Special Message to the Congress on Foreign Economic Policy.

To the Congress of the United States:

I submit herewith for the consideration of the Congress recommendations concerning the foreign economic policy of the United States.

Due to the urgency and significance of our problems in this area, I previously recommended, and the Congress approved, the establishment of the Commission on Foreign Economic Policy. Its membership, consisting of seventeen elected officials and private citizens, was drawn from all parts of the country and represented diverse points of view. The Commission's report, prepared in the American tradition of full debate and vigorous dissent, has been carefully reviewed by the various Executive Departments of the Government and forms the basis for the program I submit in this message.

Before the Commission began its deliberations I said to its members, "I commend to you an attitude both realistic and bold. Above all, I urge you to follow one guiding principle: What is best in the national interest."

The national interest in the field of foreign economic policy is clear. It is to obtain, in a manner that is consistent with our national security and profitable and equitable for all, the highest possible level of trade and the most efficient use of capital and resources. That this would also strengthen our military allies adds urgency. Their strength is of critical importance to the security of our country.

Great mutual advantages to buyer and seller, to producer and consumer, to investor and to the community where investment is made, accrue from high levels of trade and investment. They accrue no less in trade from nation to nation than in trade from community to community within a single country. The internal strength of the American economy has evolved from such a system of mutual advantage.

In the press of other problems and in the haste to meet emergencies, this nation--and many other nations of the free world--have all too often lost sight of this central fact. World-wide depression and wars, inflation and resultant economic dislocations, have left a sorry heritage: a patchwork of temporary expedients and a host of restrictions, rigidities, interferences and barriers which seriously inhibit the expansion of international trade. Thus are impeded the very forces which make for increased production, employment and incomes.

The tasks of repairing the physical damage caused by the catastrophe of war have been substantially achieved. The creation of an adequate system of defense for the free world is well advanced. Most of the countries which suffered the ravages of war have made remarkable headway towards financial stability and increased production. Their own efforts have been greatly aided by our assistance, and yet, despite this recovery, we and other free nations are still severely limited by the persistence of uneconomic, man-made barriers to mutual trade and the flow of funds among us.

Together we and our friends abroad must work at the task of lowering the unjustifiable barriers--not all at once but gradually and with full regard for our own interests. In this effort, the United States must take the initiative and, in doing so, make clear to the rest of the world that we expect them to follow our lead.

Many foreign restrictions have been imposed as a consequence of the so-called "dollar gap." This phrase has become the symbol of the failure of the free world to find a lasting solution to the imbalance of international payments. We should no longer fill it by major grants to enable other nations to secure what they need but cannot buy. Our aim must not be to fill the dollar gap, but rather to help close it. Our best interest dictates that the dollar gap be closed by raising the level of trade and investment.

The United States stands ready and able to produce and sell more than the rest of the world can buy from us. The inability of many foreign countries to buy our goods in the volume we would like to sell does not arise from any lack of desire for these goods. Such is far from the case. Instead it arises out of an inability of these nations to pay--in dollars-for the volume we have to sell.

Dollar grants are no lasting solution to this impasse.

The solution is a higher level of two-way trade. Thus we can sell and receive payment for our exports and have an increasing volume of investment abroad to assist economic development overseas and yield returns to us. Greater freedom from restrictions and controls and the increased efficiencies which arise from expanding markets and the freer play of economic forces are essential to the attainment of this higher trade level.

Failure so to move will directly threaten our domestic economy, for it will doom our efforts to find ways by which others, through their own efforts, can buy our goods. The only practicable alternative is to reduce exports. Our farms would have to sell less, since the products of 40 million acres, amounting to 10 to 12 percent of our agriculture, would have to find their market outside our own country. Moreover, if their export markets were curtailed, American factories now selling their products throughout the world would have to reduce employment. It is a very important fact that over 4 million American workers depend on international trade for their employment.

