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Mr. FLANIGAN. To my knowledge, there are none. I know of no such -arrangements.

Mr. VANIK. No Federal insurance that you know of ?

Mr. FLANIGAN. That is correct.

Mr. VANIK. As I understand the Pepsi deal, the company agrees to import into the United States $13 million worth of Soviet vodka. In exchange for that, as I understand the transaction, Pepsi is going to get the right to sell in the Soviet Union $52 million worth of PepsiCola, made out of sirup produced in Western Germany.

Now, I was trying to find out just how that kind of a trade deal was going to be very helpful to the United States. All we are going to get is a hangover.

Mr. FLANIGAN. If the price at which the vodka is sold is expensive, we will have a cheap hangover, Mr. Vanik.

Mr. VANIK. It is going to be $9 or $10 a bottle, according to the newspaper accounts-so it won't be a cheap hangover.

Mr. FLANIGAN. We have no information as to the deal between a private corporation and the Soviet Union, so I don't know the facts. I assume that they are as reported by you and by the newspapers. But I think that what we have to concern ourselves with is the general system, and what we are talking about in this trade bill is an open and equitable trading system.

Mr. VANIK. That is precisely what I am concerned about. Jobs are created in the Soviet Union, building a plant, and planning it. They will have a bottling plant which will create jobs in the Soviet Union, and over in West Germany, there will be jobs created concocting the sirup to be shipped to Russia, but I can't see an American job in this deal at all.

I wonder if you have any assurance that anything will come back to the Treasury to make up for our $13 million loss of American dollars to buy the Soviet vodka. Why don't they sell the vodka in West Germany where the sirup is made? Why should we have to agree to take on this vodka?

Mr. FLANIGAN. I don't have any idea of who builds the machinery that goes into the bottling plants of various American companies, but if the trend for other American subsidiaries abroad is correct, then one would expect that there would be a substantial export of machinery to build that bottling plant. I don't know that to be the case, but, in general, when American companies set up subsidiaries abroad, they export to the subsidiary a substantial amount of those things in which we are the most competitive manufacturers-namely, machinery, machines for producing goods.

I would expect and, needless to say, hope that would be the case here.

Mr. VANIK. I will tell you the two experiences we have on the record to date are the Soviet wheat deal which was a very sad experience for this country. I look at the Pepsi-Cola deal and it looks to me like the reputation of the Yankee trader starts to look pretty silly. I would like to be sure that these kinds of arrangements are more open. I want the facts in the record so that we have some way of knowing whether we are being dealt in or whether we are being dealt out. I think, in the Pepsi-Cola deal, we are being dealt out.

Mr. FLANIGAN. I think it is fair to say, Mr. Congressman, when asking what returns to our Treasury, I am sure you mean by that what

effects these have on the balance of payments. Our surplus with the Soviet Union in 1972 was the largest surplus the United States had in trade with any single nation. We had a more beneficial effect on our balance of payments from our trade with the U.S.S.R. than with any other nation.

Mr. VANIK. That was the wheat sale. That cost all of us about 3 cents more in bread and wheat products, including Wheaties.

Mr. SCHNEEBELI. Will the gentleman yield? I think Mr. Don Kendall of the Pepsi-Cola Co. will be a witness next week.

The CHAIRMAN. Monday.

Mr. VANIK. Except I want to know what the Government people are doing in that transaction.

Mr. SCHNEEBELI. I would think he would be willing and able to tell you.

Mr. FLANIGAN. I am sorry. I thought I made it clear that the Government had no action in that negotiation. We had no part in that. It was purely a private American company acting in a private capacity.

Mr. VANIK. All right, thank you.

The CHAIRMAN. Mr. Duncan?

Mr. DUNCAN. Every time we talk about fair trade, it is interpreted in some quarters as a move toward restrictions as opposed to free trade. Do you think that if our policy of free trade is to be meaningful it has to be on reciprocal and a fair basis?

Secretary SHULTZ. Yes.

Mr. DUNCAN. Do you think that if we demanded a free trade or fair trade, it would start a trade war in the world?

Secretary SHULTZ. No.

Mr. DUNCAN. I take it you think it is in our best interest to get ourselevs in a posture where we can harden our attitude to the point that we can insist on reciprocal and fair trade. Is that what you are asking for in this bill?

