Therefore, we were out that much money, but the strange thing about that was that the Bureau of Internal Revenue's figures to us showed that we made a profit on the deal because using American-flag ships brought an additional amount of tax revenues into the United States which exceeded the difference between the two freight rates, and I think the same thing applies here.

As I recall that figure, out of certain a number of dollars coming into the American economic bloodstream at that time, 21 or 22 percent would come into Uncle Sam's coffers by way of tax revenues, and the same thing would apply here, so actually there wouldn't be a difference of $3.4 million, but something considerably less than that. I hope that in their next consideration involving the other 3 million tons of grain the Department of Agriculture and the Maritime will give consideration to some such suggestion that they adhere to the 50-50 formula, pay the world rate or the foreign tramp rate, pay the American amount necessary for him to profitably carry, and the difference won't amount to a great deal of dollars.

Mr. ESKILDSEN. Mr. Tollefson, if I may, I would like to comment just briefly on your statement for purposes of clarification.

It is true of course that insofar as you can sell, with American shipping, American wheat to the Russians it is a net benefit to the U.S. balance-of-payments position, and this is certainly one of the reasons why we have been working as closely as we could with the Maritime Administration to arrange the use of these ships with respect both to the Public Law 480 program and the Russian wheat trade, in order to maximize the amount of American shipping that can go into the Russian trade.

The reason of course for this is that in the case of Public Law 480 shipments the United States does finance the use of U.S. shipping completely, whereas in a commercial sale of this type, the payment of course is made by the buyer for the shipping, so that there is a considerable advantage in terms of balance of payments, as you pointed out, to have this done, and we have been working as well as we could in this direction. I am not acquainted, I am sorry to say, with the findings of the Internal Revenue Service with respect to taxes and how it balances off against the additional costs of U.S. shipping that come about by reason of the Cargo Preference Act, but I think it would be self-evident, and it seems to me very much to the point, that neither the kinds of budget savings which I have referred to in my statement nor the balance-of-payments savings which I have referred to which attend to the sale of wheat to the Russians nor the American shipping which would carry that wheat could be accomplished unless the sale itself could be made. I think this of course is a part of the consideration also, that it would have to be possible to make the sale before any of these advantages could accrue to the U.S. Government.

Mr. TOLLEFSON. You are aware of course, or maybe you are not, that the American merchant marine contributes about a billion dollars annually toward the favorable part of our balance of payments, roughly a billion dollars a year. This is no insignificant contribution. I would like to see it continue to make some contributions to our balance of payments, and every time we pay dollars out to foreign-flag ships that hurts our balance of payments.

Mr. ESKILDSEN. Of course with respect to the Public Law 480 programs, when foreign flags are used they are bought and paid for by the country engaging them.

Mr. TOLLEFSON. It doesn't make any difference whether they are or not. If American-flag ships are used they get revenue which helps our balance of payments. If they are not used and foreign flags are used instead, then, whoever pays it, our balance of payments is hurt. Mr. ESKILDSEN. This may get a little bit technical, Mr. Tollefson, but I would like to say a word on that point, on the balance-of-payments effects of these shipping problems with respect particularly to

Public Law 480.

Because of the nature of this program, when U.S. ships are used the Commodity Credit Corporation finances the entire cost of that ship and gets in return local currency that equates with the price of the vessel had it been a foreign flag at world market prices. The balance-of-payments effects for the United States of using U.S. ships under the Public Law 480 program is not really to our advantage.

Actually the difference that comes about in the balance-of-payments context is really related to how much money a foreign-flag ship resting in American ports will spend here that would help us and how much money in turn our ships might be spending in a foreign country for payment of bunkering and port charges, and that sort of thing, because the dollar flow is actually a wash transaction in the sense that the Commodity Credit Corporation pays for it.

Mr. TOLLEFSON. Take a look at the pending transaction involving the million tons.

Mr. ESKILDSEN. This is different.

Mr. TOLLEFSON. This is does involve

Mr. ESKILDSEN. Yes, sir, you are quite right. As I say, this is one of the reasons why we have been amenable and have been as cooperative as we possibly could in working with Maritime on trying to arrange these ships to see that we get the maximum amount of U.S. shipping into the Russian ports, because it is a positive balance-ofpayments advantage to the United States in this case.

