which to base negotiations looking to these treaties. But let me state you have made yourself perfectly clear, and I want to say I have been in Congress with you for many years, and I have the very highest regard for you.

Mr. HULL. And I reciprocate that, I am sure.

Mr. WOODRUFF. You have recently made, I think, a very important and a very valuable trip to the countries of Central and South America. I have not a doubt but while you were there and in your contacts with the various officials of those countries, you secured much information relative to the desires of those countries in connection with possible imports into this country.

I am wondering if the Secretary, if he believes it not incompatible with the public interest, will tell the committee-and of course if it involves any embarrassment in any degree, I will withdraw the question-what particular class of products the countries of South and Central America desire to import into this country in greater quantities, and which are not now upon the free list.

Mr. HULL. I would be glad for my friend to go over files in the State Department pertaining to the American delegation to this seventh conference of American nations, and my personal correspondence as well. You will find where I said nothing more to those people about a basis of mutually profitable interchange of surpluses than I have been saying to the general public, because I always was careful to inform them, as I have others whom I thought might not be familiar with the situation, that the world, including our own country, had been trying to some extent a more extreme policy of economics than was profitable to any of us; and if the past 4 years have not demonstrated that, I would not want to argue it. I stated the way back to normal conditions would be a long and tedious one, that it would tax the patience of those few nations that have not already been through a revolution on account of economic conditions that became unbearable, and that we must all work together efficiently; and if and when our governments had an opportunity to sit town together with enough authority to proceed to determine what commodities, if any, might be interchanged with equal profit, then we would undertake to carry out that sort of a policy.

I may say I did find south of us 120,000,000 people in the richest undeveloped country in the world, who are in about the same position as we were 65 years ago, economically, and who are willing to cooperate with us in every undertaking that we might first agree was equally profitable.

Mr. WOODRUFF. Now, Mr. Secretary, right there, in your contact with them, and eventually, of course, in the conferences you have had touching any particular program that should be carried out, have you had in mind any basis for that program?

Mr. HULL. May I say there are a number of commodities that could be exchanged with profit to us and to them, profitable to American capital and American labor and the American public.

Mr. WOODRUFF. I am sure of that, and I assume, too, many of those products are already on the free list. But let me ask you this, those countries to the south of us are at the present time agricultural countries?

Mr. HULL. Yes.

Mr. WOODRUFF. Their surpluses largely consist of agricultural products. Argentina, for instance, largely in line with the products of the great Wheat Belt and the animal industry of this country?

Mr. HULL. Let me qualify that a little bit. Take Uruguay and Argentina, Uruguay is meat and wool; Argentine is meat, wheat, and wool, mainly. Coming over to Chile, the lower half of Chile is more or less agriculture and the other half has a great variety of minerals, including the nitrates. When you get up to Peru she has every mineral, I suppose, known to the planet. It is considerably that way in Colombia, and somewhat in Salvador. Of course, they have tropical things like bananas and many other commodities of course I would not expect to go over now, but I merely mention that to show what it is generally.

In Brazil we have the rubber and the cocoa and a great many other products than the strictly agricultural products.

Mr. WOODRUFF. As a matter of fact, the tropical products that are raised in those countries are now largely on the free list, are they not?

Mr. HULL. As I said, Mr. Woodruff, if you will recall the bargaining provision of the McKinley Act, and one of the reciprocity provisions under the Dingley Act related to certain commodities that were put on the free list and were not to have to pay a tariff if other countries would give us certain tariff concessions on some of our exports. There are many ways of dealing with this situation.

Mr. WOODRUFF. What I have in the back of my mind is this, that the products for which those great agricultural countries in the South are looking for markets, are those products very largely that come in direct competition with the products of the American farm of which we produce exportable surpluses. Is that not largely true? Mr. HULL. You will find, for instance, in Argentina great ship lines with cold-storage facilities running between the Argentine and the meat markets of the world.

Mr. WOODRUFF. They are in competition with our meat products? Mr. HULL. We are not trying to sell any meat products abroad, so far as that is concerned, but there are numerous opportunities, while we are going forward with this policy, to induce those people to trade with us in many ways.

They are undertaking now to construct a great highway from here down to the Isthmus and down into South America. They have their freight lines, telephones and cable connections, but they have not very many automobiles down there, because they have just begun to build roads on a large scale. We have not a large sale of our commodities because we have not seriously undertaken to interchange under a mutually profitable arrangement with them.

