Mr. JOHNSON. You mean subsequent to the policy determination by the President? Mr. TOLLEFSON. Yes. Mr. JOHNSON. No, sir; to my knowledge we did not discuss with the Commerce Department the operations of the Department in the granting of licenses subsequent to the general policy determination. Mr. TOLLEFSON. Prior to the determination then was there any discussion between the State Department with respect to export licenses and the transaction generally! Mr. JOHNSON. Yes; the Commerce Department along with other Government agencies participated in the discussion that preceded the policy determination. Mr. TOLLEFSON. That would be normal, and I don't mean to imply any criticism. I just asked to make sure. Mr. JOHNSON. Yes. Mr. TOLLEFSON. Did I understand you to say that the first people to contact you were the exporters? Mr. JOHNSON. The traders; yes, the American trading companies. Mr. TOLLEFSON. And it was not the Soviet Union itself? Mr. JOHNSON. Not the Soviet Union itself; no, sir. I am almost sure that there had been no approach from the Soviet Union on this matter prior to the contacts with the American traders. Mr. TOLLEFSON. Would you know whether the American traders contacted the Soviet Union or the Soviet Union contacted them? Mr. JOHNSON. The American trading companies had been dealing with the Soviet purchasing group in Ottawa in connection with the followup on the Canadian deal, so that they had been negotiating with them on that subject, and it was, as I understand it, in the course of these contacts that they received indications of possible Soviet interest in purchasing American wheat. Mr. TOLLEFSON. Do you know whether or not the American traders participated in the Canadian transaction? Mr. JOHNSON. I understand that they did, but there are others who could give you more exact information on that. Mr. TOLLEFSON. However, you did after the announcement have contact with the Soviet representatives here? I mean the Soviet Government representatives here dealt with the State Department or you with them? Mr. JOHNSON. Yes; that is correct. Mr. TOLLEFSON. Was there more than one meeting? Mr. JOHNSON. Yes, sir; there were at least two meetings that I can recall and possibly a third. Mr. TOLLEFSON. I think you said that at one of those meetings it became apparent that there would be a problem in connection with the ocean freight part of the transaction. Mr. JOHNSON. In the course of the discussion the Soviet representatives indicated that their purchasing people had not been able to conclude any contracts with the American trading companies and they indicated that from their standpoint it appeared that the shipping aspects were a stumbling block. Mr. TOLLEFSON. I would assume you correct me if I am wrong— that the Soviets weren't directly attacking the American merchant marine or their participation. Their interest was in the ocean freight rate as such? 39-375-64-9 Mr. JOHNSON. That is correct, sir. Mr. TOLLEFSON. Of course, they would know that generally speaking the ocean freight rates on foreign tramps would be lower than that of the American tramp. Mr. JOHNSON. Yes, sir. Mr. TOLLEFSON. Incidentally, did the Maritime participate in these discussions? Mr. JOHNSON. Yes; I believe that representatives of the Department of Commerce and the Maritime Administration were present at the discussions. I can't remember exactly. I believe Under Secretary Roosevelt, for example, was quite active in this discussion. Mr. TOLLEFSON. Was there any discussion about the participation of the American-flag vessels in the carriage of this wheat? Mr. JOHNSON. If you mean discussion in the sense that the American officials present considered this a negotiable item; no, sir. It was made clear to the Russians that the requirement for the use of American ships was not negotiable in any sense. We were not prepared to waive or back down on this requirement. Mr. TOLLEFSON. Then the general subject of the participation of the American merchant marine was discussed in some way? Mr. JOHNSON. Yes; it was. Mr. TOLLEFSON. Was any reference made to the Cargo Preference Act, the 50-50 law? Mr. JOHNSON. The only reference, sir, that I can recall is that the Soviet representatives made it clear that they did not consider this transaction to be a transaction like a Public Law 480 arrangement and therefore they felt that the cargo preference arrangements that apply to Public Law 480 should not be applicable to them, but to my knowledge this is the only way in which this particular subject was brought into the discussion. Mr. TOLLEFSON. I don't expect you to remember every little item that was discussed, but it is clear to me from what you do say that at the discussions some reference was made to the Cargo Preference Act and the position of the Russians was that this transaction as contemplated would not come under the Cargo Preference Act provisions. Mr. JOHNSON. That