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could not possibly have required the attachment of form FC-842, which requires all kinds of details of the transaction before the license could be issued and also requires a certification by the buyer that the grain would not be transshipped to another destination.
The CHAIRMAN. We will request the Department of Commerce to testify.
Mr. FINDLEY. I do appreciate your courtesy in permitting me to be here.
The CHAIRMAN. Thank you very much.
Mr. TOLLEFSON. Mr. Chairman, I would like to ask him one question so that I get this statement correctly. Do I gather from what you say that one of the points you are making is that in the granting of the export license and in the setting up of criteria the net effect was to exclude a certain category at least of American ships from an opportunity of carrying this grain?
Mr. FINDLEY. There is no doubt in my mind but what that is the effect and it is quite clear in the language of the Federal Register of that date back in October. It is also quite clear that this unwritten but nevertheless verified policy of recent date excludes certain U.S.flag vessels from bidding on profitable business to which I feel they are entitled.
They are being discriminated against in hauling commodities under Public Law 480 to free world destinations, and this is happening not only at great hardship to themselves, but at terriffic cost to the U.S. taxpayer.
Mr. TOLLEFSON. I just wanted to be sure that I had in mind the thing you were trying to present to the committee.
Mr. FINDLEY. Thank you.
Mr. DoWNING. Mr. Findley, would you be opposed to paying these ships a subsidy which would put them on a par with foreign flags in carrying this wheat sale?
Mr. FINDLEY. In these circumstances that is the only way we can do it and comply with the criteria set forth. I know of no legal way it can be done at present, though, because this is being regarded as a normal commercial transaction in the eyes of the administration. The subsidy on shipping in U.S. vessels is available only on business generated by the U.S. Government. So if we accept the fact that it is legal to grant a direct shipping subsidy on this, then we are accepting the fact that this is not a normal commercial transaction.
Mr. Downing. I believe you mentioned that Continental got a subsidy of 72 or 79 cents.
Mr. FINDLEY. They got a subsidy averaging 721/2 cents per bushel, which was labeled as an export subsidy as distinguished from a shipping subsidy.
Mr. DoWNING. Isn't that above the normal export subsidy?
Mr. FINDLEY. It is way above it. It is approximately 14 cents a bushel higher than the next previous subsidy for the same variety of wheat that was paid, and since then I might add there have been two transactions in which a subsidy of only 52 cents a bushel was paid, 20 cents below the subsidy paid to Continental. So a proper question is why the abnormal subsidy?
Mr. DoWNING. You say that it is to cover freight?
Mr. FINDLEY. Yes, and every other responsible observer, everyone who has commented in print or over the airways that I have heard, has supported this interpretation.
Mr. DowNING. Since the American flag is out of this wheat sale program at present that freight that was added above and beyond the normal export subsidy would go to foreign flags, wouldn't it?
Mr. FINDLEY. It could happen, assuming that Continental is not able to sign up U.S.-flag ships on the terms and conditions it is presently, insisting upon, and assuming Continental gets a waiver of the requirement of shipping half in U.S. flags.
They may get into a jam and be able to say that they have made a dozen tenders and still can't get ships. For example, they have already made three and they have only signed up I think approximately 100,000 tons. That is only a fifth of what they need. If they can't get the other ships in a reasonable period of time, they can come to the Commerce Department and properly ask for a waiver of this requirement.
If they are granted a waiver, they would then be free to bargain for foreign flags, and the question arises in that event who gets the bonanza. Can we recapture it as taxpayers, or does it stay in their pocket?
Mr. DoWNING. This morning the Ewilona, an Isbrandtsen cargo ship, is loading at Norfolk with Continental grain.
Mr. FINDLEY. Right.
Mr. Downing. Do you know the arrangement under which that ship is sailing?
Mr. FINDLEY. It is a U.S.-flag ship. It is one of the very few they have been able to sign up. I have a list of the other flags, but I am sure the names are available to the committee.
Mr. Downing. Thank you. I think you have contributed a great deal.
Mr. FINDLEY. Thank you.
