To the Congress of the United States:
Twenty-eight years ago our nation embarked upon a new experiment in international relationships--the Reciprocal Trade Agreements Program. Faced with the chaos in world trade that had resulted from the Great Depression, disillusioned by the failure of the promises that high protective tariffs would generate recovery, and impelled by a desperate need to restore our economy, President Roosevelt asked for authority to negotiate reciprocal tariff reductions with other nations of the world in order to spur our exports and aid our economic recovery and growth.
That landmark measure, guided through Congress by Cordell Hull, has been extended eleven times. It has served our country and the free world well over two decades. The application of this program brought growth and order to the free world trading system. Our total exports, averaging less than $2 billion a year in the three years preceding enactment of the law, have now increased to over $20 billion.
On June 30, 1962, the negotiating authority under the last extension of the Trade Agreements Act expires. It must be replaced by a wholly new instrument. A new American trade initiative is needed to meet the challenges and opportunities of a rapidly changing world economy.
In the brief period since this Act was last extended, five fundamentally new and' sweeping developments have made obsolete our traditional trade policy:
--The growth of the European Common Market--an economy which may soon nearly equal our own, protected by a single external tariff similar to our own--has progressed with such success and momentum that it has surpassed its original timetable, convinced those initially skeptical that there is now no turning back and laid the groundwork for a radical alteration of the economics of the Atlantic Alliance. Almost 90 percent of the free world's industrial production (if the United Kingdom and others successfully complete their negotiations for membership) may soon be concentrated in two great markets--the United States of America and the expanded European Economic Community. A trade policy adequate to negotiate item by item tariff reductions with a large number of small independent states will no longer be adequate to assure ready access for ourselves-and for our traditional trading partners in Canada, Japan, Latin America and elsewhere--to a market nearly as large as our own, whose negotiators can speak with one voice but whose internal differences make it impossible for them to negotiate item by item.
--The growing pressures on our balance of payments position have, in the past few years, turned a new spotlight on the importance of increasing American exports to strengthen the international position of the dollar and prevent a steady drain of our gold reserves. To maintain our defense, assistance and other commitments abroad, while expanding the free flow of goods and capital, we must achieve a reasonable equilibrium in our international accounts by offsetting these dollar outlays with dollar sales.
--The need to accelerate our own economic growth, following a lagging period of seven years characterized by three recessions, is more urgent than it has been in years--underlined by the millions of new job opportunities which will have to be found in this decade to provide employment for those already unemployed as well as an increasing flood of younger workers, farm workers seeking new opportunities, and city workers displaced by technological change.
--The communist aid and trade offensive has also become more apparent in recent years. Soviet bloc trade with 41 non-communist countries in the less-developed areas of the globe has more than tripled in recent years; and bloc trade missions are busy in nearly every continent attempting to penetrate, encircle and divide the free world.
--The need for new markets for Japan and the developing nations has also been accentuated as never before--both by the prospective impact of the EEC's external tariff and by their own need to acquire new outlets for their raw materials and light manufacturers.
To meet these new challenges and opportunities, I am today transmitting to the Congress a new and modern instrument of trade negotiation--the Trade Expansion Act of 1962. As I said in nay State of the Union Address, its enactment "could well affect the unity of the West, the course of the Cold War and the growth of our nation for a generation or more to come."
I. THE BENEFITS OF INCREASED TRADE
Specifically, enactment of this measure will benefit substantially every state of the union, every segment of the American economy, and every basic objective of our domestic economy and foreign policy.
Our efforts to expand our economy will be importantly affected by our ability to expand our exports--and particularly upon the ability of our farmers and businessmen to sell to the Common Market. There is arising across the Atlantic a single economic community which may soon have a population half again as big as our own, working and competing together with no more barriers to commerce and investment than exist among our 50 states--in an economy which has been growing roughly twice as fast as ours--representing a purchasing power which will someday equal our own and a living standard growing faster than our own. As its consumer incomes grow, its consumer demands are also growing, particularly for the type of goods that we produce best, which are only now beginning to be widely sold or known in the markets of Europe or in the homes of its middle income families.
