However, I am intrigued by some things that have happened. You have said today and yesterday that one of the reasons you fixed a guideline on cargo rates was to give Continental an opportunuity to know just where it stood so it could negotiate a contract or agreement with Russia. Incidentally, does Continental deal directly with the Government of Russia? Mr. GILES. Well, with the Soviet trade representatives. They are in their purchasing agency now. Mr. TOLLEFSON. I would assume there is not much private enterprise over there. Mr. GILES. There is not much private enterprise, I understand, so they were government employees or officials, but they were in their international trade department. Mr. TOLLEFSON. So here is an exporter in what you call a purely commercial transaction getting the Federal Government to assure him in advance a ceiling on his rates so he will know exactly where he stands. Has the Government ever done that in other commercial transactions, sort of assured the commercial exporter that his ocean freight rates would not exceed a certain ceiling? Mr. GILES. I don't recall any other commercial transaction or shipment, sir, but I don't recall any other shipment in this category where this sort of shipping requirement has been imposed. Mr. TOLLEFSON. You mean your shipping requirement? Mr. TOLLEFSON. Which leads me to an incidental question because of what you said. What would have been wrong with imposing the 50-50 thing and just letting nature take its course? Mr. GILES. Well, that is the point I was commenting on awhile ago, sir. Perhaps, and apparently, there are some people in the shipping industry now who, looking back on it, have some views along that line. Nobody has come in, though, and put things down in black and white and said, "Well, we are willing to stand up and say that this is so and we are asking the Government on behalf of the shipping industry to remove this requirement." Mr. TOLLEFSON. I am not advocating it. I am glad that you are seeking to see that we get 50 percent if, in fact, this proves to be what you really are trying to do. Mr. GILES. Well, it is, and let me just add, sir, that at the time in last October when this decision was made and the President announced this, the Department officials had been consulted and everybody involved then thought it was a desirable thing; it would be to the interest of our country; it would be to the interest of our merchant marine; it would mean certainly that American ships would get more business than they could anticipate if they did not have this 50-percent requirement; it would assist our balance of payments; it would give us employment and all of that, so the policy decision which was made then was made in the light of what the President and the other officials thought would be in the total public interest and in the interest of the merchant marine. Mr. TOLLEFSON. Now, then, there isn't any ceiling imposed on the foreign-flag ship that might carry this grain, is there? I mean your ceiling applies only to the American-flag ship? Mr. GILES. Any rate ceiling? Mr. TOLLEFSON. Yes. Mr. GILES. No, sir; there isn't. The matter of rates is between thecharterer and the operator. Mr. TOLLEFSON. There is no protection against the foreign-flag operator at all by your ceiling on the American-flag freight rate? Mr. GILES. No, sir; we wouldn't have any authority to tell the foreign-flag operator what he would have to charge. Mr. TOLLEFSON. I agree with you there, but I am constrained to say that your Department or any department or agency of Government has a different point of view with respect to ordering foreign-flag ships as to what and what not to do. Mr. GILES. I mean in this particular case. If the foreign-flag operators come in and their prices edge up there to the level of what the American-flag operator could offer, then I would certainly assume that the American-flag operator is going to get his portion of the business at that point by competition, but where there is this differencethat we started out with-there is still a very substantial difference in the level of the two rates-the American operator with his higher operating costs simply can't haul this grain at the price that the foreign operator can. Mr. TOLLEFSON. The exporter here is the subject of concern on the part of the Government, whether your Department or the Department of Agriculture. You put him in a different position than any other commercial exporter has ever been put before, and it just seems to me, while you expressed concern for the welfare of the American merchant marine, I am inclined to think that taking the Government's position as a whole it is more concerned with something else. The Government is offering this export subsidy of what is it722 cents a bushel on the average, which is something like 14 or 1411⁄2 cents a bushel more than ever has been given before. I am not certain in my own mind who is getting the guarantees or the assurances here. Is the object to try to protect our Government or do something for our Government, or is the object to give assurances and assistance to the exporter, or is it