration. It, also, is strictly non-partisan. Its members, mature men of tested judgment and expert knowledge, have been studying foreign and domestic trade problems for years.

Special Subcommittees

As the need has developed, the Trade Agreements Committee has appointed a number of subcommittees, composed of economists and technical experts from the various departments, for the purpose of pursuing studies, preparing reports and making recommendations for its consideration. Thus, "country committees" have been appointed to prepare detailed studies of our trade with countries with which trade agreements are contemplated or are in negotiation; "commodity committees" have been created to investigate specific commodities or groups of commodities of particular importance; and other committees have been named to deal with special technical problems such as quotas, exchange control, discriminations, and the like. In addition to these there is a special subcommittee known as the Planning Committee, whose members are responsible, as a body, for the orderly development of the entire program and, individually, for making sure that the trade agreements work in their respective departments is carried on expeditiously and thoroughly.

The Trade Agreements Division of the Department of State

In the State Department, which must carry the ultimate responsibility for the shaping of foreign policy and for conducting negotiations with foreign governments, a special section to deal with trade agreements was organized in June 1934, immediately after the passage of the Trade Agreements Act, as an adjunct to the office of the Assistant Secretary of State in charge of the program. In the following year, as the work developed and increased in volume, the section was organized as a separate Division with its own Chief. This was effected by a departmental order on May 27, 1935. The Chief of the Trade Agreements Division is also the Chairman of the Interdepartmental Trade Agreements Committee.

II. ADMINISTRATION

Trade agreement discussions are usually initiated as part of our integrated trade agreements program, although occasionally they grow out of some specific foreign trade problem under discussion or result from the request of a foreign government.

Initial Report by Trade Agreements Division

If as a result of entirely informal discussions between officials of the State Department or other departments the negotiation of a trade agreement seems to merit serious consideration, and if there is likelihood that the foreign government concerned would be prepared to enter into negotiations upon the basis of equality of treatment in respect to all forms of trade control, a preliminary report with recommendations is prepared in the Trade Agreements Division of the Department of State. This report, if approved by the Planning Committee, is then formally laid before the Trade Agreements Committee for extended discussion.

Consideration of Initial Report by Trade Agreements Committee

At the meeting of the Trade Agreements Committee the proposal receives its first baptism of fire. The wide range of critical discussion which ensues reveals the many different angles of approach, the expert knowledge and the breadth of vision of the various members of the Committee. Questions ranging through the whole field of our economic and trade relations with the country under consideration are flung back and forth. What will be the direct and indirect effects upon various domestic industries resulting from different tentative proposals? What concessions might we hope to get in view of the political and economic conditions prevailing there? If a system of quotas or exchange control prevails, what would be the chances of obtaining equality of treatment and expansion of trade? What trade barriers could we ourselves reduce safely in return?

If under this heavy fire the proposed negotiations seem practicable and desirable, the Trade Agreements Committee then appoints an interdepartmental country committee to undertake an exhaustive and comprehensive survey of all aspects of our commercial relations with the country under consideration.

Work of the Country Committee

At this point begins the heaviest work of all. The members of the country committee are government experts chosen with great care. They settle down to a painstaking work occupying weeks and often months. The Department of Commerce member is responsible for having prepared in that Department statistical tables showing the quantity and value of, and the trends in, the trade between the two countries over a considerable period of years. He is also responsible for the preparation of detailed studies of each of the products we export to the designated country, indicating with respect to each product the proportion of American production which is exported, the proportion of imports to the country involved supplied by the United States, and the relative value of the particular market to American exporters. Each study also contains information relative to foreign tariff rates and other import restrictions affecting the product, the extent to which a reduction of trade barriers might be expected to result in increased importations from the United States, and the prospects of obtaining such a reduction in the light of economic and other conditions in the foreign country. In each case the study concludes with a tentative recommendation as to the desirability of attempting to obtain a concession.

Similarly, the Tariff Commission member of the country committee is responsible for having prepared in the Tariff Commission tables and studies analyzing and digesting in the same fine detail all pertinent information relative to our imports from the country under consideration. These studies show with respect to each import item the proportion of American imports originating in that country and in other supplying countries. They deal in extenso with conditions in competing American industries, particularly as they are or may be affected by foreign competition. Each study concludes with a tentative recommendation as to the possibility of granting a concession on the product in question if, in the event actual negotiations ensue, such action should appear necessary to secure more favorable treatment for our export trade.

In the meantime, agricultural experts are preparing studies of agricultural products which enter into the trade between the two countries, and Treasury experts are considering questions relating to tariff classifications and customs administration. The State Department member of the country committee studies the commercial policies of the other country, and is responsible for the formulation of the general provisions of the proposed trade agreement. He also assumes responsibility for the coördination and general progress of the work.

