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Section 3. The ships listed in sections 1 and 2 have made the following number of trips to Cuba since January 1, 1963, based on information received through January 17, 1964:

Number of trips

1963

Flag of registry

1964

Jan.- Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Total

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NOTE.-Trip totals in this section exceed ship totals in secs. 1 and 2 because some of the ships made more than 1 trip to Cuba.

Dated: January 24 1964.

Mr. DOWNING. Mr. Tollefson?

J. W. GULICK, Deputy Maritime Administrator.

Mr. TOLLEFSON. Coming back to the financial participation of the Government in this transaction, in addition to the Export-Import Bank credit, or guarantee, or whatever it is, as I understand it, in this particular transaction there are a million tons of grain involved. Mr. JOHNSON. That is my understanding, yes.

Mr. TOLLEFSON. But the total program involves a possible 42 million tons?

Mr. JOHNSON. Approximately 4 million, including the satellites;

yes, sir.

Mr. TOLLEFSON. Using the figure supplied in yesterday's testimony on the amount of export subsidies, which includes this ocean freight differential, the total subsidy averages according to the testimony yesterday 7212 cents a bushel.

According to my arithmetic 1 million tons is equal to 36,666,000 bushels. Multiplying that by 722 cents on the million tons the Government's actual financial participation is $27,582,000. If we multiply that by four times, which takes care of the 4 million tons, then the American Government's participation would run in excess of $100 million. My arithmetic may not be correct.

Mr. JOHNSON. The Government's financial participation in this sense, I should think, Mr. Tollefson, would not be any different from its financial participation in any export wheat sales, whether to the United Kingdom or Japan, or otherwise.

Mr. TOLLEFSON. You are talking about the 480?

Mr. JOHNSON. No, no; not Public Law 480, but normal commercial sales carry with them an export price which is lower than the domestic price by the amount of the subsidy.

Mr. TOLLEFSON. But it in no case reaches 721/2 cents?

Mr. JOHNSON. This I don't know, sir. I am not familiar with the details of wheat pricing, which is very complicated.

Mr. TOLLEFSON. Inasmuch as my colleague, Mr. Downing, brought up the financial participation of the Government I was curious to know what it amounted to in dollars or dollar value and, as I say, on the million bushels it runs $272 million and on 4 million tons it would be four times that.

Mr. DOWNING. Approximately $100 million it would cost us. Of course it would help the balance of payments.

The counsel would like to ask you a question.

Mr. JOHNSON. Surely.

Mr. DREWRY. Mr. Secretary, it is still not exactly clear to me what took place in the beginning when the decision was made to use American-flag ships, "when available," in this transaction. After the traders came to you to ask whether this sort of thing were possible, the initial discussions were between State and other representatives, say, Commerce, Agriculture, perhaps, and Russian representatives. Is that correct?

Mr. JOHNSON. No, sir; there were no discussions-I think I am correct in this-with the representatives of the Soviet Union prior to the determination to go ahead with the program.

Mr. DREWRY. Then when the upper levels considered the thing and they went to the Russians and said here is what we can do, that was when they were told that it would be on American ships when avail. able?

Mr. JOHNSON. That is correct, sir.

Mr. DREWRY. And the Russians said it was all right with them. Mr. JOHNSON. That is correct.

Mr. DREWRY. But do you know why that decision was made? Mr. JOHNSON. Why the decision was made to use American ships? Mr. DREWRY. Was it because of the consideration to balance of payments?

Mr. JOHNSON. It was made I would say in the first place with background that the Soviet representative had already indicated a willingness on the part of the Soviet Union to use American ships. That being the case it was decided to put this in as one of the ground rules, as a method, I assume, of assisting the U.S. merchant marine.

Mr. DREWRY. You say they had previously indicated a willingness. They were asked whether they would be willing to, or did they ask for American-flag ships? I have heard stories to that effect, that at one point they themselves were asking that American-flag ships be used.

Mr. JOHNSON. This subject first came up, as I mentioned in my opening statement, at the time when an informal approach was made to the Soviet Union to find out whether they were seriously interested in a sizable purchase of wheat.

In the course of this discussion with the Soviet representative this. willingness on their part to use American ships came out. I was not myself at this discussion. I can't testify as to exactly the way in

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which this willingness on their part developed or whether the indication of their willingness developed.

Mr. DREWRY. What I am trying to get at or trying to learn is-you say to help the American merchant marine whether this was just a general thing that it would help the American merchant marine if American-flag ships were used. Or was there any particular planning in mind, including a study of the availability of the American ships at that time.

It seems to be a very firm decision and one in which as you mentioned a little while ago was not even negotiable. I wondered just whether it was to help the American merchant marine, to help the balance of payments or to help something else.

Mr. JOHNSON. I think all of those factors were considered. I don't believe there was any effort at that point to determine with any precision the extent to which American ships were available, but it was felt that there would be substantial numbers available and if they were available they should be used.

This was about the sum and substance of it.

Mr. DREWRY. When the first discussions at your level were had, before it got to the commercial aspects of it, was there any discussion of terms at all? Did the Russians say, "We want this on a delivered basis, on cost-and-freight terms"?

Mr. JOHNSON. There was a discussion of the basis, the terms, at one time with the Soviet representatives, the purpose of which was from our standpoint to ascertain whether they were prepared to accept various kinds of terms; in other words, whether they were prepared to accept free on board American ports, free alongside ship Soviet ports, and we found out that they were prepared to accept either type of

terms.

Mr. DREWRY. Was it a matter of insistence on their part that the wheat be sold at the world price?

Mr. JOHNSON. They made it quite clear that they were not prepared to pay in excess of the world price.

However, of course, the decision was in terms of the world price of wheat. We didn't get into a discussion of the shipping prices.