Some 30 percent of our exports--more than $4 billion in industrial goods and materials and nearly $2 billion in agricultural products--already goes to the members and prospective members of the EEC. European manufacturers, however, have increased their share of this rapidly expanding market at a far greater rate than American manufacturers. Unless our industry can maintain and increase its share of this attractive market, there will be further temptation to locate additional American financed plants in Europe in order to get behind the external tariff wall of the EEC. This would enable the American manufacturer to contend for that vast consumer potential on more competitive terms with his European counterparts; but it will also mean a failure on our part to take advantage of this growing market to increase jobs and investment in this country.
A more liberal trade policy will in general benefit our most efficient and expanding industries-industries which have demonstrated their advantage over other world producers by exporting on the average twice as much of their products as we import-industries which have done this while paying the highest wages in our country. Increasing investment and employment in these growth industries will make for a more healthy, efficient and expanding economy and a still higher American standard of living. Indeed, freer movement of trade between America and the Common Market would bolster the economy of the entire free world, stimulating each nation to do most what it does best and helping to achieve the OECD target of a 50 percent combined Atlantic Community increase in Gross National Product by 1970.
Our efforts to prevent inflation will be reinforced by expanded trade. Once given a fair and equal opportunity to compete in overseas markets, and once subject to healthy competition from overseas manufacturers for our own markets, American management and labor will have additional reason to maintain competitive costs and prices, modernize their plants and increase their productivity. The discipline of the world market place is an excellent measure of efficiency and a force to stability. To try to shield American industry from the discipline of foreign competition would isolate our domestic price level from world prices, encourage domestic inflation, reduce our exports still further and invite less desirable Governmental solutions.
Our efforts to correct our adverse balance of payments have in recent years roughly paralleled our ability to increase our export surplus. It is necessary if we are to maintain our security programs abroad--our own military forces overseas plus our contribution to the security and growth of other free countries--to make substantial dollar outlays abroad. These outlays are being held to the minimum necessary, and we are seeking increased sharing from our allies. But they will continue at substantial rates--and this requires us to enlarge the $5 billion export surplus which we presently enjoy from our favorable balance of trade. If that surplus can be enlarged, as exports under our new program rise faster than imports, we can achieve the equilibrium in our balance of payments which is essential to our economic stability and flexibility. If, on the other hand, our surplus should fail to grow, if our exports should be denied ready access to the EEC and other markets--our overseas position would be endangered. Moreover, if we can lower the external tariff wall of the Common Market through negotiation our manufacturers will be under less pressure to locate their plants behind that wall in order to sell in the European market, thus reducing the export of capital funds to Europe.
Our efforts to promote the strength and unity of the West are thus directly related to the strength and unity of Atlantic trade policies. An expanded export program is necessary to give this Nation both the balance of payments equilibrium and the economic growth we need to sustain our share of Western military security and economic advance. Equally important, a freer flow of trade across the Atlantic will enable the two giant markets on either side of the ocean to impart strength and vigor to each other, and to combine their resources and momentum to undertake the many enterprises which the security of free peoples demands. For the first time, as the world's greatest trading nation, we can welcome a single partner whose trade is even larger than our own-a partner no longer divided and dependent, but strong enough to share with us the responsibilities and initiatives of the free world.
The communist bloc, largely self-contained and isolated, represents an economic power already by some standards larger than that of Western Europe and hoping someday to overtake the United States. But the combined output and purchasing power of the United States and Western Europe-nearly a trillion dollars a year--is more than twice as great as that of the entire Sino-Soviet world. Though we have only half the population, and far less than half the territory, we can pool our resources and resourcefulness in an open trade partnership strong enough to outstrip any challenge, and strong enough to undertake all the many enterprises around the world which the maintenance and progress of freedom require. If we can take this step, Marxist predictions of "capitalist" empires warring over markets and stifling competition would be shattered for all time--Communist hopes for a trade war between these two great economic giants would be frustrated--and Communist efforts to split the West would be doomed to failure.
As members of the Atlantic Community we have concerted our military objectives through the North Atlantic Treaty Organization. We are concerting our monetary and economic policies through the Organization for Economic Cooperation and Development. It is time now to write a new chapter in the evolution of the Atlantic Community. The success of our foreign policy depends in large measure upon the success of our foreign trade, and our maintenance of Western political unity depends in equally large measure upon the degree of Western economic unity. An integrated Western Europe, joined in trading partnership with the United States, will further shift the world balance of power to the side of freedom.
