Secretary PETERSON. Mr. Chairman, would you mind if I just made one comment, please, on something I think is significant?

I have the feeling this morning that perhaps our discussions have been dominated a bit too much by one or two detailed and somewhat exacerbating issues but somehow I want the appropriate emphasis to be put on what I consider to be two issues. One, the one area that I would consider to be of great importance is to protect the privileged role of this position vis-a-vis the position of the United States. It seems to me that every morning that I was there I met with Mr. Ehrlichman, Dr. Kissinger, on the interrelationships between international, domestic and the job I had. You can only imagine the kind of discussions that went on pre-August 15, for example. I think that if this role were put into another context its necessary effect would be to seriously limit the kind of input that the President should have on this decisive area and in effect it would be saying that this area is less important, less decisive than the other areas where the President does have personal inputs.

The second comment I would like to make is to be sure in all of this dialog this morning we haven't overlooked the general and very important point that I would like to congratulate you and the other members of the committee for the leadership role that you have played in this field of international economics, and in the sense what we are arguing about here are certain specific points and I hope we haven't lost the larger point which I know motivates you in the first place.

Mr. ASHLEY. I don't think we have. I do think, and this is not by way of derogation of Mr. Carlucci's statement, but I do think that it is unfortunate that a statement has been presented this morning which confines itself almost exclusively to four areas of substantive disagreement with the legislation that is before this subcommittee. In three of the four areas, or certainly in combination, three of the four areas suggest very strongly to me an effort to have as little to do with the Congress as possible. And I say that because, first, there is suggested an unlimited or multiyear authorization of appropriation to fund the Council. This obviously would bypass the legislative committee.

Second, the reporting requirement. You don't want to have to issue an annual report that would be available as a basis for discussion between this committee and the Council. You want instead to have it, if anything, simply a part of another report of a Council with a very different focus than that of the proposed Council.

And third, it is suggested that there not be Senate confirmation of the Executive Director of the Council.

Now I can't think of three proposals which more deliberately and clearly seek to bypass the Congress, which seek to dissipate the form and character of the partnership that certainly was the basis of H.R. 14412; that is, between the Congress and the administration.

So while I hope and trust that we haven't lost sight of the larger issues, I would have to say that I don't believe that this subcommittee can overlook the general overall thrust of the testimony that is put to us this morning.

Mr. ROUSSELOT. One more comment if I might. Could you comment, Mr. Peterson, and Mr. Carlucci, on our clear constitutional responsibility to regulate commerce with foreign nations which has been very traditionally a part of our responsibility. I know Congress

maybe has appeared not to always respond to that as adequately as maybe some of the administrations have felt it should, but how do we just walk away from that clear responsibility in the Constitution without once again abandoning to the executive branch almost totally our responsibility?

Mr. CARLUCCI Congressman, let me emphasize again that there is nothing in the proposals that I have put forth which we see as derrogating the responsibility of Congress or impairing the partnership between the executive branch and Congress. To the contrary, as I have stressed, the individual members of the Council are available for testimony. They are the people responsible for implementing the Presidential policy. They can be called up and held to account. The President will submit appropriate reports. What we are talking about is a staff vehicle, as Secretary Peterson has stressed, which must, to be effective, enjoy a confidential relationship with the President. This doesn't mean that the decisions won't be communicated to Congress or that there won't be consultations by appropriate members of the Council with Congress. It simply means that the staff positions as they are developed in an atmosphere of confidentiality with the President and that he is entitled to hear the views of his staff before he makes the decisions. So we are prepared to work with the Congress in any way that we possibly can to improve our effectiveness in the area of international economic policy and we see this as a vehicle for doing it. Mr. ASHLEY. Any other questions?

If not, we thank you both for being with us this morning.

Without objection, there will be submitted at this point in the record a paper by Donald S. Green entitled "Government Organization for Policymaking and Execution in International Trade and Investment," one of the papers submitted to the Commission on International Trade and Investment Policy and published in conjunction with the Commission's report to the President of July 1971.

The subcommittee will stand adjourned until further call of the Chair.

(The paper "Government Organization for Policymaking and Execution in International Trade and Investment" follows:)

[From the "United States International Economic Policy in an Interdependent World," papers submitted to the Commission on International Trade and Investment Policy and published in conjunction with the Commission's report to the President, July 1971, Washington, D.C.]

GOVERNMENT ORGANIZATION FOR POLICYMAKING AND EXECUTION IN INTERNATIONAL TRADE AND INVESTMENT

(By Donald S. Green 1)

(I. Presidential Perspective and Leadership. II. Organizational Arrangements and Delegation of Authority. III. Buy American. IV. Operational Control Policy. V. The Balance of Payments. VI. Foreign Economic Council. VII. Foreign Economic Policy Staff.)

One's view of how the government is organized for international trade and investment policy is affected by where one sits. My seat was in the Executive Office of the President of the International Division of the Bureau of the Budget, now the Office of Management and Budget (OMB). The Budget Bureau's role in trade and investment policy was part of a broad staff responsibility to the President. It shared that role with others-the Council of Economic Advisors, the National Security Council staff, and from time to time White House special assistants. The Budget Director's job included coordinating agency positions on legislation, participating in reviews of specific topics, and accepting a variety of ad hoc assignments.