to assist the purchaser, Russia? Who are we most concerned with here? Mr. GILES. As to the export subsidy which the Agriculture Department gave here on the Continental sale, I believe I should defer to the Agriculture Department witnesses on that. I frankly don't have the details or know enough about it. I do have a comment and a view. So far as any subsidy or assistance to the purchaser, that is, to the Soviet buyers, I do not think that that is involved at all. The Soviets say, "Well, we will purchase wheat at the world market," and they know what the world market is. Then they say, "When we say world market, we also know what the world shipping market is," and they do. They have experts on that. "Then we want to buy wheat on the same basis that you would sell to Yugoslavia, or to Poland, or to West Germany, or to any other country," and I am informed and understand, and I think it is correct, that the net total price that these exporters have been able to make actual sales on has been on that basis. So far as the shipping is concerned, any subsidy involved in this, for example, if we have higher costs in Public Law 480 because we use smaller vessels rather than the larger, that is an indirect subsidy to our merchant marine, and that is understood. I am prepared to defend that because our merchant marine has higher operating costs than their foreign competitors and I think we have to recognize that as a matter of Government policy. So far as the export subsidy, which Agriculture has on its wheat, I think there couldn't be any real doubt as to who is really the beneficiary, and I think the proper beneficiary, of that export subsidy is the American farmer. If we want to sell wheat on the world market, if we want to sell it to France, or to West Germany, or to these other countries at the world prices, which are lower than our domestic prices, lower than what we pay our farmers for the wheat, then we have the subsidy. That is what we have, in effect. Mr. TOLLEFSON. I know. I am aware of all the arguments in behalf of this Russian wheat sale, but the fact remains that the export subsidy in this particular case is roughly 142 cents per bushel higher than in any other. I don't know where this 142 cents is going. My impression is that it was designed to help Continental with its ocean freight rate. Now, if that is the case and if American-flag vessels aren't available at fair and reasonable rates as established by your guidelines, then Continental could conceivably ship the wheat on foreign-flag at a rate whereby that 142 cents per bushel could net a tremendous profit to Continental. Is there anything in the arrangement that you know of to stop that! Mr. GILES. I don't know of any arrangement between the Agriculture Department and Continental which says that, if you don't get so much American-flag shipping, then our export subsidy rate will be recomputed. I have not heard that there is any such arrangement. My general information is from Continental officials, general talking, and I do not know the details of their transaction or the exact price at which they sold, or the exact price they had to pay, but they have indicated to me very definitely-and he said they have told this, that it is no secret-that they did not have a price which would allow them any margin on the American shipping above about 25 percent, and that they were taking this risk in terms of cutting down their usual profit margin, and we have made it plain to them that if the 50-percent American shipping is there they are going to have to use it, and they have a price apparently where they could come out about even or at least not lose too much if they get that. Mr. TOLLEFSON. Are you going to watch all those transactions? Mr. GILES. Under the export regulations put out by the Secretary of Commerce we get reports from all of the exporters who are involved in these transactions of their actual shipments, the ships that they use, foreign and domestic, and we get the name of the ship, the tonnage, and so forth as promptly as the exporter can give it to us for the purpose of policing, you might say, this 50-percent requirement to assure that they do utilize 50 percent American shipping, unless they have applied for and received a waiver on that. That is the extent of Maritime Administration's policing effort. We do not get into the prices of the wheat sold. Mr. PELLY. Would you yield? Mr. TOLLEFSON. Yes. Mr. PELLY. It occurs to me that if Continental does come in for a waiver, then we certainly should have the principals of Continental down here to find out where that windfall is going because if they don't use the American large type of ships to carry the grain, which they must have anticipated, if they use foreign-flag vessels under a waiver from you under that 7212-cent price, there would be a substantial windfall or bonanza which I think would be coming out of the taxpayers, and we ought to have Mr. Friborg down here to find out what happens in that event. Mr. TOLLEFSON. Mr. Chairman, I have taken quite a good deal of time. I know the other members have questions. Iyield. The