WORLD MONETARY SITUATION FINANCIAL CONDITIONS OF FOREIGN COUNTRIES AND STATUS OF EXCHANGE AND TRADE CONTROLS, YEAR 1962 Total (public and private) gold and dollar holdings of foreign countries, excluding those in the Soviet bloc, increased during the first half of 1962 by just over $1 billion compared to an increase of almost $700 million in the corresponding period of 1961. Countries showing noticeable gains during the period were France, the United Kingdom, Japan, and South Africa. More modest gains were registered by Austria, the Netherlands, Spain, Sweden, and Thailand. Noticeable losses were registered by Argentina, West Germany, Italy, and Switzerland. In addition to gold and dollars, foreign countries also hold sterling assets as reserves. As of June 30, 1962, sterling assets held by foreign countries totaled $9.9 million equivalent. Of this, $7.5 million is held by United Kingdom dependencies and other countries in the sterling area and $2.4 million is held by non-sterling countries. Gold and dollar assets Exchange restrictions and trade liberalization Continuing the trend of preceding years, additional steps were taken in 1962 to liberalize trade and exchanges. Major exchange reforms were adopted in six countries and reliance on bilateral trade agreements was reduced. However, as in the past, trade restrictions on agricultural products continued to be a problem, particularly with respect to agricultural trade among industrial countries. Negotiations under the auspices of the 20th session of the General Agreement on Tariffs and Trade and among member countries continued to reflect the movement toward liberalizing and expanding trade in agricultural and industrial products. GATT ACTIVITIES MAJOR DEVELOPMENTS IN THE AREA OF TRADE AGREEMENTS Activities in the area of trade agreements continue to be concerned with the primary objective of gaining foreign market access for U.S. farm products. Important current developments which should have significant influence on the Departments' efforts to expand U.S. agricultural exports are (1) the passage of the Trade Expansion Act, (2) passage of the Tariff Classification Act, (3) emphasis on economic integration, (4) the adoption of a common agricultural policy (CAP) by the European Economic Community (EEC), and the application for membership or association in the EEC by neighboring countries and oversea territories, and (5) the continued action by the Department for the relaxation and removal of non-tariff trade barriers which deprive U.S. agricultural interests from competing in the world market. The tariff negotiations which started in 1960 were formally concluded during the past year. This included not only the reciprocal reduction of tariff's among many of the GATT countries, but also a satisfactory settlement from the EEC for the modification of previously granted tariff concessions arising out of the adoption of the common external tariff (CXT). The Department has commenced with the necessary preparations for the next round of reciprocal tariff negotiations under the authority of the Trade Expansion Act, passed during the last session of Congress. Since the authority of the act is broader and more flexible than previous trade legislation, more preparatory work will be required. Provisions of the act requiring that market access as well as tariff reductions be a part of future tariff negotiations necessitates consideration of alternative approaches to the traditional form of tariff bargaining. A new approach to tariff bargaining is essential if we are to successfully negotiate with the EEC in achieving and maintaining competitive access to this important and expanding commercial market. In compliance with the provisions of the Tariff Classification Act, which was passed during the last session of Congress, the U.S. Government initiated consultations last September with other GATT contracting parties to conform previous U.S. trade agreements with the new tariff law. Where consultations reveal that a previous tariff concession has been impaired by the tariff simplification procedure, the U.S. Government will compensate the affected contracting party. These consultations are still in progress and will continue until satisfactory agreement is reached with all contracting parties of GATT. The work of the Department in the area of economic integration centers on the problem of maintaining continued access for exports of U.S. farm products. This problem takes two forms: (1) to ascertain that the common agricultural policy for the integrated area is not more protectionist than the sum of the previous national policies, and (2) that the expansion of these communities either by enlarging their membership, or extending associate status to other countries will not be detrimental to U.S. trade interests. During 1962 we saw the emergence of the common agricultural policy of the European Economic Community. The programs of this policy are highly protectionistic in their present form and threaten to deprive the United States of important agricultural markets. The short-term effect of the common agricultural policy has been