The monetary system cannot stand the full weight of all the adjustments or to put it another way, if we have a situation where we have important products that we could ship into a country and those products are simply blocked, there isn't any change in exchange rates that is going to solve that problem.

We need to get at that problem in trade reform. So that the two have to go hand in hand.

Mr. SCHNEEBELI. You are optimistic, but you need the help of this legislation.

Secretary SHULTZ. I hate to use words like "optimistic" or "pessimistic."

I would rather just make the observation that we have a great problem. We have identified it, as Congressman Ullman said, and we have taken some very substantial measures in the monetary field and on the basis of the record there seems to be some impact beginning to show. Mr. SCHNEEBELI. Mr. Flanigan, this question might be directed

to you.

On page 8 of Secretary Shultz' statement he points out that other countries have some complaints against some of our trade practices. In addition to the American selling price, what particular trade practice do they find unfair?

Mr. FLANIGAN. Congressman Schneebeli, we maintain some quotas. We have some State and municipal buy American legislation that they feel is discriminatory and, of course, we are urging them to remove their governmental limitations on the source of their imports.

Those are two areas, two major areas. The quota area goes broadly across several of our commodity areas. They complain rather vociferously about these.

We, of course, point out that while we may engage in some of these practices we believe we do so in a much lesser degree than others and our effort in harmonizing these practices would be to get a substantial reduction in the barriers against our exports.

you suggest

Mr. SCHNEEBELI. In your recommendations to us, would these be made negotiable, assuming we get compensatory action? Mr. FLANIGAN. As Secretary Shultz in his testimony says he believes that if we are to get adequate action on their side to remove their barriers we, of course, will have to look at our own barriers in turn.

Secretary SHULTZ. But particularly you won's find in my testimony the word "reciprocal." That is, I don't think that what we see here is a kind of tit for tat type situation.

We don't think the present arrangements are quite fair and what we want are arrangements that are fair and there may have to be some more giving than taking as far as the other people are concerned. Mr. SCHNEEBELI. We have to get up to par, first.

Secretary SHULTZ. Yes.

Mr. SCHNEEBELI. Mr. Secretary, you also say that because of the expansion of the Common Market, particularly with respect to agriculture, there is evidence that our trade will be adversely affected and that the community is expected to compensate us.

Is the community really disposed toward compensation, and what form might it take?

Secretary SHULTZ. Well, it is a matter of negotiation but I think we see a process.

You take the agricultural part where Britain, say, goes into the Common Market and therefore becomes subject to the common agricultural policy which will have the effect of raising barriers against our agricultural exports to them beyond what was the case before they went into the market. We would look for some kind of compensation in the form of the average level of the restrictions against our exports in some form.

Mr. SCHNEEBELI. Do you mean a reduction of the tariff levels?

Secretary SHULTZ. So that our goods have, so to speak, the kind of access to those markets that was envisaged on the whole in the negotiations that set up the general agreements.

Mr. SCHNEEBELI. When I think of compensation I usually think of some positive action to eliminate a negative position.

Secretary SHULTZ. This is by way of saying that there was some sort of, let's say, average level of restriction that was negotiated out and agreed on and now by virtue of a certain action you change that average level so in order to bring it back to where it was supposed to be, you make a rearrangement to bring it back to the average in some

manner.

That is a matter that can be a matter of pretty intense negotiation. We are just trying to keep things the way they were negotiated to begin with.

Mr. FLANIGAN. We will have another argument in that area, Congressman.

That is, that we also had agreed with our partners on some bound levels of tariff. We agreed that we would fix our specific levels if they would fix some of their specific levels.

If they are to change those specific tariffs by virtue of going into the Common Market, we say that they have a special obligation to compensate us for those changes.

So that that also is in the negotiation that Secretary Shultz is discussing.

Mr. SCHNEEBELI. Despite their actions, we still have an increasing agricultural export, don't we?

