Special Message to the Congress on the Foreign Economic Policy of the United States

To the Congress of the United States:

For the consideration of the Congress, I submit my recommendations for further developing the foreign economic policy of the United States. Although largely based upon my Special Message to the Congress of March 30, 1954, these proposals are the product of fresh review.

The nation's enlightened self-interest and sense of responsibility as a leader among the free nations require a foreign economic program that will stimulate economic growth in the free world through enlarging opportunities for the fuller operation of the forces of free enterprise and competitive markets. Our own self-interest requires such a program because (1) economic strength among our allies is essential to our security; (2) economic growth in underdeveloped areas is necessary to lessen international instability growing out of the vulnerability of such areas to Communist penetration and subversion; and (3) an increasing volume of world production and trade will help assure our own economic growth and a rising standard of living among our own people.

In the world-wide struggle between the forces of freedom and those of communism, we have wisely recognized that the security of each nation in the free world is dependent upon the security of all other nations in the free world. The measure of that security in turn is dependent upon the economic strength of all free nations, for without economic strength they cannot support the military establishments that are necessary to deter Communist armed aggression. Economic strength is indispensable, as well, in securing themselves against internal Communist subversion.

For every country in the free world, economic strength is dependent upon high levels of economic activity internally and high levels of international trade. No nation can be economically self-sufficient. Nations must buy from other nations, and in order to pay for what they buy they must sell. It is essential for the security of the United States and the rest of the free world that the United States take the leadership in promoting the achievement of those high levels of trade that will bring to all the economic strength upon which the freedom and security of all depends. Those high levels of trade can be promoted by the specific measures with respect to trade barriers recommended in this message, by the greater flow of capital among nations of the free world, by convertibility of currencies, by an expanded interchange of technical counsel, and by an increase in international travel.

From the military standpoint, our national strength has been augmented by the over-all military alliance of the nations constituting the free world. This free world alliance will be most firmly cemented when its association is based on flourishing mutual trade as well as common ideals, interests and aspirations. Mutually advantageous trade relationships are not only profitable, but they are also more binding and more enduring than costly grants and other forms of aid.

Today numerous uneconomic, man-made barriers to mutually advantageous trade and the flow of investment are preventing the nations of the free world from achieving their full economic potential. International trade and investment are not making their full contribution to production, employment and income. Over a large area of the world currencies are not yet convertible.

We and our friends abroad must together undertake the lowering of the unjustifiable barriers to trade and investment, and we must do it on a mutual basis so that the benefits may be shared by all.

Such action will add strength to our own domestic economy and help assure a rising standard of living among our people by opening new markets for our farms and factories and mines.

The program that I am here recommending is moderate, gradual and reciprocal. Radical or sudden tariff reductions would not be to the interest of the United States and would not accomplish the goal we seek. A moderate program, however, can add immeasurably to the security and well-being of the United States and the rest of the free world.

TRADE AGREEMENT AUTHORITY

I request a three-year extension of Presidential authority to negotiate tariff reductions with other nations on a gradual, selective and reciprocal basis. This authority would permit negotiations for reductions in those barriers that now limit the markets for our goods throughout the world. I shall ask all nations with whom we trade to take similar steps in their relations with each other.

The three-year extension of the Trade Agreements Act should authorize, subject to the present peril and escape clause provisions:

1. Reduction, through multilateral and reciprocal negotiations, of tariff rates on selected commodities by not more than five percent per year for three years;

2. Reduction, through multilateral and reciprocal negotiations, of any tariff rates in excess of fifty percent to that level over a three-year period; and

3. Reduction, by not more than one-half over a three-year period, of tariff rates in effect on January 1, 1945, on articles which are not now being imported or which are being imported only in negligible quantities.

THE GENERAL AGREEMENT ON TARIFFS AND TRADE

For approximately seven years the United States has cooperated with all the major trading nations of the free world in an effort to reduce trade barriers. The instrument of cooperation is the General Agreement on Tariffs and Trade. Through this Agreement the United States has sought to carry out the provisions and purpose of the Trade Agreements Act.

The United States and thirty-three other trading countries are now reviewing the provisions of the Agreement for the purpose of making it a simpler and more effective instrument for the development of a sound system of world trade. When the current negotiations on the revision of the organizational provisions of the General Agreement are satisfactorily completed, the results will be submitted to the Congress for its approval.

CUSTOMS ADMINISTRATION AND PROCEDURE

Considerable progress has been made in freeing imports from unnecessary customs administrative burdens. Still more, however, needs to be done in the three areas I mentioned in my message last year: (I) the simplification of commodity definitions, classification and rate structures; (2) improvement in standards for the valuation of imports; and (3) further improvement of procedures for customs administration.

An important step toward simplification of the tariff structure was taken by the Congress last year with the passage of the Customs Simplification Act which directs the Tariff Commission to study the difficulties of commodity classification of imports. The interim report of the Tariff Commission to be made by next March 15 should help enable the Congress to determine whether further legislative steps should then be taken or should await submission of the final report.

The uncertainties and confusion arising from the complex system of valuation on imported articles cause unwarranted delays in the determination of customs duties. I urge the Congress to give favorable consideration to legislation for remedying this situation.

The improvement of customs administration requires continuous effort, as the Congress recognized by enacting the Customs Simplification Acts of 1953 and 1954. The Treasury Department in its annual report to the Congress will review the remaining reasons for delay or difficulty in processing imported articles through customs and will propose still further technical amendments to simplify customs procedures.

