THE UNIVERSITY OF MICHIGAN LIBRARIES

a particular country would promo national interest, and would result those provided by the agreement to negotiation of individual tariffs. I tariff rates lower than those agre of the Tariff Schedules.

Exchange of Benefits

Commercial agreements under exchange of benefits. The propose of benefits that might be obtaine favored-nation trade treatment. for protection of industrial proper tion of trade and tourism, trade f mercial representatives, most-fav ucts, other arrangements to secur United States products, improve claims. Agreements authorized tions. Such periodic review and commercial matters but also rele United States and the other counti Safeguards

Sinc

The act would provide that be ment under the act, he should see United States Government agen other appropriate sources. on individual tariffs and would prevailing most-favored-nation ra tion procedures. However, the p clause relief set forth in the Tr case of articles imported in ing nation tariff treatment extended pursuant to the act. Antidump of United States industry, agricu addition, problems of interest to the consultation procedures or i agreements under the act.

Any initial agreement would periods not to exceed 3 years ea nated at any time on reasonable ment was in effect. The Presi MFN whenever he determined obligations under the agreement national interest.

Countries Covered by the Act

The act would apply with re munist China, North Korea, and Existing law and regulations w available to these countries.

Poland and Yugoslavia now tion 231(b) of the Trade Expa Relation to Other Laws

The act would provide that the import of furs from the S concluded pursuant to the act.

The act would not disturb t tions thereunder. Thus, contro there would be a continued pro concerned.

Mr. FULTON. Would you shortly, actually what hap proposal for the U.S.S.R. pen? Did they buy? Di

Mr. SAUER. The Export-Import Bank was never called upon by the U.S.S.R. to guarantee or otherwise extend assistance in connection with the sale of any wheat to Russia.

Mr. FULTON. All that turmoil that was raised in 1963 in the summer and the early part of 1964 on extending credits to Russia by the ExportImport Bank came to nothing because there was no agreement made? Mr. SAUER. That is correct.

Mr. MCNEILL. If I may, Congressman, there was wheat shipped to the Soviet Union. There was no necessity for the extension of ExportImport Bank credit because the Soviets paid cash for their purchases. Mr. FULTON. How much did they buy then, and what was the total? Give me the date, the amount of wheat, and the total cost.

Mr. GREENWALD. It was a $140 million sale.

Mr. FULTON. How much

Mr. GREENWALD. It was in 1964. I don't have it in terms of how much wheat was involved. In fiscal year 1963-64 the United States exported 65.6 million bushels of wheat valued at $140.2 million to the U.S.S.R. with payment in full on a c.i.f. basis.

Mr. FULTON. Tons; put it in the record. Give me a copy of that yellow proposal, the administration proposal, and also your blue book there that you have.

Mr. GREENWALD. This is the Battle Act Report for 1965.

Mr. FULTON. Let me have that copy.
Mrs. KELLY. It crossed your desk.

Mr. FULTON. That is all.

(The Department of Commerce subsequently furnished the following additional information on wheat and wheat flour sales to Eastern European destinations in the 1963-64 period :)

During this period the Department licensed to Eastern Europe 4.5 million metric tons of these products, valued at $355.9 million. None of the wheat flour sales licensed was consummated. Wheat sales to Russia were consummated for 1.7 million tons, for which the exporters received approximately $140 million, including the cost of delivery. Wheat sales to other Eastern European destinations totaled about 376,000 metric tons, for which the exporters received almost $29 million. No further sales of these products were made to Eastern Europe until October of 1965 when approximately 45,700 metric tons were sold to the Soviet Zone of Germany, at an approximate value of $3.5 million.

Mrs. KELLY. Mr. Monagan.

Mr. MONAGAN. Essentially, this legislation would extend the mostfavored-nation treatment to Communist countries that are not included

Mr. GREENWALD. That is right.

Mr. MONAGAN. That are now prevented from having the benefits of the most-favored-nation treatment.

Mr. STOESSEL. It would give the President authority to grant MFN. Mr. MONAGAN. Primarily Czechoslovakia, Hungary, other countries of Central Europe. On that point the granting of the licenses to these 400 items applies to our sales to the Communist countries, is that right? Mr. MCNEILL. To Eastern European Communist countries.

