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OCEAN TRANSPORTATION OF GRAIN TO RUSSIA

THURSDAY, JANUARY 30, 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 recess, in room 219, Cannon House Office Building, Hon. Herbert C. Bonner (chairman of the subcommittee) presiding.

The CHAIRMAN. The subcommittee will come to order.

The witness this morning is Mr. Griffith Johnson, Assistant Secretary of State for Economic Affairs. Mr. Johnson, this committee is interested in the American merchant marine, and in these sales and other matters. This committee is concerned about the transportation aspect and to see that the American merchant marine carries as much of this cargo as possible. The matter of the arrangements for the sale of this surplus product is another subject.

We are interested in 50 percent or as much as the American-flag vessels can carry. We want to ascertain what your interest in that is and what your position about that may be.

STATEMENT OF HON. G. GRIFFITH JOHNSON, ASSISTANT
SECRETARY OF STATE FOR ECONOMIC AFFAIRS

Mr. JOHNSON. Mr. Chairman, I would be very glad, if it meets with your desire, to run over briefly what the relationship of the State Department has been to the shipping aspects of the Russian wheat deal. The CHAIRMAN. Go ahead.

Mr. JOHNSON. You will recall that after the conclusion of the Canadian deal with the Soviet Union for a sizable quantity of wheat we received a lot of reports from American grain traders to the effect that they had received indications from various Soviet representatives that the Soviet Union was interested in possibly purchasing sizable quantities of wheat in the United States, and these traders in turn were interested in knowing whether the U.S. Government would grant the necessary export licenses for such transactions.

We felt that we could not or should not undertake to make a determination of this sort in the absence of any positive and definite official indications that the Soviet Union was actually interested in purchasing sizable quantities of wheat, so at that point an informal contact was made with representatives of the Soviet Union to determine their position.

At this stage and in this contact we did receive assurances that the Soviet Union was in fact interested in purchasing sizable quantities

of wheat. At the same time in the course of these informal discussions the Soviet representative stated that the Soviet Union would also be prepared to have this wheat shipped in American ships to Soviet ports.

Subsequent to this the Department in conjunction with other relevant agencies of the Government determined that the actual contracts in these transactions should be negotiated directly with private American trading companies by the Soviet Union purchasing agency, but, in view of the rather unique aspects of this deal as a whole, or potential deal, the size of it, the fact that it did require a Presidential determination or policy, and other factors, that it would be desirable to set forth certain ground rules within which the negotiations between the private American traders and the Soviet purchasing agents would take place, and so a number of ground rules were set up.

They were announced by the President on October 9 when he announced his general policy determination on that matter.

The major rules, as you will recall, were that the wheat would be made available at the world prices, that delivery would be limited to the Soviet Union itself or to meet its commitments in Eastern Europe, that the payments would be in dollars, either for cash or normal commercial terms, and that the transportation of the wheat should be in American ships to the extent such ships were available.

These rules were set forth in the late President Kennedy's statement on October 9 and they were incorporated in the regulations as subsequently issued by the Department of Commerce.

Subsequent to that time there were several meetings with representatives of the Soviet Union in the Department and in these meetings generally representatives of the other agencies participated. They were not with the actual negotiators themselves; that is, the representatives of the Soviet purchasing corporation, but with representatives of the Government who had worked out the ground rules in the first place.

At these meetings, which were on the whole rather brief, it was apparent that the negotiations between the Soviet purchasing agents and the private American traders were running into some difficulties in con-nection with the shipping aspects of the contracts. However, the requirement that had been set up for the use of U.S. ships for the transportation of the wheat was not a subject of negotiation in these meetings with the Soviet representatives.

Since the working out of the ground rules and their announcement a further principal activity of the Department has related to the subsequent inquiries and representations that have been made by other countries with important maritime interests, about a dozen or 14 of them.

These governments have been apprehensive over what they felt was or might be a departure from our traditional U.S. policy of opposing flag discrimination in the routing of commercial cargo, and to these representations the Department has responded that this particular wheat program is unique in certain respects and it does not constitute a departure from our traditional continuing policy of nondiscrimination.

I believe that this summarizes, Mr. Chairman, the activities of the State Department in connection with the shipping aspects of this deal. The CHAIRMAN. Do you look on it as a private business transaction, or is it a Government-generated sale?

Mr. JOHNSON. We view these contracts

The CHAIRMAN. I am just talking about the sale as a whole. Mr. JOHNSON. The sale as a whole is in most respects a private normal commercial transaction, resulting in contracts negotiated privately by American traders and the Soviet Union.