Beyond our economic interest, the solidarity of the free world and the capacity of the free world to deal with those who would destroy it are threatened by continued unbalanced trade relationships--the inability of nations to sell as much as they desire to buy. By moving boldly to correct the present imbalance, we shall support and increase the level of our exports of both manufactured and agricultural products. We shall, at the same time, increase the economic strength of our allies. Thus shall we enhance our own military security by strengthening our friends abroad. Thus shall we assure those sources of imports that supplement our domestic production and are vital to our defense. Thus shall we raise our standard of living and aid in the development of a better world for all of us and our children.

TARIFFS

I am convinced that the gradual and selective revision of our tariffs, through the tested method of negotiation with other nations, is an essential ingredient of the continuing growth of our domestic economy. An expression of our willingness to negotiate further will offer needed leadership towards the reduction of trade and payments barriers that limit markets for our goods throughout the world.

The Commission on Foreign Economic Policy recommended a three-year extension of the Trade Agreements Act with amendments to authorize:

a. Reduction, pursuant to trade agreement negotiation, of existing tariff rates on commodities selected for such negotiations by not more than 5 percent of present rates in each of the three years of the new act;

b. Reduction, by not more than one-half over a three-year period, of tariffs in effect on January 1, 1945, on products which are not being imported or which are being imported only in negligible volume; and

c. Reduction, over a three-year period, pursuant to trade agreement negotiation, to 50 percent ad valorem, or its equivalent, of any rate in excess of 50 percent ad valorem, or its equivalent.

I have approved these recommendations of the Commission and urge their adoption by the Congress. I may also recommend special provisions for negotiation with Japan in view of the economic problems of that country.

The foregoing authority does not contemplate across-the-board tariff reductions. The peril point and escape clause procedures would, of course, be preserved, and the three proposed types of rate reduction would not be cumulative. Tariff reductions would be made selectively on specific commodities, and only after notice and hearings in accordance with past practice. This would represent our part in the gradual and careful approach to the whole problem of improved trade which the world so urgently needs. No sudden, sharp, or widespread adjustments within our economy would be involved.

These escape clause and peril point provisions of our tariff legislation are designed to mitigate injury to our domestic producers from tariff reductions. Whenever recourse is had to these provisions, I shall carefully consider the findings and recommendations of the Tariff Commission. My responsibilities for the welfare of the nation require that I continue to base my decisions at times on broader grounds than the Tariff Commission is empowered to consider. The Commission on Foreign Economic Policy supports this position.

I have approved the Commission's recommendations that the United States withhold reductions in tariffs on products made by workers receiving wages which are substandard in the exporting country. This policy shall be placed in effect. I have also approved the Commission's recommendations concerning raising of labor standards through consultative procedures and cooperation in international conferences such as those sponsored by the International Labor Organization.

These recommendations for renewal and amendment of the Trade Agreements Act are based on the plain truth that if we wish to sell abroad we must buy abroad.

THE GENERAL AGREEMENT ON TARIFFS AND TRADE

Since 1948, virtually all the major trading nations of the world, including the United States, have become parties to a General Agreement on Tariffs and Trade. This Agreement has been the principal arrangement by which we in the United States have sought to carry out the provisions and purposes of the Trade Agreements Act.

The Commission on Foreign Economic Policy has recommended that the United States renegotiate the organizational provisions of the Agreement, so that the contracting parties acting collectively would confine their functions to sponsoring multilateral trade negotiations, recommending broad trade policies for individual consideration by the legislative or other appropriate authorities in the various countries, and providing a forum for consultation regarding trade disputes.

I shall act promptly upon this recommendation. At the same time, I shall suggest to other contracting parties revisions of the substantive provisions of the Agreement to provide a simpler, stronger instrument contributing more effectively to the development of a workable system of world trade. When the organizational provisions of the Agreement have been renegotiated, they will be submitted to the Congress for its approval.

CUSTOMS ADMINISTRATION AND PROCEDURE

The problems of tariff classification, of proper valuation of imported articles and of procedures for administering the customs are complex and perplexing. Over the years these problems have grown to the point where they now constitute an unwarranted and unintended burden on trade.

The United States may be no worse in this regard than many other nations, but good business practice alone is sufficient to require:

a. Simplification of commodity definitions, classifications and rate structure;

b. Improvement in the methods of valuation of imports; and

c. Establishment of more efficient procedures for customs administration.

