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15,600- to 30,000-ton vessel is unavailable for the Soviet bloc trade because of draft, lack of discharging equipment, or other limitation, we are prepared to approve such vessels when required in our programs provided they are offered at competitive rates.

That concludes my statement. Mr. Chairman.

Mr. DOWNING. Thank you very much, Mr. Eskildsen.
Mr. Tollefson?

Mr. TOLLEFSON. Thank you, Mr. Chairman. As I indicated earlier, the chairman had suggested that we not go into anything else except the transportation or the shipment of the wheat. I noticed in your statement on page 3 you set out the basic reasons for making this transaction to sell our wheat to Russia, and I am familiar with these arguments because they have appeared in the press in the past.

I would not want to let them go unchallenged and to say that in addition to the sale of wheat doing the things that you say it will do, let me say that it will also strengthen our enemy at a time when some people think he is staggering a little bit on the ropes.

It will enable the Soviet Union to continue its effort toward world domination. It will enable it to continue to stir up trouble throughout the world.

The sale will especially encourage our allies and friends, so-called at least, to deal with Communists and pro-Communist countries on greater scale than heretofore has been the case.

We have heard of a couple of transactions between Cuba and our allies. Now with the French Government recognizing Red China we will see undoubtedly a greater degree of trade between France and Red China, and when that occurs then many of our other allies will do likewise.

I just wanted that other side of the picture in the record also.

Now, the Department of Agriculture has a tremendous responsibility and has had with respect to our agriculture problem and more especially I suppose with the problem of disposing of our huge surpluses, and I can't criticise the Department for doing its best within its responsibilities. Over the years, however, since I have been a member of this committee the Department of Agriculture never really has been interested in the welfare of the American merchant marine.

As a matter of fact, this has occurred under both administrations, so I am not picking on this one. The Department of Agriculture has been a real problem to our committee, especially in connection with our Cargo Preference Act and prior to its enactment when we used to have to try to have each foreign aid bill and each agriculture bill contain some provisions with respect to using American-flag ships, and the Department always opposed us, as did the State Department always oppose us.

It has always been a little bit of concern to me that one department of the Government has little or no concern with another department of the Government, namely, the Maritime Administration, which over the years has tried to promote and help the American merchant marine.

I am interested in several matters here. First of all, I assume that the Department of Agriculture was in consultation at all times before and after the President's decision to sell wheat to Russia.

Mr. ESKILDSEN. I believe Mr. Johnson's testimony which preceded mine describes in a general way and as well as I can the kind of par

ticipation that all of the agencies of the Government had in the buildup of this policy.

Mr. TOLLEFSON. That is to be expected. I just wanted to hear you say that your Department was actually involved in these considerations. Mr. ESKILDSEN. Yes, sir.

Mr. TOLLEFSON. And discussions.

Mr. ESKILDSEN. Yes, sir.

Mr. TOLLEFSON. You had, as the testimony has indicated, considerable experience with respect to fixing the amount of the export subsidy. Mr. ESKILDSEN. Yes, sir. Of course all of our export sales of wheat are handled on this basis to all destinations.

Mr. TOLLEFSON. If this is a fact, I am curious to know why you increased the export subsidy in this case over, let's say, the normal or average export subsidy.

Mr. ESKILDSEN. Mr. Tollefson, I would like to go back a moment on that to clarify a question you asked Mr. Johnson which he obviously was not as familiar with as we would be.

In the first place, I would like to say that with respect to all except the Durum wheat, which amounts to a little less than 13 million bushels, the subsidy rate was relatively near the rate that it had been before and after the sale was made.

The reference to the 72-, 73-cent subsidy rate is a reference to the Durum wheat only.

Mr. TOLLEFSON. I understand.

Mr. ESKILDSEN. I tried to explain in my statement the reason that we accepted a bid of a considerably higher subsidy rate in that case than we normally do, and the explanation is that we don't get deals like this every day. We have a lot of Durum on hand.

On the face of it this was, from the standpoint of the Commodity Credit Corporation, and we think from the standpoint of the U.S. Government, a very good deal, and for that reason, the situation being a very important consideration, and the fact that it went into an area which would not cause trouble for either ourselves or other friendly countries' commercial markets, it was a very important consideration, the principal consideration that caused us to vary from what had been our pattern of acceptances on subsidy rates for Durum for this particular transaction.

