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. JOHNSON. Yes, sir; that is our understanding.

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

connection with the Continental sale. There was, as appeared in the press, an inquiry the other day from representatives of the Soviet Union as to what the policy of the Export-Import Bank might be in the event that they did in subsequent deals want to make use of deferred payment arrangements.

Mr. DOWNING. If the Export-Import Bank insures these sales, then it becomes more of a Government transaction, and there are several resolutions and determinations by the Attorney General that if any portion of these sales are financed by the Government, they then become subject to Public Law 480.

Mr. JOHNSON. I believe, sir, that the official interpretation of the existing law is that, where the Government participation in the financing through a guarantee or otherwise is in the form of normal commercial credit arrangements, the Public Law 480 law does not apply, so that official interpretation of the Department of Justice has been that the law does not apply in the case of normal commercial credit arrangements.

Mr. DOWNING. Under Public Law 664 my information is that the Government advances credit on loans and the shipment must be 50 percent U.S. flag. Wouldn't this be a Government credit if the ExportImport Bank insures that transaction?

Mr. JOHNSON. I believe, sir, that this is interpreted as not being a Government loan in the sense that the law you refer to has in mind. Mr. DOWNING. Has there been a determination on that?

Mr. JOHNSON. Yes, sir, I believe so.

Mr. DOWNING. Do you know how the first sales of wheat were transacted? I mean by that, was there cash paid for this first shipment of wheat?

Mr. JOHNSON. I can find that out for you, sir, offhand I am not sure enough of my facts to testify to that.

Mr. DOWNING. I was wondering whether the Russians intended to make a cash-on-the-barrelhead payment, or whether they are going to take advantage of the terms.

Mr. JOHNSON. I am sorry. I was thinking of the Hungarian deals. As far as the Russian deals are concerned the only one that is made so far is the Continental one, and, as I say, I believe this is all cash. Mr. DOWNING. Thank you very much, sir.

Mr. TOLLEFSON. I was chatting with counsel. Did the gentleman in connection with his question concerning Government financial participation inquire about the export subsidy?

Mr. DOWNING. No. I touched on that. You are talking about the export subsidy between the world market and the U.S. market?

Mr. TOLLEFSON. Yes. You were inquiring about the financial participation of the Government.

Mr. DOWNING. There is a financial participation right there in the export subsidy, and not only that, there was a 14-cent freight subsidy which the Government authorized.

Mr. TOLLEFSON. Yes.

Mr. DOWNING. In addition to the export subsidy. In fact this deal couldn't have gone through but for the Government.

Mr. TOLLEFSON. Correct.

The CHAIRMAN. Mr. Glenn.

Mr. GLENN. Mr. Secretary, were there any discussions on the sale of any commodities other than grain?

Mr. JOHNSON. At the beginning, contrary to certain reports that we had from private circles, the Soviet representatives indicated at that point they were not interested in commodities other than wheat, so that the discussions to the best of my knowledge were confined to the subject of wheat.

Mr. GLENN. And then there were no other specific grains discussed other than wheat?

Mr. JOHNSON. That is correct.

Mr. GLENN. That is all. Thank you.

Mr. MURPHY. Will the gentleman yield?
Mr. GLENN. Yes, I yield.

Mr. MURPHY. Was there any discussion about processed wheat flour? Mr. JOHNSON. The arrangements with respect to the understanding on the overall quantity or approximate quantity which might be involved provided that it would be either wheat or wheat flour, and so far as I know the question of whether the Soviets were interested in wheat flour or what the breakdown there might be between the two forms did not come into the conversations.

Mr. MURPHY. Was there any discussion on whether this would be bulk flour, or bagged, or how this would be transported?

Mr. JOHNSON. No, sir; not to my knowledge.

Mr. MURPHY. Any pricing on the grinding?

Mr. JOHNSON. No, sir.

Mr. GLENN. No discussion on corn or any of the other grain staples? It seems to me I read something about the deal with Hungary being in one of the grains other than wheat.

Mr. JOHNSON. That is correct, there have been some shipments, I believe, of corn to Hungary, and there were reports at one time that the Russians were interested in substantial quantities of corn, but, as I say, at the beginning they indicated they were not and to my knowledge there were no discussions relating to other grains.

Mr. GLENN. Do you know whether there are any pending negotiations with any of the dealers concerning any other grains-between the Russians and our American dealers?

Mr. JOHNSON. We know only what we read in the press at the time. Beyond that I don't think we have any information of any such discussions.

Mr. GLENN. Don't you get daily reports from the Department of Agriculture or the Department of Commerce concerning these deals? Mr. JOHNSON. No, sir. We are informed from time to time by Agriculture or Commerce when matters come up in which we might have an interest, but we don't have a day-to-day contact with the operations of the two Departments in this sense.

Mr. GLENN. They don't come to you then for advice concerning each individual deal that may be under negotiation?

Mr. JOHNSON. No, sir. I am not sure that the private grain companies come to any agency of the U.S. Government except where they have questions or problems in connection with their negotiations. In fact, as far as we know, getting back to the quetion of whether this is an ordinary commercial transaction, these negotiations have taken place between private traders and the Soviet purchasing agents and without any participation by Government representatives.

