sold to the advantage of our balance of payments. You are quite right about that.

Mr. TOLLEPSON. I don't know how many millions of tons of grain you do have in storage all over the country. This wouldn't have to be a doliar thing at all. As I understand, you pay the export subsidy in kind!

Mr. ESKILDSEN. Yes.

Mr. TOLLEFSON. So if the export subsidy had been, say 74 cents rather than 72 cents, then the American-flag operator could have participated in the program and we wouldn't have been out any dollars. We would have just gotten rid of a few more bushels of grain in

storage.

Mr. ESKILDSEN. We accepted the bid that was presented. I wouldn't be prepared to say we wouldn't have accepted 74 cents, or 71 cents, or some other subsidy had it been bid.

Mr. TOLLEFSON. I don't want you to think that I am picking on you. Our committee is and has been concerned with the welfare of the American merchant marine. I know it is a subsidized thing largely, not entirely, because we have nonsubsidized operators as well, but if nobody but our committee is going to be worried about the American merchant marine they are going to just fade out of the picture.

That is why I am interested in it. I hope the next time you will take a look at this thing that I have tossed out. I mean when the other 3-million-ton transaction comes along. I am going to submit it to the Maritime Administrator for his consideration also.

Mr. ESKILDSEN. Yes. Of course we work with them daily on this problem as well as on our Public Law 480 problems.

Mr. TOLLEFSON. As I said before, I am just so convinced this is a Government-sponsored transaction and that cargo preference law should apply. That is all, Mr. Chairman.

Mr. DOWNING. Mr. Administrator, the Russian offer was world market, isn't that right?

Mr. ESKILDSEN. The Russian offer was in a range of prices which you call world market. We don't know precisely of course, because this is a private transaction, what the exact prices were.

Mr. DOWNING. You don't know what the exact prices were?

Mr. ESKILDSEN. Do we know, Bob?

Mr. LEWIS. Yes, sir. The exporter, for the wheat other than Durum. on the announced subsidy, is required to register his sale with us. Mr. ESKILDSEN. I am sorry.

Mr. LEWIS. So that he registers the price. This is for purposes of enforcing the International Wheat Agreement to determine that the price is not in violation of the price range. The Durum price would. also be registered with us at some later date. I am not sure whether that has been registered or not as yet.

Mr. DOWNING. So that when you pay your export subsidy you pay the difference between the world price and the U.S. market price? Mr. LEWIS. Yes, sir.

Mr. DOWNING. And it looks like in this case you may have paid 14 cents more, which is the supership price for the freight.

Mr. LEWIS. Sir?

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Mr. DOWNING. The 72 cents is about 14 cents above normal market prices for Durum, isn't it?

Mr. LEWIS. It was about that much larger than the previous subsidy we had approved or accepted. The previous bid we had accepted was on a very small lot. This Russian transaction was 118 times as big as the previous Durum bid that we had received.

Mr. DOWNING. When you accepted that bid did you not give some consideration to the freight that the exporter was going to have to pay? Mr. LEWIS. In a technical sense we did not and we are not required to. We did, of course, think about it and speculate about whether the trader would be able to meet the terms of his contract with us in terms of what he could get from his customer, but we are not obligated to make any finding as to whether the exporter can or cannot make money on the basis of the bid he submits.

Mr. DOWNING. It would appear to me that the only area where the exporter could realize a profit would be in the freight end of it.

Mr. LEWIS. The exporter does make his margin on what he is able to squeeze out of the costs between the price he must pay for the wheat and the price that he collects for it. His margin often is a small fraction of a cent a bushel and it is in that margin-in how much he can save on shipping or handling-that he makes his profit.

Mr. DOWNING. Well, if you were in that type of business you would want the cheapest transportation you could get, would you not? Mr. LEWIS. Yes, sir.

Mr. DOWNING. Which would be foreign flag.

Mr. LEWIS. If he is permitted to use foreign flag that is what he would look for.

Mr. DOWNING. I must concur with Mr. Tollefson. The late President publicly stated he wanted American ships to be used. The Department of Commerce went to the trouble of putting out Bulletin 883 which requires at least 50 percent of the wheat be transported on American flag.

I also believe, Mr. Tollefson, this looks like it comes under 480, and it seems to me that with all the brainpower in those three agencies of Government you ought to figure some way that this could be a 50-50 transaction.

