Mr. RUFFIN. Mr. Chairman, the experiences in the marketplace leave little room for doubt that American cotton is in trouble and that the trend away from cotton is hard and steady. To summarize the situation and to point up our thinking on a solution permit me to present Mr. Jackson.

Mr. JACKSON. Mr. Chairman, could we have your permission to file some additional information about the Public Law 480 cotton programs as they relate to some of the goods coming into this country?

The CHAIRMAN. Any information you have that would throw light on the subject we ought to have because the Lord only knows we need it.

(The information is as follows:)

SUPPLEMENTAL STATEMENT ON PUBLIC LAW 480 COTTON PROGRAMS

We would particularly like to point out the inaccuracy of some figures as compiled by the Department of Agriculture and presented to your committee by Under Secretary Murphy as a part of his testimony.

The Department of Agriculture, in comparing S. 1190 and S. 1511 shows exports of 4.5 million bales and 5 million bales, respectively. Therefore, it is impossible to make an accurate and fair comparison of the costs of the two bills with a difference of $60 million in the export estimates.

With reference to exports under Public Law 480 as shown by the Department for S. 1511, we wish to point out that since the beginning of the program in fiscal year 1954-55, and through the 8 years ending with fiscal year 1961-62, that the exports under Public Law 480 have only averaged 804,250 bales per year. Exports under this program have never amounted to 1.5 million bales in any year. However, in spite of this past record, the Department figures indicate that they expect 1.5 million to go out under Public Law 480 during 1964–65. We conclude that the 1.5 million bales is apparently to be given away at a cost of $180 million. Since the beginning of Public Law 480 and through the end of fiscal year 196162, there has been a total of 6,434,000 bales exported under title I. A total of $1,053,709,571 in funds has been authorized to finance this amount of cotton. To date, in fiscal year 1962-63, an additional $115 million in funds has been authorized, sales registered for 581,060 bales and 498,987 bales have been exported or booked for export.

An analysis of the funds authorized to date in fiscal year 1962-63 reveals the following: Funds authorized for Indonesia total $23,084,498 for 156,639 bales. All of this amount is under agreement with Indonesia and a large portion of it is for transshipment to Japan, Hong Kong, and Yugoslavia.

In addition, there is Poland, $7,302,000 for 49,000 bales; Taiwan, $12,064,000 for 86,000 bales; and Vietnam, $8,700,000 for 64,500 bales.

The entire record of Public Law 480, title I shows that since the beginning of the program in fiscal year 1954-55 through May 3, 1963, funds have been authorized totaling $1,231,022,475 and 7,427,151 bales sold, with 7,264,821 bales exported or booked for export.

Although the law provides that American mills may submit bids to manufacture cotton into cotton products for shipment to foreign countries under Public Law 480, title I, and by so doing, improve considerably the employment situation in our own textile industry, the actual fact is that goods requiring only 950 bales of cotton have been authorized under this program. This agreement was with the Congo and was issued April 17, 1963.

In summation, it appears that the tremendous amounts used under Public Law 480 is simply a means whereby foreign aid over and above foreign-aid appropriations is channeled, in disguise, through the USDA and their CCC operations. In fact, Mr. Freeman, in testimony on February 21, 1963, before a subcommittee of the Committee on Appropriations stated with reference to Public Law 480, "It certainly is foreign aid."

Mr. JACKSON. From the testimony you have heard all week and more specifically from testimony of the industry witnesses here this morning, two clear facts emerge:

1. The industry, through which cotton moves to market, cannot and will not maintain even the current low levels of cotton consumption under the present price system. In fact, the downward trend in domestic usage is bound to continue.

2. The devastating and completely unfair import situation that is killing off cotton consumption, acreage, jobs, and income will not be corrected under present price policies.

Mr. Chairman, this is a two-pronged problem. First, we have the import problem directly related to price. In the second place we have the domestic situation where cotton is losing markets to other fibers and to a variety of other products where a price factor is directly involved.

With all the sincerity and all the force we know how to convey we say to you this morning that nothing short of a complete return to a one-price system-under which American mills, employing American workers, can buy American cotton at the same price it is sold abroadwill halt present trends, turn them around, and head our whole cotton economy toward expanding consumption, increased acreage, improved farm income, and a dynamic, confident, cotton textile manufacturing industry.

