istration who have written these things to check them. I have seen cases where in my judgment very serious injury has been done, and when the argument has been presented to the trade-agreement people, their answer has been "In some instances"-of course, I have not been present, and I take it as I have gotten it, that their answer has been: "In this particular instance, you have to have substantial injury or you had to show certain conditions which did not then exist."

I have a very sincere feeling that the loopholes, of which there has been a great deal of discussion, just do not exist, in fact, and the only way you could really get the whole story of that is to read some of these administrative provisions and to ask the question: What do you mean by some of these general statements? There is no formula. The law prescribed no basis. I am speaking very candidly, and it is one of the most serious criticisms I would make of the procedure as it has gone to date, that once a fellow is hurt, if he is a small fellow, he has not got a chance.

Senator VANDENBERG. The difficulties you now define related to the attitude of the State Department itself. I am inquiring whether there is anything textually about the escape clauses which rob us of freedom of action?

Mr. PEABODY. In a good many ways, yes. When I spoke of the fact, I wish I could have given you an extended analysis of the socalled escape provisions.

Senator VANDENBERG. Can you give me one example which might be typical?

Mr. PEABODY. The use of expressions like substantial injury. It reads well, but the burden of proof, as I see the thing, is 100 percent on the industry, and they have not only to show substantial injury, but continuing injury.

Senator VANDENBERG. What I want to know is-let us assume for the sake of the argument that the employment of the term "substantial injury" is a barrier to the use of the escape clause. Do we collide with the requirement for substantial injury in the text of the escape clause itself, or in the attitude of the State Department; which? Mr. PEABODY. Both. I have nothing but a summary of the general provisions with me, and this summary relates more to bases for the termination of agreements than the escape clause itself, but for example, this would illustrate it although I think it is a comparatively poor illustration. There are four agreements that you could not even terminate on the basis of wide fluctuation in exchange.

Senator VANDENBERG. What are those? Do you know what they are?

Mr. PEABODY. Cuba, Brazil, Haiti, Colombia. That is a terribly poor illustration, but it is the first one that catches my eye.

Senator VANDENBERG. How about arbitrary depreciation of currencies? Can we escape in the face of depreciated currency if we want to, under these agreements?

Mr. PEABODY. Not under those four. And there are a larger number where the agreement could not be terminated-I have a tabular summary. The detail of the individual agreements would necessarily vary, and in that sense this is approximate. There are 11 or 12 agreements which could not be terminated in the event of failure to agree with the complaining country in respect of the application of the agreement provisions for exchange controls. This is one

of those features which I am trying to cover by the statement that I feel that your committee should investigate further.

Senator VANDENBERG. You mean that if we made a trade agreement with a given country which was today entirely equitable and tomorrow this country nullified our benefits through the arbitrary exchange control, that we would still be tied to the agreement and the escape clause would not allow us to get out?

Mr. PEABODY. I think that would be true of about half of the agreements. The agreements contain elaborate provisions about what can be done in the case of the imposition of quotas and things of that sort, but I think it would be extremely interesting to have a record of some of the actions that have been taken by certain foreign governments that apparently are quite compatible with the conditions of the existing agreements.

Senator VANDENBERG. Are there any collateral powers which the President has under the general tariff act which he could invoke by way of reprisal?

Mr. PEABODY. That is probably a matter of interpretation, and I think that that is one of the things you ought to have an answer to. What the interpretation would be of the binding character of the mostfavored-nation clause in the trade agreements, as to whether that would take precedence over the other general provisions of the tariff act, I don't know. I suspect as a matter of practice that the President would not invoke any of those other powers, that the first step would be a putting of an offending country on the black list.

Senator VANDENBERG. I agree with you that it is theoretically important to be sure that we are not in a straitjacket when we face the post-war economic adjustment, and I think it would be interesting to know precisely how much of a strait jacket it is. I have assumed that the escape clause was a reasonably available antidote.

Mr. PEABODY. I will say in all sincerity that I think that this committee would be very remiss not to pursue this question a lot further than we are in any position to. All we are able to do is to see what has happended and reading the general provisions of the act. I get the story of the feeling of some of those who have talked and made an appeal to the Committee for Reciprocity Information for relief. I feel as though the thing is very very weak indeed.

