tion in certain sectors that we had hoped for. At the same time, I think that we can be mildly optimistic about the possibilities of achieving a greater step toward liberalization than has ever been taken at one time before. So that while one may regret that the Trade Expansion Act has not yet succeeded to the extent to which we had hoped for in 1961, I think there is a very good chance that it will: mark a major breakthrough toward trade liberalization; set the major trading nations on a path where they can increase trade among themselves; achieve a more rational use of their resources; and permit all to benefit from this greatly improved trading.

I have spoken principally, Mr. Chairman, about the situation with regard to the major trading nations which obviously are the major industrialized nations.

We also have a very great interest in the Kennedy Round in bringing about a liberalization of trade which will be of benefit to the lessdeveloped nations as well. This is something which the Congress had very much in mind when the Trade Expansion Act was passed. This is something that we have very much in mind in administering the act and in undertaking this very complicated and extensive series of negotiations.

We are in a situation now where it is very important that the trading possibilities be improved for the less-developed nations if they are going to be able to achieve a level of economic growth which will mean that, over time, they can become self-sustaining and face the world without the very substantial injection of external resources which has been going forward through the U.S. AID program, through aid programs of other countries.

This problem of improving the trading position of the less-developed countries is a complicated one. It involves many factors, not merely improving their access to markets so far as tariffs are concerned, but also providing some stability for the price structure of the primary commodities upon which so many of these countries depend almost exclusively, for their foreign exchange earnings and, in fact, for their entire well-being.

These problems are problems at which we continue to gnaw, Mr. Chairman, and we continue to work at as well as we can and progress is steadily being made. We are going to be faced with some fairly large decisions over the next year or two as to the shape and direction of our trade program, particularly to take into account the problems which are being faced by the less-developed nations.

These are rather disorganized comments, Mr. Chairman, but I wanted to bring to this committee a rather broad view of what we are facing. As I say, we have encountered very serious difficulties and complexities but we have made progress, and I am mildly optimistic that we will be able to achieve, in the Kennedy Round, a very real and significant breakthrough toward a more liberal trading world. Thank you, sir.

Mr. FARBSTEIN. Thank you very much, Mr. Secretary.

I am glad to learn that you are only mildly optimistic about the future of the Kennedy Round. I would like to inquire at this time what your opinion is insofar as what causes only this mild optimism. Why can we not have greater optimism? I, therefore, follow it up by inquiring whether or not the fantastic penetration of American capital in the various European governments has not caused the resentment

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among the European governments that causes only this mild, as you suggest, optimism.

Mr. BALL. Mr. Chairman, I don't think the decisions which have been made, particularly by the nations of the European Common Market, have been politically motivated. I think their decisions as to the kinds of offers which they are prepared to put on the table in this negotiation have resulted from their own appraisal as to their own commercial best interest and they have reflected the very considerable difficulties they have had, particularly in the field of agriculture, in trying to agree among themselves upon a common policy.

I think that there are greater and lesser degrees of enthusiasm for trade liberalization in individual member countries of the Common Market, given their own special economic position, and given their national traditions with regard to protection.

The decisions they have made and are likely to make in the course of this negotiation do not seem to be motivated by political considerations.

Insofar as the EFTA countries are concerned, their offers are in many ways better than ours. And there again, this reflects their own appraisal of the advantages they foresee from a liberalization of trade, since most of them are great exporting nations.

So I wouldn't think the fact that American capital has gone abroad in substantial volume, to establish sources of production overseas, has resulted in any resentments which have been translated into the negotiating offers and the characters of the trading policies which the nations have adopted.

Mr. FARBSTEIN. Mr. Fraser.

Mr. FRASER. Thank you, Mr. Chairman.

Mr. Secretary, at the time the Trade Expansion Act was passed, expectations were quite high. Could you make an effort to compare the expectations with the results, what you expect are going to be the results? I know you did that in your remarks, but would you elaborate on this a little more?

I have found it difficult to follow these negotiations over a long period of time because of other things which claim a higher priority for attention. The negotiations which have gone on rather steadily have fast fallen into the background, but my impression is we are falling quite short of what we had hoped for back in 1962.