Mr. MONAGAN. But basically speaking unless these countries have the most-favored-nation treatment, is there much likelihood that this would grow into very productive reciprocal trade?

Mr. MCNEILL. In respect of these 400 items.?

Mr. MONAGAN. Yes.

Mr. MCNEILL. I think the answer to that would be a very conjectural answer. I don't know. It provides the opportunity for our businessmen to compete for products

Mr. MONAGAN. In order to have the trade substantial, permanent. and productive, it would really have to be reciprocal?

Mr. MCNEILL. If your question is more general, that is, in order to have increased trade in these 400 products or any other products, will it not be necessary for there to be an increase in two-way trade, the answer is obviously "Yes," because they can buy from us only to the extent of their availability of dollars.

Mr. MONAGAN. Another question would be, assuming that they had the most-favored-nation treatment, what prospect of substantial trade of the nature that we have, let's say with Japan or West Germany, would be in prospect?

Mr. MCNEILL. Our trade with Japan alone on a two-way basis is about $4 billion a year, whereas our total trade with all of Eastern Europe, including the Soviet Union in 1965 was only in the magnitude of about $250 million both ways. There would be a long way to go before we can build up the level of trade that we have with Japan.

I think with most-favored-nation treatment certainly there would be an increase in trade, but I think the increase would be gradual. They would have to produce for our market. They would have to be able to produce the qualities and the quantities that our market would require in competition with other foreign suppliers.

How rapid the increase in trade would be, we just don't know. Cer tainly it would increase.

Mr. MONAGAN. It certainly wouldn't open the floodgates of sales of U.S. products the way some of our businessmen seem to feel!

Mr. MCNEILL. It wouldn't open any floodgates. I think it would provide a more normal basis on which to conduct trade.

Mr. MONAGAN. What does Hungary have that we want, to put it bluntly?

Mr. MCNEILL. In terms of specific products?

Mr. MONAGAN. Yes.

Mr. GREENWALD. I think that is one of the problems. We don't really expect the trade is going to zoom immediately or that for a long time it will ever reach a high level. Historically, we have not had a great deal of trade with Eastern Europe. One reason is that they don't have many things that are marketable in the United States.

That is what the Western Europeans have discovered. Most of them have trade balances in their favor and they can't find goods to buy from the Soviet Union and the Eastern European countries that are marketable. They can take raw materials and they have a market, for example, for petroleum. But in the United States these raw mate rials probably wouldn't be able to find a market.

Mr. MONAGAN. So that really except for the fact that they are look ing for strategic items-was it a fertilizer factory that you, Mr. Sauer, spoke of having been recently financed in Hungary!

Mr. SAUER. I believe we haven't done any hard goods in Hungary. We did a petroleum plant in Rumania.

Mr. MONAGAN. When they are talking about trade, they are talking about items that will fill up gaps in their economy.

Mr. SAUER. This is our impression at the Export-Import Bank. Mr. MONAGAN. So it really is a political question.

Mr. MCNEILL. If I might address myself a little further to your basic question. There is, as has been said at this table, a great ferment of a political nature in the bloc itself. There is equally great ferment in the economies of the various Eastern European countries and the Soviet Union. The ferment is taking the form of an increased attention to the consumer goods areas; that is, the consumer is beginning to come into his own. Because many of the industries in the Eastern European countries are oriented not toward the consumer, but toward the necessities of the state, we believe it is in the interest of the United States to encourage this economic activity aimed in large part at the

consumer.

This is going to take time in Eastern Europe, until they become what we might call consumer oriented. It is going to be a long process. So we will not have sudden large spurts in mutual trade.

If you look to the years ahead, perhaps two or three decades, there may be substantial volumes of trade between ourselves and Eastern Europe as there is currently between ourselves and Western Europe. We are talking about an evolutionary matter. The President is saying it is in our interest to encourage this economic ferment and the direction of that economic ferment and that we should better enable our businessmen to compete for the business in Eastern Europe.