The CHAIRMAN. Secretary of State Hull and Dr. Grady, who are rather high authorities, stated to this committee that they are watching every move of these countries who have agreements with us in order to protect the interests of this country and see that they live up to the agreements.

Mr. PEABODY. I appreciate that, Senator, but

The CHAIRMAN (interposing). You have no doubt of that, have you?

Mr. PEABODY. I have very grave doubts as to whether there will be agreement as to what constitutes living up to the agreement. Again, to give you specific example, and I suspect it is not the best one, we made an agreement with Brazil-one of the first ones. It is common knowledge in general terms that for a long time after that agreement went into effect, Brazil was exercising exchange controls and diverting exchange, for the payment of German merchandise and thus using up the exchange available, to the United States. I am very

certain that that was in direct contravention of the implications of that agreement. I suspect, but I don't know-the information has never been made public on a lot of these things-that the United Kingdom, with which we made an agreement, as you know, which went into effect last year, was at that time involved in certain clearing agrecments with the other countries which, technically, were in violation of their commitments to the United States.

Frankly, I think we have been too soft in our interpretation. I am not suggesting and I do not want my observations to be construed to mean that I think that we should crack down at the first moment for certain small technical offenses, because they are innumerable, and just as we all probably are guilty every day of our lives of violating some laws, but I do think that we have been very seriously remiss in not setting some kind of a standard and maintaining it for action on the part of certain other governments, some of which we have agreements with and some with which we do not have agreements. I certainly could not agree, as far as I am aware of conditions as they have gone on, under the administration of the Trade Agreements Act that we have taken the proper action in the case of certain countries that have discriminated against the United States.

I might add there, for the first 2 or 3 years of the trade-agreements program, the story used to come which seemed quite plausible, and it was: "Well, you have got to wait until you get enough agreements so that the countries will see some value in not being put on the blacklist." That time has come, and we have had it for a long time now, but we still have not added other countries to the blacklist. They go on and capitalize on the easy treatment we give them and practice continuous discriminations against the United States.

The CHAIRMAN. We will take a recess until 2 o'clock and continue with the witnesses who are on the calendar.

(Whereupon, at 12:15 p. m., a recess was taken until 2 p. m. of the same day.)

AFTERNOON SESSION

(Hearing was resumed at 2 p. m.)

The CHAIRMAN. The committee will come to order. Mr. Hugo N. Schloss, of New York City.

STATEMENT OF HUGO N. SCHLOSS, PRESIDENT, AMERICAN LACE MANUFACTURERS' ASSOCIATION, NEW YORK CITY

The CHAIRMAN. You are the president of the American Lace Manufacturers' Association?

Mr. SCHLOSS. Yes.

The CHAIRMAN. Did you appear before the Ways and Means Committee of the House?

Mr. SCHLOSs. Yes, sir.

The CHAIRMAN. Have you some new material to present?

Mr. SCHLOSS. Yes; I would like to present some new facts.
The CHAIRMAN. You may proceed, Mr. Schloss.

Mr. SCHLOSS. Mr. Chairman and gentlemen of the Committee on Finance, what I have to say to you today supplements the statement which I made before the Ways and Means Committee on January 30, when I expressed opposition to the extension of the Reciprocal Trade

Agreement Act as it has been administered since its enactment in 1934 and its extension in 1937.

I appear in behalf of the American Lace Manufacturers Association. The membership of this association consists of the domestic manufacturers of Levers laces and bobbinets.

The contention of the proponents for the extension of the Reciprocal Trade Agreement Act is that tariff rates should not be made by Congress as provided in the Constitution. It is suggested that a different method of establishing tariff rates is desirable. If this is so, and if the method is to be that exemplified in the Reciprocal Trade Agreement Act as it has been administered, I respectfully submit that that method has proved itself to be imperfect, unjust, and dangerous. All changes in method and procedure are apt to be fraught with errors, and if the Reciprocal Trade Agreements Act is extended, an attempt should be made to eliminate or correct errors as far as possible. Errors have been made.

It is, therefore, my purpose in making this statement to point out to you how an American industry has been seriously injured under the administration of the act since it has been in effect and what may happen to any other industries, if the existing act is extended, as is.