Mr. ESKILDSEN. I might refer again to that. I didn't really respond to Mr. Tollefson's statement with respect to whether or not this is a kind of transaction which is suitable or which would be appropriate for the Cargo Preference Act. I realize what the issue here is and basically the reason the Cargo Preference Act has been applied to Public Law 480 is because it is a program which has a very heavy Government participation.

I would have to say also, as in the case of all commercial transactions on most agricultural commodities these days, that the Government is not very far away from any of them, no matter how commercial they are, because we do have a support system applied to the growers and we do have this export subsidy for a large number of commodities, but in the wisdom of our various departments of the Government, with competent legal counsel, we have come to a conclusion different from the one that you have suggested and Mr. Tollefson has suggested here in the sense that we have concluded that the Cargo Preference Act in this case does not apply.

However, the policy with respect to the use of American ships was still put into play in spite of the fact that we concluded that this was a commercial transaction.

Mr. DOWNING. What are you doing to implement that policy?

Mr. ESKILDSEN. I have tried to explain to you, sir, that in cooperation with the Maritime we have tried to do the best we can. This includes, as you have heard already, an effort to try to make those ships available for the Russian traffic which can be used in order to maximize the amount of American shipping that is used on this transaction.

As of now I guess we don't know how much this will be because, as I understand it from Mr. Giles' testimony yesterday, application for a waiver has not been made and therefore the final decision has not been made.

Mr. DOWNING. A final decision has not been made as to what?

Mr. ESKILDSEN. As to whether a waiver will be granted. As I understand it, a waiver hasn't yet been applied for, so that we have no specific knowledge at the moment as to whether or not 50 percent will be reached.

Mr. DOWNING. I think you better get your heads together again. In fact I am going to request the chairman to request the three agencies to get together and give a little bit more attention to revising the rates for the berth liners and the tramps, because that is where you are woefully inadequate. Were you present when the guidelines were discussed and set down?

Mr. ESKILDSEN. No, sir. Our shipping man here may have been involved in it in some way. Joe, I don't know whether you were or not. Mr. RYAN. Informally I was involved but we had no say in the formula that would be applied to these large ships. Our interest was primarily in what favorable or reasonable terms should apply to the charter party which should be used on this Russian program. We would leave it to Maritime to work on those rate problems.

Mr. DOWNING. So the Maritime determine the rate?
Mr. RYAN. Yes, sir.

Mr. DOWNING. You had no way of knowing whether the rates were acceptable to the American-flag owners or whether they could live with them?

Mr. ESKILDSEN. I think we would have to say that this is in an area where the Maritime has the competence and the contacts with the industry and that we would have to defer to them on questions of judgment of this kind.

Mr. DOWNING. Thank you. Mr. Hagen.

Mr. HAGEN. There has been a lot of talk about these Public Law 480 transactions. Actually in some of them the recipient country pays the freight, doesn't it?

Mr. ESKILDSEN. Yes, sir. Wherever foreign-flag ships are used in carrying Public Law 480 cargo the foreign country pays for the shipping.

Mr. HAGEN. Don't they pay for the shipping when an American vessel is used?

Mr. ESKILDSEN. They pay for it in this way, Mr. Hagen. This is a little bit complicated.

Mr. HAGEN. That is what I thought it was.

Mr. ESKILDSEN. Let me try to explain it. When we sell wheat to India we apply the cargo preference law, which means that 50 percent of it has to go in U.S.-flag vessels. These vessels are normally higher in price than the foreign-flag vessels. We ask India to put up in rupees the amount that they would have had to pay for ships had they been able to use foreign-flag ships.

That means that they pay up to a certain point. They pay for it in rupees. The remainder of that they do not pay for.

Mr. HAGEN. You pay for it.

Mr. ESKILDSEN. Yes, sir. But I think maybe a more important consideration here is the fact that U.S. dollar financing is concerned, which has its balance-of-payments implications.

We put up the whole cost of the U.S.-flag vessels, but we get paid in rupees up to the foreign-flag rate. However, we don't get back at all the amount that is over that.

Mr. HAGEN. When they use foreign flag do they pay the whole thing in rupees then?

Mr. ESKILDSEN. No, sir. Normally they have to use hard currency for this.

Mr. HAGEN. Their own hard currency.