UNITED STATES INVESTMENT ABROAD

The whole free world needs capital; America is its largest source. In that light, the flow of capital abroad from our country must be stimulated and in such a manner that it results in investment largely by individuals or private enterprises rather than by government.

An increased flow of United States private investment funds abroad, especially to the underdeveloped areas, could contribute much to the expansion of two-way international trade. The underdeveloped countries would thus be enabled more easily to acquire the capital equipment so badly needed by them to achieve sound economic growth and higher living standards. This would do much to offset the false but alluring promises of the Communists.

To facilitate the investment of capital abroad I recommend enactment of legislation providing for taxation of business income from foreign subsidiaries or branches at a rate fourteen percentage points lower than the corporate rate on domestic income, and a deferral of tax on income of foreign branches until it is removed from the country where it is earned.

I propose also to explore the further use of tax treaties with the possible recognition of tax concessions made to foreign capital by other countries. Under proper safeguards, credit could be given for foreign income taxes which are waived for an initial limited period, as we now grant credit for taxes which are imposed. This would give maximum effectiveness to foreign tax laws designed to encourage new enterprises.

As a further step to stimulate investment abroad, I recommend approval by the Congress at the appropriate time of membership in the proposed International Finance Corporation, which will be affiliated with the International Bank for Reconstruction and Development. This Corporation will be designed to increase private investment in less developed countries by making loans without Government guarantees. Although the Corporation will not purchase stock, it will provide venture capital through investing in debentures and similar obligations. Its operation will cover a field not dealt with by an existing institution.

The Executive Branch will continue through our diplomatic representatives abroad to encourage a climate favorable to the private enterprise concept in investment.

We shall continue to seek other new ways to enlarge the outward flow of capital.

It must be recognized, however, that when American private capital moves abroad it properly expects to bring home its fair reward. This can only be accomplished in the last analysis by our willingness to purchase more goods and services from abroad in order to provide the dollars for these growing remittances. This fact is a further compelling reason for a fair and forward-looking trade policy on our part.

TECHNICAL COOPERATION

The United States has a vast store of practical and scientific know-how that is needed in the underdeveloped areas of the world. The United States has a responsibility to make it available. Its flow for peaceful purposes must remain unfettered.

United States participation in technical cooperation programs should be carried forward. These programs should be concerned with know-how rather than large funds. In my budget message next week, I shall recommend that the Congress make available the funds required to support the multilateral technical cooperation programs of the United Nations. The bilateral programs of the United States should be pressed vigorously.

INTERNATIONAL TRAVEL

The United States remains committed to the objective of freedom of travel throughout the world. Encouragement given to travel abroad is extremely important both for its cultural and social importance in the free world, and for its economic benefits. Travel abroad by Americans provides an important source of dollars for many countries. The Executive Branch shall continue to look for ways of facilitating international travel and shall continue to cooperate with private travel agencies.

One legislative action that would be beneficial in this field is the increase of the present duty--free allowances for tourists from $500 to $1,000 exercisable every six months. I recommend the passage of such legislation.

TRADE FAIRS

International trade fairs have been of major importance to foreign countries for many years, and most of the trading nations have strengthened the promotional aspects of their industrial displays in many fairs with a central exhibit designed to emphasize the industrial progress and achievement of the nation.

Soviet and satellite exhibits, for example, have been costly, well-planned and housed in expensive structures designed to convey the impression that the USSR is producing on a large scale for peace and is creating a paradise for workers.

The United States, which has a larger volume of international trade than any other nation, until recently has been conspicuous by its absence at these trade fairs. American visitors and participants have pointed out the failure of their Government to tell adequately the story of our free enterprise system and to provide effective international trade promotion cooperation.

As a result, I have undertaken an international trade fair program under the direction of the Department of Commerce. Since the inauguration of this program in August, participation has been authorized in eleven fairs to be held before June 30. Sixteen additional fairs are being considered for exhibition purposes in the latter part of the year. The first fair in which the United States presented a central exhibit is that at Bangkok, which opened December 7, 1954. At it our exhibit was awarded first prize. Over 100 American companies supplied items for inclusion in it.

I shall ask the Congress for funds to continue this program.

CONVERTIBILITY

Convertibility of currencies is required for the development of a steadily rising volume of world trade and investment. The achievement of convertibility has not been possible in the post-war period due to dislocations caused by the war, inflation and other domestic economic difficulties in many countries, which have contributed to an imbalance in international trade and payments. However, steady progress, particularly by western European countries, is being made toward our mutual objective of restoring currency convertibility. The foreign economic program proposed here will make an important contribution to the achievement of convertibility.

AGRICULTURE

No single group within America has a greater stake in a healthy and expanding foreign trade than the farmers. One-fourth to one-third of some major crops, such as wheat, cotton and tobacco, must find markets abroad in order to maintain farm income at high levels.

If they are to be successful, programs designed to promote the prosperity of agriculture should be consistent with our foreign economic program. We must take due account of the effect of any agricultural program on our foreign economic relations to assure that it contributes to the development of healthy, expanding foreign markets over the years.

CONCLUSION

The series of recommendations I have just made are all components of an integrated program, pointing in a single direction. Each contributes to the whole. Each advances our national security by bringing added strength and self-sufficiency to our allies. Each contributes to our economic growth and a rising standard of living among our people.

DWIGHT D. EISENHOWER