The point I make is that we can let that 120,000,000 people in the richest country in the world undeveloped, float on and contact with Europe and buy all of their manufactured products there.

Brazil bought her flour from us up to a few years ago, but now the Brazillians are buying from another country. We can keep up at least casual contact with our friends south of us, and get whatever is to be gotten out of any arrangement that might be mutually profitable.

Mr. WOODRUFF. You speak of the possibility of the development of a market in those South American countries for our manufactured products. We today are operating under the N.R.A., which is bringing about a constant increase in the cost of manufactured products. When we sell those manufactured products in the Argentine, Brazil, Spain, Italy, or any other part of the world, we come in competition with the manufactured products of Germany, England and Japan and other industrial nations, and let me ask you this, will it be possible under the proposal now before us to enter into a treaty with Argentine, for instance, under which the people of that country will pay us a fair price for the products we manufacture under the N.R.A. when the costs of manufacturing those products are probably twice what they are in other industrial nations in the world, and from which the people of Argentine can buy those products at a much reduced price?

Mr. HULL. From his question, I assume my friend has given up entirely having any economic connection with other countries.

Mr. WOODRUFF. You assume entirely too much, I think.

Mr. HULL. Here is what I was going to say. If we approach the general situation of our business conditions, the first thing that comes to our attenttion is what we are to gain. For instance, when a Ford car is sent over to Naples, Italy demands 100 percent duty, which jumps the price of the car up to $1,050, and that doubles or quadruples the price so that the automobile exports have fallen from 500,000 down to much less than 100,000.

Mr. WOODRUFF. In what year did that drop take place in the export of our automobiles?

Mr. HULL. It has been coming down since 1929.

Mr. WOODRUFF. Yes, because the purchasing power of the people of this country and the entire world has been going down, and that accounts for a great deal of the depression in business throughout the country, but you do not answer my question. I asked you this: Can we enter into a treaty with any nation under which the people of that nation will pay us perhaps twice as much for an article as they can buy it in other markets of the world? I assume if they are going to buy from us under these treaties they will at least pay us cost of production plus a reasonable profit, and how that can be done while we are under the operation of the N.R.A., and the only nation in the world where there is the same limitation of hours of employment, and the only nation in the world where the cost of producing these things is as high as it is here. Now, will you answer the question, will it be possible for us under these treaties to find a market for our industrial products in foreign countries where we are in competition with other manufacturing concerns of the world who can produce these manufactured products at a cost of probably 50 percent of what it costs us here?

Mr. HULL. Won't you let us try it?

Mr. WOODRUFF. Now, I don't think I will until that question is answered.

Mr. HULL. I think we can answer it in trade if you will give us a chance.

Mr. WOODRUFF. I think before we put as important a matter as that into control other than that of Congress, we should have at

least some theory and some promise of success upon which to justify our action, and I say that with all respect.

Mr. HULL. Of course, I think the past 4 years' experience, as I have said, of the average business man and every type of leader of public opinion, has demonstrated that something has got to be done in connection with international trade, finance, and the general economic situation.

What we do feel confident of would be the approval of the Supreme Court, and we are seeking permission from you gentlemen to go out and do our part in restoring our international trade by negotiating treaties that will be profitable.

Mr. WOODRUFF. I am sure, Mr. Secretary, you are prompted by exactly the things you say you are.

The CHAIRMAN. Mr. Secretary, in response to the statement of the gentleman from Michigan that we must be able to find a market for our manufactured goods, for the reason they can be purchased elsewhere at a less cost, in case you should be given the authority, if you gentlemen make any concession to them, you will not be any worse off than you are now, so how could that injure our present situation?

Mr. WOODRUFF. The reason in my mind, Mr. Chairman, is this, in dealing with these South American countries, if you deal with them on a theory as outlined in this bill, you must buy from them agricultural products that are produced already in this market in quantities greater than we can consume.

The CHAIRMAN. It is the underlying principle of this bill that if we could not better our condition, we would not negotiate any agreement. As to South America, it does not compel us to make a bad trade, if we cannot benefit our own country.

Mr. WODDRUFF. Will you yield to me, Mr. Chairman?
The CHAIRMAN. I will be glad to yield to the gentleman.