There are those who have testified before your committee that the situation can be corrected by something less than a clear-cut oneprice system. As the industry processing and marketing cotton, we are completely convinced they are wrong. There are many reasons involved, but essentially it is a matter of confidence.

Confidence will not be restored so long as this industry feels that an agency of Government, a President, or a Secretary of Agriculture, or anyone can juggle the export price of cotton without regard to domestic competitive price situation. We are speaking of a principle and mean no disrespect to anyone in office currently.

Our experience under the two-price system for the past 7 years indicates beyond question that the essential ingredient-confidenceis now inevitably tied to a one-price system. We come back to the fact, Mr. Chairman, that the textile industry is the industry through which this raw material moves to market, and when the industry begins to lose confidence in it, when it begins to find itself being forced away from it, it loses confidence in that fiber's future and it shifts all of its emphasis elsewhere and that is what is happening now and we have got to restore confidence and we are completely convinced that is directly tied to a return to a one-price system.

When the two-price system became law in 1956 it was recognized that it would create two disastrous impacts on the domestic textileproducing industry, both of which would require immediate corrective

action:

(1) It would destroy the textile export market, and (2) It would stimulate a marked rise in imports.

The Department of Agriculture dealt with the first of these points by providing for an equalization fee on cotton textile exports, payable on the same per-pound basis as the raw cotton subsidy. However, efforts made at that time, and repeated through every available legal recourse, have failed to provide an offset for the far more serious

As a result of a Presidential directive issued on May 2, 1961, the Department of State set about to seek international agreements for some regulation of trade in cotton textiles.

Since then these arrangements have been negotiated and just to get them in the record I will review them very briefly, Mr. Chairman. 1. A short-term arrangement involving 19 nations, but excluding Japan, which ran from October 1, 1961, until September 30, 1962.

This arrangement was made to hold imports into the United States at the level of an equivalent 567 million square yards. Exclusive of Japan. During its term actual imports reached 754 million square yards, an excess of 33 percent.

2. Á bi-lateral arrangement with Japan for calendar year 1962, under which textile exports to the United States were set for a level of 275 million square yards. Actually imports from Japan amounted to 338 million square yards, and excess of 23 percent.

It may be noted that Japan, in adopting a program in 1957 to control cotton textile exports to the United States agreed to hold their shipments to an equivalent of 235 million square yards. In other words, such Japanese imports in 1962 were 44 percent above their original goal.

3. A long-term agreement, which began on October 1, 1962, involving 23 countries. Under this arrangement, and we are 6 months into it now, total imports into the United States including Japan, are at a level of approximately 1.3 billion yards, or 60 percent in excess of the fiscal 1961 base of 812 million yards which was promised to the industry.

These excesses are occurring in spite of the fact that many individuals in Government are devoting strenuous efforts to make the arrangements work as promised. However, the experience of the past 12 years demonstrates beyond doubt to the administrators that the cotton cost advantage enjoyed by foreign competitors is creating havoc with the enforcement of the arrangements.

The windfall profit accruing to foreign exporters and domestic importers, based on the cotton cost advantage, is so great that it is placing enormous pressures on the effective functioning of these arrangements. In fact, one foreign delegation after another is parading in and out of Washington seeking ways and means to circumvent the original intent of the arrangements.

We understand two such delegations are in the city right now.

As indicated earlier, it is our firm conclusion that nothing short of the complete elimination of the two-price system will produce the desired results. With few exceptions, there seems to be general agreement on this subject among all segments of the raw cotton industry.

In September 1962, after the Tariff Commission rejected an offset import fee on the cotton content of textile imports, and President Kennedy announced that he would seek elimination of the inequity of the two-price system, our industry, along with all other segments of the raw cotton industry, began considering courses of procedure. Every other recourse having failed, the industry leadership concluded that some sort of payments program offers the only possibility of achieving a one-price system in the foreseeable future, maintaining at the same time a price to domestic producers substantially in excess

Historically, our industry has opposed the idea of any additional subsidy. Certainly the textile industry never has and does not now seek any Government subsidy for itself. We do not want it; the cotton-cloth price study that was demonstrated here a few minutes ago, we think clearly indicates that the industry couldn't retain it if it had it.

Our decision to support a payments program is made somewhat easier by these three factors:

(1) The virtually unanimous decision among all segments of the industry that there are no other workable alternatives or don't seem to be.

