Special Message to the Congress: "Greater Prosperity Through Expanded World Trade.

To the Congress of the United States:

A nation's trade lines are its life lines. Open trade lines and active commerce lead to economic health and growth. Closed trade lines end in economic stagnation.

Franklin D. Roosevelt recognized these truths more than thirty years ago, when the nation and the world were in the grip of Depression.

On that March day in 1934 when he asked the Congress to pass the historic Reciprocal Trade Act, he pointed to America's declining world trade and what it meant to the nation: "idle hands, still machines, ships tied to their docks."

That Act set in motion three and a half decades of descending tariff barriers and rising world trade. Our producers and farmers found new markets abroad, and American exports multiplied twenty-fold.

This era of commercial progress was capped by the Kennedy Round Agreements reached at Geneva last year--the greatest success in all the history of international trade negotiations.

When I reported to the Congress last November on the Kennedy Round, I said it would mean new factories, more jobs, lower prices to families, and higher incomes for American workers and for our trading partners throughout the world.

Already, through these Agreements, tariff barriers everywhere are falling, bringing savings to consumers, and opening new overseas markets for competitive producers.

But the problems and the promises of world trade are always changing. We must have the tools not only to adjust to change, but to turn change to our advantage.

To prepare for the era of world trade unfolding before us now, I submit to the Congress today the Trade Expansion Act of 1968. This measure will:

--maintain our negotiating authority to settle--advantageously--trade problems and disputes.

--carry out the special Geneva agreement on chemicals and other products.

--improve the means through which American firms and workers can adjust to new competition from increased imports.

OUR INTERNATIONAL RESPONSIBILITIES

The Trade Expansion Act of 1968 will strengthen relations with our trading partners in three ways.

First, it will extend through June 30, 1970, the President's authority to conduct negotiations for tariff reductions. This authority was contained in provisions of the Trade Expansion Act of 1962 that have expired.

Most of this authority was used in negotiating the Kennedy Round. The unused portion of that authority will give the President the flexibility to adjust tariff rates as future developments might require.

For example, the United States might find it necessary to increase the duty on a particular article--as the result of an "escape clause" action or a statutory change in tariff classification. In such event, we would be obliged to give other nations compensatory tariff adjustments for their trade losses.

Without this authority, we would invite retaliation and endanger American markets abroad.

I recommend that the President's authority to make these tariff adjustments be extended through June 30, 1970.

Second, the Trade Expansion Act of 1968 will eliminate the American Selling Price system of customs valuation. This action is necessary to carry out the special agreement reached during the Kennedy Round.

The American Selling Price system has outlived its purpose. It should be ended.

The generally accepted method of valuing goods for tariff purposes--which we and all our trading partners employ--is to use the actual price of the item to the importer.

But many years ago, to protect a few of our fledgling industries, we imposed on competing foreign goods--in addition to a substantial tariff--the special requirement that their tariff value be determined by American prices. Today this unusual system often produces tariff protection of more than 100 percent of the import cost of the product.

Such excessive protection is both unfair and unnecessary.

This system is unfair because it:

--Gives to a few industries a special privilege available to no other American business.

--Rests on an arbitrary method of valuation which no other nation uses.

--Diverges from the provisions of the General Agreement on Tariffs and Trade.

--Imposes an unjustified burden on the U.S. consumer.

This system is unnecessary because the few industries which it covers no longer need special government protection.

It applies primarily to the chemical industry in the benzenoid field. Yet chemicals, and benzenoids in particular, are among our most efficient and rapidly expanding industries. They have done well at home. They have done well in the international market. They are in a strong position to face normal competition from imports.

A supplementary agreement was negotiated at Geneva which will lower foreign tariffs on American chemicals and reduce certain non-tariff barriers--road taxes and tariff preferences--on American automobiles and tobacco. To receive these important concessions, the United States must eliminate the American Selling Price valuation system and thereby give foreign producers of chemicals and a few other products normal access to our markets. This bargain is clearly in our national interest--good for our industries, good for our workers, and good for our consumers.

I recommend that the Congress eliminate the American Selling Price system to remove inequities in our tariffs and enable us to take advantage of concessions negotiated in the Kennedy Round.

Third, the Trade Expansion Act of 1968 will provide for specific funding of our participation in the General Agreement on Tariffs and Trade.

This is the procedure we follow in meeting our financial responsibilities to all other international organizations.

The General Agreement on Tariffs and Trade has become the most important forum for the conduct of international trade relations. The Kennedy Round took place under its auspices. Yet since 1947, we have financed our annual contribution to this Agreement through general contingency funds rather than through a specific authorization.

I recommend that the Congress authorize specific appropriations for the American share of the expenses for the General Agreement on Tariffs and Trade.

OUR NEEDS AT HOME

When trade barriers fall, the American people and the American economy benefit. Open trade lines:

--Reduce prices of goods from abroad.

--Increase opportunities for American businesses and farms to export their products. This means expanded production and more job opportunities.

--Help improve the efficiency and competitive strength of our industries. This means a higher rate of economic growth for our nation and higher incomes for our people.

Some firms, however, have difficulty in meeting foreign competition, and need time and help to make the adjustment.