Secretary SHULTZ. Agriculture is one of our strongest export areas and that is because the American farmer does a darn good job and our products are attractively priced. We want to see that our farmer has as good an open access to markets of the world as we possible can provide for him.

Mr. SCHNEEBELI. As you are aware, there has been a notable change in attitude toward trade on the part of some of our Midwestern Congressmen as a result of this expansion in the agricultural field. There has been marked movement in this area away from isolationist or high tariff positions, while the Eastern establishment appears to be going the other way.

Thank you very much.

I enjoyed your testimony.

The CHAIRMAN. Mr. Burke will inquire.

Mr. BURKE. On the provisions referring to governmental assistance, how can Congress place any faith in this administration when presently down at the White House is a decision which was made by the Tariff Commission back in January of 1971 relating to the footwear industry and the President has not made any decision on it.

Here it is almost 28 months later and the White House failed to make a decision on that tie vote.

How can we expect any sympathetic action in the case of these displaced persons who lose their jobs as a result of imports when the White House for 28 months has been sitting down there and not making a decision.

Mr. FLANIGAN. Mr. Congressman, with regard to adjustment assistance, I think that we have granted more adjustment assistance in terms of help for industries and workers in the shoe industry than any other single industry.

I think there are 28 groups of workers and three companies to whom we have granted adjustment assistance. I think what you are particularly concerned about is the lack of the imposition of an import restriction on shoe imports.

As you correctly point out, the difficulty of reaching a decision as to the cause of injury was indicated by the fact that the Tariff Commission did vote in a tie manner on this issue.

Two of them thought that import restraint would be appropriate and two thought it would not. In looking at the problem as a whole, we recognize that while it is true that many small shoe factories were closing, there were other large factories being opened and, therefore, it would appear that at least some part of the American shoe industry was competitive, and so we undertook a somewhat different course of action, different set of efforts, to deal with the problem.

I would have to agree with you that we were only partially successful. In the first place, we undertook to try to negotiate the kind of voluntary restraint that we had used successfully in some other industries. At the time we began it, the largest exporter of shoes to the United States was Italy, and the Italians agreed to limit their exports, and did so.

The next largest is Spain. We were unsuccessful in reaching agreement with them. More recently, Argentina and Brazil have become substantial exporters.

We have seen some apparently significant slowing down in the export of shoes to us by the Spaniards. We did, as you know, as a result of our concern for the shoe industry and the tanning industry, impose under authority that the Congress had given us a limitation on the export of hides which had gone up very sharply in price and which the shoe industry indicated was a major cause of their problem, but we had no sooner put that limitation in place than the Congress voted it right out.

So, that effort was thwarted.

One of the reasons that this bill would give us substantial assistance is that it would provide an opportunity for us to compensate countries if we did put import restraints on.

With regard to Spain, for instance, we have a very significant surplus in our trade with Spain and our machinery workers, the people who build power plants, all benefit by the ability to export to Spain.

If we were to limit their exports to us, they would turn around and limit our exports to them and that would act in a detrimental way to certain of our workers.

If we had this legislation, we would be able to grant compensation in areas where we could limit that effect and, therefore, it is my belief

that if we could get the provisions contained in the Trade Reform Act of 1973, we would be able to deal more effectively with the problem that you so rightfully bring up.

Mr. BURKE. That doesn't satisfy me.

I would like to ask the Secretary of the Treasury why don't you put into the provisions of this bill that any agreements reached shall be either approved or disapproved by Congress?

Secretary SHULTZ. Well, we do have a provision of not precisely that kind but an optional disapproval insofar as the nontariff barriers are concerned.

Those are tricky matters that are covered directly by domestic law. The basic reason, however, for asking for a grant of authority to the President to negotiate on the question of tariff barriers is to put him in a position to make conclusive determinations and thereby enable him to be a true negotiator.

If the President negotiates but has no authority, well, people are not going to bother to negotiate with him.

Mr. BURKE. I can't understand the lack of faith and confidence that the President has in Congress and yet he is asking us to give him all the faith and confidence in acting on this legislation to give him powers no other President ever had.