Mr. GLENN. That is all. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Hagen?

Mr. HAGEN. Mr. Johnson, actually the initial determination or policy on movement of cargo on U.S. versus foreign ships was for 100 percent U.S. ships, wasn't it?

Mr. JOHNSON. The initial discussion didn't really specify any percentage. It was simply a statement by the Soviet representatives that they would be prepared to accept delivery in American ships.

Now, we didn't say 100 percent or 50 percent. It was just the simple statement that they would be prepared to accept delivery in American ships. Beyond that the question of the U.S. policy in this regard was not a matter of discussion with the Soviet representatives. It was worked out within the U.S. Government.

Mr. HAGEN. Well, but in putting this consideration into policy at all you must have had some motive. I mean at least a substantial portion of these cargoes would be carried in U.S. ships. You must have had some motive in even bringing it into the discussion.

Mr. JOHNSON. Obviously from our standpoint it seemed desirable, since the Russians had indicated this willingness, that this policy be pursued as far as feasible, and the final decision as to whether or not one of the ground rules should be the use of American ships where available was a decision that was made by the President at the time. Mr. HAGEN. And you weren't making policy in a vacuum. You must have understood that U.S. shipping rates were generally higher than foreign shipping rates.

Mr. JOHNSON. Yes, sir.

Mr. HAGEN. Didn't you make any attempt to resolve that issue with the Russians at that time?

Mr. JOHNSON. The question of the rates on the U.S. ships did not come into the discussions with the Russians prior to the determination of the general policy by the President. It was felt that the Russians, like everybody else who is acquainted with maritime matters, and the Russians are very well acquainted with maritime matters, would know that the rates on U.S. ships were in most cases higher than the world rates at the present time.

Mr. HAGEN. In another aspect of this, in these Canadian sales did the Canadian traders get any équivalent of Export-Import Bank guarantees for their sales?

Mr. Jonsson. Yes. They would have had available the guarantees that Canada makes available just like we do on commercial exports, but, as I say, they didn't have to use them because we understand that the payment was all in cash.

Mr. Hars. I think the problem was when this was initially brought up the administration wanted to make the sales as palatable as possible to the American people and this involved this emphasis on this being a commercial cash transaction, the fact that the US merchant marine would be given the right to haul the wheat, and of course there has been a constant retreat from these positions

I mean it is kind of will o' the wish The Soviets got tougher as they got closer to consummating it. The simple fact of the matter is you want to make it as palatable to the American people as possible. and I am sure Mr. Bonner's interest is in seg ething out of the policy for the American mered ang marisa

Mr. JOHNSON. I think, Mr. Congressman, that, going back to the President's original statement, the policy was put in terms of availability.

Mr. HAGEN. It is an economic matter to some large degree and if you set the prices low enough there are not going to be any ships available, so in making policy you must have considered that fact.

I am sure you didn't willingly agree to the situation that, in effect, is a fraud on the American merchant marine and the American public. That is all I have, Mr. Chairman.

The CHAIRMAN. Mr. Rogers?

Mr. ROGERS. Mr. Secretary, when did you say this basic decision to proceed with this arrangement was made? What was the time element?

Mr. JOHNSON. The President's statement was made on October 9 and I believe that the decision was made very shortly before he made that statement.

Mr. ROGERS. When was the State Department's decision to modify the eligibility of ships engaged in the Cuban traffic to come into American ports if they would offer proof or make a statement that they would take these ships out of the Cuban traffic hereafter?

When was that decision made?

Mr. JOHNSON. That was made approximately the middle of December, as I recall.

Mr. ROGERS. Do you know if any of these ships have been involved in this trade to Russia?

Mr. JOHNSON. No, sir; there have been no ships on the blacklist or that were on the blacklist involved in the trade to date.

Mr. ROGERS. I noticed that a report from the Department of Commerce has come out where two more British ships which have been engaged in the Cuban trade, London Confidence and London Independence, now are able to come in and take Government-generated cargoes, and I wonder what you are doing to check to see, for instance, whether the other vessels under the control of these companies that own these particular ships which are covered by contractual obligations, including charters, entered into prior to December 16, 1963, requiring their employment in the Cuban trade, shall be withdrawn from such trade at the earliest opportunity, consistent with such contractual obligations.

What I am concerned with is how is the State Department being assured that such contractual obligations ever existed? What proof is offered to you and how are you following up on this to make sure that these ships are not coming in and benefiting from taking this Government-generated cargo, such as this wheat to Russia?

Mr. JOHNSON. The eligibility of a shipowner whose ships are involved in getting off the blacklist, shall we say, is determined in direct conference with the shipowner in which he has to present evidence to justify his position.

Mr. ROGERS. Does he have to show his contracts?

Mr. JOHNSON. I cannot determine that aspect of it for you. I frankly don't know myself, since I am not directly involved in the negotiations with the shipowners involved.

Mr. ROGERS. Mr. Chairman, I think it would be helpful to the committee to have this information.