1 Donald S. Green is Vice President for International Banking, Bank of America.

The principal actors on the international scene included the Department of State, Treasury and Commerce, the President's Special Representative for Trade Negotiations, The Federal Reserve, and to a lesser extent the Departments of Defense, Agriculture, and Labor, Representatives from these agencies, along with those from the White House and Executive Office of the President met in various and sundry fora, formal and informal, permanent and ad hoc, established in law, by Presidential directive and by agency initiative.

I. PRESIDENTIAL PERSPECTIVE AND LEADERSHIP

Each agency bought the views of its constituency, reconciled as best as possible with what each agency believed to be the Administration's or the President's perspective. The President's perspective is also what the Council of Economic Advisors, the NSC and the OMB is supposed to have or bring to bear on particular issues. In fact, that perspective uses a prism more than a lens; there are many facets and many views. Perspective is forged not found.

At times the approach to establish perspective could resemble a free-for-all wrestling match. Strength is measured by brute force-who represents your team, who has the most clout with the President or the closest proximity to his advisors. In some cases there may be a consensus on Presidential perspective or a clear statement of policy. If there is, it resolves many problems, saves many battles, and conserves stores of energy for waging a battle with a known purpose. Such was the battle of the Kennedy Round. A common objective was established; the job then became to sell the Congress and our trading partners on the proposal.

Perhaps more than in any other area of policy, international trade pits agency against agency, advisor against advisor. The national interest is indeed hard to define. Domestic interest in international trade policy can be strongly at odds with international interests. Steel, petroleum and textiles are recent examples. Only the President can weigh the factors and make the judgment on what he wants to do.

Let's turn to foreign investments-a new member in the arena of government policy. Our investment policy was forged by the Members of the Treasury-chaired Cabinet Committee on the Balance of Payments-principally Treasury, State, The Federal Reserve, CEA, NSC, Commerce, the Bureau of the Budget, and a White House Special Assistant. Only the President could take the necessary step of signing an Executive Order enabling direct controls and establishing the Office of Foreign Direct Investments.

Presidential decisionmaking in international investment policy probably does not occur now more than once a year. Originally, there was the decision to establish controls, after examining alternatives. Now the question is whether to continue them and what modifications to accept.

Administration of the investment control program was given to Commerce, with policy direction from the Balance of Payments Committee. Lines of responsibility were clear. No basic differences exist among agencies in the interpretation of policy, and no strong differences exist in choosing the means to attain policy goals.

Like the direct investment control program, the foreign credit restraint program administered by the Federal Reserve receives policy direction from the loosely organized Treasury-chaired Committee on the Balance of Payments.

The absence of unequivocal direction from the top can present an entirely different situation, as you would imagine. The formulation of the trade bill can be a case in point. All the players try to get their way, with no one sure of what the President really wants. Ideally, differences should be presented skillfully to the President for his decision. There can be many avenues to the President on trade legislation. He may use the Special Representative for Trade Negotiations, the Director of the Office of Management and Budget, a White House legislative coordinator or other specially picked person. But it should be clear who that person is, and it should be one person.

Interagency conflict can be left to fester or it can be resolved forcefully from the top. Agency staff can meet ad infinitum on all sorts of matters; studies can be made; policy alternatives examined. Without access to and clear direction from the top, it is of little avail.

II. ORGANIZATIONAL ARRANGEMENTS AND DELEGATION OF AUTHORITY

Let's look at some of the organizational arrangements used in the past to review issues, attempt to reconcile views, or provide an avenue to the President. There

is a Trade Executive Committee (TFC), set up in the Trade Expansion Act; it has a staff committee at the Assistant Secretary level. There have been ad hoc task forces such as for petroleum; special groups on preferences acting through the State Department-NSC procedures; special studies on shoes in the TEC forum; special groups on foreign government procurement set up by Treasury, etc. In the Johnson Administration there were travel tax committees, chaired by White House advisors; textile studies chaired finally by the Vice President; Export Expansion chaired by Commerce; and an import-surcharge export-subsidy study group chaired by I-don't-know-who.

While committees are needed to present views and can work well within a given frame of reference, there must be a clear and agreed-upon avenue to resolution of conflicts. Either the chairman must have the delegated power or he must have access to the decisionmaking source. In many of the cases cited there was a clear statement of the assignment and good access to decisionmaking authority. In some cases there was not.

III. BUY AMERICAN

An example of where delegation of authority coupled with either a weak or strong exercise of that authority may be found is in the administration of the Buy American Act. This was an Act passed during the Depression which provided for special consideration of bids from domestic suppliers over bids from foreign competition in the awards of government contracts.

In the early 50's the policy direction for this Act was put in the hands of the Budget Bureau which established a maximum 6% differential in the favor of domestic goods in usual cases. In the early 60's, when our balance of payments was beginning to look worse, the Secretary of Defense announced an increase first to 25% and then to 50% in the differential in favor of U.S. goods, as part of a total program to reduce the costs of military spending abroad. As far as I can determine, the full budget_costs of this policy were not examined or concurred in by the Bureau of the Budget at the time.

