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Mr. JOHNSON. We view these contracts-
Mr. Johnson. The sale as a whole is in most respects a private normal commercial transaction, resulting in contracts negotiated privately by American traders and the Soviet Union.
The things that set it apart from what might be considered the normal run of commercial transactions in the view of the Department and the executive branch were certain peculiar aspects of the transactions taken as a whole.
For one thing, the simple size involved, the cumulative total of the potential transactions, went beyond anything which would normally be encountered in a normal commercial trade, and it was felt that there ought to be some understanding with the Soviet Union with respect to the quantities generally that we were talking about here, in terms of the fact that from our standpoint it was important that the amounts involved be sizable, but, on the other hand, we were not in a position to permit an indefinite amount of grain to be contracted for.
There were other aspects of the deal which in our view made it unique—the requirement for Presidential policy determination, the fact that it was in fact a one-shot operation with a rather limited delivery time involved, the fact that certain understanding had to be made with the Soviet Union as far as the use of the wheat, with particular reference to the assurances that it would not, for example, be shipped to Cuba.
These factors made the transactions as a group somewhat different from normal commercial transactions.
The CHAIRMAN. We want to stay, if we can, to the subject of shipping.
When these countries made their approach to you with respect to this grain going in American-flag vessels, what was the position of the State Department with respect to that part of it!
Mr. JOHNSON. Well, the State Department welcomed the willingness of the Soviet Union to have the grain delivered in American ships and we were naturally interested in seeing this take place to the extent that it was feasible.
The CHAIRMAN. In the Public Law 480 program we only ask that as much as 50 percent be carried in American bottoms. Other countries object to that somewhat. That is a Government-generated program.
Mr. JOHNSON. Yes, that is correct.
The CHAIRMAN. Other countries in South America and elsewhere give preference to their waterborne commerce in their areas between countries. Do they discuss that with you, as to why they are doing that, when we don't prescribe their vessels in our commerce at all?
Mr. Johnson. They do not as a rule, Mr. Chairman, discuss with us their plans or intentions in this area. We learn about them and we have, of course, on many occasions protested them where they involved flag discrimination in ordinary commercial transactions.
As you well know, it is our general policy in this field to oppose flag discrimination in commercial transactions.
The CHAIRMAN. You didn't go into any of the price fixing of the cargo, did you ?
Mr. JOHNSON. No, sir. We are not competent to deal with this very technical area.
The CHAIRMAN. So as a matter of fact the general original statement about the major part of it going in American bottoms was all that you discussed, and did you discuss at all what portion American bottoms were capable of carrying?
Mr. JOHNSON. No, sir; we did not and we did not get into the followup on the general determination that American ships would be used to the extent of any percentage.
The CHAIRMAN. No one has discussed with you the price per ton for delivery in various types of ships or the amount that the Americanflag vessels might be able to carry?
Mr. JOHNSON. No, sir; except that we were naturally informed currently as to the developments in this field.
The CHAIRMAN. How long have you been in the State Department?
The chairman at the outset of these hearings indicated a desire for the inquiry to go only to the matter of shipping and not to go into the other aspects, and yet I find it difficult to separate the two entirely because of the assertions by yourself and by Mr. Giles who was here the other 2 days that it was a commercial transaction.
With this I cannot agree at all because as the testimony has developed we find, as you have indicated, that this is a unique situation and there has been tremendous Government participation in the whole transaction, and I must say very frankly that I have concluded from the testimony I have heard that there has been a deliberate position taken by the Government to say that this is a commercial transaction for one purpose, and that is to avoid the 50-50 law.
I can't escape that conclusion. It is all very well to say that in the discussions it was understood that American-flag ships would be used to the extent that they are available, but of course they have become somewhat unavailable by the criteria and guidelines set down.
I would like to know this, just to have it clear in my mind. First of all, you say, as did Mr. Giles, that this transaction would not have taken place except for the policy announcement or decision of the President. Is that true?
Mr. JOHNSON. That is correct, sir. There was to my knowledge no legal reason why the Department of Commerce could not have issued export licenses without a policy determination of the President, but there had been previously a policy determination, I believe in 1961, to the effect that subsidized commodities would not be made available to the bloc and a new policy was required in order to open the way for this transaction.