felt more by some commodities than others. Poultry is a notable example of this policy and of the Department's efforts to seek more liberal treatment. Briefly, poultry imports cannot enter the EEC below a minimum price, thereby raising the landed cost in West Germany, our major market, 30 percent above the level existing prior to the CAP. During 1962, Department officials in cooperation with the Department of State, conducted high level representations with the EEC commission and member governments to press for the reduction of the restrictive aspects of the CAP with some concessions being yielded by the EEC. As the EEC expands to include countries that compete with U.S. agricultural exports, our competitive position within this market may deteriorate. This has been true in the case of raisins and tobacco from Greece, now associated with the Community. The Department is pressing to insure that economic arrangements between the EEC and third countries are true associations and not discriminatory bilateral agreements with neighboring countries. In a continuing effort to eliminate trade barriers against U.S. agricultural exports, the Department, during 1962, in close cooperation with the Department of State, worked through existing diplomatic channels and participated actively on U.S. delegations attending various GATT and other meetings. Notwithstanding considerable and impressive progress in the relaxation and elimination of import barriers, much remains to be accomplished. The residue of import restrictions affects principally agricultural commodities, and in a number of instances those of major trade interest to the United States. Of paramount importance during 1962 were GATT article XXIII actions against Italy, France, and Canada, for their restrictive policies toward imports of U.S. products. Consultations with Italy resulted in the removal of the discrimination previously accorded products from the United States, and increased access for certain products which, because of certain Government regulations, will continue to be subject to some form of decreasing import control. At the request of the United States, during the 20th session of the GATT, the contracting parties reviewed the import regime of France and concluded that its present policies were inconsistent with the provisions of the agreement and impaired or nullified benefits of certain tariff concessions granted by France to the United States. Further action with respect to this finding is pending during 1963. A similar article XXIII action against Canada, during the 20th session, resulted in the removal of its discriminatory policy against imports of U.S. potatoes. In addition to the Department's representation in the above, representatives also participated in OECD, various GATT meetings, as well as other aspects of the 20th session where broad discussions of mutual trade problems took place and particular attention was focused on the problem of trade in agricultural products. Discussions were held with such countries as Belgium and Germany on the proposed schedule for the removal of their residual restrictions to trade. Also during 1962, the Department was represented at balance-of-payment consultations conducted under the auspices of the GATT with Uruguay, Japan, Chile, Finland, New Zealand, Ceylon, India, Republic of South Africa, and Denmark. These consultations are designed to examine the overall financial and balance-of-payments position of countries invoking article XII of the general agreement. Countries consulting are urged to follow sound fiscal policies and to remove import restrictions, discriminatory or otherwise, as rapidly as conditions permit. Examples of countries relaxing import restrictions or liberalizing agricultural commodities in 1962: Australia.-Certain vegetable oils, seeds, and nuts. Austria.-Frozen vegetables, cheese and curd, malt, sugars, prepared food items, condiments, tobacco, fruit pulps, vegetable oils, and fruit prepared or preserved. Surcharges on many agricultural commodities, and the restrictive system applied to potatoes. Canada. Denmark.-Cranberries, certain fresh and prepared fruits and vegetables, pineapple juice, margarine, animal and vegetable oils, and other agricultural commodities. Finland.-Fishmeal, meat meal, certain oils and oilseeds. Israel.-Garlic, tree nuts, dried fruits, wheat for flour, soybeans, castor beans, hops, and sugar. Italy.-Honey, raisins in packages under 500 grams, linseed oil, macaroni and spaghetti. Quotas for cheese, soybean oil, essential citrus oils, and fruit and vegetable juices other than grapefruit and pineapple, were increased by 20 percent. Japan.-Eggs, walnuts, garlic, cherries, and prepared mustard, canned asparagus, and sheep. Norway.-Crude and refined soybean oil, cottonseed oil, ground nut oil, coconut oil, biscuits, and wafers. Spain.