(2) The fact that the added cost would at least be offset, insofar as the American public is concerned, through consumer savings in the range of $600 to $800 million annually. Such a statement was made by a Department of Commerce spokesman during the course of hearings in the House.

Mr. Chairman, before leaving that point, let me come back now and comment on this price relationship that you inquired about earlier.

(Discussion off the record.)

Mr. RUFFIN. May I file this pamphlet with the committee?

(The pamphlet referred to will be found in the files of the committee.)

The CHAIRMAN. Proceed, Mr. Jackson.

Mr. JACKSON. Mr. Chairman, for the most part, the textile mills that buy cotton from the farmers don't make finished products. They don't make shirts and dresses. Essentially, the main consumer products they make are sheets or towels and pillow slips and draperies and bedspreads but for the most part the cotton textile mills that buy cotton from the farmer make yarn or gray cloth and this product is sold in what is undoubtedly the most competitive big industry in America.

Although these textile mills are scattered from Maine down through the Southeast and on to Texas, virtually the entire product of the industry is sold through a few square blocks in the wholesale market in New York City.

The result is that any change in price or the price structure is just like an electric charge in those few square blocks. Any change in the cotton market is reflected immediately in the textile price structure. The CHAIRMAN. Even though it doesn't affect it very much?

Mr. JACKSON. Yes, sir. This relationship shows that it affects it very directly.

The CHAIRMAN. I know, that is what burns me up.

Senator JOHNSTON. It is almost confined to one building, isn't it? Mr. JACKSON. Well, yes, just a few of them.

The CHAIRMAN. You have their expert here, Mr. Bonsal, I understand.

Mr. JACKSON. The point is, though, that the mills sell on a very small profit margin. Obviously, as Mr. Bonsal indicated the matter of one-eighth of 1 cent or one-fourth of 1 cent of a yard gets the business and in many instances a one-half a cent the yard is the profit margin. There is no assurance necessarily that a price variation in gray

the retail price reflects considerations other than the cost of cotton. On the great bulk of the goods produced by and sold by the textile mills the margin of cotton costs becomes an all-important factor; 8 cents a pound for yard goods is 2 cents a yard on goods, and that is probably four times the profit margin that is involved.

As you see from the statistics the profit in the industry last year was 1.9 percent on sales although it generally averages around 212 percent on sales. So you can easily see the impact cotton costs have on such thin margins on goods.

Senator JOHNSTON. But another thing, sometimes you are faced with this: When your foreign competitors center upon a certain type of goods in their manufacturing and dump it over here on the market then you, in order to sell that type of cloth sometimes have to sell it under cost; isn't that true?

Mr. JACKSON. That is exactly right. It is happening all the time. For virtually every sale made in the New York wholesale market, there is a foreign offer hanging right over the market. It is crucifying the price structure of the industry which already is highly competitive.

Senator JOHNSTON. They pick out different goods and it looks like they are centering on that.

Mr. JACKSON. That is right. That is the way they have done it right along.

Mr. Chairman, the third fact that made it somewhat easier for the textile mills to take a position in favor of a payment program to achieve a one-price system was that a payment-in-kind approach could be utilized for a period of time, involving payments in Government-held cotton rather than in cash from the Federal Treasury.

There has been a good deal of discussion about the payment-in-kind approach and about the buildup of Commodity Credit stocks and I am going to pass quickly over this but want to make this point.

When the Commodity Credit Corporation takes title to existing loan stocks on August 1, it is expected to take title to between 81% and 9 million bales. This cotton is available for domestic consumption only at 115 percent of the level it went into the loan, plus carrying charges, so it will immediately become not 321/2-cent cotton, but nearly 38- or 39-cent cotton to the domestic industry.

Unless we have a crop failure this year, it means that virtually none of this cotton is likely ever to enter domestic consumption. It will sell only for export, and that means it will be reduced in value automatically froin the 3212-cent level at which it went into the loan, down to the 24-cent world price figure.

Furthermore, a lot of it, as we know from experience, will go out under Public Law 480 and perhaps other aid programs where it will return nothing to the CCC treasury.

In other words the CCC cannot be expected to realize more than the world price for virtually all of these burdensome stocks. Thus, the question immediately arises as to how the stocks, on which CCC will take heavy losses anyway, can be utilized to achieve the objective of a one-price system for American cotton, and, at the same time, create maximum dollar returns to CCC's treasury.

A very broad cross section of the entire American cotton economy