Mr. PELLY. Are you familiar with the distinction that is being made in the use of ships that have traded with Cuba between Public Law 480 and between these private transactions?
What I mean is there is a prohibition under the National Security Council against the use of any U.S. Government cargo to go in a ship that has traded with Cuba, but in these private transactions that prohibition does not apply.
Mr. FINDLEY. And that being the case, Mr. Pelly, my information is that several, if not all, of the non-U.Ś. ships signed up by Continental have touched Cuba in very recent months, and, therefore, would be disqualified from Government business, which is another reason that under the law we would have to regard this as a normal commercial transaction and the ships would not be qualified for a direct freight subsidy.
Mr. PELLY. That is the point I am getting at. In other words, these ships that have traded with Cuba, foreign-flag vessels, are in the market competitively against American-flag vessels, which they are not under Public Law 480, on Government-financed cargo.
Mr. FINDLEY. That is very true.
Mr. PELLY. I think that is very unfortunate.
Mr. PELLY. I think too there is a discrimination, is there not, in the fact that in the business of these grain shipments to Russia under the policy of the shippers there is an attempt being made to utilize the larger bulk carriers, but, as I understand, some of the Russian ports don't have the depth of water in order to allow these ships to unload there, so that if the larger carriers can't carry Public Law 480 cargo and it goes to the smaller vessels,and they are, because of their cheaper rates, being influenced toward carrying the grain to Russia, yet they can't carry that grain. I understand there is a port, Nakhodka, near Vladivostok, where the American-flag carriers, the supercarriers, are excluded from any shipment becanse they have a 34-foot draft as against a 31-foot capacity of those ports.
Mr. FINDLEY. This brings me to another hazard and hardship which is being placed on U.S. flags. They have no practical choice but to accept Continental's terms, but once they get the wheat aboard, they have no recourse against the U.S. Government or Continental. Their recourse is against the Soviet Union, and any complications or lighterage cost, for example, to lighten the load so they can get to the dock, would be upon the shipping firm and it would have to negotiate with the Kremlin on a settlement. They wouldn't really be in a very strong bargaining position.
Mr. PELLY. I understand, however, in Siberia the Russians do not have lighterage service, so that there is a complete ban on some American-flag larger carriers as far as carrying this wheat is concerned.
Mr. FINDLEY. They also face the hazard of higher port fees against U.S. flags. I have been informed by shipping firms that this is about three times as high for U.S. vessels as for foreign flags.
Mr. PELLY. What I think you are saying is that there has been a discrimination against the American-flag service, and it looks like the evidence points in that direction to me.
Mr. FINDLEY. Against certain U.S. flags, very definitely.
Now Mr. Giles, do you have a prepared statement?
FEDERAL MARITIME ADMINISTRATION, DEPARTMENT OF COMMERCE; ACCOMPANIED BY CAPT. MARTIN I. GOODMAN, CHIEF, OFFICE OF SHIP OPERATIONS; AND ROBERT ABLES, GENERAL COUNSEL
Mr. GILES. Mr. Chairman, I do not have a prepared statement. If it is all right with the committee I would like to take about 10 minutes and give the background on this and then try to respond to any questions.
I have, Mr. Chairman, with me on my left Captain Goodman, who is Chief of our Ship Operations Office in the Maritime Administration, and on my right Mr. Robert Ables, who is the General Counsel of the Maritime Administration.
By way of a little bit of confession and avoidance, Mr. Chairman, I would like to say that we have been spending a great deal of time in the last several weeks in connection with the shipping questions and problems on the Russian wheat program.
As of last week we had several conferences with both exporter groups and with ship owner groups. Last Friday I had the indication that perhaps this particular hearing might not be held today, but might have to go over until later in the week, and for that reason I had not had a chance to prepare a statement. If I had prepared one I would have attempted to summarize very briefly the chronological events that occurred on this, and I would like to take about 10 minutes and do that right now.
For my purposes, Mr. Chairman, I want to deal only wih what I would call the domestic developments in regard to shipping. I am not in a position to speak to the international relations or the negotiations with the Soviet representatives
between them and the State Department. I would defer to the State Department on that point.