Statistics have been furnished and are available to you from the files. They clearly demonstrate how importations of laces and nettings have increased tremendously under the reduced tariff rates provided for in the French and United Kingdom agreements, to the serious injury of the American lace manufacturing industry.

The CHAIRMAN. Is that hand-made lace?

Mr. SCHLOSS. No, sir; machine-made.

The CHAIRMAN. All of it?

Mr. SCHLOSs. Yes.

The CHAIRMAN. You can make it up much cheaper by machine than you can by hand?

Mr. SCHLOSS. We can make it cheaper by machine than it can be made by hand in the western European countries, but China makes lace by hand

The CHAIRMAN (interposing). I mean in the United States.

Mr. SCHLOSS. In the United States, definitely cheaper by machine than by hand.

The CHAIRMAN. That is why you people went into the machinemade laces?

Mr. SCHLOSS. Yes; but of course, they have machines also in Europe, in France, and in England, and we are in competition with them. The CHAIRMAN. You have people in your organization who make the same laces over there?

Mr. SCHLOSS. No; but they import some. Some of our domestic manufacturers now have been compelled to go into the importing business, because we cannot compete with importations coming in from France and England.

The CHAIRMAN. Were you with your organization in 1922?

Mr. SCHLOSS. Yes, sir.

The CHAIRMAN. Did you appear before the Ways and Means Committee that year?

Mr. SCHLOSs. Yes, sir.

The CHAIRMAN. Did they adopt the rates that you recommended? Mr. SCHLOSS. Yes, sir.

The CHAIRMAN. What were they? They were very kind to you? Mr. SCHLOSS. Well, they were very fair to us.

The CHAIRMAN. Very fair. Then in 1930, did you appear before the Ways and Means Committee?

Mr. SCHLOSs. Yes, sir.

The CHAIRMAN. And they gave you what you wanted?

Mr. SCHLOSS. They left the rate as it was established in 1922.
The CHAIRMAN. What is that rate?

Mr. SCHLOSS. Ninety percent ad valorem.

The CHAIRMAN. How many of the agreements now have changed that rate on lace?

Mr. SCHLOSS. The Belgian agreement, the French agreement, and the United Kingdom agreement. There are different changes in each one of those treaties. The paragraph has been split up into various different rates.

The CHAIRMAN. What was the importation from all countries under these concessions?

Mr. SCHLOSS. For the 11 months-I have not got the 12 months.
The CHAIRMAN. Let us take it in 1937.

Mr. SCHLOSS. I would have to refer to some memoranda.
The CHAIRMAN. Was it $36,000?

Mr. SCHLOSS. $36,000?

The CHAIRMAN. I am asking you.

Mr. SCHLOSS. In 1937, without referring to my figures, it would be, in foreign value, $2,747,000.

The CHAIRMAN. So it would not be $36,000 in our own money?
Mr. SCHLOSS. I don't quite follow what you mean.

The CHAIRMAN. You mean from all the countries now, or just from the countries with which we have got trade agreements that the importations came from.

Mr. SCHLOSS. Those are trade-agreement countries. I do not think China is included in that.

The CHAIRMAN. That is lace of all kinds that you are talking about? Mr. SCHLOSS. Yes, sir.

The CHAIRMAN. How much was the importation of hand-made lace? Mr. SCHLOSS. Very small. I don't know what the Chinese importations were. That would be the hand-made. And some from

Italy, but very small.

The CHAIRMAN. Do you think it has affected you any?

Mr. SCHLOSS. The Chinese importations certainly have affected us. The CHAIRMAN. It amounted to $36,000 in 1937, and $29,000 in 1938, of hand-made laces valued over $50 per pound, to which the agreement rate applied. You say most of those came from China? Mr. SCHLOSs. Yes.

The CHAIRMAN. Any other country? Japan?

Mr. SCHLOSS. Italy, possibly; not Japan.

The CHAIRMAN. But they had their effect on the price of lace in this country?

Mr. SCHLOSS. Certain types of laces.

The CHAIRMAN. If it had been $5,000 instead of $29,000, it would have had an effect, to some extent.

Mr. SCHLOSS. Well, I suppose it may have some effect on certain classes of lace. Laces are of so many different varieties.

The CHAIRMAN. Well, as a matter of fact, the lace industry depends a good deal on fashions, doesn't it?