The things that set it apart from what might be considered the normal run of commercial transactions in the view of the Department and the executive branch were certain peculiar aspects of the transactions taken as a whole.

For one thing, the simple size involved, the cumulative total of the potential transactions, went beyond anything which would normally be encountered in a normal commercial trade, and it was felt that there ought to be some understanding with the Soviet Union with respect to the quantities generally that we were talking about here, in terms of the fact that from our standpoint it was important that the amounts involved be sizable, but, on the other hand, we were not in a position to permit an indefinite amount of grain to be contracted for.

There were other aspects of the deal which in our view made it unique the requirement for Presidential policy determination, the fact that it was in fact a one-shot operation with a rather limited delivery time involved, the fact that certain understanding had to be made with the Soviet Union as far as the use of the wheat, with particular reference to the assurances that it would not, for example, be shipped to Cuba.

These factors made the transactions as a group somewhat different from normal commercial transactions.

The CHAIRMAN. We want to stay, if we can, to the subject of shipping.

When these countries made their approach to you with respect to this grain going in American-flag vessels, what was the position of the State Department with respect to that part of it?

Mr. JOHNSON. Well, the State Department welcomed the willingness of the Soviet Union to have the grain delivered in American ships. and we were naturally interested in seeing this take place to the extent that it was feasible.

The CHAIRMAN. In the Public Law 480 program we only ask that as much as 50 percent be carried in American bottoms. Other countries object to that somewhat. That is a Government-generated program.

Mr. JOHNSON. Yes, that is correct.

The CHAIRMAN. Other countries in South America and elsewhere give preference to their waterborne commerce in their areas between countries. Do they discuss that with you, as to why they are doing that, when we don't prescribe their vessels in our commerce at all?

Mr. JOHNSON. They do not as a rule, Mr. Chairman, discuss with us their plans or intentions in this area. We learn about them and we have, of course, on many occasions protested them where they involved flag discrimination in ordinary commercial transactions.

As you well know, it is our general policy in this field to oppose flag discrimination in commercial transactions.

The CHAIRMAN. You didn't go into any of the price fixing of the cargo, did you?

Mr. JOHNSON. No, sir. We are not competent to deal with this very technical area.

The CHAIRMAN. So as a matter of fact the general original statement about the major part of it going in American bottoms was all that you discussed, and did you discuss at all what portion American bottoms were capable of carrying?

Mr. JOHNSON. No, sir; we did not and we did not get into the followup on the general determination that American ships would be used to the extent of any percentage.

The CHAIRMAN. No one has discussed with you the price per ton for delivery in various types of ships or the amount that the Americanflag vessels might be able to carry?

Mr. JOHNSON. No, sir; except that we were naturally informed currently as to the developments in this field.

The CHAIRMAN. How long have you been in the State Department? Mr. JOHNSON. It will be 2 years in May, sir.

The CHAIRMAN. Mr. Tollefson?

Mr. TOLLEFSON. Thank you, Mr. Chairman.

The chairman at the outset of these hearings indicated a desire for the inquiry to go only to the matter of shipping and not to go into the other aspects, and yet I find it difficult to separate the two entirely because of the assertions by yourself and by Mr. Giles who was here the other 2 days that it was a commercial transaction.

With this I cannot agree at all because as the testimony has developed we find, as you have indicated, that this is a unique situation and there has been tremendous Government participation in the whole transaction, and I must say very frankly that I have concluded from the testimony I have heard that there has been a deliberate position taken by the Government to say that this is a commercial transaction for one purpose, and that is to avoid the 50-50 law.

I can't escape that conclusion. It is all very well to say that in the discussions it was understood that American-flag ships would be used to the extent that they are available, but of course they have become somewhat unavailable by the criteria and guidelines set down.

I would like to know this, just to have it clear in my mind. First of all, you say, as did Mr. Giles, that this transaction would not have taken place except for the policy announcement or decision of the President. Is that true?

Mr. JOHNSON. That is correct, sir. There was to my knowledge no legal reason why the Department of Commerce could not have issued export licenses without a policy determination of the President, but there had been previously a policy determination, I believe in 1961, to the effect that subsidized commodities would not be made available to the bloc and a new policy was required in order to open the way for this transaction.

Mr. TOLLEFSON. The policy had the force and effect of law so far as the Department of Commerce is concerned.

Mr. JOHNSON. That is correct.

Mr. TOLLEFSON. Now, when it came to the issuance of export licenses, did the State Department have anything to do with that? Did you discuss it with the Commerce Department? Did the Commerce Department discuss it with the State Department to make sure that what it might do would meet with the approval of the State Department?

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