To this end I shall propose legislation providing for the simplification of the commodity definitions and rate structures in the Tariff Act, after a study by the Tariff Commission, and subject to appropriate standards to be established by the Congress. Such legislation should also provide for a better method of classification of articles not enumerated in the tariff schedules, and for such improvement in the statutes governing the administration of customs procedures as can be made at this time. In this connection I am directing the Department of the Treasury to keep customs procedures under continuous review and to report to the Congress annually on the difficulties and delays in processing goods through Customs, together with recommendations for action to eliminate such obstructions. I further recommend that the anti-dumping law and procedures under it be changed so far as necessary to permit speedier and more efficient disposal of cases and to prevent undue interference with trade during investigation of suspected dumping.

To provide an improved basis for customs valuations I urge adoption of the Treasury's valuation proposals. These are embodied in H.R. 6584 which has already been passed by the House of Representatives.

U.S. INVESTMENT ABROAD

An increased flow of United States investment abroad could contribute significantly to the needed expansion of international trade. It also could help maintain a high level of economic activity and employment in the United States. Further, such investment contributes to the development abroad of primary resources needed to meet our own ever-increasing needs even while it helps to strengthen the economies of foreign countries. In view of the great importance of private investment to our foreign economic policy, I emphasize the necessity for passage of the Administration tax bill already recommended to you and already advanced in your considerations which provides for:

a. Taxation of business income from foreign subsidiaries or from segregated foreign branches which operate and elect to be taxed as subsidiaries at a rate 14 percentage points lower than the regular corporate rate;

b. Broadening the definition of foreign taxes which may be credited against the United States income tax to include any tax, which is the principal form of taxation on business in a country, except turnover, general sales taxes or excise, and social security taxes;

c. Removing of the overall limitation on foreign tax credits; and

d. Permitting regulated investment companies concentrating on foreign investment to pass on to their stockholders the credit for foreign taxes which would be available on direct investment.

Further to encourage the flow of private investment abroad, we shall give full diplomatic support, through our activities here and through our missions and representatives in the field, to the acceptance and understanding by other nations of the prerequisites for the attraction of private foreign investment. We shall continue to use the treaty approach to establish common rules for the fair treatment of foreign investment.

In connection with legislation authorizing the Mutual Security Program I suggest that the Congress consider the desirability of broadening the existing authority to guarantee against losses on new investment abroad, so as to cover losses caused by war, revolution and insurrection.

The Commission has pointed out that uncertainty as to the application of United States antitrust laws to the operations of American firms abroad is a deterrent to foreign investment. It recommended that our antitrust laws be restated in a manner which would clearly acknowledge the right of each country to regulate trade within its own borders. At the same time, the Commission insisted that it should be made clear that foreign laws or established business practices which encourage restrictive price, production or marketing arrangements will limit the willingness of United States businessmen to invest abroad and will reduce the benefits of such investment to the economies of the host countries.

I have requested the Department of Justice to consider this recommendation in connection with its current study of the antitrust laws.

BUY AMERICAN LEGISLATION

At present certain of our laws require that, in specified Federal or Federally-financed procurement, preference be given to domestic firms over foreign bidders. Except where considerations of national security, persistent and substantial unemployment, or encouragement of small business require otherwise, I agree with the Commission that it is improper policy, unbusinesslike procedure and unfair to the taxpayer for the Government to pay a premium on its purchases.

I request, therefore, that legislative authority be provided to exempt from the provisions of this legislation the bidders from nations that treat our bidders on an equal basis with their own nationals. Meanwhile, the Executive Branch is clarifying the application of these preference principles to government procurement. It will limit the price differential favoring domestic producers over foreign bidders to a reasonable percent dependent upon the circumstances over and above whatever tariffs may apply. Discretionary authority, however, must be continued to permit special consideration in government procurement for the requirements of national security, for the problems of small business and of areas where persistent and substantial unemployment exists.

