We did hold some technical discussions. We examined what each one of us thought his system of support and protection would do for world trade or to world trade.

We have just recently had another meeting in Geneva, the first negotiating meeting since June of last year. The negotiations on grain are now engaged again.

Mr. BERRY. Are you treating these variable levies as tariff?

Mr. WORTHINGTON. No, sir.

a tariff because it is not a tariff.

You can't treat the variable levy as

Mr. BERRY. It is the same thing only

Mr. WORTHINGTON. It is the same thing in that it is a monetary charge upon an import, but it is tied to two things. First, it is tied to the internal support price. If the internal support price is $3 for wheat, for example, then that is the upper level.

The other tie is to the world price. If the world price is $1, for example, then the monetary charge is $2, the difference between the $3 internal price and the $1 world price. If the world price drops, the charge increases. If the internal price increases, the charge increases. In the sense that this levy is a charge, it is similar to a specific tariff. But the specific tariffs, at least the U.S. tariffs, were set in 1930 and have remained constant except for negotiated reductions since that time. The tariff on pork, for example, has been unchanged since 1930. That is what we think of as a fixed tariff, something that will have continuity and give exporters a chance to know what to do.

Mr. BERRY. As long as you have these variable levies, as you call them, you have the same situation as you would have if it were a fixed tariff, haven't you?

Just because it hasn't existed since 1930, for goodness sake, isn't the answer, is it?

Mr. WORTHINGTON. No; we do not have the same situation.
Mr. BERRY. Why not?

If

Mr. WORTHINGTON. Because if you have a fixed tariff, on your product let us say, of $2 a bushel for wheat, then you have control over the charge of your product entering the Common Market you drop your price of wheat to 50 cents, then riding on that 50-cent wheat is a $2 charge which makes your wheat $2.50 within the Market. Mr. BERRY. Say that again.

Mr. WORTHINGTON. A fixed tariff is just that; it is fixed, and the exporter has control over price by dropping his price, by becoming more competitive, he can gain a price advantage in the country. However, with a variable levy he will gain no price advantage by dropping his price to become more competitive. It doesn't accomplish anything except get him less in the Market, because as he lowers his price the levy itself expands so that there is always that equalization charge riding upon the price of his commodity. No matter what the exporter does, he cannot sell in the Market at less than the Market price within that country, at less than the $3. It is not the same as a

tariff.

Mr. BERRY. No it isn't in that respect the same, but I mean it has the same effect on the exporter, hasn't it?

Mr. WORTHINGTON. It has a worse effect.

Mr. BERRY. Well, worse. All right. And yet we are not doing anything about it.

Mr. WORTHINGTON. We are trying to do something about it, yes.

Mr. BERRY. We are not getting anything done, are we, except we are giving away our protection and getting back nothing.

Mr. WORTHINGTON. We haven't given anything away yet. We have just, as I said in the beginning, we have just now got to the bargaining table with these people. We have, I grant you, only a few months left to determine what we can do, but up to now we have just been talking and exploring technical issues.

We have not been bargaining and it remains over the next few months to see whether we can deal with this system or not and if we can't then we have a very serious situation.

Mr. BERRY. Do you believe that or do you agree with Secretary Herter that agriculture products are part and parcel of these Kennedy

Rounds?

Mr. WORTHINGTON. Yes. I speak for the Department of Agriculture. Yes, indeed. We definitely view agriculture products as the most important part of the Kennedy Round. They are an integral part of the Kennedy Round.

Mr. BERRY. Don't you agree that unless these variable levies are reduced, that our cash trade on all grains-I mean we are going to be reducing instead of expanding our exports on grains.

Mr. WORTHINGTON. Yes, sir; I think that is our judgment. I think I can say that. Having said that, though, I must say that exactly what will happen within the Economic Community in grains is not at all clear to anyone. So much depends upon a host of unknown factors. Some of them are becoming more clear as we move along, but some of them are still not yet clear. Let me give an example. While I said that the common agricultural policy in its regulation form was put together in 1962, and that common prices were agreed upon in 1965, these prices will not be fully implemented until 1967.

These common prices are higher than the prices presently in effect in France, which is the major grain producer. Until they go into effect, we can't know-there is no way for us to know-what will happen in France, what will be the farmers response to this increased price. While the price in France was supposed to have been increasing toward the common price the French have been taxing to keep their producer price low, an indication, in our view, that the French also believe their grain production will increase under these higher prices. That tax will disappear in 1967 when the full price comes into effect. Also, at the present time, and ever since 1962, there has been a price barrier between France and Germany. There has not been complete free trade between them. There has been a preference for French grains, but not completely free entry. In 1967 free entry will take place. We can't really be sure yet what that means. With the qualification that we aren't sure of magnitude, I can say that in our judgment there is a danger and our grain trade will be in difficulty if we do not deal with the variable levies.

Mr. MCNEILL. If I might intercede here-this is not my area, but the area of negotiation in grains and other products that are subject to the variable levy system is not a negotiation with respect to the variable levies themselves. It is in respect of the prices, the price supports that the variable levies are designed to maintain. As Mr. Worthington said, there are two prices that are relevant. One is the common price support level that is determined internally

in the ECC; the second price level which has to be determined is what is called a reference price, which is, as Mr. Worthington said, a free world price and in determining, for example, for a particular grade of wheat, what you base your world price on is a terribly relevant and important thing. It may be that you use Manitoba quality for such and such a gram or you might use Kansas quality such and such, or you might use an Australian or Argentina price for that particular grain. So we have in respect of the negotiations the possibility of negotiating on the reference price with the ECC and hopefully getting understanding with the EEC in respect to their own internal price supports.

We have the further prospect of negotiations beyond prices and we can discuss with the EEC, hopefully, the possibility of getting assurances that might have a quantitative nature; that is, despite your internal support system and your variable levy system, will you give us some kind of asurance that we will have access to your market of x tons or x thousand tons of a particular product. So although the system is an undesirable system, in that unlike a fixed tariff, it affords a constant degree of protection, there are areas of negotiations.

How successful we will be in these areas, I think, as Mr. Worthington said, awaits to be seen.

Mr. BERRY. You indicated a minute ago in response to the chairman's question that the President has given approval to these tariff concessions. Has the President given any relief on these tariff concessions up to now?

Mr. MCNEILL. The tariff concessions we are talking about in the context of this hearing I understand to be the concessions that have not yet been negotiated, that is the Kennedy Round concessions that will result from the current negotiations.

Presidents of the United States, including President Kennedy, have provided tariff protection or tariff quotas as a result of the domestic procedure we refer to as the escape clause.

For example, the domestic glass industry, the domestic carpet industry, the domestic zinc industry, and domestic clinical thermometer, and domestic safety pin industry have had or now do have the benefit of higher tariffs that Presidents have proclaimed pursuant to the escape clause provision of earlier trade legislation.

Mr. BERRY. Thank you, Mr. Chairman.

Mr. FARBSTEIN. Are you ready to proceed, Mr. Monagan?

Mr. MONAGAN. If I may, yes.

In the cases that you mentioned, were those cases in which the President proclaimed a tariff higher than one that had previously existed or were they cases in which the tariff had been reduced and then he restored it to a previous level?

Mr. MCNEILL. The latter, sir.

Mr. MONAGAN. It makes a big difference. It is one thing if he is imposing higher tariffs, but if he is merely restoring them to something that previously existed, I don't think that is any great feat or cause for congratulation.

I happen to have some industries in my district where he failed to do it, so I am perhaps unduly sensitive about this particular point. I should like to ask, Mr. Chairman, that a chart of this organization be filed because I think it would help us to understand. I quickly