Our efforts to prove the superiority of free choice will thus be advanced immeasurably. We will prove to the world that we believe in peacefully "tearing down walls" instead of arbitrarily building them. We will be opening new vistas of choice and opportunity to the producers and consumers of the free world. In answer to those who say to the world's poorer countries that economic progress and freedom are no longer compatible, we--who have long boasted about the virtues of the market place and of free competitive enterprise, about our ability to compete and sell in any market, and about our willingness to keep abreast of the times--will have our greatest opportunity since the Marshall Plan to demonstrate the vitality of free choice.
Communist bloc nations have negotiated more than 200 trade agreements in recent years. Inevitably the recipient nation finds its economy increasingly dependent upon Soviet goods, services and technicians. But many of these nations have also observed that the economics of free choice provide far greater benefits than the economics of coercion-and the wider we can make the area of economic freedom, the easier we make it for all free peoples to receive the benefits of our innovations and put them into practice.
Our efforts to aid the developing nations of the world and other friends, however, depend upon more than a demonstration of freedom's vitality and benefits. If their economies are to expand, if their new industries are to he successful, if they are to acquire the foreign exchange funds they will need to replace our aid efforts, these nations must find new outlets for their raw materials and new manufactures. We must make certain that any arrangements which we make with the European Economic Community are worked out in such a fashion as to insure nondiscriminatory application to all third countries. Even more important, however, the United States and Europe together have a joint responsibility to all of the less developed countries of the world-and in this sense we must work together to insure that their legitimate aspirations and requirements are fulfilled. The "open partnership" which this Bill proposes will enable all free nations to share together the rewards of a wider economic choice for all.
Our efforts to maintain the leadership of the free world thus rest, in the final analysis, on our success in this undertaking. Economic isolation and political leadership are wholly incompatible. In the next few years, the nations of Western Europe will be fixing basic economic and trading patterns vitally affecting the future of our economy and the hopes of our less-developed friends. Basic political and military decisions of vital interest to our security will be made. Unless we have this authority to negotiate and have it this year--if we are separated from the Common Market by high tariff barriers on either side of the Atlantic--then we cannot hope to play an effective part in those basic decisions.
If we are to retain our leadership, the initiative is up to us. The revolutionary changes which are occurring will not wait for us to make up our minds. The United States has encouraged sweeping changes in Free World economic patterns in order to strengthen the forces of freedom. But we cannot ourselves stand still. If we are to lead, we must act. We must adapt our own economy to the imperatives of a changing world, and once more assert our leadership.
The American businessman, once the authority granted by this bill is exercised, will have a unique opportunity to compete on a more equal basis in a rich and rapidly expanding market abroad which possesses potentially a purchasing power as large and as varied as our own. He knows that, once artificial restraints are removed, a vast array of American goods, produced by American know-how with American efficiency, can compete with any goods in any spot in the world. And almost all members of the business community, in every state, now participate or could participate in the production, processing, transporting, or distribution of either exports or imports.
Already we sell to Western Europe alone more machinery, transportation equipment, chemicals and coal than our total imports of these commodities from all regions of the world combined. Western Europe is our best customer today--and should be an even better one tomorrow. But as the new external tariff surrounding the Common Market replaces the internal tariff structure, a German producer--who once competed in the markets of France on the same terms with our own producers--will achieve free access to French markets while our own producers face a tariff. In short, in the absence of authority to bargain down that external tariff, as the economy of the Common Market expands, our exports will not expand with it. They may even decline.
The American farmer has a tremendous stake in expanded trade. One out of every seven farm workers produces for export. The average farmer depends on foreign markets to sell the crops grown on one out of every six acres he plants. Sixty percent of our rice, 49 percent of our cotton, 45 percent of our wheat and 42 percent of our soybean production are exported. Agriculture is one of our best sources of foreign exchange.
Our farmers are particularly dependent upon the markets of Western Europe. Our agricultural trade with that area is four to' one in our favor. The agreements recently reached at Brussels both exhausted our existing authority to obtain further European concessions, and laid the groundwork for future negotiations on American farm exports to be conducted once new authority is granted. But new and flexible authority is required if we are to keep the door of the Common Market open to American agriculture, and open it wider still. If the output of our astounding productivity is not to pile up increasingly in our warehouses, our negotiators will need both the special EEC authority and the general 50 percent authority requested in the bill described later in this message.