RAW MATERIALS

This country is blessed with abundant mineral resources, but we must make the most of them if we are to satisfy the ever-increasing appetite of an expanding economy and at the same time maintain an adequate defense posture. We must recognize, however, that it is not possible for this nation, or any other nation, to produce enough of every metal and mineral needed by modern industry. These materials are not evenly distributed throughout the world. We have to depend on one another. Our foreign economic policies, therefore, must encourage the relatively easy flow of these materials in international trade.

The Commission has made two sets of recommendations which I believe will materially assist in achieving an orderly expansion of mineral production both here and abroad.

The first is that the United States Government should make a constructive contribution toward greater stability of world prices of raw materials by moderating or relaxing impediments to international trade, by encouraging diversification of foreign economics, by avoiding procurement practices which disturb world prices, by consultation with other nations, and by tempering the fluctuations in our own economy.

The second calls for increased encouragement of investment in overseas production by our citizens and the nationals of other countries.

I heartily endorse these recommendations.

The Commission also recommended that domestic sources for raw materials required for military purposes should be assured by direct means and not by tariffs and import quotas. I believe that normally this is sound.

However, I have appointed a special Cabinet committee which is now surveying the whole field of our minerals policy and have drawn their attention to these recommendations.

AGRICULTURE

Perhaps no sector of our economy has a greater stake in foreign trade than American agriculture. In recent years, for example, one-third of our wheat, forty percent of our cotton and rice, and one-fourth of our tobacco and soybeans have been exported. It is highly important to maintain foreign markets for our agricultural products.

Any program designed to serve the interests of American agriculture must take due account of the necessity for export markets. Put in the words of the Commission, "It is necessary to harmonize our agricultural and foreign economic policies without sacrificing the sound objectives of either." I am convinced such reconciliation is possible. Acceptance of the recommendations in my Agricultural Message of January 11 will, I feel certain, help accomplish this objective.

MERCHANT MARINE

With respect to our ocean shipping, we must have a merchant marine adequate to our defense requirements. I subscribe to the principle that such support of our merchant fleet as is required for that purpose should be provided by direct means to the greatest possible extent. Such a policy, however, requires a careful analysis of the means available for providing direct support, its possible effects on foreign flag vessel carryings, and its total costs before a specific program can be recommended.

The Department of Commerce has already studied this problem at length. Its findings will be further reviewed within the Executive Branch in order to develop specific recommendations to transmit to the next session of the Congress, in addition to the proposals submitted by the Executive Branch that are now before the Congress.

INTERNATIONAL TRAVEL

International travel has cultural and social importance in the free world. It also has economic significance. Foreign travel by Americans is a substantial source of dollars for many countries, enabling them to pay for what we sell them.

While the promotion of tourism is primarily a responsibility of the countries which welcome visitors, and is a function for private enterprise, there are some specific governmental actions which can be helpful. For example, there is H.R. 8352 which increases the duty-free allowance for tourists from $500 to $1000, exercisable every six months. I recommend its passage. From time to time I may have other recommendations for legislative action to stimulate travel.

Meanwhile, in the Executive Branch, I shall instruct the appropriate agencies and departments, at home and abroad, to consider how they can facilitate international travel. They will be asked to take action to simplify governmental procedures relating to customs, visas, passports, exchange or monetary restrictions and other regulations that sometimes harass the traveler.

ECONOMIC AID AND TECHNICAL ASSISTANCE

Assistance extended in the past by the United States to other free nations has played an effective part in strengthening the national security, developing important resources, and opening up significant opportunities, for ourselves and for others. It has also. carried with it, in many instances, particularly in technical cooperation and famine relief, a deep humanitarian response by our people. However, economic aid cannot be continued indefinitely. We must distinguish between an emergency and a chronic malady, between a special case and a general rule.

I subscribe, therefore, to the principle that economic aid on a grant basis should be terminated as soon as possible consistent with our national interest. In cases where support is needed to establish and equip military forces of other governments in the interest of our mutual defense, and where this is beyond the economic capacity of another country, our aid should be in the form of grants. As recognized by The Commission, there may be some cases in which modest amounts of grant aid to underdeveloped countries will importantly serve the interest of security. I further agree that in other situations where the interest of The United States requires that dollars not otherwise available to a country should be provided, such support to the maximum extent appropriate should be in the form of loans rather than grants.