is correct. Mr. TOLLEFSON. So then it was thereafter, as I understand it from Mr. Giles' testimony, that the position of the Department of Commerce via the Maritime Administrator was that they would adhere to the provisions of the Cargo Preference Act, not directly, but to the extent that the Maritime Administration would like to see 50 percent at least carried on American-flag ships, to the extent that they were available. All of this just, if I may say so, firms up my conviction that this is a Government-sponsored transaction and that it should come under the Cargo Preference Act provisions, but that the Government itself takes the position that it is a commercial transaction for the sole purpose of avoiding the provisions of the Cargo Preference Act. That is all, Mr. Chairman. The CHAIRMAN. Mr. Downing? Mr. DOWNING. Mr. Secretary, what were the terms of the sale between the Russians and the Canadians? Mr. JOHNSON. The terms as we understand them were related to the quantity; and the quantity was determined largely by the ability of the Canadians to deliver in the period in which the Russians were interested, and the price at the Canadian ports and the credit arrangements, the payment arrangements. The payment arrangements, as you probably know, provided for 25 percent cash and the balance in 6-month equal installments. Actually it is our understanding that the Soviet Union has not made use of these credit arrangements and has paid entirely in cash. Mr. DOWNING. They paid cash on the barrelhead to Canada? Mr. DOWNING. What about the terms of the sale between the Americans and the Russians? Mr. JOHNSON. One of the ground rules that I spoke of provided for payment in cash or on deferred terms, no more deferred than those which the Canadian arrangement had provided. Whether or not the Russians will make use of these deferred payment possibilities or not we don't know. Mr. DOWNING. Can you simplify that sale a little bit? Did Russia say, "We will buy at world market," which, say, is $1.50 a bushel, plus world freight? Mr. JOHNSON. No, sir. The arrangement with respect to freight, that is, any quantitative definition of freight, was not broight up to my knowledge in the discussions with the Russians. We did not go beyond, as far as prices were concerned, the understanding that the wheat would be made available at world prices. Mr. DOWNING. At world market? Mr. JOHNSON. At world market prices, yes, sir. At the time the contract was negotiated. Mr. DOWNING. The last figure I remember of the world market was $1.50 a bushel. The U.S. market was $2.11 a bushel. The United States subsidized the brokers the difference between the world market and the U.S. market, which would be 61 cents. If that is so, where is the profit to the broker? Where does he get his profit? Mr. JOHNSON. I am getting out of my depth here, Congressman. I understand that these trading companies normally operate on relatively small margins, in any event, but I am sure that Mr. Eskildsen. or others in the Department of Agriculture can give you a much more accurate answer on that than I can. Mr. DOWNING. Is the Department of Agriculture familiar with the terms of the sale? Can they tell me that? Mr. JOHNSON. I am sure they are; yes, sir. Mr. DOWNING. Were these sales to be financed in any way by the U.S.Government? Mr. JOHNSON. In the event that the Soviet Union desired to make use of the deferred payment arrangements whereby they could go up to 18 months before the final installment, the credit would be extended through normal commercial bank arrangements, but the banks would have access to the insurance facilities of the Export-Import Bank. Mr. DOWNING. As a matter of fact, that actually happened in the first couple of sales we made to Russia. Is that not true? Didn't they make application for insurance from the Export-Import Bank? Mr. JOHNSON. So far as I know there has been no application in connection with the Continental sale. There was, as appeared in the press, an inquiry the other day from representatives of the Soviet Union as to what the policy of the Export-Import Bank might be in the event that they did in subsequent deals want to make use of deferred payment arrangements. Mr. DOWNING. If the Export-Import Bank insures these sales, then it becomes more of a Government transaction, and there are several resolutions and determinations by the Attorney General that if any portion of these sales are financed by the Government, they then become subject to Public Law 480. Mr. JOHNSON. I believe, sir, that the official interpretation of the existing law is that, where the Government participation in the financing through a guarantee or otherwise is in the form of normal commercial credit arrangements, the Public Law 480 law does not apply, so that official interpretation of the Department of Justice has been that the law does not apply in the case of