Mr. WOODRUFF. I want to say I am a little apprehensive about the deals that will be made by this administration looking to the expansion of our foreign trade, when I see what they are attempting to do with the sugar industry. We do not produce one third of the amount of sugar used in this country, yet this administration proposes not only to surrender a part of this business, but proposes eventually to destroy that very valuable agricultural industry, so that is why I am concerned, and I would prefer we have no more agreements of that character.

The CHAIRMAN. I am sure the gentleman has a right to his view, but in view of the experience we have had for 4 years, repeated so many times by the Secretary, I do not share the gentleman's apprehension that we will accentuate our troubles by leaving the whole matter to the present administration.

Mr. WOODRUFF. I wish I could agree with you, Mr. Chairman, as I usually do.

Mr. KNUTSON. Don't you agree that it would be helpful or stimulating to commerce if we would all get on the same living level?

The CHAIRMAN. Mr. Secretary, we thank you very much for your comprehensive and very able statement.

Mr. HULL. I thank you for that appreciation.

The CHAIRMAN. The committee will now take a recess until 3 o'clock.

(Secretary Hull subsequently submitted the following:)

THE MOST-FAVORED-NATION TREATIES OF THE UNITED STATES

Commercial policy, based upon the conception of equality of treatment, is much older than the United States Government. In some form it has been the policy of the United States from the time of its first commercial treaty, that with France of 1778. President Washington referred, in his Farewell Address, to the desirability of a commercial policy which "should hold an impartial hand; neither seeking nor granting exclusive favors or preferences." With a few unimportant exceptions, the treaties of the United States, until subsequent to the World War, either expressly or by interpretation of the administrative authorities and courts, contained what is usually known as the conditional most-favored-nation clause. The object of the condition was to make unnecessary the granting to the most-favored-nation tariff reductions which were agreed upon with some third country directly in return for corresponding reductions in that third country's own tariff.

The practice in other countries varied during the first half of the nineteenth century. Following 1860, however, the great European commercial countries developed their policies on the assumption that equality was of such great importance that it should exist regardless of whether countries bargained with one another for reciprocal reductions in barriers to trade. The result was the unconditional most-favored-nation clause, which is the rule today in practically all countries.

Following the enactment of the Fordney-McCumber law, in 1922, the administration of President Harding and Secretary Hughes was confronted with the fact that definite penalties were authorized for use against any country that might, in its commercial policy, discriminate against the United States. This provision of law was interpreted as authorizing, if not demanding, treaties with other countries which would require equality of treatment without any condition. Accordingly, in the international agreements which followed, the United States maintained the policy of inserting the unconditional mostfavored-nation clause.

When once a country has adopted the policy of unconditional most-favorednation treatment, its earlier treaties, though containing merely conditional clauses, become in effect unconditional. The reason grows out of the peculiar wording of the characteristic conditional clause. It normally requires the generalization of favors freely, if freely made, and on the receipt of corresponding compensation, where the enjoyment of the favor is conditional. If, through the unconditional clause in some other treaty, one country obtains a favor "freely ", countries entitled to conditional most-favored-nation treatment become entitled to such favor without any condition.

The result is that all of the most-favored-nation treaties of the United States are in effect unconditional. The texts of several illustrative and characteristic most-favored-nation clauses are set forth below.

There is no need for separate consideration of these treaties. The objective in each case, so far as the United States is concerned, is to obtain the guaranty that its export trade will not be discriminated against in the markets of other countries. Of course, in making the treaty, nondiscriminatory, or equal treatment is promised so far as the United States is concerned. Oftentimes discrimination is much more detrimental to a country's export trade than high tariff duties would be. Discrimination against a country, with corresponding preference to some other country, necessarily puts the country discriminated against at a serious disadvantage. On the other hand, conditions of competition may be such that, with an equal chance, the exporters of a country may sell their goods in another country over high tariff walls.

It is the advantage of equality of treatment that is sought and given in most-favored-nation treaties. They are to be clearly distinguished from reciprocity treaties or agreements, which have as their objective reductions in tariffs or similar barriers to trade which are maintained by the respective contracting parties. Most countries which maintain commercial policies including reciprocity treaties make it their habit to accompany such reciprocity treaties with the unconditional most-favored-nation clause, either as part of