Mr. TOLLEFSON. The policy had the force and effect of law so far as the Department of Commerce is concerned.
Mr. JOHNSON. That is correct.
Mr. TOLLEFSON. Now, when it came to the issuance of export licenses, did the State Department have anything to do with that? Did you discuss it with the Commerce Department ? Did the Commerce Department discuss it with the State Department to make sure that what it might do would meet with the approval of the State Department? Mr. JOHNSON. You mean subsequent to the policy determination by the President?
Mr. TOLLEFSON. Yes.
Mr. JOHNSON. No, sir; to my knowledge we did not discuss with the Commerce Department the operations of the Department in the granting of licenses subsequent to the general policy determination.
Mr. TOLLEFSON. Prior to the determination then was there any discussion between the State Department with respect to export licenses and the transaction generally
Mr. JOHNSON. Yes; the Commerce Department along with other Government agencies participated in the discussion that preceded the policy determination.
Mr. TOLLEFSON. That would be normal, and I don't mean to imply any criticism. I just asked to make sure.
Mr. JOHNSON. Yes.
Mr. TOLLEFSON. Did I understand you to say that the first people to contact you were the exporters!
Mr. Johnson. The traders; yes, the American trading companies. Mr. TOLLEFSON. And it was not the Soviet Union itself?
Mr. JOHNSON. Not the Soviet Union itself; no, sir. I am almost sure that there had been no approach from the Soviet Union on this matter prior to the contacts with the American traders.
Mr. TOLLEFSON. Would you know whether the American traders contacted the Soviet Union or the Soviet Union contacted them?
Mr. JOHNSON. The American trading companies had been dealing with the Soviet purchasing group in Ottawa in connection with the followup on the Canadian deal, so that they had been negotiating with them on that subject, and it was, as I understand it, in the course of these contacts that they received indications of possible Soviet interest in purchasing American wheat.
Mr. TOLLEFSON. Do you know whether or not the American traders participated in the Canadian transaction?
Mr. JOHNSON. I understand that they did, but there are others who could give you more exact information on that.
Mr. TOLLEFSON. However, you did after the announcement have contact with the Soviet representatives here? I mean the Soviet Government representatives here dealt with the State Department or you with them?
Mr. JOHNSON. Yes; that is correct.
Mr. Johnson. Yes, sir; there were at least two meetings that I can recall and possibly a third.
Mr. TOLLEFSON. I think you said that at one of those meetings it became apparent that there would be a problem in connection with the ocean freight part of the transaction.
Mr. JOHNSON. In the course of the discussion the Soviet representatives indicated that their purchasing people had not been able to conclude any contracts with the American trading companies and they indicated that from their standpoint it appeared that the shipping aspects were a stumbling block.
Mr. TOLLEFSON. I would assume—you correct me if I am wrongthat the Soviets weren't directly attacking the American merchant marine or their participation. Their interest was in the ocean freight rate as such?
Mr. JOHNSON. That is correct, sir.
Mr. TOLLEFSON. Of course, they would know that generally speaking the ocean freight rates on foreign tramps would be lower than that of the American tramp.
Mr. JOHNSON. Yes, sir. Mr. TOLLEFSON. Incidentally, did the Maritime participate in these discussions?
Mr. Johnson. Yes; I believe that representatives of the Department of Commerce and the Maritime Administration were present at the discussions. I can't remember exactly. I believe Under Secretary Roosevelt, for example, was quite active in this discussion.
Mr. TOLLEFSON. Was there any discussion about the participation of the American-flag vessels in the carriage of this wheat?
Mr. JOHNSON. If you mean discussion in the sense that the American officials present considered this a negotiable item; no, sir. It was made clear to the Russians that the requirement for the use of American ships was not negotiable in any sense.
We were not prepared to waive or back down on this requirement.
Mr. TOLLEFSON. Then the general subject of the participation of the American merchant marine was discussed in some way?
Mr. JOHNSON. Yes; it was.
