There are other important Latin American raw material exportscopper is illustrative-which are subject to duty, but the duties are quite modest, and the benefit to Latin America that would flow from their removal, while real, would be correspondingly modest. A few important Latin American exports are subject to quota in the United States market, most notably petroleum, sugar, lead, and zinc. But is it realistic to contemplate unrestricted entry in these products, given the considerations of national policy that have led to imposition of these quotas? Nor can we ignore the effect on developing countries outside the hemisphere if the quotas they now enjoy were withdrawn in favor of hemisphere suppliers. We must also consider the effects in Latin American markets of free entry there for United States raw material exports. Rice, cotton, and wheat are illustrative. Would Latin American producers of these commodities be disturbed at the prospect of unrestricted entry in their markets of competing United States commodities? The fourth possibility we might examine is preferential access for manufactured goods. Latin America has urged the introduction of preferential arrangements for manufactures. But the striking fact is that she has not thought in hemisphere terms. Instead she has alined herself with the developing countries of Asia and Africa at the U.N. Conference on Trade and Development in urging a system of generalized preferences from all advanced countries in favor of all developing countries." A variety of preference schemes has been proposed, but one-way free trade for developing countries' manufactures is illustrative of what is being urged. The rationale for the proposal is that low-income countries cannot meet the competition, in developed-country markets, of the manufactured exports of other developed countries whose greater efficiency enables them to quote lower prices. Given preferential access, 44 See American Foreign Policy: Current Documents, 1964, pp. 132 ff.; also ante, docs. II-50, 57. goods offered by low-income countries would be less expensive to importers depending, of course, on the tariff rate importers must pay on the same type of goods coming from developed countries. Importers attracted by the price advantage would place orders, volume would increase, and overtime costs would be reduced so that when preferences were phased out these low-income manufactures could compete on an MFN basis. We have been studying the many preference proposals advanced by the low-income countries and by some of the industrial countriesthere are substantial variationsbut we have not been convinced that any of them would produce significant trade benefits for the developing countries as a group, while their adoption could do injury to specific countries and to the trading system as a whole. In a system of generalized preferences the trade possibilities for the low-income countries would depend on the level of tariffs on goods offered by them. While import duties in advanced countries vary, rates on goods of export interest to the developing countries average about 15 percent ad valorem, some more, some less. Following even a moderately successful Kennedy Round, it is reasonable to foresee a reduction to less than 10 percent on the average. The questions we have asked ourselves are these: Are there many manufacturing enterprises in the developing countries, excluding those like textiles which are quite competitive already and need no preferential advantage, that could break into industrial markets against established developed country suppliers on the basis of a 10percent margin on the average? We should bear in mind that infant industries in the developing countries, certainly in Latin America, are in many cases protected by tariffs of 100 percent ad valorem and more. Is it likely that private foreign investors would be stimulated to locate in developing countries in order to enjoy the advantage of a 10-percent margin in the markets of the developed countries? This advantage would be diluted for any one country because all low-income countries would be eligible. It is difficult to believe that the trade and investment effect of a 10percent preferential margin would be more than marginal. If so, the breach in the MFN principle would add little to economic growth in the underdeveloped world, but it might at the same time create resistance to further multilateral tariff reductions because such reductions would narrow the scope for preference margins for the low-income countries. This examination of possible special hemisphere trade relations would be incomplete if I failed to note the recommendation in the CIAP [Inter-American Committee on the Alliance for Progress] report of August 10 to the Presidents of all American Republics." The CIAP report urged consideration of a policy of temporary, defensive measures to compensate Latin America for discrimination arising from arrangements in other parts of the world. The present impact of these discriminatory arrangements is on trade in primary products, including several of major export interest to Latin America. The course we should follow seems to me reasonably clear. We should seek ways by which existing discriminatory arrangements can be phased out or their injurious effects neutralized; and we should continue to counsel others against the institution of new preferential arrangements. It may be, however, that our efforts in this direction-and we intend to pursue them vigorouslywill be unsuccessful. In that event we may want to reconsider our own historic trade policy of nondiscrimination. We must retain sufficient flexibility in our policies to adjust to the evolution of the world economy and policies adopted by other major countries of the world. 