This of course is harsh reatment for the vessels involved. It is discrimination of an unprecedented order. It is also harsh treatment for U.S. taxpayers because under the laws governing Public Law 480 transactions the taxpayers have to cover the loss when low-bidding ships are disqualified.

For example, South, Inc., a shipping firm based in Jacksonville, Fla., on January 23 responded to the public invitation for bids on a Public Law 480 shipment and presented an offer for the firm's U.S.-flag tanker, Vicksburg, to perform from U.S. gulf to Karachi, Pakistan, at $22.75 per long ton. I have the same information from private sources that several other similar bids were made within the same freight rate range.

The CHAIRMAN. This is pertaining to the shipment of this wheat to satellite countries?

Mr. FINDLEY. No; this is a shipment of wheat under the Public Law 480.

The CHAIRMAN. I want to stay right to this program of shipping of wheat to the satellite countries.

Mr. FINDLEY. But, you see, the disqualification of this ship was because of the Government's desire to isolate certain vessels from the free world trade so that they would have no choice but to accept the materials and conditions for shipments to Russia, and that is why I think it bears directly on your hearing.

The bid was $22.75. The Government accepted the bid of $26.95 per long ton and the difference on this shipment, which was 30,000 tons, figures out to $120,000, and every penny of this $120,000 comes from the pockets of taxpayers.

The purpose of this policy, of course, is to encourage or to coerce U.S. vessels of certain size and equipage to accept this Russian-bound wheat cargo.

If U.S. flags are barred from Public Law 480 shipments, they have virtually no other place to go. They cannot operate without a substantial subsidy from the taxpayers and they can get a subsidy only if they carry business generated by the Government.

I hope that this subcommittee will check into this strange business and find out whether this preferential policy is lawful. As a matter of fact, in verifying this policy at the Foreign Agricultural Service, a part of the U.S. Department of Agriculture, I did ask for the authority and was told simply that the policy had come down from the Secretary of Agriculture's Office.

Another aspect of this deal which I believe bears directly upon the use of U.S.-flag ships for the shipment of wheat to Russia involves the export subsidy of 722 cents a bushel paid on 13 million bushels of durum wheat to the Continental Grain Co. of New York. This was way above what had been paid previously on the same variety of wheat. And twice since then a 52-cent subsidy has been paid. All except the one to Continental were for export to friendly countries, and Continental's grain was for Russia.

The CHAIRMAN. We will have to recess and answer this rollcall. The committee will resume, say, in a half hour or 20 minutes, whenever

we can.

Mr. Findley, you may continue after this.

Mr. FINDLEY. I will be back.

(A brief recess was taken.)

The CHAIRMAN. The subcommittee will come to order.

The witness will proceed.

Mr. FINDLEY. Thank you Mr. Chairman. I was mentioning when the bells rang the preferential treatment which clearly has been accorded to the Continental Grain Co. and why it does have a bearing upon the hearing into the Russian wheat sale.

Every responsible observer that I have heard comment or have seen in print has come to the conclusion that the abnormal export subsidy granted to Continental was, in effect, to cover the cost of shipping part of the wheat in U.S. flags.

The CHAIRMAN. We are going to ask witnesses who represent the different departments about these matters.

Mr. FINDLEY. Fine.

The CHAIRMAN. I assure you of that.

Mr. FINDLEY. In fact my purpose in coming was simply to express the hope that you would dig deeply into this to find out if it was indeed a lawful procedure and what the true facts are, and if it was not a freight subsidy to cover the cost of ocean shipping, who in fact did get the money. I have attempted to get the answer to some questions from the president of the Continental Grain Co. without success. He has not responded to my questions, and I believe that he could be useful as a witness should the chairman in his wisdom see fit to call him before the committee.

The CHAIRMAN. Let me interrupt you. As I keep saying, we are interested here in seeing that American-flag ships get 50 percent or as much of this cargo as they carry. These other matters you are bringing up here I expect the Committee on Agriculture will be interested in. I expect maybe other committees might be interested if there is substantial evidence to sustain the accusations you make.

Mr. TOLLEFSON. Mr. Chairman, if the chairman will yield, there are some things involved in Mr. Findley's statement that do bear upon the ability or the opportunity of American-flag ships to carry wheat. The CHAIRMAN. We will go into that.

Mr. TOLLEFSON. I think that is the point he is trying to make.

Mr. FINDLEY. Mr. Chairman, in addition to what I have presented in my written statement, I might point out that last October in the Federal Register rates for shipping to Odessa, Russia, were announced as being NSA rates less 20 percent for ships of a certain category, which meant that the little ships had no published rates for shipping to Odessa, so they were separated clearly intentionally from the Russian wheat deal and were not given a rate on which they could bid. The CHAIRMAN. I have a series of questions on that.