Secretary SHULTZ. I think that we want to be realistic about our own problems and our own needs as we expect and observe others are about their problems and their needs. And to deal with people on that kind of a basis. That is our intent. I think that it will be constructive and will be received as such.

Mr. DUNCAN. When the Common Market was formed, we were told that it was going to be a great outward looking trade group but hasn't it turned out to be quite an inward looking trade group today on the Common Market.

Secretary SHULTZ. It has some aspects of that kind. We worry particularly about the reverse preferences and we worry about the common agricultural policy. On the other hand, it is forming itself. I see no reason why it shouldn't be a good market four our goods as well as a good source of diverse products for our consumers.

Secretary ROGERS. Could I say a word, too? I think the Community has the same inner pressures we have. Some people think the way to improve conditions is to look inward and to be protectionist. We are quite aware that that exists in some quarters in the Community.

On the other hand, we are encouraged by discussions we have had recently to believe that they are prepared to look outward, to change that attitude. But in order to do that, we have to negotiate.

I think particularly with respect to the enlargement of the community we will find that they will tend to look outward more. I was particularly pleased that Mr. Landrum pointed out his interest in the statement about Sir Christopher Soames. I think he is going to be very helpful in that regard. We look upon this bill and the negotiations which we expect to begin this fall as being an opportunity to be sure that doesn't happen.

Mr. DUNCAN. Mr. Secretary, would you care to answer whether the recent trade agreements with Russia and China were important factors in the cease-fire in Vietnam and the fact that these agreements came about because you had the authority. Was that important in the agreements that you reached there?

Secretary ROGERS. I think that is rather difficult to answer. I think I would merely want to say that the fact we have improved our relations with the Peoples Republic of China and the Soviet Union, I think did contribute to more understanding between the United States and those countries and I think that was helpful in Indochina.

Now, I would not want to be more specific because we don't know exactly how that took place. But I think the fact that our relations with both those countries have improved make it possible for more peaceful conditions to exist in the world.

Mr. DUNCAN. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Fulton will inquire.

Mr. FULTON. Thank you, Mr. Chairman. My first question goes to Secretary Shultz. Last week, Mr. Secretary, you mentioned during your testimony that the Nation was approaching full employment. I did not have an opportunity to pursue that statement at that time. I just wonder if you can give me what your definition is of full employment?

Secretary SHULTZ. A situation where all those who want a job and will look for it and take a job that is reasonably within their capabilities can get one.

Mr. FULTON. You would say then that over 14 percent of those young people ages 16 to 19 then that are unemployed presently are unemployed because they don't have a job or the 9 percent of the blacks and minorities that are unemployed, they don't want a job?

Secretary SHULTZ. No. I think the problem of youth unemployed is the central unemployment that we have. It is a very serious matter, particularly because it is just at those ages when they are entering the labor force that their attitudes toward work and whether or not labor force activity is a good thing and so on are formed. So I think that the youth unemployment problem that you point to is a matter of great seriousness and I believe that we should devote our thinking and our efforts very strongly to see whatever we can do to solve that problem. Mr. FULTON. With the unemployment rate still at about 5.0

Secretary SHULTZ. I think 5.0 is the last reading we had on the official rate.

Mr. FULTON. Mr. Secretary, I am not pleased with your definition of full employment, but we will let that ride for now. Section 303 of the bill you presented us with, the first provision states that the Secretary of the Treasury shall determine within 12 months after the date on which the question is presented to him, whether any bounty or grant is being made. Could you give us the reasoning of those who prepared

this legislation why it is necessary to have 12 months? Why not 3 or 6 months?

Secretary SHULTZ. Well, we wanted to put into that area of our bill a definite time scale because I think there have been the feelings that this process was sort of languished but we don't believe that it has. On the other hand, having a time scale is good.

Now, the process of investigating and finding out all of the facts about what goes on in some other country is often a rather laborious and time-consuming one. So I think that it is not quite as easy as making a survey in this country would be.

Therefore, I think that is a reasonable amount of time.

Mr. FLANIGAN. May I add to that, Mr. Secretary? I believe you also felt that it was desirable to have enough time, once you did ascertain the facts to talk to the other government and point out our problem and perhaps negotiate a mutually agreeable way out of the problem rather than just levying a duty.