Mr. TOLLEFSON. Was any reference made to the Cargo Preference Act, the 50-50 law?
Mr. JOHNSON. The only reference, sir, that I can recall is that the Soviet representatives made it clear that they did not consider this transaction to be a transaction like a Public Law 480 arrangement and therefore they felt that the cargo preference arrangements that apply to Public Law 480 should not be applicable to them, but to my knowledge this is the only way in which this particular subject was brought into the discussion.
Mr. TOLLEFSON. I don't expect you to remember every little item that was discussed, but it is clear to me from what you do say that at the discussions some reference was made to the Cargo Preference Act and the position of the Russians was that this transaction as contemplated would not come under the Cargo Preference Act provisions.
Mr. JOHNSON. That is correct. Mr. TOLLEFSON. So then it was thereafter, as I understand it from Mr. Giles' testimony, that the position of the Department of Commerce via the Maritime Administrator was that they would adhere to the provisions of the Cargo Preference Act, not directly, but to the extent that the Maritime Administration would like to see 50 percent at least carried on American-flag ships, to the extent that they were available. All of this just, if I may say so, firms up my conviction that this is a Government-sponsored transaction and that it should come under the Cargo Preference Act provisions, but that the Government itself takes the position that it is a commercial transaction for the sole purpose of avoiding the provisions of the Cargo Preference Act. That is all, Mr. Chairman.
The CHAIRMAN. Mr. Downing!
Mr. DoWNING. Mr. Secretary, what were the terms of the sale between the Russians and the Canadians ?
Mr. JOHNSON. The terms as we understand them were related to the quantity; and the quantity was determined largely by the ability of the Canadians to deliver in the period in which the Russians were interested, and the price at the Canadian ports and the credit arrangements, the payment arrangements.
The payment arrangements, as you probably know, provided for 25 percent cash and the balance in 6-month equal installments. Actually it is our understanding that the Soviet Union has not made use of these credit arrangements and has paid entirely in cash.
Mr. DoWNING. They paid cash on the barrelhead to Canada ?
Mr. DoWNING. What about the terms of the sale between the Americans and the Russians ?
Mr. JOHNSON. One of the ground rules that I spoke of provided for payment in cash or on deferred terms, no more deferred than those which the Canadian arrangement had provided.
Whether or not the Russians will make use of these deferred payment possibilities or not we don't know.
Mr. DoWNING. Can you simplify that sale a little bit ? Did Russia say, “We will buy at world market,” which, say, is $1.50 a bushel, plus world freight?
Mr. Johnson. No, sir. The arrangement with respect to freight, that is, any quantitative definition of freight, was not broight up to my knowledge in the discussions with the Russians. We did not go beyond, as far as prices were concerned, the understanding that the wheat would be made available at world prices.
Mr. DoWNING. At world market?
Mr. JOHNSON. At world market prices, yes, sir. At the time the contract was negotiated.
Mr. DoWNING. The last figure I remember of the world market was $1.50 a bushel. The U.S. market was $2.11 a bushel. The United States subsidized the brokers the difference between the world market and the U.S. market, which would be 61 cents.
If that is so, where is the profit to the broker? Where does he get his profit?
Mr. JOHNSON. I am getting out of my depth here, Congressman. I understand that these trading companies normally operate on relatively small margins, in any event, but I am sure that Mr. Eskildsen or others in the Department of Agriculture can give you a much more accurate answer on that than I can.
Mr. DoWNING. Is the Department of Agriculture familiar with the terms of the sale? Can they tell me that?
Mr. JOHNSON, I am sure they are; yes, sir.
Mr. DoWNING. Were these sales to be financed in any way by the U.S. Government?
Mr. JOHNSON. In the event that the Soviet Union desired to make use of the deferred payment arrangements whereby they could go up to 18 months before the final installment, the credit would be extended through normal commercial bank arrangements, but the banks would have access to the insurance facilities of the Export-Import Bank.
Mr. Downing. As a matter of fact, that actually happened in the first couple of sales we made to Russia. Is that not true? Didn't they make application for insurance from the Export-Import Bank?
Mr. Johnson. So far as I know there has been no application in