Mr. DREWRY. Of course the Russians knew as well as we did that our freight costs are higher than foreign-flag costs, and if they were willing to take it on a cost-and-freight basis wasn't there any discussion of how to put the freight on a world basis too?

Mr. JOHNSON. No, sir. We assumed, of course, that they did know, as I say, the fact that American ship costs were generally at that time higher, and are now, but we did not discuss the question with the Russians of how this particular problem could be handled. This was, as I say, not a negotiable requirement.

We felt that this was a matter, and we so told them, that would have to be dealt with in the contractual negotiations between the private American traders and themselves.

Mr. DREWRY. At least as far as the Department of State was concerned this was the case?

Mr. JOHNSON. Yes; that is correct.

Mr. DREWRY. You mentioned that the Russians themselves balked on the idea of the transaction being handled on a government-to-government basis under cargo preference.

Mr. JOHNSON. Yes. I think they would have had no objection to a government-to-government deal, but they would not have been prepared to have made a deal on a cargo-preference basis.

Mr. DREWRY. What was their specific objection to that?

Mr. JOHNSON. They felt that this would be discriminatory, that the United States is engaged in selling large quantities of wheat on commercial terms to other countries and they saw no reason why they should be discriminated against. They desired to buy the wheat on the same terms that other commercial purchasers were getting.

Mr. DREWRY. That would be really just a matter of form rather than price, wouldn't it?

Mr. JOHNSON. Both I think would be involved. As a matter of form I think they would insist on the absence of any discriminatory elements in the arrangements, but I assume that there was also a matter of price.

Mr. DREWRY. Do you know whether the Canadian deal was a straight commercial transaction, or whether that was government to government with the grain traders being in the position of agents?

Mr. JOHNSON. The Canadian deal was worked out again in general, as I understand it, between the Canadian Wheat Board and the Soviet purchasing group, but the actual contracts were handled by private grain trading groups.

I am sure there are others that can testify as to the details of these arrangements, but in that sense the Canadian deal was not too unlike

"Our own.

Mr. DREWRY. That is all, Mr. Chairman. Thank you, Mr. Johnson. Mr. DOWNING. Thank you very much.

Mr. JOHNSON. Mr. Chairman, there was one point that came up in the hearing yesterday and the day before which I meant to refer to in my opening remarks and which I would like to clear up, if I may, and that is this question of the wharfage cost, the port cost, in the Soviet ports.

Mr. DOWNING. I wish you would. It was alleged that they were about three times what the normal wharfage cost would be.

Mr. JOHNSON. Yes. As you doubtless know, there is the general practice in this area of charging nondiscriminatory port charges in those cases where treaties of friendship, commerce, and navigation exist, and we follow this practice and so do other countries.

There is no such treaty between the United States and Russia, and when this matter of possible port charges was called to our attention, I believe toward the end of last week, we investigated the situation with our Moscow Embassy and found that in fact American ships calling at Russian ports might be subjected to port charges which would be I think about three times as high as the port charges paid by Russian ships or other ships with whom the Russians had commercial treaties. In investigating our own situation here we found, however, that Soviet ships calling at our ports would be given national treatment. In other words, they would be charged only the rates which American ships would pay. They would be charged the same rates as ships of countries with whom we have FCN treaties.

This stemmed from a Presidential proclamation in January 1934 which followed on the original recognition of the Soviet Union and was based on a law which permitted the President to waive the higher

charges in the case of those countries who reciprocate, and at that time the Soviet Union presented evidence that it was reciprocating and that it was charging American ships the lower cost.

We have instructed our Embassy to bring this matter to the attention of the Soviet Government and we anticipate that, when the treatment that we would give Russian ships in this country is brought to their attention and the arrangements that were put into effect at that time are called to their attention, they will grant national treatment to American ships in those ports.

We would certainly expect them to do so.

Mr. HAGEN. May I ask a question?

Mr. DOWNING. Mr. Hagen.

Mr. HAGEN. Prior to this wheat deal of course there had been buying and selling between U.S. sellers and the Russians of other items. Has there ever been any difficulty in getting U.S. ships admitted to Russian ports?

Mr. JOHNSON. Of course this is one of the reasons why I suppose this difficulty appears now, that there have been practically no American ships that have gone to Soviet ports. I believe there were one or two Moore-McCormack liners that went there several years ago, but there has been no occasion for us to take this matter up with the Soviet Government.

Mr. HAGEN. Did those Moore-McCormack ships have any problems in getting access to the port?

Mr. JOHNSON. That I don't know, sir.

Mr. HAGEN. I am just wondering why you would even consider that question. It should be an undebatable question and the basis of your policy really would have been more directed at guaranteeing a percentage of this wheat going in U.S. vessels rather than a mere matter of

access.

Mr. JOHNSON. I am sorry, I don't quite get your point.

Mr. HAGEN. You indicated that the only real consideration in this policy reference to American vessels was getting them access to the Russian ports, that that was almost the sole criterion, whereas I think it might be more reasonably concluded that the purpose of the policy was to guarantee that at least a certain percentage of this cargo would go in U.S. vessels.

Mr. JOHNSON. I think that was the purpose of the policy and we just took for granted the fact of access of American vessels to the Soviet ports. The question of the wharfage rates didn't come up because nobody really realized it existed, and I just wanted to indicate that we do anticipate and we expect to get confirmation of reciprocal treatment in this regard.

Mr. HAGEN. Was there any discussion of this matter of the blacklist, because, the situation being what it is, if that applied the Russians would look bad with their Cuban ally if the blacklist applied to ships that engaged in trade with Cuba.

Mr. Johnson. No, sir. The only discussion that I recall with respect to Cuba with the Soviet Union was a specific understanding that none of this wheat would be delivered to Cuba.

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