Yet, he is asking us to go and do something and we say, "Why don't you resubmit this after you have concluded your negotiations and see whether it meets with the criteria that the representatives of the people in Congress, in the House and Senate, will approve or disapprove of." I should think that you would want that to strengthen the hand of the President because when they are negotiating on trade matters if they realized they would have to come back before Congress and get agreement, we could get better negotiations.

Secretary SHULTZ. I don't think we would have any negotiations. That is, there wouldn't be anybody to negotiate with that would have any authority to do any negotiating.

They would have to come here as foreign powers and go around and lobby all you people and negotiate with you, and it would be a pretty unwieldly process.

Mr. BURKE. Another provision extends this for 5 years.

This administration has 3 years and about 8 months to go. Don't you think it would be better for us to limit that part of the bill to 3 years instead of 5?

Secretary SHULTZ. Well, I think it takes a certain amount of time to get negotiations going and brought to a conclusion. I think we have to look at this as a governmental process. We would hope to bring these things to a conclusion in less than 5 years, and have so stated.

We have some optimism that that may be possible because there is a schedule for starting these trade negotiations and we have had a fair amount of discussion with our trading partners. But I think you have to provide time for this to unfold itself as a process in and of itself. Mr. FLANIGAN. Could I add to that, if I may?

Mr. BURKE. Yes.

Mr. FLANIGAN. With regard to the unprecedented nature of the authority to enter into a trade agreement, Congressman Burke, this authority is identical, in terms of allowing the President to enter into

agreements and giving him the authority for 5 years in which to enter into agreements, to that which was granted to President Kennedy in 1962 in the Trade Expansion Act.

The difference with regard to tariff barriers only relates to the 50 percent plus the 80 percent, et cetera.

Mr. BURKE. Well, that caused the elimination of the American selling price and that was defeated during 1969-70.

The CHAIRMAN. Mr. Collier.

Mr. COLLIER. Thank you, Mr. Chairman.

One of the pertinent aspects of this bill is the adjustment assistance provision. I have several questions on chapter 2. I will confine it to the two that I consider most important.

First, in the 1962 act, we had provisions for granting assistance not only to employees but to firms injured by imports.

Is there any reason why H.R. 6767 recommended by the administration restricts the adjustment assistance to employees?

Secretary SHULTZ. Well, we think that is where the problem is and, insofar as the Federal Government's ability to help, people in the pri vate sector know how to manage their business better. I would have to say after 4 years in Government, I am not so sure that the Government has that special quality.

We are not really all that good at it.

Mr. COLLIER. But, if, Mr. Secretary, as a result of expanded imports in a given field a firm that has been able to compete successfully on the domestic market is injured and if we recognize that as part of the impact of this it is necessary to assist the employees of a firm, I can't quite rationalize why as a result of a policy that would injure a firm that has a capital investment they should not also be included in getting relief.

Secretary SHULTZ. The basic idea in the displacement provisions in this bill is not to single out people displaced by imports or firms that are affected by imports for special treatment but rather to look to our procedures for adjustment in general and ask what can be done to make them more effective and to that end insofar as unemployment compensation is concerned, insofar as income maintenance, let's call it, or pension reforms concerned, we have said to ourselves, "Let us make a proposal which we have made as part of this package for reform of the unemployment insurance system, for reform of the pension system."

So, that whatever the reason is that a worker is displaced he has adequate income maintenance and his pensions are protected and it doesn't make a difference to him whether he is displaced by an import or whether he is displaced because of a change in procurement or a change in environmental regulation or whatever the cause may be.

Similarly, on the business side, whatever arrangements we have that help businesses adjust themselves to changing circumstances need to be reviewed generally. The firm that is affected by an import is again no different from a firm affected by the great mass of other changes that take place and affect everybody's ability to do business and it is up to the firms to manage themselves in a changing environment.

Mr. COLLIER. As I recall the legislation, where there was Government assistance when an industry had been injured by imports, it