Mr. CARLSON. Isn't that just exactly the way the Board of Economic Warfare operates? Dr. COULTER. Well, we are afraid so, but we don't know what would happen when peace comes. Mr. CARLSON. It could easily be used as a means to carry on a trade cartel. Dr. COULTER. I would merely say that those suggestions by President Crawford, of N. A. M., follow very closely the other suggestions that we have discussed for many years back, put in different language; and I think he, if he appeared, would make a very fine presentation. Mr. CARLSON. Well, the information you have given me will be helpful, I know. Thank you. Mr. DEWEY. Mr. Chairman. The CHAIRMAN. Mr. Dewey. Mr. DEWEY. Dr. Coulter, I would like to question on one line that I have followed with several of the witnesses without getting much information. I think possibly because they didn't have it. Have you made any study of the effect of international cartels on these various trade treaties and whether they are effective in nullifying the provisions of the trade treaties? Dr. COULTER. Not sufficiently to give very helpful information, for the reason that the outstanding cartels in the early period, the first trade agreements, were largely in articles like rubber, the Stephenson plan; and tin and a number of commodities which we have on the free list; and therefore we could bind them or do any other foolish thing. I mean the President could say, "I deny Congress the right to put on a tariff," bind it, without having harmed us, you see. But, there were some provisions for instance, there was in the Belgian agreement-in the first draft of it provision was made for something substantially a 50 percent cut in plate glass, which was referred to. Well, it developed that Belgium not only had just left the gold standard, had depreciated currencies and was going further, but she had a plate glass cartel; and when it appeared to the agreement group that we were completely opening our market by this cut, our people in order to protect themselves decided that the smart thing to do was to get over there quick and buy a few second-rate plants, join the cartel, and help in distributing the foreign supply of plate glass. Various adjustments were made; changes in classification were made; but it is significant that just at that time in 1934 or 1935 was just when plate glass was coming in primarily for automobile use. Up to that time it had largely been for window fronts and showcases and mirrors and a few things like that: Well, whereas formerly 90 percent was for plate glass windows and showcases and mirrors, now 90 percent was for automobile use when all over the country States like New York required plate glass not only in the windshield but all around, with the result that the byproduct became the mirror glass and shelves for toilet cases, and so forth. So that the cartel never was able to really accomplish its purpose. Now, I could cite some other attempts, but strangely enough somehow or other ways were found to get around. Thus, we were making some tariff adjustments in certain textiles in European countries, and they were generalized so that Japan got the benefit. Japan immediately started to just pour in textiles. Now, the State Department didn't go and negotiate a trade agreement with Japan and say, "You mustn't do that, take advantage of it," but the State Department kind of turned around in their chair and looked away while the textile group formed a committee, and they went over to Japan and said, "Now, listen: If you pour in a lot more of this stuff, why, we are just going to have to raise trouble in a big way." And Japan put on export quotas to this country. We didn't put on import quotas against Japan. Japan said, "Well, we don't want to get into trouble with you over there at the present time because we are too much in need of scrap iron and steel and octane gas and other things, so we will just ship you substantially what we were shipping you, and we will put on export quotas," and there was substantially a Japanese or an oriental cartel. There was another case in lead pencils. Fortunately in that case most of the cedar came from down in Tennessee, old cedar fence rails, fine cedar, just perfect for lead pencils. When we cut off all trade with Germany, where we had been getting our lead pencils, Japan jumped in and started making lead pencils by the millions for school children, 5- and 10-cent stores, everybody, and they were just about to swamp this market with millions of gross of lead pencils. Well, there again, instead of our going in and starting to penalize Japan, our people talked with the Japanese Ambassador and the rest of them, and they wrote to the Japanese pencil cartel, and Japan agreed that they would market their pencils in other parts of the world, and they could take their foreign market, and so forth, but they wouldn't dump this market. So our market for our own pencils grew up based upon the Tennessee and Appalachian cedar rail industry. There are a lot of those. If you wanted them studied, I am sure that the Tariff Commission could dig it out. I haven't gone into it in great detail. I hear more or less about it. Mr. DEWEY. Well, in general the effect is complete control on the production? Dr. COULTER. Yes, sir. Mr. DEWEY. Which in turn has a control on the price? Dr. COULTER. Yes, sir. Mr. DEWEY. And I would like to ask you this: Has there been, or was there, rather, a growth of cartels just prior to the war? Was it something that was becoming more the vogue, or was it declining? Dr. COULTER. Well, I think it was