On the face of that statement that clearly contemplates something less than 100 percent, "supplemented by other ships."

The CHAIRMAN. I think your general statement has gone into that so we will pass over that fact.

Mr. GILES. Now, as to this 50-percent participation with industry concurrence, well, that is correct. We consulted with industry and industry came into us at this time. If you recall, within the 2 or 3 weeks during the latter part of October there was a great deal of public criticism of the shipping industry in this country and the fact that this might be a factor which was holding up desirable sales of substantial quantities of wheat, and many of the shipping industry people were rightly concerned and they were very helpful to the Department of Commerce in discussing this matter.

We discussed with them and made the best assessment that we could and we concluded that about 50 percent at the most would be all that we could find physically available in American tonnage.

The CHAIRMAN. I think this committee understands that.

Mr. GILES. That announcement was made and I just don't understand this reference here to this matter of

We are almost shut out of this program by means of rate discrimination thrust upon us by the architects of the program.

I don't understand that.

The CHAIRMAN. You have tried to explain that in your general

statement.

Mr. GILES. Yes, sir.

The CHAIRMAN. The ratemaking.

Mr. GILES. Yes, sir. I will have to say, Mr. Chairman, I don't believe there is any good case that can be made against the Government that these rates are discriminatory or that the Goverment has not acted with justification on these matters. At no time, as I said, to our knowledge had the shipping industry primarily involved in Public Law 480 shipments made an issue about these rates before this came up in October.

At that time when our whole effort had to be to try not to put the American shipping industry on the block by demonstrating that they had higher rates than everybody else, higher at that time by about $10, we certainly and I certainly didn't think it would have been to the interest of the American shipping industry to have increased that difference. Therefore, we told them, and certainly many of them that I talked to fully understood, that it did not make good sense for us to think about raising rates at that time, and that would have meant raising rates for Public Law 480 cargoes as well as for anything else.

Mr. DOWNING. At that time, Mr. Giles, wasn't it sort of agreed that this grain would be by superships which would leave Public Law 480 commerce to go by the tramp and berth lines, and that is the reason they didn't object too much to the supership rate which you placed? Mr. GILES. There was no discussion which I recall which indicated that we were interested in having Public Law 480 deliberately go by berth liner as such. Actually the berth liners, if they are on regular runs, are in a position to haul the grain, anyway, at lower rates.

Mr. DOWNING. But berth liners were going to haul what the superships were hauling in Public Law 480.

Mr. GILES. That is right. Well, the berth liners to the extent that they could be involved in the business and would be available could more logically handle the commercial shipments rather than Public Law 480.

The statement, Mr. Chairman, says:

That the Cargo Preference Act does not completely cover cash sales in the wheat-to-Russia program, although it does apply if loan financing is used. However, we have taken in good faith the statement of the President *** when he said that the program would move in U.S. ships when available at reasonable rates; and we have taken in good faith the proposal by the Department of Commerce to reduce our share to 50 percent *** as a practical matter. We resent with fullest vigor the devices that have been used by the USDA and by orders of the Maritime Administration which have effectively destroyed the plan whereby the 50-percent participation was to have been accomplished. A precedent has been set which needs to be corrected ***.

I do not understand the point that is made here by destroying the plan whereby 50-percent participation would be accomplished. I assume that the point raised here is the point by the owners of some of the larger vessels that they should be allowed to participate in Public Law 480, and just to run over that again very briefly

The CHAIRMAN. You went into that in your general statement.

Mr. GILES. Yes, sir. By action of the Government in setting our price structure and so on and setting our waiver procedure, we effectively excluded from participation in the commercial shipments the smaller ones.

Now, so long as we have sales on that side, and we have a substantial sale right now, Continental, on which Continental is going to apply for a waiver, and Continental will get a waiver if they don't get American tonnage real soon, it doesn't make good sense to me to say to the big vessel or to the smaller one, "Well, the big vessel can have its choice here and turn down that business and we will have to grant a waiver to use foreign-flag shipping and then at the same time we will let the big vessels go over into Public Law 480 and chase out the smaller ones, because they can outbid them. I know that the owners of some of the larger vessels are looking at their individual situation and for one reason or another they just don't want to fool with the other business, and that is their privilege, but they shouldn't ask the Government to rule them in on both categories of business and at the same time rule another segment of the merchant marine out of both categories.