Mr. TOLLEFSON. In this transaction who was going to pay the ocean freight?

Mr. ESKILDSEN. The exporter, of course, made a deal with the Russian buying mission, and which included not only the supply of wheat, but also provision for shipping.

Mr. TOLLEFSON. So that the American exporter was in a sense responsible for the freight?

Mr. ESKILDSEN. The American exporter would have to provide the shipping; yes, sir.

Mr. TOLLEFSON. That is right.

Now, it was necessary then, in order to do that, that he be able to reach an agreement with the Russians that the export shall be sufficiently large for him so that he could take care of the freight rate.

Mr. ESKILDSEN. Undoubtedly the exporter, being faced with a set of ground rules, as he was, and with a set of requirements on the part of the buyer, which he was, had to make an estimate with respect to what

he could afford to pay for wheat and what he could afford to sell it for, and the same thing with respect to shipping, in order to make the deal work, and this presumably is what he did.

Mr. TOLLEFSON. I am assuming that, but I would like to hear from you just what took place. Did you participate in any way in the determination of the export subsidy? Did you discuss this with the Continental people?

Mr. ESKILDSEN. No, sir. This subsidy was bid, as is our customary procedure. It was not a negotiated amount. It was bid by Continental and our participation had to do with its acceptance when we decided that was acceptable.

Mr. TOLLEFSON. You don't mean to say that you people down there didn't think at all about the freight.

Mr. ESKILDSEN. Of course we did. Obviously we know in a general way what goes into any of these transactions, but, as I said before, under any circumstances an opportunity to sell wheat, this durum, in this quantity which would not have an adverse effect on commercial markets, either for ourselves or for anybody else in the free world, was a good deal from the standpoint of the Commodity Credit Corporation and on that basis we accepted it.

Mr. TOLLEFSON. Prior to the offering of the bid or the making of the bid had you had discussions with Continental?

Mr. ESKILDSEN. We have normally relationships with all grain traders and I guess I would have to turn to Mr. Lewis to ask in specific terms what discussions we may have had.

To my knowledge there was no discussion of this particular transaction or a negotiation to arrive at a subsidy price. I would like to ask Mr. Lewis if he can add anything to that.

Mr. LEWIS. There was no negotiation on this with Continental. We did talk to Continental, as we do to all traders, on a confidential basis in response to questions about what our policies are, what the rules are, and other questions which they need to have answered to do their business. This, of course, must be a confidential relationship because the nature of their questions would give away their trade secrets to other competitors if we were to expose their questions.

Mr. TOLLEFSON. I can understand that, but we have had testimony now from Mr. Giles and from Mr. Johnson and I have gathered that there had been a number of discussions in which the Agriculture people, I assumed, participated as well as the Maritime and Commerce people. The thing that I was getting at was to ascertain, if I could, whether there was the possibility of any understanding on the part of Continental, with regard to conversations you had with them, that if they submitted a bid of this order you would go along with it?

Mr. LEWIS. No, sir. Continental, we understand, had an option offered to them by the U.S.S.R. and they bid us the price or the subsidy that they would need in order to close the option, or at least to take a chance on being able to come out on it, and we had no prior understanding with Continental that any bid at any figure would be accepted.

Mr. TOLLEFSON. It seems strange to me that Continental would submit this kind of a bid without having some knowledge or understanding of what the freight component would be.

Mr. LEWIS. I am sure that they understood what the freight component would be. We generally presume that the exporter will be able to pay his necessary cost and come out on it, but that is not a concern of the Government in accepting a bid.

If the bid that we receive from the exporter is in the interest of the CCC, we accept it; and then we require the exporter to comply with the contract that he has bid on and has been accepted for; that is, to export the wheat at that subsidy rate.

Mr. TOLLEFSON. It seems so clear that Continental knew what the freight rate would be and within what limits certainly, and Maritime testified here that they did fix a guideline which in effect has made it impossible for small American ships to carry this wheat, and that Continental must have known that in submitting its bid.

Now you say you had nothing whatsoever to do with that, which leads me to believe that this, as far as participation of Americanflag ships is concerned, was entirely within the actions of the Maritime Administration.