Tentative Formulation of List of Concessions to be Requested (Schedule I)

After sufficient progress has been made on these studies and reports, the country committee begins a series of meetings for the purpose of formulating tentative recommendations as to the items which might be considered in a trade agreement. Usually, the products which we export to the foreign country are considered first. Commodity and technical experts are in most instances invited to assist in the deliberations, and, if the problem with regard to a particular product is unusually complex, or if its ramifications extend to questions beyond the competence of the country committee, it will be referred for intensive study and report to a permanent or ad hoc commodity or technical committee.

When the country committee's study of these export items has been completed, two groups of commodities emerge -- those as to which it seems practicable and desirable to request trade concessions, and those as to which, because of the unimportance of the trade involved, because of the slightness of the existing trade restrictions, because of the fact that some country other than ourselves is the most important supplier of the product, or for some other reason, it seems undesirable to request concessions. A list of commodities in the first group is then prepared, with recommendations as to just what concessions should be requested -- whether a tariff cut, a quota enlargement, a freeing from import restrictions, a binding in duty, or a combination of some or all, and the extent of each. This list forms the basis of what will ultimately become "Schedule I."

Tentative Formulation of List of Concessions Which Might be Granted (Schedule II)

Next, the country committee turns its attention to the study of import items and the preparation of Schedule II, the list of concessions which we might consider granting in return. Using as a basis the carefully worked out statistics and digests prepared by the Tariff Commission, the country committee launches into an even more intensive study, commodity by commodity, of each item of our imports from the country in question. Before any concession is recommended for consideration in the negotiations, it is painstakingly examined in the light of our past tariff treatment of the commodity, of the proportion of imports to domestic production, of the status and conditions of the domestic production of the commodity, of the probable effects upon domestic production of greater competition from the country under consideration and from all other countries, and of possible effects upon allied or competing domestic industries. Needless to say, partisan or purely political considerations play no part throughout this long study. The sole criterion is economic cause and effect; the sole objective is improvement of American commerce, foreign and domestic, from the viewpoint of the country as a whole.

After weeks of intense study, a list at last emerges embracing those products as to which it may be expected that the foreign government will request concessions and as to which we might consider granting their requests. This forms the basis of what will ultimately become "Schedule II."

From this expert study and many-sided consideration of each commodity involved comes a profound understanding of the entire trade between the United States and the country in question with all its hindrances, its possibilities for improvement, and its limitations. The Belgian Country Committee, to cite a concrete example, put forth ten or eleven massive volumes of detailed studies and reports on articles embraced in Belgian-American trade; and other country committees in like proportion.

Consideration of Tentative Schedules I and II by the Trade Agreements Committee

In the meantime, informal exploratory conversations of a tentative character with the foreign government have been initiated at the State Department. Trade agreements include not only schedules of specific concessions on each side but also general provisions designed to prevent all discrimination, to ensure fair treatment, and to safeguard the detailed concessions. Before announcement is made of the intention to negotiate, the State Department must be satisfied that there is sufficient basis for agreement to make a successful conclusion probable. It must be satisfied that the other government is prepared to negotiate on an unconditional most-favored-nation basis; that it is ready to cease any discriminations against American commerce in respect to tariff treatment, quotas, allotments of foreign exchange, import permits and in every other respect; and that it is desirous of negotiating for the reduction of excessive trade barriers on each side.

If it seems clear that this is the case, the tentative Schedules I and II, as they have emerged in the country committee, are then submitted to the Trade Agreements Committee for additional study and consideration. Again, each separate item on both of the schedules is debated and analyzed, this time by high officials who have in mind collateral economic considerations and high policy and who bring to bear on the accumulated evidence new and varied points of view. Many items are referred back to the country committee or to other subcommittees for fresh consideration.

Up to this point, in spite of the great amount of work which has been done, every conclusion is contingent and every decision purely tentative. The President has not yet studied the schedules; private interests have not yet filed their briefs or appeared in oral hearings. Until after the public hearings everything that is done is in the nature of study and preparation. Actual commitments and final decisions do not begin until after all the views presented to the Committee for Reciprocity Information have been digested, studied, analyzed and carefully considered, and the resulting recommendations have been approved by the President.

Preliminary Announcement that Negotiations are Contemplated

If the decision of the Trade Agreements Committee is favorable to an agreement and if the foreign government is in accord, the Secretary of State issues a preliminary announcement that negotiations are contemplated, so as to afford any interested person in this country an opportunity to suggest to the Committee for Reciprocity Information the import or export products which in his opinion should be included in the proposed negotiations. To aid in the preparation of suggestions, there is issued with the preliminary announcement a brief review of the trade between the two countries and a statistical table of the principal exports and imports entering into that trade.

Suggestions received pursuant to the preliminary announcement are carefully analyzed; and if such action appears to be warranted, items will be added to or removed from the tentative schedules, which continue under active consideration.