The CHAIRMAN. I only want you to answer or enlarge on that part of the letter that deals with your business, this 50-50 cargo.

Mr. GILES. Yes, sir. Well, there is a reference here, sir, in the next paragraph about adjusting rates and the implication that they had asked the Government to adjust the rates generally.

Well, I have responded on that, sir, as to the reasons we think that we should not do that now, but we have told them that when we are not in the middle of a situation where we need to be able to maintain some stability for the exporter so he will know what kind of rate that he can quote, then we do want to review this whole matter, and we will do that in the coming months.

Just when it would be appropriate to do that we don't know. Right now we would be glad to get information, data, which will help us make that decision later on.

The reference here, Mr. Chairman, in one of the paragraphs is to our January 9 publication where in the next breath the same order said the guideline rate for the wheat-to-Russia program would be the supership rate; namely, that which would be 20 percent under.

In effect therefore, the Maritime Administration, apparently pursuant to directives of the Department of Agriculture, shut out the tramp and berth carrier from participation in the wheat-to-Russia program. These two segments simply cannot operate at the low supership rates.

Well, of course the smaller vessels generally cannot. So far as the larger vessels as well as berth vessels (at the berth parcel rate), I just don't understand that at all, and particularly if we are dealing with a subsidized line. It doesn't make any sense at all to me to say that the subsidized line, whether or not it is on a voyage which is itself subsidized, cannot haul this wheat on a better basis really than another American-flag owner who is not subsidized, who does not even get an operating subsidy. I just don't understand these references to the berth parcel rate at all, Mr. Chairman, because I have not had from the CASL group any direct communication pinpointing any specific matter that they have a problem with.

We thus see that the entire scheme for ocean transportation, under the direction of the U.S. Department of Agriculture, with the apparent concurrence of the Maritime Administration, has resulted in shutting out not only U.S.-flag berth and tramp vessels by reason of rate discrimination, but also has frustrated the American superships by reason of inadequate draft in the Russian ports. These port drafts in Russia were common knowledge in steamship offices but apparently not known by the Maritime Administration.

Well, first as to the Agriculture Department, Mr. Chairman, I will have to say that, on the matter of shipping, the Department of Commerce, and more specifically the Maritime Administration, will have to assume the primary responsibility and the burden for whatever has been done. We have recommended to the Department of Agriculture exactly what they have done. They have followed our advice on shipping and when this matter first came out with the Continental contract, for example, there for several days the Department of Agriculture was chartering Public Law 480 shipments on the larger vessels and Captain Goodman came in one day, and I am now speaking facetiously, but almost literally, and one side of his face was bloodied. I asked him what was wrong.

Well, he had just heard from the small-vessel owners. "They are just all torn up about using big vessels on Public Law 480 when they have this big shipment to Russia."

And we finally got that straightened out and tried to tell both sides and everybody, "We don't want to be absolute on this, but we have to try to be reasonable." Then 2 weeks later we catch it from the other end, from the big vessel owners. That is some of them, not all of them. I think some of these people have looked solely at their individual financial situation. They own one or two vessels and if they don't get exactly what they think they would like to have on precisely the terms they would like to have, then we get the consequences, and that is all right. I don't mind it. I just think that we ought to recognize it for what it is.

A number of American-flag carriers on the Pacific coast have offered their vessels for parcels of grain at fair and reasonable rates to the agents for the Continental Grain Co. and have been turned down. In one instance, namely,

the Waterman Steamship Corp. of California, the turndown of their offers of fair and reasonable rates for 7,000-ton parcels at $17 per long ton to Nakhodka has resulted in the layup of two vesselss in the port of San Francisco with a possibility of a third layup within the next 10 days. American President Lines and Weyerhaeuser Line both offered full or parcel lots at $17 and were likewise turned down.

I do not know the facts on that, Mr. Chairman. The rate seems to be appropriate. There may well have been some other condition or item in it. Do you have anything?

Captain GOODMAN. Yes. The $17 rate is the smaller ship rate. That is not the minus-20-percent rate. The $17 rate they offered is the small ship rate.