Mr. LEWIS. Let me clarify my reply to that. In the consideration of bids it is not our responsibility to take into account the costs that the exporter might incur in fulfilling his contract if his bid is accepted. That is his responsibility.

We presume that some traders may lose money on their contracts. Others will make money. This is the normal risk of the commercial trade.

Mr. TOLLEFSON. This is not a normal transaction. That is for certain. I don't think I could be convinced that it was a normal transaction. If, for instance, Continental knew that American-flag ships would participate to the extent of 50 percent, they couldn't have submitted that kind of a bid, could they?

Mr. LEWIS. That is for Continental to say. I would expect that they wouldn't.

Mr. TOLLEFSON. They would not.

Mr. LEWIS. I would expect so.

Mr. TOLLEFSON. I would expect so too, so they must have had some understanding somewhere along the line that there wouldn't be too much American-flag ship participation.

Therefore, they were able to submit the bid that they did.

Mr. ESKILDSEN. I would like to add a point to that, Mr. Tollefson. I was here yesterday when Mr. Giles indicated that he understood that Continental had made a judgment with respect this freight situation, which obviously they do as a matter of regular business, and had drawn a conclusion with respect to how this thing would work itself out. This is really all we have to go on.

We also look at the freight situation to some extent. To us it looked like there was a very considerable amount of freight available, and all I can say on this point, as far as our knowledge of it or how it related to the export subsidy, is that we assumed that Continental had done a good job of looking into the freight situation to figure out just exactly how this would all come out. We had no agreement with respect to any given percentage that would be required on this particular transaction and, as you may know, I gather this question isn't yet settled because Continental is still trying to acquire U.S. shipping. Mr. TOLLEFSON. Of course I would assume that it would make an

effort, because of its understanding with the Maritime Administration, to get available American ships, but that availability just kind of disappears when the guidelines operate and I would be very surprised if we ever would carry 50 percent of this grain as of the moment.

There have been arrangements for carriage of 150,000 bushels out of a possible 500,000 to be carried in American-flag ships. That is 15 percent of the total 1 million bushels.

I would be surprised if more of a percentage than that would be carried. However, the thought has occurred to me in this transaction, according to my simple arithmetic, that the Government is par ticipating, whether it has participated similarly in other transactions or not, not only in all the negotiations and dealings, but to the tune of, in this one transaction, about $2712 million and when this 1 million tons and 4 or more million tons are finally handled the involvement will be over $100 million, and it is so difficult for me to understand why we couldn't have considered this a program coming under 50-50 and permitted American-flag vessels to carry up to 50 percent. In my arithmetic, looking at the guidelines, if the American-flag vessels would be permitted to carry 50 percent at the guideline rate, not the 20 percent below the guideline rate, but at the full rate, under which the smaller vessels could carry it, this would have meant an expenditure or an outlay on the part of the Government to the extent of $3.4 million maximum, not minimum, but maximum.

That is all it would have cost the Government additionally, and that would have been taken care of in kind just like you are taking care of the other. The Government is willing to participate to the tune of over $100 million in the program, but they wouldn't participate to the tune of $3.4 million to help the American merchant marine.

This is the thing that I had reference to at the outset. When you get into dealings with the State Department they just won't do anything to be helpful to the American merchant marine, and now it begins to look like the Maritime Administration is losing a little bit of its interest also.

out, and of course The total average That is taking the

Here is a suggestion that I had said I would toss it may be too late to do anything about it now. freight for the million bushels will be $27,140,000. average of the guideline figures to the four different ports from different ports in the United States.

If we had arranged to spend half of that on American-flag ships that would have meant revenues to the American flag of about $13.5 million. Then the balance of the shipments would have meant freight revenues of $10,157,000 to foreign-flag ships. Therein comes the difference of $3.4 million extra that it would possibly have cost the United States.

This money flowing in would also help the balance of payments, wouldn't it?

Mr. ESKILDSEN. Yes, sir.

Mr. TOLLEFSON. Furthermore, I can recall during our debates on the floor on this 50-50 thing when it was pointed out by the Agriculture opponents that of the foreign aid cargoes shipped up to that point we had spent, the figure roughly was, $165 million in ocean freight and the contention of the Department of Agriculture was that if we had used foreign-flag ships exclusively it would have cost us something like $120 million.

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