Mr. FULTON. I think this is an unnecessarily long period and is unacceptable. It appears that Treasury has dropped its support for judicial review of subsidy alleged by domestic producers when Treasury renders an adverse finding.

Could you tell me why you have dropped this support and why you do not feel that the American manufacturer should have the same right as the importer of a foreign competitive product?

Secretary SHULTZ. Our feeling is that it is important to be able to come to a conclusion on these matters, particularly having to do with the bounties and grants from other governments and to hold our hearing, to have a deliberate procedure, one that is described with time limits, which we think are appropriate.

I recognize that you don't. And that once that has taken place and the Secretary has made a decision, that the other government ought to be able to feel that is it, and not have a period of 1, 2, or 3 more years of wondering whether or not a determination actually is going to stick. As far as prior Treasury support is concerned, I think what I am saying here is the Treasury position. There was some confusion about the Treasury position at one time last year.

Mr. FULTON. I don't have time to pursue this under the 5-minute rule, but I do have a copy of the reply from the acting general counsel dated September 20, 1972 where they say the Treasury Department supports the purpose of H.R. 15794 which is what I am speaking of. We shall address ourself to that at another time.

Secretary SHULTZ. I recognize the existence of the letter. It went out without the kind of procedures that I would like to think we have in the Department. I didn't agree with it.

Mr. FULTON. Thank you, Mr. Chairman.

The CHAIRMAN. That reminds me of something I will tell you off the record sometime when President Kennedy was in office. His State Department did something he didn't agree with.

Mr. Brotzman?

Mr. BROTZMAN. Thank you, Mr. Chairman. I certainly agree with the statement that we must also have fundamental reform of our monetary system. Trade reform and monetary reform have to work alongside but not necessarily in the same forum, I think you said.

Assuming that the legislation the administration has proposed in the area of trade reform is enacted by this Congress, do you have similar plans to push ahead in the area of monetary reform?

Secretary SHULTZ. Yes, we do. We have put forward a position on monetary reform and we are part of a committee of 20 formed by the International Monetary Fund to work on this. We are working in that committee on a variety of proposals and we think on the whole reasonable progress is being made. We would like to see more rapid progress and I think we have been very much on the side and pushing

for that.

But nevertheless, there is a program going forward of that nature. Mr. BROTZMAN. Your point is, however, that this type of legislation is needed because there are some actions that the President could take or the executive branch could take that would augment the monetary reform aspect too, isn't that correct?

Secretary SHULTZ. Yes. We think it is important. One of our positions has been right along that monetary arrangements and trade arrangements are conceptually undeniably part of the same picture.

The monetary system exists among other things to facilitate trade. They are linked together. We believe that one should work along at them, along parallel lines and that there are some ways in which the adjustment process can be facilitated by at least some reference to trade rules.

Mr. BROTZMAN. Now, we have heard already today in your combined testimony some of the problems that we have such as the discriminatory practices such as NTB's. I have heard in prior cases that we have as many as 800 nontariff barriers that are plaguing us. We are somewhat acquainted with the problem of the variable levy under the CAP, the common agricultural policy.

We know that the European countries use the value-added tax as a crutch to assist trade and a border tax toward our imports. But it seems to me that in the long run we have to reverse the trend toward trade preferences and reverse trade preferences. Now, I don't think the record was exactly clear this morning in response to some questions asked. It is my understanding that in the administration's bill, a generalized tariff preference would not be granted to a developing nation that was engaging in this type of practice. Am I not corrected about that?

Secretary ROGERS. That is very correct. There is no doubt about that. Mr. BROTZMAN. That is a part of the law?

Secretary ROGERS. Yes.

Secretary SHULTZ. It is part of the proposed law.

Secretary ROGERS. It is part of the bill.

Mr. BROTZMAN. I just wanted to be sure. Do I understand the rationale is that you are going to use this as a negotiating incentive to try to break this practical down around the world?

Secretary ROGERS. Yes. We have had many discussions with the community about this. In fact, every opportunity I have to talk to a foreign minister about this, I talk about our feeling about reverse preferences. We have made it clear that it is our Trade Reform Act and we intend to do it. As a result, we think they have slowed down some in their eagerness to move in this direction.

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