Mr. GILES. That is just an example. Mr. Chairman, I don't understand any of these companies. In view of all that has been said and discussed on this and published by the Department of Commerce since last November I don't understand why they would make such an offer.

Mr. HAGEN. May I ask a question, Mr. Chairman?

The CHAIRMAN. Yes.

Mr. HAGEN. This is the small ship rate that is deemed fair and reasonable; isn't it? Are you saying that they are obligated to offer bigger ships or what?

Mr. GILES. No; they can offer a small ship, but so far as these commercial shipments, it should be the minus-20-percent rate. That has been published. Everybody knows that's the guideline. The top rate which the exporter has to count on covering is the minus-20percent rate.

If a small vessel owner wants to come in and ship a amount of tonnage at that rate, that is fine. That is his privilege, and he could get the business. We are not excluding vessels as such by size. We are saying that you look at the rate that is quoted, that minus-20-percent

rate.

Mr. HAGEN. Well, but obviously it must be uneconomic for them because you established these rates for guidelines initially as fair rates. Mr. GILES. It would certainly be difficult and maybe most small vessels would be operating at a loss if they tried to carry it at that

rate.

Mr. HAGEN. So in effect by these ground rules you have excluded the small vessels.

Mr. GILES. From the commercial shipments, yes, sir, that is right. That is right. That is exactly right, and then we have said that they should stand first in line over here on Public Law 480 and not have the big vessels who would have this economic opportunity on the commercial shipments, not have them come in on the same basis as the small ones with Public Law 480.

Mr. HAGEN. So you have relegated the small vessels to the Public Law 480 law.

Mr. GILES. In terms of the rate structure that is the effect. That doesn't mean that all of Public Law 480 would necessarily be hauled by the smaller vessels.

Mr. HAGEN. No, but then the other half of the charge is that by reason of the draft requirements the larger vessels are excluded from this Russian trade.

Mr. GILES. That, sir, we don't know. We have simply told Continental that we will not accept on their part as a reasonable soliction a flat limitation which excludes vessels of a certain size, that they have to have their case on each specific instance, and if that is the basis on which they turned down American ships they better have a good case to back it up.

The CHAIRMAN. You mean then, with respect to these vessels that are suited, they offered a fair rate?

Mr. GILES. No, sir.

The CHAIRMAN. You said that these vessels were laid up because they weren't used.

Mr. GILES. Captain Goodman just said that they did not offer the proper rate. They offered the Liberty vessel rate, and if they wanted the business they obviously should know that under the guidelines we published they have not offered in at the top reasonable rate, which is minus 20 percent.

The CHAIRMAN. What would have been the rate for those vessels? Captain GOODMAN. It would have been $13.45. These are berth line vessels, only parcel lots.

Mr. GILES. $13.45 as compared with $17.

The CHAIRMAN. And they offered the $17 rate.

Mr. GILES. Yes, sir. Most of the other points here, Mr. Chairman,

also refer to rates which I think I have generally covered.

The CHAIRMAN. There is something about the flour there, why

they went off with the shipment of processed flour.

Mr. GILES. There haven't been any sales of flour.

The CHAIRMAN. It is on the last page.

Mr. GILES. Yes, it says on the top:

We can't even get a share of the movement of bagged flour which has been sold to Russia. Here again, Continental Grain Co. is the seller.

To the best of our knowledge none of Continental's sale covered flour.

The CHAIRMAN. So there has been none of this type cargo offered? Mr. GILES. No, sir.

The CHAIRMAN. All right.

Mr. GILES. No, sir. Captain Goodman just pointed out that if there is flour involved we will have to have another rate because the rates we have published are the bulk grain shipments and it will be a different rate and undoubtedly would have to be higher.

Another paragraph, Mr. Chairman.

Our plea is that nonavailability waivers be granted by MARAD to the Continental Grain Co. and other brokers only when they have been unable to find American-flag vessels at the guideline rate applicable to each segment.

If that means the guideline rate applicable to the larger vessels and then at the guideline rate applicable to the smaller vessels, then obviously we can't do that because that is not in accordance with what we published back in November and what everybody understood.

We said that the guideline rate which the exporter can rely on in terms of quoting his final prices to make a sale will be the minus 20 percent.

The CHAIRMAN. He took into consideration these rates at the time he made the sale?