Mr. TOLLEFSON. This is a kind of package deal involving all the departments of Government that are interested in the thing. It just seems to me you very easily could have decided at the outset when I say you I mean all of you-that that would come under the Cargo Preference Act, the 50-50 law, and that 50 percent should actually go on American-flag ships even if you had to pay them a different rate than the foreigner. That is what you do under Public Law 480, anyway, isn't it?

Mr. ESKILDSEN. We use the cargo preference law under Public Law 480.

Mr. TOLLEFSON. And the American ship gets a higher rate than does a foreigner; doesn't it?

Mr. ESKILDSEN. That is right.

Mr. TOLLEFSON. Why couldn't you have done it? You could have saved all this trouble and we would have all been happy. You would have sold just as much wheat.

Mr. ESKILDSEN. I am sure it is true that had we been able to sell wheat we would have had no objection to any kind of a transaction whereby American things, whether they be wheat or ships, could be

sold to the advantage of our balance of payments. You are quite right about that.

Mr. TOLLEFSON. I don't know how many millions of tons of grain you do have in storage all over the country. This wouldn't have to be a dollar thing at all. As I understand, you pay the export subsidy in kind?

Mr. ESKILDSEN. Yes.

Mr. TOLLEFSON. So if the export subsidy had been, say 74 cents rather than 72 cents, then the American-flag operator could have participated in the program and we wouldn't have been out any dollars. We would have just gotten rid of a few more bushels of grain in storage.

Mr. ESKILDSEN. We accepted the bid that was presented. I wouldn't be prepared to say we wouldn't have accepted 74 cents, or 71 cents, or some other subsidy had it been bid.

Mr. TOLLEFSON. I don't want you to think that I am picking on you. Our committee is and has been concerned with the welfare of the American merchant marine. I know it is a subsidized thing largely, not entirely, because we have nonsubsidized operators as well, but if nobody but our committee is going to be worried about the American merchant marine they are going to just fade out of the picture.

That is why I am interested in it. I hope the next time you will take a look at this thing that I have tossed out. I mean when the other 3-million-ton transaction comes along. I am going to submit it to the Maritime Administrator for his consideration also.

Mr. ESKILDSEN. Yes. Of course we work with them daily on this problem as well as on our Public Law 480 problems.

Mr. TOLLEFSON. As I said before, I am just so convinced this is a Government-sponsored transaction and that cargo preference law should apply. That is all, Mr. Chairman.

Mr. DOWNING. Mr. Administrator, the Russian offer was world market, isn't that right?

Mr. ESKILDSEN. The Russian offer was in a range of prices which you call world market. We don't know precisely of course, because this is a private transaction, what the exact prices were.

Mr. DOWNING. You don't know what the exact prices were?

Mr. ESKILDSEN. Do we know, Bob?

Mr. LEWIS. Yes, sir. The exporter, for the wheat other than Durum on the announced subsidy, is required to register his sale with us. Mr. ESKILDSEN. I am sorry.

Mr. LEWIS. So that he registers the price. This is for purposes of enforcing the International Wheat Agreement to determine that the price is not in violation of the price range. The Durum price would also be registered with us at some later date. I am not sure whether that has been registered or not as yet.

Mr. DOWNING. So that when you pay your export subsidy you pay the difference between the world price and the U.S. market price? Mr. LEWIS. Yes, sir.

Mr. DOWNING. And it looks like in this case you may have paid 14 cents more, which is the supership price for the freight.

Mr. LEWIS. Sir?

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Mr. DOWNING. The 72 cents is about 14 cents above normal market prices for Durum, isn't it?

Mr. LEWIS. It was about that much larger than the previous subsidy we had approved or accepted. The previous bid we had accepted was on a very small lot. This Russian transaction was 118 times as big as the previous Durum bid that we had received.

Mr. DOWNING. When you accepted that bid did you not give some consideration to the freight that the exporter was going to have to pay? Mr. LEWIS. In a technical sense we did not and we are not required to. We did, of course, think about it and speculate about whether the trader would be able to meet the terms of his contract with us in terms of what he could get from his customer, but we are not obligated to make any finding as to whether the exporter can or cannot make money on the basis of the bid he submits.

Mr. DOWNING. It would appear to me that the only area where the exporter could realize a profit would be in the freight end of it.