Mr. BALL. Yes, Mr. Fraser. I think that-particularly as far as agriculture is concerned, we have been disappointed. I think the industrial offers that are so far on the table are pretty good. I hope they can be improved in the course of bargaining.

The reason for the disappointments in bargaining up to this pointand I think they may be improved in the next few months-result primarily from the difficulties the Six have had in trying to put their individual agricultural policies together. This has been a terrible problem because we have a situation of relatively efficient agriculture production in France, relatively inefficient agriculture in Germany, and a special situation in Italy of small farms where the products are largely fruits and vegetables. To put these together in a way in which the farm communities in each of these countries are relatively satisfied, in a single policy, which takes into account all these different interests, has been a very, very difficult task.

What has emerged is very protectionist from our point of view. I think what happens very often in a situation of this kind is a sort of "lowest common denominator" of liberalization.

It is very important to us, very important to agriculture and very important to your State of Minnesota that, so far as possible, we succeed in reducing the barriers to the entry of U.S. agricultural products into this great, growing, burgeoning market of the Six, that we get the best possible arrangements for access that we can. That is what we are working on.

I think it is too early to be categorical about what the result will be. But it is something we have to work at very hard and we are doing that.

Mr. FRASER. Thank you.

Mr. BERRY. We have quite a serious balance-of-payments situation. Would that reflect the fact this program has not been successful?

Mr. BALL. Mr. Berry, the program, of course, has not had any effect up to this point because the negotiating process is still going forward. After it goes forward, then tariffs are reduced, but they are reduced on a phased basis over a period of 5 years. This is a long-term enterprise on which we are engaged. Up to this point it hasn't affected the U.S. balance of payments one way or another because there have been no effects from it yet. Mr. BERRY. Part of the exchanges are in they, at the present time?

effect though, aren't

Mr. BALL. Not under the Kennedy Round. This is a single, very big negotiation and we will feel the benefits of the Kennedy Round only after the total negotiations are concluded.

Mr. BERRY. You were talking about the exchange of trade with the less developed nations. Actually the trade primarily is agricultural, isn't it? I mean their production is primarily agricultural?

Mr. BALL. Agriculture products, mineral products, the extractive industries, of course, play a big role, but you are quite right that a very large share of it is agriculture.

Mr. FARBSTEIN. I want to go back to the political phase of this. When the original Trade Expansion Act was passed, we were talking about a grand design and an Atlantic community. I don't know whether you can say this is a condition of euphoria. What is your reaction today?

Is this strictly now a business deal or do we have any ideas leading to the promotion of an Atlantic community or the grand design talks of our late President?

Mr. BALL. The Trade Expansion Act was related very closely to what we hope to see emerge, a Europe moving not only toward economic, but political unity; a Europe being able to speak with one voice and being able to play a world role alongside of us in what President Kennedy referred to as an Atlantic partnership.

There have been political events which have discouraged this process, which have tended to check the momentum going forward at that time. There was primarily the decision of the French Government on January 14, 1963, to prevent Britain's accession to the Rome treaty. If Great Britain at that time had joined the European Common Market and certain of the other countries had joined with it, then I think there would have been much greater progress toward unity than has in fact occurred. What we have seen in my judgment

is a development, a recurrence of nationalist feelings which has tended. to interrupt the momentum toward unity.

At the same time, from the point of view of American policy, I think we would make a very big mistake if we were to write off the idea of a united Europe and an effective working partnership with the United States. Personally I think this is going to occur. I think the question of timing is one about which no one can be very sure.

The hard fact is simply, Mr. Chairman, that there is a new order of scale among the nations of the world. There was a time when a nation of only a few millions could dominate the world. Rome did it with 2 million people. France, during the greater part of the 19th century, never had more than 25 or 30 million people. And Great Britain with only about 40 million people ruled a third of the globe.