So I would begin with calling to the attention of the committee the statement of the President which I believe was released to the press on October 9 and which is contained in his communication to the President of the Senate and to the Speaker of the House dated October 10, in which the President, the late President Kennedy, announces his decision to authorize the sale of wheat to the Soviet Union and to Soviet bloc countries.
He enumerates the various good reasons from the standpoint of America's interest as to why he has taken that action and with regard to shipping he says this. It is in the second paragraph of his letter, and I am quoting:
An added feature is the provision that the wheat we sell to the Soviet Union will be carried in available American ships, supplemented by the vessels of other countries as required.
That particular policy decision has since been referred to as we will ship the wheat in American vessels if available. The CHAIRMAN. Let me interrupt you. Mr. GILES. Yes, sir.
The CHAIRMAN. In announcing the program in the beginning didn't the President say there would be 100-percent American-flag vessels.
Mr. GILES. No, sir; there was no reference to any percentage at that point. No, sir; at the beginning there was no reference to any percentage, either 100 or 50 percent. It was just that the wheat will be carried in available American vessels, supplemented by the vessels of other countries as required. There was no express reference to percentage.
Following the President's announcement the Department of Commerce issued an export bulletin in which it spelled out the requirements on these exports and that bulletin I believe is No. 883, and which by this time the determination was made, after discussion with representatives of the shipping industry, that not more than 50 percent of American-flag tonnage would likely be available under any circumstances, would be physically available.
The CHAIRMAN. That is 50 percent of the American-flag tonnage, not 50 percent of the proposed cargo?
Mr. GILES. No; 50 percent of the proposed cargos. We are talking in terms of a total of about 41/2 million tons of wheat or wheat flour to be shipped to the Soviet bloc countries, a total of 412 million tons. That was what was being discussed, and when you take that and add to it the anticipated requirements under Public Law 480 and other Government programs for the next several months, it was evident that physically there would not be sufficient American tonnage to handle 100 percent of the Soviet bloc shipments and the 50 percent regularly scheduled under Public Law 480 and other programs. The question confronting the administration and the shipping industry, and also a question for the grain exporters, was: Can we arrive at some percentage, which is less than 100 percent, but which is as reasonable and as accurate as we can estimate it, so that the grain exporters can quote the lowest price to the buyer?' If the grain exporter has to count potentially on shipping 100 percent of this wheat in American-flag vessels at the rates substantially higher than foreign-flag vessels, then his net price that he is going to quote to the buyer is going to be that much higher. The committee is aware of all of the discussions and the negotiations with Soviet representatives that have been reported in the papers, but which I would rather not get into and defer to the State Department on that. I simply state as a conclusion that it was in America's interests to attempt to arrange this shipping matter so that the exporter could quote the lowest net price to the purchaser. That was made clear.
Following our several discussions with shipping industry representatives, much of which was carried on by Under Secretary Roosevelt, who is now out of the country
The CHAIRMAN. Let me interrupt so we can understand it. You say American shipping representatives.
Mr. GILES. Yes, sir. The CHAIRMAN. Would you put their names in the record. Mr. GILES. I would say primarily on this would be representatives of the AMA. Mr. Max Harrison, of course, is the president of that group. Mr. Earl Smith I recall as one of the members of that group involved, along with other officials of that group. We had during that period two or three meetings with representatives of the four shipping associations, which include AMA, AMMI, the CASL group, and the PASSA group. All of those associations were represented and we invited all of them to the overall meetings where we were discussing these matters and trying to develop an approach which would be reasonable and which would benefit the shipping industry.
Out of all these discussions—this came from some of the industry shipping people—it was concluded and made evident that the only way American shipowners would be able to quote the lowest possible prices to the grain exporters, so they in turn could have a low net cost on the shipping side, was to attempt to set up a program where the larger vessels could participate in the commercial shipments to the Soviet bloc countries, and this particular suggestion did not originate as such with the Department of Commerce.
I don't know who it originated with among the shipowner group, but it did come from our discussions principally, I think, with the AMA, where it was suggested that we consider an arrangement where the larger ships could participate in the commercial shipments and the