Since the introduction of the higher differential for the Department of Defense, pressures have been brought to bear from various industry groups to provide for higher differentials for civilian agencies. Forceful administration of the responsibility for this policy by each Budget Director has allowed him to consider agency views on the trade policy, budgetary and balance-of-payments implications of any change in the differential and act in accordance with his best judgment. Separate access to the President or White House staff on these matters by powerful implementing agencies could have altered these procedures and the policy outcome. Of course, the stakes at issue in Buy American were not nearly as large or politically weighted as other matters of trade policy.

The lesson here, I believe, is that good administration requires clear assignment of responsibility, forceful acceptance of that responsibility and a vigorous pursuit of its aims. The problems in other areas of trade policy in many cases have been either an unclear assignment of responsibility, a weak exercise of authority received, or a combination of both.

IV. OPERATIONAL CONTROL AND POLICY

Administration of the Buy American policy by the Bureau of the Budget is also a good example of how the person with the most knowledge can effectively control policy. No other agency had access to the supply of data or acknowledged expertise in interpreting information received on the budgetary, trade and balanceof-payments aspects of Buy American policy. Each agency may know its own problems, but the Bureau of the Budget could choose the perspective, the weighing and the interpretation of the policy under which the Act was to be administered and issues decided.

Another example of how policy control is heavily weighted by operational responsibility-as perhaps it should be-may be found in the administration of the credit restraint program. Time after time all Executive Branch agencies asked the Fed to design a system that would exempt export credit from the bank lending restraint program without allowing an excessive indirect capital outflow. The Fed repeatedly has held that such exemption would undermine the entire restraint program. While some concessions have been made, there has been no one in government with either the access to data or the operating skill to demonstrate effectively that such exemptions for export credit would help the balance of payments. Without full knowledge of the possible, policy direction can be futile.

V. THE BALANCE OF PAYMENTS

The balance of payments as a whole has been the subject of interagency study groups established through a variety of means. The Kennedy-Johnson Administration used principally the Cabinet Committee on Balance of Payments and a comparable group at the Assistant Secretary level. International monetary policymore narrowly exchange rate and reserve policy-was more closely held to a specialized group chaired by Treasury at the Deputy Under Secretary level and including State, the Fed, CEA and NSC. There is an interagency committee, chaired by Commerce, that makes quarterly projections of the balance of payments one year ahead. Special groups were set up to examine the balance-of-payments impact of introducing import surcharges, export subsidies, and to make long range projections of worldwide price and output trends and related trade and financial flows.

From an organizational point of view, it is not clear to me that a super-agency charged with nothing other than managing our balance of payments could do a much different job than has been done by the interagency process, assuming such agency had the same political and international financial restraints as have faced the President and his advisors in the past.

There has been a serious problem in the balance-of-payments area, as opposed to trade, in the careful preparation of staff papers for review by agencies prior to taking positions on policy matters. Hurriedly called Cabinet level meetings to discuss poorly analyzed proposals is a disservice both to the officers concerned and to public policy. The preparation of analytic papers and the distribution of such papers in time to allow appropriate review would immeasurably improve the changes for better decision-making.

VI. FOREIGN ECONOMIC COUNCIL

The President has announced the establishment of a Foreign Economic Policy Council with a White House Assistant as Executive Director and Coordinator. As you might imagine, from my perspective this makes good sense. But the chance for a good being done depends on the answer to two questions:

1. Will the President participate fully and actively?

2. Will the President give his support to the Coordinator?

If the President himself enters the trade and financial arena fully and forcefully as necessary, policy issues will be resolved.

If the President uses the Coordinator to act in many cases in his stead, many issues will be resolved.

If the President does neither of these, the Coordinator will be a waste of time. The principal function of the Coordinator then is to get that Presidential involvement and to get a clear statement of policy and delegation of authority that will permit effective resolution of issues short of the President.

Will the President look to the Foreign Economic Policy Coordinator as his principal advisor and staff aide in evaluating changes in policy on petroleum and steel trade, on textiles, on agricultural trade, on the Fed and Commerce credit and investment control programs (i.e. on the balance of payments), on negotiation of preferences, on the development of east-west trade, on government procurement, on export tax incentives and import surcharges?

There is a good possibility that the Coordinator will become another participant in the international trade and investment infighting among presidential advisors. He may do some good in resolving issues short of the President. He may also do some good in helping the President get another focus on his own perspective. And perhaps he could provide a new and even broader perspective for looking at all related foregin economic policies.

But each of these policies are the heart blood of several agencies; they each know too much and care too much. Helping the President choose among his aides is never easy. The Coordinator could easily die a-borning. Let us not think that one man or one staff can do very much. But it might just help and it is certainly worth a try.

In the end it is the President himself who must come to grips with these issues in a manner that leaves the governmental agencies with a clear sense of direction and a clear avenue for the resolution of conflicts.

VII. FOREIGN ECONOMIC POLICY STAFF

A review of the major trade and investment policy decisions made over the past five years suggests that a variety of special skills are needed to accurately deter