The volume of trade between Eastern and Western Europe is in the neighborhood of about $8 billion a year. This contrasts with our total trade with Eastern Europe of $250 million. Our businessmen are asking the question why can't we be in a better position to compete for this substantial volume of trade? Hopefully through the East-West Trade Act the President would have the authority to better improve the competitive position of our exporters and traders.

Mr. MONAGAN. I think you make a very good point there which has not been sufficiently emphasized in stating the objectives of this policy with relation to the people of this country. On some of the items you might have some difference of opinion as to whether they were consumer items—a refinery-I note here there were some iron aluminum prayer rails that were going to be involved in the list of commodities. Perhaps that is boring from within to a certain extent, stimulating religion and so forth.

Mr. MCNEILL. I don't want to leave an incorrect impression. When I referred to the consumer areas, I meant that production for consumption requires the kind of factories and capital equipment necessary for turning out consumer products. Therefore, our trade will not be all in consumer goods per se. There may be a large consumer goods trade, but additionally there will be trade in capital products and equipment, such as equipment used in the manufacture of fertilizer in trying to assist the production of food for better diets for consumers. Mr. MONAGAN. I don't differ with the idea that we should be ready to take tentative steps. I want to make that clear. But what I am interested in, and what I think all of us are interested in, is why is this policy coming at this particular time?

Mr. MCNEILL. Are you talking about the list of 400?

Mr. MONAGAN. I am talking about the whole operation of which that is only part, as the Export-Import Bank is only a part. I mean the

general idea of building bridges. That has been substantially in abeyance since the missile crisis, hasn't it, wouldn't you say?

Mr. GREENWALD. I think the idea of building bridges to the East is

not a new one.

Mr. MONAGAN. Let's not argue about whether it is a change or whether it is an expansion. It certainly represents at this point some difference of emphasis to say the least.

Mr. GREENWALD. The general idea is that we are trying to adopt a flexible policy toward Eastern Europe the flexibility has to do with timing as well as substance. In the judgment of the President this time was right for such a statement which would help us to follow what we call a two-track, or a two-handed policy.

Mr. MONAGAN. Who started this? Did it start from us, or did it start from the Russians?

Mr. GREENWALD. I don't think-who started what, the whole program of relaxation?

Mr. MONAGAN. This change in emphasis that has come about in the last few weeks. All of a sudden Gromyko has a smile on his face, and he leaves the White House and says we are pulling together, and he calls up Dean Rusk next day and says "Thanks for your hos pitality."

We are interested in knowing where this initiative comes from and what the reason is for it, not necessarily being opposed to it, but wanting to know what reasoning is involved.

Mr. GREENWALD. I don't know that there is any specific event that led to it. I think perhaps it is a general atmosphere and is related to the situation other places in the world, such as China.

Mr. MONAGAN. Vietnam?

Mr. GREENWALD. Vietnam is something that perhaps pulls in the other direction. Differences between the Soviet Union and China over Vietnam, you mean?

Mr. MONAGAN. I mean the Soviet Union is preoccupied with Chira and might be disposed to do something to bring the conflict to a close. That at least might be some justification, some quid pro quo, so to speak, for this sort of policy shift.

Mr. STOESSEL. I think the Soviets have had for a long time an interest in mutually beneficial arrangements with the United States ir various areas. They have been inhibited I think of late by the Chinese position. Every time the Soviets would make an agreement, or make a friendly statement about the United States, the Chinese would criticize them very strongly.

The Soviets were really engaged, I think, in a struggle for supremacy in the Communist world with the Chinese. I think the Chinese prestige has gone down rather drastically in the last year or so. They have had defeats in many areas of the world. The recent develop ments in China with the Red Guards are very hard to understand. I think also it has led to a drop in the Chinese prestige worldwide. This has led to a corresponding increase in Soviet prestige. It is pos sible that the Soviets now feel freer themselves to make agreements with us, to make moves which they otherwise would have been reluctant to do because of the fear of the Chinese.

Now they may not worry so much about what the Chinese say. They have been trying to get more unity from the other Communis