The American worker will benefit from the expansion of our exports. One out of every three workers engaged in manufacturing is employed in establishments that export. Several hundred times as many workers owe their jobs directly or indirectly to exports as are in the small group--estimated to be less than one half of one percent of all workers--who might be adversely affected by a sharp increase in imports. As the number of job seekers in our labor force expands in the years ahead, increasing our job opportunities will require expanding our markets and economy, and making certain that new United States plants built to serve Common Market consumers are built here, to employ American workers, and not there.
The American consumer benefits most of all from an increase in foreign trade. Imports give him a wider choice of products at competitive prices. They introduce new ideas and new tastes, which often lead to new demands for American production.
Increased imports stimulate our own efforts to increase efficiency, and supplement anti-trust and other efforts to assure competition. Many industries of importance to the American consumer and economy are dependent upon imports for raw materials and other supplies. Thus American-made goods can also be made much less expensively for the American consumers if we lower the tariff on the materials that are necessary to their production.
American imports, in short, have generally strengthened rather than weakened our economy. Their competitive benefits have already been mentioned. But about 60 percent of the goods we import do not compete with the goods we produce--either because they are not produced in this country, or are not produced in any significant quantity. They provide us with products we need but cannot efficiently make or grow (such as bananas or coffee), supplement our own steadily depleting natural resources with items not available here in quantity (such as manganese or chrome ore, 90 percent or more of which must be imported if our steel mills are to operate), and contribute to our industrial efficiency, our economic growth and our high level of consumption. Those imports that do compete are equal to only one or one and one-half percent of our total national production; and even these imports create jobs directly for those engaged in their processing, distribution, or transportation, and indirectly for those employed in both export industries and in those industries dependent upon reasonably priced imported supplies for their own ability to compete.
Moreover, we must reduce our own tariffs if we hope to reduce tariffs abroad and thereby increase our exports and export surplus. There are many more American jobs dependent upon exports than could possibly be adversely affected by increased imports. And those export industries are our strongest, most efficient, highest paying growth industries.
It is obvious, therefore, that the warnings against increased imports based upon the lower level of wages paid in other countries are not telling the whole story. For this fear is refuted by the fact that American industry in general--and America's highest paid industries in particular--export more goods to other markets than any other nation; sell far more abroad to other countries than they sell to us; and command the vast preponderance of our own market here in the United States. There are three reasons for this:
(a) The skill and efficiency of American workers, with the help of our machinery and technology, can produce more units per man hour than any other workers in the world--thus making the competitive cost of our labor for many products far less than it is in countries with lower wage rates. For example, while a United States coal miner is paid eight times as much per hour as the Japanese miner, he produces fourteen times as much coal-our real cost per ton of coal is thus far smaller--and we sell the Japanese tens of millions of dollars worth of coal each year.
(b) Our best industries also possess other advantages--the adequacy of low cost raw materials or electrical power, for example. Neither wages nor total labor costs is an adequate standard of comparison it- used alone,
(c) American products can frequently compete successfully even where foreign prices are somewhat lower--by virtue of their superior quality, style, packaging, servicing or assurance of delivery.
Given this strength, accompanied by increasing productivity and wages in the rest of the world, there is less need to be concerned over the level of wages in the low wage countries. These levels, moreover, are already on the rise, and, we would hope, will continue to narrow the current wage gap, encouraged by appropriate consultations on an international basis.
This philosophy of the free market--the wider economic choice for men and nations-is as old as freedom itself. It is not a partisan philosophy. For many years our trade legislation has enjoyed bi-partisan backing from those members of both parties who recognized how essential trade is to our basic security abroad and our economic health at home. This is even more true today. The Trade Expansion Act of 1962 is designed as the expression of a nation, not of any single faction, not of any single faction or section. It is in that spirit that I recommend it to the Congress for prompt and favorable action.
II. PROVISIONS OF THE BILL
New Negotiating Authority. To achieve all of the goals and gains set forth above-to empower our negotiators with sufficient authority to induce the EEC to grant wider access to our goods and crops and fair treatment to those of Latin America, Japan and other countries--and to be ready to talk trade with the Common Market in practical terms--it is essential that our bargaining authority be increased in both flexibility and extent. I am therefore requesting two basic kinds of authority to be exercised over the next five years:
First, a general authority to reduce existing tariffs by 50 percent in reciprocal negotiations. It would be our intention to employ a variety of techniques in exercising this authority, including negotiations on broad categories or sub-categories of products.
