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00EAN TRANSPORTATION OF GRAIN TO RUSSIA

TUESDAY, JANUARY 28, 1964

House of REPRESENTATIVEs, SUBCOMMITTEE on MERCHANT MARINE OF THE MERCHANT MARINE AND FISHERIES COMMITTEE, Washington, D.C.

The subcommittee met at 10 a.m., pursuant to call, in room 219, Cannon House Office Building, Hon. Herbert C. Bonner (chairman of the subcommittee) presiding. The CHAIRMAN. The subcommittee will come to order. Let the record show that the committee has permission of the House to sit during general debate. The purpose of this hearing this morning is to review the development and progress of the current program to sell large quantities of wheat and grain products to Russia and her satellites, with a requirement for shipment of the commodities in U.S. bottoms “when available.” The program was announced by President Kennedy in early October of last year, and it has been discussed extensively in the press since that time. In identical letters to the Secretaries of State, Commerce, and Agriculture, on January 16, I expressed the view that we did not have a clear picture of the facts from the published accounts. Accordingly, I requested those agencies—directly involved in the program—to present testimony to this committee concerning the background and present status of the program, with particular regard to the ocean transportation aspects, and I hope this hearing will not be diverted to other po of this program, but will stick consistently close to getting a air share of the transportation for American-flag vessels. The American merchant marine is a diverse industry. Tramps, liners, and tankers are all diversely interested among the management groups. Seagoing maritime labor is interested. Longshore maritime labor is interested. And we are interested in hearing all of their views. I, or my committee staff, have received many inquiries as to just what “angle” the Chair had in mind when he scheduled these hearings. There was no “angle”—there was no pressure to make this inquiry. These hearings were scheduled simply to find and record the facts in a major shipping program where the American merchant marine has been o upon to supply the major part of the o transport. It is our responsibility to review this program as it has developed to date—to criticize it if criticism is justified—and to express our views

in any constructive way that is warranted by the facts.

When the program was first announced, as I recall, there was to be a hundred percent utilization of American-flag vessels. Of course I and others knew at that time that that was impossible, but it is the desire of this committee to see that at least 50 percent of this program is handled in American-flag vessels. The first witness this morning is Congressman Findley. Step right up here.

STATEMENT OF HON. PAUL FINDLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. FINDLEY. Mr. Chairman, I have several copies of the statement if you would like to have it for reference. The CHAIRMAN. Yes, sir. Mr. Findley, would you desire to make your statement first, or to hear these witnesses? Mr. FINDLEY. I am at your pleasure, Mr. Chairman. It doesn't matter to me. The CHAIRMAN. It is always the custom of this committee to hear Members of Congress first and we are glad for your interest in this subject. You may be the judge of that. Mr. ToI.LEFsoN. Mr. Chairman, if I may, may I suggest that we hear from Representative Findley first, for the very simple reason the next witness is Mr. Giles and when we get him on the stand there may be many questions. The CHAIRMAN. Go ahead. Mr. FINDLEY. Mr. Chairman, I do commend you for holding this inquiry. I feel that Russian wheat sale does deserve your attention and public attention and it is not a normal commercial transaction by any stretch of the imagination. It is public business and the two Departments—Commerce and Agriculture—are up to their necks in it, and so are the taxpayers. By reference to just two transactions, as a result of our new policy on using U.S. vessels, the taxpayers have taken a loss amounting to $381,000. That is a result of a little known and actually unwritten olicy of the U.S. Department of Agriculture in connection with Public }. 480 on shipments in U.S.-flag vessels. It was begun, I am sure, as a way to pressure certain U.S. vessels into hauling wheat to Russia, but as a result it has increased the direct cost to the U.S. taxpayers by that amount, $381,000, and it has also indirectly boosted tax costs at least $150,000 because of the adverse effect it has had on the cost of shipping U.S. Government oil products from the Persian Gulf area. These are not just pulled out of the air. I have verified these by direct reference to the shipping interests, and by verification with the Department of Agriculture, and with the Military Sea Transportation system, which has to do with the shipment of U.S. Government oil products from the Persian Gulf. Under this policy the U.S. Department of Agriculture, cooperating with the Commerce Department, is disqualifying certain U.S. vessels from bidding on Public Law 480 shipments to friendly countries, like Pakistan, until the Russian wheat shipment problem is solved. That is the central and little known and I think vitally important fact that ought to be brought to light and considered.