-Live animals, honey, all nuts, malt, vegetables, fruit in vinegar, avocados, pineapple, meat, flour and meal, oil cake, cheese and curd, and certain fruit preparations. World situation WORLD SITUATION BY COMMODITY COTTON World cotton consumption in 1962-63 is expected to dip slightly below the 48 million-bale level of the past 3 years, while production of 49.8 million bales is at a record for the fifth successive season. As a result, world stocks may rise more than 2 million bales, with nearly all of it reflected in larger U.S. stocks. This is the first increase in world stocks since 1955-56. World cotton acreage this season is larger for the fourth straight year. Trade is likely to rise following the sharp stock reductions abroad over the past 2 years and a 1.7 million-bale increase this season in foreign export availabilities. U.S. exports are expected to total about 4.5 million bales. World cotton prices are moderately lower than a year ago in the face of record production and some softness in textile activity in several major European consuming countries. Short-term outlook The outlook for 1963-64 is for another increase in foreign cotton acreage. However, a further rise in production could be small since average yields were unusually high in 1962-63 and may not be maintained next year. While the U.S. base acreage allotments for 1963 are smaller by 2 million acres, supplemental acreage may be made available under proposed legislation. World cotton consumption is expected to turn upward next season, but not enough to equal production, which would result in a further moderate increase in world stocks. World cotton trade and U.S. exports should show some recovery in 1963-64, as stocks are low in major importing countries and a moderate rise in consumption is expected. Long-term outlook The long-term outlook for both U.S. and world cotton trade is favorable. Increasing population, coupled with substantial economic development, should 95910-63-pt. 3—66 continue to push foreign consumption to new highs, assuming that prices of cotton will be reasonably competitive with those for man-made fibers. Foreign cotton production is likely to respond to consumption increases and to the present attractiveness of cotton as a profitable commercial crop and as a foreign exchange earner. World production of man-made fibers also will probably continue the slow uptrend of recent years in competition with cotton for a greater share of the world fiber market. Plans for fiscal year 1964 Cotton market development programs will be continued in cooperation with the Cotton Council International and foreign industry groups in 16 countries, which represent 75 to 85 percent of the export market for U.S. cotton. U.S. cotton marketing specialists and a technologist will maintain personal contact with foreign buyers and processors and liaison with domestic cotton interests, as was done in recent years with good results. Market potentialities will be explored through surveys and studies, and developments in world cotton supply and demand will be analyzed and published. Primary emphasis will continue to be placed upon maintaining and expanding dollar sales of U.S. cotton, with approximately 1.6 million bales expected to be exported in fiscal year 1964 under provisions of Public Law 480. World situation EGGS World egg production continued to increase slightly again in 1962. Increases in egg production were scattered throughout the world with the developing countries showing the greatest increases. Total imports of shell eggs to West Germany, the largest importer, were about 12 percent below the comparable 1961 level. Total shipments from the principal exporters, Denmark and the Netherlands, were down, the decline due mainly to another 20 percent drop in shipments from Denmark. Production in Great Britain was about 10 percent above the comparable 1961 level and, despite the fall in imports, total supplies still showed a rise of about 7 percent. U.S. exports of shell eggs continued to decline substantially, due mainly to the sharp reduction in imports into Venezuela, the principal market. Short-term outlook In the United States, egg production in 1963 will be slightly higher than the total for 1962 and the downward trend in the consumption of eggs is likely to continue. The usual fall-to-winter decline in egg prices may be arrested or possibly temporarily reversed in 1963. During this period, egg supplies are likely to be shrinking compared with a year earlier. In addition, small stocks of shell and frozen eggs indicate that the demand on the part of commercial breakers should prove to be a strong price sustaining force over the next several months as it was in 1962. Prices in late 1962 and early 1963 may be high enough to induce an increase in the number of chickens raised for flock replacements. Most of the increases in hatch of egg-type chicks is likely to occur in the first 4 months of 1963. If this materalizes, the Nation's laying flock would probably be restored to yearearlier size in the second half of 1963. With a continuation of the uptrend in the rate of lay likely, egg production during this period would probably exceed the 1962 output. This would trend to limit the seasonal climb in egg prices in 1963 compared with 1962. Egg production for 1963 as a whole may be up a little from 1962; prices are likely to average a little lower because demand may decline