45 See ante, doc. X-62. Western Hemisphere Developments I have tried to be responsive to the committee's inquiry, its interest in Latin American regional integration, the MFN principle, and the possibilities for new hemispheric trade relations. But I would not want to conclude this statement without noting two points: First, the advanced countries are committed in the Kennedy Round of trade negotiations now underway to make a special effort to reduce barriers on trade items of interest to the developing countries without asking full reciprocity from them. Second, here and now, and for years to come, the trade of Latin America, as of all the developing countries, is trade in primary products. These are indeed the lifeblood of their economies and the source of 85-90 percent of their export earnings. The economic diversification and industrialization that successful integration can promote will necessarily be a long, slow process, and its salutary effects will be realized only gradually. If we want to help Latin America and the developing countries in other regions with the major trade problem that confronts them today, we must take steps to improve commodity market conditions, to help stabilize prices at equitable and remunerative levels, and improve conditions of access. Where the root problem of instability and depressed prices is oversupply, we should work in concert with other consumer countries and the international development agencies to help producing countries curb overproduction and find more rewarding uses for the resources now wasted in harvesting surplus supplies. The International Coffee Agreement" is an example of our efforts in this direction. Coffee accounts for more than 16 percent of Latin America's export earnings. By helping to improve Latin America's coffee economy, within the framework of the Coffee Agreement, we can make a real contribution to Latin America's trade and growth. Where the root problem in commodity trade is competition with synthetics, we can give appropriate 46 TIAS 5505; 14 UST 1911. See also American Foreign Policy: Current Documents, 1962, pp. 1424-1427; ibid., 1963, pp. 1140-1142; ibid., 1964, pp. 1217-1220; 12211222; and post, doc. XI-25. [Doc. X-66] 1039 Recognizing that this can best be achieved through the stimulation of economic growth and through the expansion of markets available to producers in both countries within the framework of the established policy of both countries of promoting multilateral trade; Recognizing that an expansion of trade can best be achieved through the reduction or elimination of tariff and all other barriers to trade operating to impede or distort the full and efficient development of 47 Ante, doc. X-5; see also ante, doc. X-8. 1 Department of State Bulletin, Feb. 8, 1965, pp. 191-192. The agreement entered into force definitively Sept. 16, 1966 (TIAS 6093; 17 UST 1372). each country's trade and industrial potential; Recognizing the important place that the automotive industry occupies in the industrial economy of the two countries and the interests of industry, labor and consumers in sustaining high levels of efficient production and continued growth in the automotive industry; Agree as follows: ARTICLE I The Governments of the United States and Canada, pursuant to the above principles, shall seek the early achievement of the following objectives: (a) The creation of a broader market for automotive products within which the full benefits of specialization and large-scale production can be achieved; (b) The liberalization of United States and Canadian automotive trade in respect of tariff barriers and other factors tending to impede it, with a view to enabling the industries of both countries to participate on a fair and equitable basis in the expanding total market of the two countries; (c) The development of conditions in which market forces may operate effectively to attain the most economic pattern of investment, production and trade. It shall be the policy of each Government to avoid actions which would frustrate the achievement of these objectives. ARTICLE II (a) The Government of Canada, not later than the entry into force of the legislation contemplated in paragraph (b) of this Article, shall accord duty-free treatment to imports of the products of the United States described in Annex A.a (b) The Government of the United States, during the session of the United States Congress commencing on January 4, 1965, shall seek enactment of legislation authorizing duty-free treatment of imports of the products of Canada described in Annex B. In seeking such legislation, the Government of the United States shall also seek authority permitting the implementation of such duty-free treatment retroactively to the earliest date administratively possible following the date upon which the Government of Canada has accorded duty-free treatment. Promptly after the entry into force of such legislation, the Government of the United States shall accord duty-free treatment to the products of Canada described in Annex B. ARTICLE III The commitments made by the two Governments in this Agreement shall not preclude action by either Government consistent with its obligations under Part II of the General Agreement on Tariffs and Trade. ARTICLE IV (a) At any time, at the request of either Government, the two Governments shall consult with respect to any matter relating to this Agreement. (b) Without limiting the foregoing, the two Governments shall, at the request of either Government, consult with respect to any problems which may arise concerning automotive producers in the United States which do not at present have facilities in Canada for the manufacture of motor vehicles, and with 2 Department of State Bulletin, Feb. 8, 1965, p. 193. 3 Text ibid., pp. 193-194; see also post, docs. X-70, 72. respect to the implications for the operation of this Agreement of new automotive producers becoming established in Canada. (c) No later than January 1, 1968, the two Governments shall jointly undertake a comprehensive review of the progress made towards achieving the objectives set forth in Article I. During this review the Governments shall consider such further steps as may be necessary or desirable for the full achievement of these objectives. ARTICLE V Access to the United States and Canadian markets provided for under this Agreement may by agreement be accorded on similar terms to other countries. ARTICLE VI This Agreement shall enter into force provisionally on the date of signature and definitively on the date upon which notes are exchanged between the two Governments giving notice that appropriate action in their respective legislatures has been completed. ARTICLE VII This Agreement shall be of unlimited duration. Each Government shall however have the right to terminate this Agreement twelve months from the date on which that Government gives written notice to the other Government of its intention to terminate the Agreement. IN WITNESS WHEREOF the representatives of the two Governments have signed this Agreement. DONE in duplicate at Johnson City, Texas, this 16th day of January 1965, in English and French, the two texts being equally authentic. FOR THE GOVERNMENT OF THE UNITED LYNDON B. JOHNSON FOR THE GOVERNMENT OF CANADA: LESTER B. PEARSON PAUL MARTIN |