increasing for the simple reason that prices, the inflationary prices of the other war, were coming down; and many industries in already, as well as a few who came in, were trying to stabilize prices and keep prices from declining too fast, and they figured the only way they could do that was getting a complete control over there with Government approval. Here the Government refuses to permit monopolies and trusts. Over there the Government said, "That is all right." In fact, the Government urged them. In fact, the Government helped them to organize and more or less approved what they were doing. So I believe there was quite an increased development in that direction. Mr. DEWEY. Did that extend into the chemical industry? Mr. DEWEY. And patents? Dr. COULTER. Yes, sir; in patents, in the chemical industry, but there fortunately we got caught terribly bad in World War I. President Wilson and the Chemical Foundation brought about protection for this country in such a way as to establish the chemical industry here, and we have been able to battle that out better than we otherwise would have. But both the patents and formula, and after the formula the know-how, practice-practice in magnesium, for instance, we knew how to make magnesium out of salt water or out of magnesium deposits, but to know how to manipulate it and produce a commodity that would compete with aluminum, we were greenhorns at it. They had the know-how from their scientific development. They were trying over there-Germany and some of the others were trying to free themselves with synthetic products from the countries that had great colonial empires and raw materials. They went heavily into rayon and synthetic rubber and chemicals and pharmaceuticals and all that sort of thing. Mr. DEWEY. I am very much obliged to you, Dr. Coulter. Dr. COULTER. Thank you, Mr. Dewey. The CHAIRMAN. We thank you, Doctor, for your appearance and the information you have given the committee. Dr. COULTER. Thank you very much. The CHAIRMAN. It was a very fine statement. The CHAIRMAN. We have as our next witness Mr. W. G. Carey, Jr., business advisory council. STATEMENT OF W. GIBSON CAREY, JR., PORT CHESTER, N. Y., PRESIDENT OF YALE & TOWNE MANUFACTURING CO., REPRESENTING THE BUSINESS ADVISORY COUNCIL OF THE DEPARTMENT OF COMMERCE The CHAIRMAN. Please identify yourself for the benefit of the record. Mr. CAREY. W. Gibson Carey, Jr., president of Yale & Towne Manufacturing Co. I am appearing today for the Business Advisory Council of the Department of Commerce. The CHAIRMAN. Will you repeat that, please? Mr. WEST. A little louder. Mr. CAREY. Yes, sir. My name is C-a-r-e-y, W. Gibson Carey, Jr., of Port Chester, N. Y. I happen to be president of Yale & Towne Manufacturing Co., but I am appearing today for the Business Advisory Council of the Department of Commerce. I have statements here sufficient in number for each member of the committee, and I would like to pass them out if you would like to have me. The CHAIRMAN. About how much time do you think you need, Mr Carey? Mr. CAREY. Fifteen minutes. The CHAIRMAN. All right. You are recognized for 15 minutes. Mr. CAREY. With your permission I would like to pass the state ment out. The CHAIRMAN. Please speak out so we can hear. Mr. CAREY. With your permission I would like to pass the statement out. The CHAIRMAN. We would be glad to have you do that. Mr. CAREY. Further, sir, with your permission, I would like to shorten this statement very materially, and if there are any points that I delete and any member wishes to follow the text and ask me with regard to the deletions, I will be very glad to attempt to answer if you wish me to do so. The CHAIRMAN. Very well. The entire statement will be made a part of the record. Mr. REED. Mr. Chairman, I just want to make a preliminary inquiry. Did I understand you are from the Department of Commerce? Mr. CAREY. No, sir. Mr. REED. Well, I want to know. Mr. CAREY. I am representing the Business Advisory Council of the Department of Commerce, and there is a little statement in the statement I am giving you as to just what the Business Advisory Council of the Department of Commerce is. Mr. REED. Well, you just explain that here, do you? Mr. CAREY. Yes, sir; in the statement that is right inside the cover. Mr. REED. Oh. Mr. CAREY. It gives the membership of the Business Advisory Council. Mr. REED. Well, that is just businessmen cooperating with your Department of Commerce? Mr. CAREY. That is it; with the Secretary. Mr. REED. Through the Secretary? Mr. CAREY. Yes. The CHAIRMAN. You are not an employee of the Department? The CHAIRMAN. You may proceed. (Report of Business Advisory Council is as follows:) BUSINESS ADVISORY COUNCIL FOR THE DEPARTMENT OF COMMERCE-REPORT ON RECIPROCAL TRADE AGREEMENTS PROGRAM (Approved by the Business Advisory Council, March 10-11, 1943) The Business Advisory Council believes that failure to extend the Reciprocal Trade Agreements Act at this time would be most unfortunate since such action would be interpreted by the world as an indication of the intention of the American people to return to isolationism. To allow the trade-agreement policy to lapse now would convince our allies that either we are not sincere when we speak of the reconstruction of the world through the restoration of private trade and enterprise, or that we have reached the conclusion that government barter through bilateral agreements and a controlled economy is the best method of protecting our national interest in the post-war world. Should the act, which expires on June 12 next, not