Secondly, a special authority, to be used in negotiating with the EEC, to reduce or eliminate all tariffs on those groups of products where the United States and the EEC together account for 80 percent or more of world trade in a representative period. The fact that these groups of products fall within this special or "dominant supplier" authority is proof that they can be produced here or in Europe more efficiently than anywhere else in the world. They include most of the products which the members of the Common Market are especially interested in trading with us, and most of the products for which we want freer access to the Common Market; and to a considerable extent they are items in which our own ability to compete is demonstrated by the fact that our exports of these items are substantially greater than our imports. They account for nearly $2 billion of our total industrial exports to present and prospective Common Market members in 1960, and for about $1.4 billion of our imports from these countries. In short, this special authority will enable-us to negotiate for a dramatic agreement with the Common Market that will pool our economic strength for the advancement of freedom.
To be effective in achieving a breakthrough agreement with the EEC so that our farmers, manufacturers and other free world trading partners can participate, we will need to use both the dominant supplier authority and the general authority in combination. Reductions would be put into effect gradually in stages over five years or more. But the traditional technique of trading one brick at a time off our respective tariff walls will not suffice to assure American farm and factory exports the kind of access to the European market which they must have if trade between the two Atlantic markets is to expand. We must talk instead in terms of trading whole layers at a time in exchange for other layers, as the Europeans have been doing in reducing their internal tariffs, permitting the forces of competition to set new trade patterns. Trading in such an enlarged basis is not possible, the EEC has found, if traditional item by item economic histories are to dominate. But let me emphasize that we mean to see to it that all reductions and concessions are reciprocal--and that the access we gain is not limited by the use of quotas or other restrictive devices.
Safeguarding interests of other trading partners. In our negotiations with the Common Market, we will preserve our traditional most favored-nation principle under which any tariff concessions negotiated will be generalized to our other trading partners. Obviously, in special authority agreements where the United States and the EEC are the dominant suppliers, the participation of other nations often would not be significant. On other items, where justified, compensating concessions from other interested countries should be obtained as part of the negotiations. But in essence we must strive for a non-discriminatory trade partnership with the EEC. If it succeeds only in splintering the free world, or increasing the disparity between rich and poor nations, it will have failed to achieve one of its major purposes. The negotiating authority under this bill will thus be used to strengthen the ties of both "Common Markets" with, and expand our own trade in, the Latin American republics, Canada, Japan and other non-European nations--as well as helping them maximize their opportunities to trade with the Common Market.
The bill also requests special authority to reduce or eliminate all duties and other restrictions on the importation of tropical agricultural and forestry products supplied by friendly less-developed countries and not produced here in any significant quantity, if our action is taken in concert with similar action by the Common Market. These tropical products are the staple exports of many less-developed countries. Their efforts for economic development and diversification must be advanced out of earnings from these products. By assuring them as large a market as possible, we are bringing closer the day when they will be able to finance their own development needs on a self-sustaining basis.
Safeguards to American Industry. If the authority requested in this act is used, imports as well as exports will increase; and this increase will, in the overwhelming number of cases, be beneficial for the reasons outlined above. Nevertheless ample safeguards against injury to American industry and agriculture will be retained. Escape clause relief will continue to be available with more up-to-date definitions. Temporary tariff relief will be granted where essential. The power to impose duties or suspend concessions to protect the national security will be retained. Articles will be reserved from negotiations whenever such action is deemed to be in the best interest of the nation and the economy. And the four basic stages of the traditional peril point procedures and safeguards will be retained and improved:
--the President will refer to the Tariff Commission the list of proposed items for negotiations;
--the Tariff Commission will conduct hearings to determine the effect of concessions on these products;
--the Commission will make a report to the President, specifically based, as such reports are based now, upon its findings of how new imports might lead to the idling of productive facilities, the inability of domestic producers to operate at a profit and the unemployment of workers as the result of anticipated reductions in duties; and
--the President will report to the Congress on his action after completion of the negotiations. The present arrangements will be substantially improved, however, since both the Tariff Commission recommendation and the President's report would be broader than a bare determination of specific peril points; and this should enable us to make much more informed use of these recommendations than has been true in the past.