That isn't true any more. We have seen the emergence in the last two decades of two great states organized each on a continentwide basis, each able to deploy vast resources of men and materials. We are in a curious situation today in which each of these two states is playing a world role, but in which the states that have historically played a big part in world affairs find themselves unable to muster the resources to play a world role. Since they can't play world roles, and since the big colonial systems have been dismantled, the individual nations of Western Europe are not by and large playing an effective role in world affairs. They are pursuing a much more parochial policy for the most part. This is not true of all of them. Certainly the United Kingdom is still playing a world role, but it is finding difficulty in having an effective influence in world affairs simply because it lacks the resources.

Now, I say this because it suggests that, if these nations are going to make a real contribution to the affairs of the world commensurate with the great talents and gifts of their peoples, they are going to have to organize themselves on a different scale than at present.

I think the internal logic of moving toward unity in Europe is so compelling that over time this is going to occur. It is going to occur simply because the European peoples are not going to be prepared to stand out and abdicate a major world role which historically they have been accustomed to play. So I expect the forces of unity are going to prevail, given time. And I would expect when they do prevail and we see Western Europe able to speak on a very wide spectrum of subject matter with a single voice, more and more unified, more and more able to act as though it were a single nation or federation-then I think the idea that President Kennedy so eloquently put forth in his Independence Hall speech in Philadelphia-of Atlantic partnershipis going to be realized. These nations are composed of peoples with the same fundamental ideals and the same fundamental aspirations as Americans and I think by and large on the great issues will tend to see things in a parallel manner-not always, but generally.

This is a possibility which it would be very sad to write off. I don't think we should write it off. I think that it remains a necessary element in American foreign policy and that we should continue to encourage it as best we can.

Mr. FARBSTEIN. I want to thank you very much, Mr. Secretary, for your very enlightening remarks. I think your statement is extremely important, at least to see how we envision the future of the various communities of the world.

We hope at some future time you will come here again.
Mr. BALL. I will be very happy to. Thank you, sir.

Mr. SOLOMON. After Secretary Ball's sweeping perspective, I think you will find my remarks very much more narrowly focused on the Kennedy Round.

Mr. FARBSTEIN. That is all right. We need that too.

STATEMENT OF HON. ANTHONY M. SOLOMON, ASSISTANT SECRETARY OF STATE FOR ECONOMIC AFFAIRS

Mr. SOLOMON. It has been nearly 4 years since the Trade Expansion Act of 1962 was passed and over 3 years since the Kennedy Round negotiations actually began. Before considering where we stand in these negotiations and what we are likely to achieve, it may be worthwhile to review the administration's principal aims in seeking the Trade Expansion Act and in entering into the Kennedy Round of tariff negotiations under the auspices of the GATT (General Agreement on Tariffs and Trade).

In seeking from the Congress a grant of authority to negotiate reciprocal trade barriers reductions, a grant which was unprecedented in scope, President Kennedy stressed the challenges which U.S. trade policy faced in the 1960's:

First, the United States faced a new set of competitive conditions in the international field with the growth of regionalism, whether in the form of an economic union like the European Common Market (EEC) or in the form of a free trade area such as the European Free Trade Area (EFTA). The United States welcomed the trend toward European unity both on economic and political grounds. But, at the same time, we recognized that unless there were a general reduction of trade barriers, the inherent discrimination in these arrangements could constitute a serious competitive threat to the United States and other countries on the outside. It was, therefore, essential that the United States join with its trading partners in the world in a serious attack on trade barriers across the board.

Secondly, the United States needed to join with other developed countries in assisting the less-developed countries to find new outlets for their exports of raw materials and manufactures.

Thirdly, it was apparent that the traditional item by item negotiating method was inadequate to cope with this new competitive situation. A much bolder approach of linear-across the board-tariff reductions was needed in order to attain a substantial reduction in world trade barriers.

Finally, it was clear that, for the United States, economic isolation and political leadership were wholly incompatible. If the United States were to maintain its leadership in the free world it was necessary to adapt its economy to the imperatives of a changing world. We had, in the years since the end of World War II, encouraged sweeping changes in free world economic patterns in order to strengthen the forces of freedom. We now needed not only to participate but also to provide leadership in this movement.

The Congress recognized and accepted these challenges. It responded by granting the President unprecedented authority in the Trade Expansion Act of 1962.