In extending such loans, we must be careful not to. interfere with the normal lending activities and standards of the Export-Import Bank. The International Bank is the primary institution for the public financing of economic development. The Export-Import Bank will consider on their merits applications for the financing of development projects, which are not being made by the International Bank, and which are in the special interest of the United States, are economically sound, are within the capacity of the prospective borrower to repay and within the prudent loaning capacity of the Bank.

I approve the recommendations of the Commission on Foreign Economic Policy that the United States participation in technical cooperation programs should be pressed forward vigorously. Such programs should concentrate on providing experts and know-how rather than large funds or shipments of goods except for necessary demonstration equipment. They should not provide capital for investment but should be so administered as to fit into the programs of development of the assisted countries and they should be related to any private or public investment likely to be forthcoming.

Review of the requirements for the Mutual Security Program has been conducted with these principles in mind and substantial reductions in grant aid have been made by this Administration. The legislation which I shall later propose for the Mutual Security Program will reflect these principles.

EAST-WEST TRADE

In viewing the problems of other nations of the free world, we are forced to recognize that the economies of some of them have been weakened by the disruption of the broad historic pattern of trade between East and West.

Curtailment of our aid programs will increase the pressures for resumption of such trade. A greater exchange of peaceful goods between East and West--that is, goods not covered by the Battle Act nor otherwise considered strategic--so far as it can be achieved without jeopardizing national security, and subject to our embargo on Communist China and North Korea, should not cause us undue concern. I shall, of course, take appropriate action to ensure that our security is fully safeguarded.

CONVERTIBILITY

The Commission tightly regards positive progress toward currency convertibility as an indispensable condition for a freer and healthier international trade. Steps toward enabling holders of foreign currencies to convert them freely into other currencies deserve our encouragement.

The Commission has correctly observed that the initiative and responsibility for introducing currency convertibility must rest with the countries concerned. I am happy to say that such initiative is being taken. The British and other members of the Commonwealth of Nations have met twice, in London and in Sydney, to consider plans for convertibility of the pound sterling. The United Kingdom and other important nations of Europe have discussed their aims with us. Individually they are taking constructive steps affecting their own currencies. In addition, discussions among them which are now under way in connection with the renewal of the European Payments Union are being largely influenced by their desire to prepare the way for convertibility.

I have approved the Commission's recommendations for cooperation in strengthening the gold and dollar reserves of countries which have prepared themselves for convertibility by sound internal and external policies. These recommendations do not call for new action by the Congress. Authority and procedures for this purpose already exist. The United States will support the use of the resources of the International Monetary Fund as a bulwark to strengthen the currencies of countries which undertake convertibility. In addition, a study is now being made, as suggested by the Commission, of the possibility of standby credits from the Federal Reserve System.

CONCLUSION

What I have outlined to you is a minimum program which should be judged as a whole. Its various parts are interrelated; each requires the other.

Conceived as a whole, this program consists of four major parts:

Aid--which we wish to curtail

Investment--which we wish to encourage

Convertibility--which we wish to facilitate and

Trade--which we wish to expand

I consider it essential that we achieve each of these objectives, which we must clearly understand are closely interlocked: As we curtail our aid, we must help to close the dollar gap by expanding our foreign investment and trade. This expansion will be facilitated by a return to convertibility of foreign currencies. The return by our friends abroad to convertibility will be encouraged if our trade policy leads them to expect expansion of our foreign trade and investment.

Unless we are prepared to adopt the policies I have recommended to expand export and import trade and increase the flow of our capital into foreign investment, our friends abroad may be discouraged in their effort to re-establish a free market for their currencies. If we fail in our trade policy, we may fail in all. Our domestic employment, our standard of living, our security, and the solidarity of the free world--all are involved.

For our own economic growth we must have continuously expanding world markets; for our security we require that our allies become economically strong. Expanding trade is the only adequate solution for these two pressing problems confronting our country.

DWIGHT D. EISENHOWER