Mr. LEWIS. The exporter does make his margin on what he is able to squeeze out of the costs between the price he must pay for the wheat and the price that he collects for it. His margin often is a small fraction of a cent a bushel and it is in that margin-in how much he can save on shipping or handling-that he makes his profit.

Mr. DOWNING. Well, if you were in that type of business you would want the cheapest transportation you could get, would you not? Mr. LEWIS. Yes, sir.

Mr. DOWNING. Which would be foreign flag.

Mr. LEWIS. If he is permitted to use foreign flag that is what he would look for.

Mr. DOWNING. I must concur with Mr. Tollefson. The late President publicly stated he wanted American ships to be used. The Department of Commerce went to the trouble of putting out Bulletin 883 which requires at least 50 percent of the wheat be transported on American flag.

I also believe, Mr. Tollefson, this looks like it comes under 480, and it seems to me that with all the brainpower in those three agencies of Government you ought to figure some way that this could be a 50-50 transaction.

Mr. ESKILDSEN. I might refer again to that. I didn't really respond to Mr. Tollefson's statement with respect to whether or not this is a kind of transaction which is suitable or which would be appropriate for the Cargo Preference Act. I realize what the issue here is and basically the reason the Cargo Preference Act has been applied to Public Law 480 is because it is a program which has a very heavy Government participation.

I would have to say also, as in the case of all commercial transactions on most agricultural commodities these days, that the Government is not very far away from any of them, no matter how commercial they are, because we do have a support system applied to the growers and we do have this export subsidy for a large number of commodities, but in the wisdom of our various departments of the Government, with competent legal counsel, we have come to a conclusion different from the one that you have suggested and Mr. Tollefson has suggested here in the sense that we have concluded that the Cargo Preference Act in this case does not apply.

However, the policy with respect to the use of American ships was still put into play in spite of the fact that we concluded that this was a commercial transaction.

Mr. DOWNING. What are you doing to implement that policy?

Mr. ESKILDSEN. I have tried to explain to you, sir, that in cooperation with the Maritime we have tried to do the best we can. This includes, as you have heard already, an effort to try to make those ships available for the Russian traffic which can be used in order to maximize the amount of American shipping that is used on this transaction.

As of now I guess we don't know how much this will be because, as I understand it from Mr. Giles' testimony yesterday, application for a waiver has not been made and therefore the final decision has not been made.

Mr. DOWNING. A final decision has not been made as to what?

Mr. ESKILDSEN. As to whether a waiver will be granted. As I understand it, a waiver hasn't yet been applied for, so that we have no specific knowledge at the moment as to whether or not 50 percent will be reached.

Mr. DOWNING. I think you better get your heads together again. In fact I am going to request the chairman to request the three agencies to get together and give a little bit more attention to revising the rates for the berth liners and the tramps, because that is where you are woefully inadequate. Were you present when the guidelines were discussed and set down?

Mr. ESKILDSEN. No, sir. Our shipping man here may have been involved in it in some way. Joe, I don't know whether you were or not.

Mr. RYAN. Informally I was involved but we had no say in the formula that would be applied to these large ships. Our interest was primarily in what favorable or reasonable terms should apply to the charter party which should be used on this Russian program. We would leave it to Maritime to work on those rate problems.

Mr. DOWNING. So the Maritime determine the rate?
Mr. RYAN. Yes, sir.

Mr. DOWNING. You had no way of knowing whether the rates were acceptable to the American-flag owners or whether they could live with them?

Mr. ESKILDSEN. I think we would have to say that this is in an area where the Maritime has the competence and the contacts with the industry and that we would have to defer to them on questions of judgment of this kind.

Mr. DOWNING. Thank you. Mr. Hagen.

Mr. HAGEN. There has been a lot of talk about these Public Law 480 transactions. Actually in some of them the recipient country pays the freight, doesn't it?

Mr. ESKILDSEN. Yes, sir. Wherever foreign-flag ships are used in carrying Public Law 480 cargo the foreign country pays for the shipping.

Mr. HAGEN. Don't they pay for the shipping when an American vessel is used?

Mr. ESKILDSEN. They pay for it in this way, Mr. Hagen. This is a little bit complicated.

Mr. HAGEN. That is what I thought it was.