further. Long-term outlook While egg production in the highly developed industrial countries of the world may level off at about recent levels, output in the less developed countries will continue to expand. This assumes continued emphasis on the part of governments in these countries in improving economic conditions and living standards generally. The attainment of these goals does not, however, portend any radical changes in the present pattern of trade in egg and egg products. Rising transportation costs are an increasingly important deterrent to the movement of eggs over long distances. Plans for fiscal year 1964 Efforts will be intensified to take advantage of favorable prices of U.S. processed eggs in the export market and continued stress will be placed on work for liberalization in those countries where markets for U.S. eggs appear to exist. Promotion in cooperation with the U.S. industry will be continued at trade fairs and international conventions. World situation World poultry meat production in 1962 continued the upward trend of recent years, as production of meat-type chickens continued to receive major attention in the highly industrialized countries, especially in Western Europe. In North America, total output was down slightly from the record level of 1961. This was the first decline in this area since 1955. Broiler production was about the same as in 1961 but the 1962 turkey crop was down about 15 percent in the United States and 8 percent in Canada. World trade in poultry meat during the first half of 1962 was at a new record high, as demand in West Germany, the leading import market, remained strong and exports from major suppliers moved in unprecedented volume. On August 1, 1962, the European Economic Community adopted new poultry trade regulations which raised import levies and established gate (minimum import) prices for poultry products imported into the Common Market. The total of the new levies increased import charges against U.S. poultry meat from about 4.5 to 12.5 cents per pound. The immediate effect of the new regulations was to increase the price of poultry meat to consumers. Higher prices will tend to slow down the rate of increase in poultry meat consumption in the area. Short-term outlook U.S. exports of poultry meat continued to gain during 1962 mainly because of the very high level of trade maintained during the first half of the year. Total exports during calendar year 1962 will reach an estimated 275 million pounds, a gain of 11 percent over the high level of 1961. This rate of increase, however, compared with increases in the 2 previous years represent a very modest gain. Nearly all of the increase in exports in 1962 was again attributable to larger shipments to West Germany, the major export market. An important factor contributing to the high level of shipments to West Germany in the first half of 1962 was the desire on the part of importers to accumulate large stocks in anticipation of the higher levies and prices which went into effect during the second half of the year. A continuing high level of economic activity in Western Germany will tend to insure a strong demand for poultry meat. However, the higher duties now in effect on third country imports into the EEC and the resultant higher prices, will exert a restraining influence on consumption. In addition to exports to the established markets during 1962. U.S. poultry also found additional outlets in Japan, Austria, Spain, and Italy. Also, small quantities of poultry meat were included in Public Law 480, title I sales agreements signed with the United Arab Republic, Pakistan and the Republic of the Congo. However, the principal destinations for U.S. frozen poultry were again West Germany, Switzerland, the Netherlands, Hong Kong, Canada and the Caribbean area. Long-term outlook In spite of the intense interest evidenced in expanding poultry production in most foreign countries during recent years, worldwide demand for poultry meat has increased faster than supplies. For this reason, in most countries outside the United States, poultry meat is still relatively high priced and per capita consumption, even in most of the highly developed countries of Western Europe, is only about one-third the rates of consumption in the United States and Canada. Although there is some evidence in 1962 that production in a few countries, particularly West Germany, Denmark and the Netherlands, will increase substantially, there is still ample opportunity for expanding trade. However, the trend in U.S. exports during the next few years will, to a large measure, be determined by policies pursued by the Common Market. If these countries continue to impose the high duties on third country imports and reduce internal duties as presently planned, the United States will likely experience a declining volume of trade with these countries. Plans for fiscal year 1964 Continued efforts toward programing poultry under titles I and IV of Public Law 480 will take place in fiscal year 1964. Participation in trade fairs in Europe, Africa, and Asia will continue. Competition studies with particular |