Formal Notice of Intention to Negotiate

Some four or five weeks after the preliminary announcement has been made, formal public notice of intention to negotiate is issued pursuant to Section 4 of the Act. With this notice is published a list of the products as to which the United States will consider granting concessions to the other country -- a list prepared from the tentative Schedule II as revised by the Trade Agreements Committee, from the suggestions made to the Committee for Reciprocity Information, and from the "request" list of items presented by the other government. The object of this advance announcement of the list of commodities is to obviate the necessity of filing briefs covering those other commodities which enter into the trade between the two nations but which for one reason or another are certain not to be involved in the negotiations. Not every commodity named in this list, of course, will be the subject of an eventual concession. It is merely a list which will form the basis of negotiations.

Presentations and Hearings before the Committee for Reciprocity Information

The notice also fixes the dates for the presentation of written and of oral statements to the Committee for Reciprocity Information, under regulations issued by the Committee.

As in the case of the suggestions received following the preliminary announcement, all statements submitted in briefs or orally at the open hearings before the Committee for Reciprocity Information are studied in the most thorough and intensive manner. The statements are carefully digested; these digests, together with the original briefs, are promptly sent to the various departments and to the departmental representatives on the country committee, where the views thus presented are thoroughly weighed and analyzed. In the light of this new information the country committee revises its tentative recommendations and reports its final conclusions to the Trade Agreements Committee.

The Trade Agreements Committee then proceeds to give fresh study to the two schedules in the light of the information coming through the Committee for Reciprocity Information. Considerable modification usually results. The two schedules as finally approved by the Trade Agreements Committee are then submitted to the Secretary of State and ultimately to the President for modification or approval.

During all this time there has been a constant interlocking of the work. While the country committee and other subcommittees are wrestling with various specific problems, the Trade Agreements Committee is considering the questions of larger policy involved. At the same time, briefs and letters are coming in to the Committee for Reciprocity Information, and this information is continuously being turned over to all the departments, committees or individuals directly concerned and constantly influences important decisions. General conversations with the foreign government on a purely tentative basis are often simultaneously proceeding at the State Department concerning the general character or scope of the proposed agreement. In this way direction can be given at an early stage to the studies of the other government and much time can be saved. Needless to say, however, no commitments of any kind are made until after the completion of the hearings before the Committee for Reciprocity Information.

The Beginning of Formal Negotiations

After tentative plans and proposals are approved by the Secretary of State and by the President, the way is then clear to begin formal negotiations with the other country within the limits of the approved proposals. This is one of the most delicate tasks of all. New problems and new difficulties arise on every side. Proposals are met by counter-proposals; new formulas have to be found for meeting unforeseen difficulties. Agreement must be reached not only with regard to the schedule items, but also with regard to the general provisions to be included in the trade agreement. These general provisions, which have been prepared in constant consultation with legal and technical experts, are designed to safeguard the concessions to be exchanged and to provide, in general, sound principles governing trade relations between the two countries.

While we are in the very midst of these hair-trigger negotiations, seeking to win an agreement of real profit to both sides, high-powered lobbyists make their voices heard throughout the country, using every device to defeat or upset the agreement. Pressure is brought against members of Congress; Washington is deluged with inspired letters and telegrams. The country rings with the protests of special interests; unhappily few seem sufficiently concerned to speak for the interests of the consumer or of the nation.

III. THE NEW METHOD OF TARIFF ADJUSTMENT

In spite of the enormous difficulty and complexity of the task involved, and despite the obstacles which only too frequently have been thrown in the way, our machinery has functioned effectively. We have successfully negotiated to date sixteen trade agreements. One cannot accurately measure the precise effects of trade agreements by increases in foreign trade; too many extraneous and independent factors enter in. But we do know that whereas the total foreign trade of the United States with non-trade-agreement countries increased in 1936 over 1935 by only 9.2 percent, the trade with countries with which we had made agreements increased by 18.2 percent. During 1937, although imports into the United States were affected far more by the effects of the severe drought of 1936 and of the industrial recovery than by trade agreements, exports to agreement countries increased by 40.6 percent over the preceding year as contrasted with an increase of 33.7 percent in exports to non-agreement countries.

Never in the past has the United States followed such a careful and expert method of dealing with problems of foreign trade. Never before has consideration of tariff matters been so free from log-rolling, politics, and narrow sectional influences. Formerly professional lobbyists frequently crowded others off the stage. Now there exists an effective means, available to all without cost, whereby everyone is assured of a careful and impartial hearing by trained officials who have no party interest to serve. It is the interests of our nation as a whole which under the new procedure are shaping our foreign commercial policy.

The procedure which has been developed for the monumental task of formulating and negotiating trade agreements is kept elastic and flexible. We are continually adjusting it in the light of experience, trying to iron out such imperfections as become apparent. It is a process which is thoroughly democratic and thoroughly American in the best sense of that word. And it is a process which demonstrably is making an important contribution to the economic improvement of our country and to the strengthening of the forces of peace throughout the world.

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