Mr. ESKILDSEN. Yes, sir.

Mr. HAGEN. In the case of this Russian-Continental transaction I assume that the deal between the Russian Government and Continental was that they would deliver a bushels of wheat of a certain variety for a certain price per bushel, or hundredweight, or ton I guess it is, at a Russian port. Is that correct?

Mr. ESKILDSEN. This would be my understanding; yes, sir.

Mr. HAGEN. So that larger than expected export subsidies would mean larger profits for the exporter.

Mr. ESKILDSEN. Yes. As Mr. Lewis explained, there is a relation between what they pay for wheat, and what they get for the total delivery of wheat at the other end.

Mr. HAGEN. Isn't it a fact that Durum wheat sells higher on the U.S. market than these other two varieties of wheat?

Mr. Lewis. It does generally on the U.S. market, yes.

Mr. HAGEN. What is the difference between, say, Hard Red Winter and Durum?

Mr. Lewis. Yes, the market price for Durum is now higher.

Mr. HAGEN, What is the difference exactly.

Mr. Lawis, I don't remember just what the prices are.

Mr. HAGEN. Is it substantial.

Mr. Lewis. Not very, no. I think Durum now is close to the price of Hard Red Spring, which is just a few cents a bushel higher than Winter.

Mr. HAGEN. As I understand it, Durum wheat is used almost exclusively for macaroni-type products.

Mr. Lewis. It can be mixed with bread. It diminishes the quality of bread flour. It can also be used for porridge.

Mr. HAGEN, In this particular transaction did the Russians request a certain percentage of Durum, and a certain percentage of Soft Winter, and a certain percentage of Hard Winter!

Mr. LEWIS. We of course have no direct knowledge of that except what we have been told by the ex , and they have told us that

the Russians were very reluctant to accept Durum wheat and they also preferred the Hard Red wheat to Western White wheat.

Mr. HAGEN. There is plenty of all varieties in this country. Why didn't they get what they wanted? This is a commercial trans

action.

Mr. LEWIS. Continental made an effort to sell them the Durum. Mr. HAGEN. Why did they make the effort? They make more profit on the Durum, don't they?

Mr. LEWIS. I can speculate that they made the effort because they felt there would be a possibility of being able to make a bid offer that would be accepted and enable them to come out on the trans

action.

Mr. HAGEN. More specifically, what is the basis of that motive? Had they hoped to pick up some of this 50-percent requirement with Durum a little easier than they could with the other wheat?

Mr. LEWIS. Sir, I haven't any direct knowledge of what Continental Grain Co.'s motives were nor what their intentions were. I think it might be preferable for them to speak for themselves on that.

Mr. HAGEN. But they pushed the Durum on the Russians?
Mr. LEWIS. That is what they have told us, yes.

Mr. HAGEN. And actually all these categories of wheat are in large supply as far as the Department of Agriculture is concerned. Mr. LEWIS. That is true. I do understand that the Russians did buy some Durum wheat from Canada also, but this, as I understand it, was a problem of getting as much wheat out of Canada as Canada could physically handle.

Mr. HAGEN. The Russians normally don't use a great quantity of Durum wheat. They don't use much spaghetti or similar pastes.

Mr. LEWIS. They don't use pasta products, but they do produce some Durum wheat themselves which I think they generally mix with their bread flour or use for porridge.

Mr. HAGEN. Is this wheat that is being handled taken directly from the CCC stocks by Continental?

Mr. LEWIS. Yes. Continental bought the entire lot from Commodity Credit Corporation.

Mr. HAGEN. The whole amount?
Mr. LEWIS. All of the Durum.

Mr. HAGEN. All of the Durum?

Mr. LEWIS. All of the Durum. The Hard Winter and the Soft wheat might or might not come from CCC stocks, but it is up to Continental to get it wherever they prefer. However, it will reduce CCC stocks to that extent, to the full extent, because total exports and total demand this year will exceed the free supply of wheat, so that the trade will have to come to CCC for the net balance. Mr. HAGEN. Ordinarily on the dollar sales abroad of wheat they go out and buy on the open market, don't they?

Mr. LEWIS. Yes, they generally do that or they may buy from CCC in accordance with standing offers of sale which are regular routine.

Mr. HAGEN. If they buy on the open market, then they go to CCC and get a payment in kind for the export subsidy?