CHAIRMAN. Mr. Downing? Mr. DOWNING. Yes, sir. I am concerned about this, Mr. Giles, as is everybody else on this committee. Going back a little bit, when President Kennedy made his announcement the American flags figured, rightly or wrongly, that there would probably be a hundred-percent participation. At least some of them did. Then in October and November you and Under Secretary Roosevelt and some of the industry met and decided this was impractical that the American-flag could carry 100 percent and tentatively agreed to 50 percent. Mr. GILES. No tentative agreement, sir. That policy decision was made and announced. To clarify that point may I make a reference to a newspaper item, and we can furnish this for the record if desirable, and there was no transcript of this conference by Under Secretary Roosevelt, but it was reported fully in the papers the next day, the conference held on November 8, and I am speaking here from an item contained in the Baltimore Sun. The date is November 9. It says here: If an American ship quotes a price higher than the guidelines We are talking about the minus 20 percent― That ship will be listed as "unavailable" at fair and reasonable prices. The freight rate can be as much below the top as the shipowner wants to make it. The $3 drop is the result. And this is the minus 20-percent drop Of a guideline set by the Department of Commerce on the larger bulk carrier15,500 deadweight and over. Owners of many of these ships had said last week and repeated this week that they wanted $21 to transport the wheat to Odessa from the United States. And so on. Then Under Secretary Roosevelt is reported as saying: **Roosevelt announced that they had met with him this afternoon and authorized him to say, "In their opinion it is reasonable and in the best interests of all concerned. "The American shipping industry will make every effort within its competence to facilitate❞— This program and Under Secretary Roosevelt Expressed his appreciation for industry cooperation in the matter. I only refer to that to say, Mr. Downing, that we did have this full conference and discussion with them. Under Secretary Roosevelt did give the full explanation to the press representatives and I don't think there was any misundertanding at that time on the part of the shipping representative as to what was done and the reasons for it. Now, I can readily understand that individual shipowners who were not there may not have later been fully informed and I am not holding them to account for some misunderstanding or misinformation on their part. Mr. DOWNING. Mr. Chairman. I think that article ought to go in the record if there is no objection. The CHAIRMAN. It may be put in the record. [From the Baltimore Sun, Nov. 9, 1963] WHEAT FREIGHT RATE CUT BY $3 COMMERCE DEPARTMENT SETS FORMULA FOR SALE By Helen Delich Bentley, maritime editor of the Sun WASHINGTON, NOVEMBER 8.-Freight rates for the movement of Russian wheat on American-flag ships were reduced $3 a ton today as the Department of Commerce announced the formula by which the Russians could transport any wheat they purchase from the United States. Franklin D. Roosevelt, Jr., Under Secretary of Commerce, also revealed that the long-awaited formula called for the movement of at least 50 percent of the 2,500,000 tons of wheat on American bottoms. He pointed out that the gap in freight rates between American and foreign bottoms was narrowing. DEPARTMENT GUIDELINE He attributed this to a governmental decrease in the American rates as well as an increase by foreign shipowners as the demand for vessels has increased sharply. The guideline estimated by the Government is $18 from the gulf ports to Odessa and $16 to Leningrad for ships of 15,500 deadweight tons and larger. MADE UNAVAILABLE If an American ship quotes a price higher than the guidelines, that ship will be listed as "unavailable" at fair and reasonable prices. The freight rate can be as much below the top as the shipowner wants to make it. The $3 drop is the result of a guideline set by the Department of Commerce on the larger bulk carriers-15,500 deadweight and over. These include primarily T-2 tankers, all other tankers ranging up to 106,000 deadweight tons and large dry bulk carriers. Owners of many of these ships had said last week and repeated this week that they wanted $21 to transport the wheat to Odessa from the United States. It is expected they will make their ships available under the lowered rate because Roosevelt announced they had met with him this afternoon and authorized him to say, "in their opinion it is reasonable and in the best interests of all concerned." "The American shipping industry will make every effort within its competence to facilitate the deal," he added, and expressed his appreciation for industry cooperation in the matter. Roosevelt explained that, under the terms reached with the Soviet Union, it will negotiate directly with the grain dealers on the 2,500,000 tons of wheat on a cargo and freight basis for delivery before May 31, 1964. This means the purchase price to be paid by Russia will cover both the wheat and the freight involved. |