be entended, no new agreements could be made thereafter and none now in effect could be amended. Thirty agreements have been made and are now in effect with 25 countries. These agreements have been carefully negotiated under the direction of Secretary of State Hull during the last 9 years and constitute a network of tangible, friendly trade relationships as opposed to the system of controlled trade and forced barter which contributed to the present war. The council is convinced that the extension of the Reciprocal Trade Agreements Act should not be made a political issue to be decided upon the grounds of congressional versus Executive power. It already incorporates numerous safeguards for the protection of the national interest in the negotiation of the agreements themselves by requiring public hearings, following a finding by the President that existing duties or other restrictions on either side are "unduly burdening and restricting the foreign trade of the United States." The act also specifically provides: (1) That existing duties may be reduced by not more than 50 percent of the existing rates; (2) that no dutiable article may be transferred to the free list or from the free list to the dutiable list; (3) that the President in giving public notice of his intention to negotiate an agreement must designate the products that may possibly be affected; and (4) that before concluding an agreement, the President must seek information and advice from the Tariff Commission, and the Departments of State, Agriculture, and Commerce, and from such other sources as may be deemed appropriate. The act may be repealed at any time by Congress; it regularly comes up for modification or continuation. To attempt to make reciprocal adjustments of tariffs at this juncture either through the Tariff Commission alone or by specific approval of Congress, would, it is believed, destroy the purpose of the act. To apply logrolling methods in negotiating reciprocal agreements or to provide that such agreements may be made effective only by a two-thirds vote of the Senate, would be tantamount to defeating the whole objective of the legislation in advance. To assume our role as a creditor nation in world reconstruction in the postwar period, our tariff policy will require delicate adjustment to the relationships between States and to the separate and distinct interest of the Nation, while at the same time providing for generalizing the benefits of our entry into other markets and of access to our own, within the limits of the most-favorednation clause. This combination of individual negotiations with broad general provisions to prevent the development of mere bilateral agreements between nations forms the essence of the Reciprocal Trade Agreements Act. The history of the act thus far has shown no serious injury to any American interest. If serious injury does develop, the council is assured that proper steps will be taken to remedy such condition at the first feasible opportunity. The difficulty of initiating a policy of reciprocity is demonstrated by the fact that only three such treaties have ever been ratified by the Senate or approved by Congress. One was the Canadian Treaty of 1854 which lapsed with the Civil War in the United States. One was a minor treaty with Hawaii in 1875 and a third with Cuba in 1903. The reciprocity section of the Dingley tariff of 1897 permitted the negotiation of such treaties subject to Senate ratification. All such treaties, however, died in committee despite the urgent pressure of President McKinley. Until the principles of article VII of the Anglo-American Mutual Aid Agreement dated February 23, 1942 (and agreements of similar nature that have been made with other United Nations), can be implemented, the Reciprocal Trade Agreements Act is the only tangible assurance that we have that the United States will go into the post-war period with a constructive policy on which sound international trade relations may be built. It is the one guaranty for the future that we are not disposed to adopt policies that will force other nations down the road to extreme nationalism and trade barter. Our earlier tariff policy was undoubtedly one factor that led the British Commonwealth of Nations to set up the Ottawa agreements which tended to close the markets of the British Empire to the rest of the world. The Business Advisory Council can assure the manufacturers of the United States and its businessmen generally that as Under Secretary Welles stated in a recent magazine article, no responsible statesman believes that so-called free trade, or anything approximating it, would be wise or possible for the United States at any time in the measurable future, and that there is no intention on the part of the present administration to use the Reciprocal Trade Agreements Act along with the most-favored-nation clause in commercial treaties to bring about such a result. The governmental bodies charged with final authority in the negotiation of such agreements state that the economic effect of the most-favored-nation clause in respect to other countries is always given careful consideration in establishing rates in any given reciprocal trade agreement. The council heartily approves such procedure and is assured that if the act is extended this policy will be continued. In layman's language the unconditional most-favored-nation principle simply means the principle of nondiscriminatory treatment of the trade of all friendly nations. Nevertheless, the fact that the reciprocal trade agreements are made |