normal commercial credit arrangements. Mr. DOWNING. Under Public Law 664 my information is that the Government advances credit on loans and the shipment must be 50 percent U.S. flag. Wouldn't this be a Government credit if the ExportImport Bank insures that transaction? Mr. JOHNSON. I believe, sir, that this is interpreted as not being a Government loan in the sense that the law you refer to has in mind. Mr. DOWNING. Has there been a determination on that? Mr. JOHNSON. Yes, sir, I believe so. Mr. DOWNING. Do you know how the first sales of wheat were transacted? I mean by that, was there cash paid for this first shipment of wheat? Mr. JOHNSON. I can find that out for you, sir, offhand I am not sure enough of my facts to testify to that. Mr. DOWNING. I was wondering whether the Russians intended to make a cash-on-the-barrelhead payment, or whether they are going to take advantage of the terms. Mr. JOHNSON. I am sorry. I was thinking of the Hungarian deals. As far as the Russian deals are concerned the only one that is made so far is the Continental one, and, as I say, I believe this is all cash. Mr. DOWNING. Thank you very much, sir. Mr. TOLLEFSON. I was chatting with counsel. Did the gentleman in connection with his question concerning Government financial participation inquire about the export subsidy? Mr. DOWNING. No. I touched on that. You are talking about the export subsidy between the world market and the U.S. market? Mr. TOLLEFSON. Yes. You were inquiring about the financial participation of the Government. Mr. DOWNING. There is a financial participation right there in the export subsidy, and not only that, there was a 14-cent freight subsidy which the Government authorized. Mr. TOLLEFSON. Yes. Mr. DOWNING. In addition to the export subsidy. In fact this deal couldn't have gone through but for the Government. Mr. TOLLEFSON. Correct. The CHAIRMAN. Mr. Glenn. Mr. GLENN. Mr. Secretary, were there any discussions on the sale of any commodities other than grain? Mr. JOHNSON. At the beginning, contrary to certain reports that we had from private circles, the Soviet representatives indicated at that point they were not interested in commodities other than wheat, so that the discussions to the best of my knowledge were confined to the subject of wheat. Mr. GLENN. And then there were no other specific grains discussed other than wheat? Mr. JOHNSON. That is correct. Mr. GLENN. That is all. Thank you. Mr. MURPHY. Will the gentleman yield? Mr. GLENN. Yes, I yield. Mr. MURPHY. Was there any discussion about processed wheat flour? Mr. JOHNSON. The arrangements with respect to the understanding on the overall quantity or approximate quantity which might be involved provided that it would be either wheat or wheat flour, and so far as I know the question of whether the Soviets were interested in wheat flour or what the breakdown there might be between the two forms did not come into the conversations. Mr. MURPHY. Was there any discussion on whether this would be bulk flour, or bagged, or how this would be transported? Mr. JOHNSON. No, sir; not to my knowledge. Mr. MURPHY. Any pricing on the grinding? Mr. JOHNSON. No, sir. Mr. GLENN. No discussion on corn or any of the other grain staples? It seems to me I read something about the deal with Hungary being in one of the grains other than wheat. Mr. JOHNSON. That is correct, there have been some shipments, I believe, of corn to Hungary, and there were reports at one time that the Russians were interested in substantial quantities of corn, but, as I say, at the beginning they indicated they were not and to my knowledge there were no discussions relating to other grains. Mr. GLENN. Do you know whether there are any pending negotiations with any of the dealers concerning any other grains between the Russians and our American dealers? Mr. JOHNSON. We know only what we read in the press at the time. Beyond that I don't think we have any information of any such discussions. Mr. GLENN. Don't you get daily reports from the Department of Agriculture or the Department of Commerce concerning these deals? Mr. JOHNSON. No, sir. We are informed from time to time by Agriculture or Commerce when matters come up in which we might have an interest, but we don't have a day-to-day contact with the operations of the two Departments in this sense. Mr. GLENN. They don't come to you then for advice concerning each individual deal that may be under negotiation? Mr. JOHNSON. No, sir. I am not sure that the private grain companies come to any agency of the U.S. Government except where they have questions or problems in connection with their negotiations. In fact, as far as we know, getting back to the quetion of whether this is an ordinary commercial transaction, these negotiations have taken place between private traders and the Soviet purchasing agents and without any participation by Government representatives. |