This of course is harsh reatment for the vessels involved. It is discrimination of an unprecedented order. It is also harsh treatment for U.S. taxpayers because under the laws governing Public Law 480 transactions the taxpayers have to cover the loss when low-bidding ships are disqualified. For example, South, Inc., a shipping firm based in Jacksonville, Fla., on January 23 responded to the public invitation for bids on a Public Law 480 shipment and presented an offer for the firm’s U.S.-flag tanker, Vicksburg, to perform from U.S. gulf to Karachi, Pakistan, at $22.75 per long ton. I have the same information from private sources that several other similar bids were made within the same freight rate range. The CHAIRMAN. This is pertaining to the shipment of this wheat to satellite countries? Mr. FINDLEY. No; this is a shipment of wheat under the Public Law 480. The CHAIRMAN. I want to stay right to this program of shipping of wheat to the satellite countries. Mr. FINDLEY. But, you see, the disqualification of this ship was because of the Government's desire to isolate certain vessels from the free world trade so that they would have no choice but to accept the materials and conditions for shipments to Russia, and that is why I think it bears directly on your hearing. The bid was $22.75. The Government accepted the bid of $26.95 per long ton and the difference on this shipment, which was 30,000 tons, figures out to $120,000, and every penny of this $120,000 comes from the pockets of taxpayers. The purpose of this policy, of course, is to encourage—or to coerce— U.S. vessels of certain size and equipage to accept this Russian-bound wheat cargo. If U.S. flags are barred from Public Law 480 shipments, they have virtually no other place to go. They cannot operate without a substantial subsidy from the taxpayers and they can get a subsidy only if they carry business generated by the Government. I hope that this subcommittee will check into this strange business and find out whether this preferential policy is lawful. As a matter of fact, in verifying this policy at the Foreign Agricultural Service, a part of the U.S. Department of Agriculture, I did ask for the authority and was told simply that the policy had come down from the Secretary of Agriculture's öß. Another aspect of this deal which I believe bears directly upon the use of U.S.-flag ships for the shipment of wheat to Russia involves the export subsidy of 72% cents a bushel paid on 13 million bushels of durum wheat to the Continental Grain Co. of New York. This was way above what had been paid previously on the same variety of wheat. And twice since then a 52-cent subsidy has been paid. All except the one to Continental were for export to friendly countries, and Continental's grain was for Russia. The CHAIRMAN. We will have to recess and answer this rollcall. The committee will resume, say, in a half hour or 20 minutes, whenever We Can. Mr. Findley, you may continue after this. Mr. FINDLEY. I will be back.

(A brief recess was taken.) The CHAIRMAN. The subcommittee will come to order. The witness will proceed. Mr. FINDLEY. #. you Mr. Chairman. I was mentioning when the bells rang the preferential treatment which clearly has been accorded to the Continental Grain Co. and why it does have a bearing upon the hearing into the Russian wheat sale. Every responsible observer that I have heard comment or have seen in print has come to the conclusion that the abnormal export subsidy granted to Continental was, in effect, to cover the cost of shipping part of the wheatin U.S. flags. The CHAIRMAN. We are going to ask witnesses who represent the different departments about these matters. Mr. FINDLEY. Fine. The CHAIRMAN. I assure you of that. Mr. FINDLEY. In fact my purpose in coming was simply to express the hope that you would dig deeply into this to find out if it was indeed a lawful procedure and what the true facts are, and if it was not a freight subsidy to cover the cost of ocean shipping, who in fact did get the money. I have attempted to get the answer to some questions from the president of the Continental Grain Co. without success. He has not responded to my questions, and I believe that he could be useful as a witness should the chairman in his wisdom see fit to call him before the committee. The CHAIRMAN. Let me interrupt you. As I keep saying, we are interested here in seeing that American-flag ships get 50 percent or as much of this cargo as they carry. These other matters you are bringing up here I expect the Committee on Agriculture will be interested in. I expect maybe other committees might be interested if there is substantial evidence to sustain the accusations you make. Mr. TollBFsoN. Mr. Chairman, if the chairman will yield, there are some things involved in Mr. Findley's statement that do bear upon the ability or the opportunity of American-flag ships to carry wheat. The CHAIRMAN. We will go into that. Mr. TolleFSON. I think that is the point he is trying to make. Mr. FINDLEY. Mr. Chairman, in addition to what I have presented in my written statement, I might point out that last October in the Federal Register rates for shipping to Odessa, Russia, were announced as being NSA rates less 20 percent for ships of a certain category, which meant that the little ships had no published rates for shipping to Odessa, so they were separated clearly intentionally from the Russian wheat deal and were not given a rate on which they could bid. The CHAIRMAN. I have a series of questions on that . Mr. FINDLEY. So there has been an effort to discriminate against U.S.-flag ships, and it is my contention that they should have equal opportunity for all business. The CHAIRMAN. I agree with you. Mr. FINDLEY. Based upon my inquiries it is quite clear that they are not being treated equally. The only other point that I wanted to call to your attention was the question as to the procedure in granting an export license to Continental Grain. It seems to me that the Commerce Department must have violated its own regulations in granting this license because, on the face of it, it

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.
The CHAIRMAN. Mr. Downing would like to ask a question.

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 7212 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?

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