Since international trade strengthens the nation as a whole, it is only fair that the government assist those businessmen and workers who face serious problems as a result of increased imports.

The Congress recognized this need--in the Trade Expansion Act of 1962---by establishing a program of trade adjustment assistance to businessmen and workers adversely affected by imports.

Unfortunately, this program has been ineffective. The test of eligibility has proved to be too rigid, too technical, and too complicated.

As part of a comprehensive trade expansion policy, I propose that we make our adjustment assistance program fair and workable.

I recommend that Congress broaden the eligibility for this assistance. The test should be simple and clear: relief should be available whenever increased imports are a substantial cause of injury.

I intend to pattern the administration of this program on the Automotive Products Trade Act of 1965. Determinations of eligibility will be made jointly by the Secretaries of Labor, Commerce and Treasury.

The adjustment assistance provisions of Automotive Products Trade Act of 1965 have been successful. They have well served American automobile firms and their workers as we have moved to create an integrated U.S.-Canadian auto market.

These provisions will expire on June 30.

I recommend that the Congress extend the adjustment assistance provisions of the Automotive Products Trade Act through June 30, 1971.

TRADE INITIATIVES FOR THE FUTURE

The measures I have recommended today will help us carry forward the great tradition of our reciprocal trade policy.

But even as we consolidate our past gains, we must look to the future.

First and foremost, we must ensure that the progress we have made is not lost through new trade restrictions.

One central fact is clear. A vicious cycle of trade restrictions arms most the nation which trades most. And America is that nation.

At the present time, proposals pending before the Congress would impose quotas or other trade restrictions on the imports of over twenty industries. These measures would cover about $7 billion of our imports---close to half of all imports subject to duty.

In a world of expanding trade, such restrictions would be self-defeating. Under international rules of trade, a nation restricts imports only at the risk of its own exports. Restriction begets restriction.

In reality, "protectionist" measures do not protect any of us: --They do not protect the American working man. If world markets shrink, there will be fewer jobs.

--They do not protect the American businessman. In the long run, smaller markets will mean smaller profits.

--They do not protect the American consumer. He will pay more for the goods he buys.

The fact is that every American---directly or indirectly--has a stake in the growth and vitality of an open economic system.

Our policy of liberal trade has served this nation well. It will continue to advance our interests in the future.

But these are critical times for the nation's economy. We have launched a series of measures to reduce a serious balance of payments deficit. As part of this program, I have called for a major long-run effort to increase our trade surplus. This requires that we push ahead with actions to keep open the channels of trade.

Many of our trading partners have indicated a willingness to cooperate in this effort by accelerating some of their tariff reductions agreed to in the Kennedy Round, and by permitting the United States to defer a portion of our tariff reductions. Furthermore, a number of Western European countries are now taking more active steps to achieve a higher rate of economic growth. This promises to increase the demand for our exports and improve our trade position.

To take full advantage of the expanded trading opportunities that lie ahead, we must improve the competitive position of American goods. Passage of the anti-inflation tax is the most critical action we could take now to strengthen our position at home and in world markets. The tax measure I have recommended will help prevent destructive price increases--which can sap the vitality and strength of our economy. Continued rapid increases in our prices would mean fewer exports and higher imports.

Second, other nations must loin with us to put an end to non-tariff barriers.

Trade is a two-way street. A successful trade policy must be built upon reciprocity. Our own trade initiatives will founder unless our trading partners join with us in these efforts.

The Kennedy Round was an outstanding example of international cooperation. But major non-tariff barriers continue to impede the free flow of international commerce. These barriers now block many U.S. products from competing for world markets.

Some non-tariff barriers violate provisions of the General Agreement on Tariffs and Trade. We will step up our efforts to secure the prompt removal of these illegal restrictions.

Other non-tariff barriers may not be illegal, but they clearly hamper and hinder trade. Such barriers are found in all countries; the American Selling Price system is an example of one of our non-tariff barriers.

We have initiated a major international study to assess the effect of non-tariff barriers on world trade.

We have already begun action in the General Agreement on Tariffs and Trade and other international organizations to deal with some of these non-tariff barriers.

Efforts such as these are an important element in our trade policy. All sides must be prepared to dismantle unjustified or unreasonable barriers to trade.

Reciprocity and fair play are the essential standards for international trade. America will insist on these conditions in all our negotiations to lower non-tariff barriers.

Third, we must develop a long-range policy to guide American trade expansion through the 1970's.

I have directed the President's Special Representative for Trade Negotiations to make an intensive study of our future trade requirements and needs.

I would hope that Members of the Congress and leaders of Labor, Business and Agriculture will work with the Executive Branch in this effort. To help develop the foundations of a far-reaching policy, I will issue an Executive Order that establishes a wide basis for consultation and assistance in this important work.

AN EXPANDING ERA IN WORLD TRADE

The proposals in this message have been shaped to one purpose--to develop the promise of an expanding era in world trade.

We started on this road three and a half decades ago. In the course of that journey, the American farmer, the businessman, the worker and the consumer have benefitted.

The road ahead can lead to new levels of prosperity and achievement for the American people. The Trade Expansion Act of 1968 will speed us on the way.

I urge the Congress to give this important measure its prompt and favorable consideration.

LYNDON B. JOHNSON

The White House

May 28, 1968