Trade Adjustment Assistance. I am also recommending as an essential part of the new trade program that companies, farmers and workers who suffer damage from increased foreign import competition be assisted in their efforts to adjust to that competition. When considerations of national policy make it desirable to avoid higher tariffs, those injured by that competition should not be required to bear the full brunt of the impact. Rather, the burden of economic adjustment should be borne in part by the Federal Government.
Under existing law, the only alternatives available to the President are the imposition or refusal of tariff relief. These alternatives should continue to be available.
The legislation I am proposing, however, provides an additional alternative called Trade Adjustment Assistance. This alternative will permit the Executive Branch to make extensive use of its facilities, programs and resources to provide special assistance to farmers, firms and their employees in making the economic readjustments necessitated by the imports resulting from tariff concessions.
Any worker or group of workers unemployed or under-employed as a result of increased imports would, under this bill, be eligible for the following forms of assistance:
1. Readjustment allowances providing as much as 65 percent of the individual's average weekly wage for up to 52 weeks for all workers, and for as many as 13 additional weeks for workers over 60, with unemployment insurance benefits deducted from such allowances to the extent available;
2. Vocational education and training assistance to develop higher and different skills;
3. Financial assistance for those who cannot find work in their present community to relocate to a different place in the United States where suitable employment is available.
For a businessman or farmer adversely affected by imports, there should be available:
1. Technical information, advice and consultation to help plan and implement an attack on the problem;
2. Tax benefits to encourage modernization and diversification;
3. Loan guarantees and loans otherwise not commercially available to aid modernization and diversification.
Just as the Federal Government has assisted in personal readjustments made necessary by military service, just as the Federal Government met its obligation to assist industry in adjusting to war production and again to return to peacetime production, so there is an obligation to render assistance to those who suffer as a result of national trade policy. Such a program will supplement and work in coordination with, not duplicate, what we are already doing or proposing to do for depressed areas, for small business, for investment incentives, and for the retraining and compensation of our unemployed workers.
This cannot be and will not be a subsidy program of government paternalism. It is instead a program to afford time for American initiative, American adaptability and American resiliency to assert themselves. It is consistent with that part of the proposed law which would stage tariff reductions over a five year period. Accordingly, trade adjustment assistance, like the other provisions of the Trade Expansion Act of 1962, is designed to strengthen the efficiency of our economy, not to protect inefficiencies.
Authority to grant temporary tariff relief will remain available to assist those industries injured by a sudden influx of goods under revised tariffs. But the accent is on "adjustment" more than "assistance." Through trade adjustment prompt and effective help can be given to those suffering genuine hardship in adjusting to import competition, moving men and resources of uneconomic production into efficient production and competitive positions, and in the process preserving the employment relationships between firms and workers wherever possible. Unlike tariff relief, this assistance can be tailored to their individual needs without disrupting other policies. Experience with a similar kind of program in the Common Market, and in the face of more extensive tariff reductions than we propose here, testifies to the effective but relatively inexpensive nature of this approach. For most affected firms will find that the adjustment involved is no more than the adjustment they face every year or few years as the result of changes in the economy, consumer taste or domestic competition.
The purpose of this message has been to describe the challenge we face and the tools we need. The decision rests with the Congress. That decision will either mark the beginning of a new chapter in the alliance of free nations--or a threat to the growth of Western unity. The two great Atlantic markets will either grow together or they will grow apart. The meaning and range of free economic choice will either be widened for the benefit of free men everywhere--or confused and constricted by new barriers and delays.
Last year, in enacting a long-term foreign aid program, the Congress made possible a fundamental change in our relations with the developing nations. This bill will make possible a fundamental, far-reaching and unique change in our relations with the other industrialized nations--particularly with the other members of the Atlantic Community. As NATO was unprecedented in military history, this measure is unprecedented in economic history. But its passage will be long-remembered and its benefits widely distributed among those who work for freedom.
At rare moments in the life of this nation an opportunity comes along to fashion out of the confusion of current events a clear and bold action to show the world what it is we stand for. Such an opportunity is before us now. This bill, by enabling us to strike a bargain with the Common Market, will "strike a blow" for freedom.
JOHN F. KENNEDY