Mr. FINDLEY. So there has been an effort to discriminate against U.S.-flag ships, and it is my contention that they should have equal opportunity for all business.

The CHAIRMAN. I agree with you.

Mr. FINDLEY. Based upon my inquiries it is quite clear that they are not being treated equally. The only other point that I wanted to call to your attention was the question as to the procedure in granting an export license to Continental Grain.

It seems to me that the Commerce Department must have violated its own regulations in granting this license because, on the face of it, it

could not possibly have required the attachment of form FC-842, which requires all kinds of details of the transaction before the license could be issued and also requires a certification by the buyer that the grain would not be transshipped to another destination.

The CHAIRMAN. We will request the Department of Commerce to testify.

Mr. FINDLEY. I do appreciate your courtesy in permitting me to be here.

The CHAIRMAN. Thank you very much.

Mr. TOLLEFSON. Mr. Chairman, I would like to ask him one question so that I get this statement correctly. Do I gather from what you say that one of the points you are making is that in the granting of the export license and in the setting up of criteria the net effect was to exclude a certain category at least of American ships from an opportunity of carrying this grain?

Mr. FINDLEY. There is no doubt in my mind but what that is the effect and it is quite clear in the language of the Federal Register of that date back in October. It is also quite clear that this unwritten but nevertheless verified policy of recent date excludes certain U.S.flag vessels from bidding on profitable business to which I feel they are entitled.

They are being discriminated against in hauling commodities under Public Law 480 to free world destinations, and this is happening not only at great hardship to themselves, but at terriffic cost to the U.S. taxpayer.

Mr. TOLLEFSON. I just wanted to be sure that I had in mind the thing you were trying to present to the committee.

Mr. FINDLEY. Thank you.

The CHAIRMAN. Mr. Downing would like to ask a question.

Mr. DOWNING. Mr. Findley, would you be opposed to paying these ships a subsidy which would put them on a par with foreign flags in carrying this wheat sale?

Mr. FINDLEY. In these circumstances that is the only way we can do it and comply with the criteria set forth. I know of no legal way it can be done at present, though, because this is being regarded as a normal commercial transaction in the eyes of the administration. The subsidy on shipping in U.S. vessels is available only on business generated by the U.S. Government. So if we accept the fact that it is legal to grant a direct shipping subsidy on this, then we are accepting the fact that this is not a normal commercial transaction.

Mr. DOWNING. I believe you mentioned that Continental got a subsidy of 72 or 79 cents.

Mr. FINDLEY. They got a subsidy averaging 721/2 cents per bushel, which was labeled as an export subsidy as distinguished from a shipping subsidy.

Mr. DOWNING. Isn't that above the normal export subsidy?

Mr. FINDLEY. It is way above it. It is approximately 14 cents a bushel higher than the next previous subsidy for the same variety of wheat that was paid, and since then I might add there have been two transactions in which a subsidy of only 52 cents a bushel was paid, 20 cents below the subsidy paid to Continental. So a proper question is why the abnormal subsidy?

Mr. DOWNING. You say that it is to cover freight?

Mr. FINDLEY. Yes, and every other responsible observer, everyone who has commented in print or over the airways that I have heard, has supported this interpretation.

Mr. DOWNING. Since the American flag is out of this wheat sale program at present that freight that was added above and beyond the normal export subsidy would go to foreign flags, wouldn't it?

Mr. FINDLEY. It could happen, assuming that Continental is not able to sign up U.S.-flag ships on the terms and conditions it is presently insisting upon, and assuming Continental gets a waiver of the requirement of shipping half in U.S. flags.

They may get into a jam and be able to say that they have made a dozen tenders and still can't get ships. For example, they have already made three and they have only signed up I think approximately 100,000 tons. That is only a fifth of what they need. If they can't get the other ships in a reasonable period of time, they can come to the Commerce Department and properly ask for a waiver of this requirement.

If they are granted a waiver, they would then be free to bargain for foreign flags, and the question arises in that event who gets the bonanza. Can we recapture it as taxpayers, or does it stay in their pocket?

Mr. DOWNING. This morning the Exilona, an Isbrandtsen cargo ship, is loading at Norfolk with Continental grain.

Mr. FINDLEY. Right.

Mr. DOWNING. Do you know the arrangement under which that ship is sailing?

Mr. FINDLEY. It is a U.S.-flag ship. It is one of the very few they have been able to sign up. I have a list of the other flags, but I am sure the names are available to the committee.

Mr. DOWNING. Thank you. I think you have contributed a great deal.

Mr. FINDLEY. Thank you.

Mr. PELLY. Mr. Chairman, may I ask Mr. Findley a question?
The CHAIRMAN. Yes.

Mr. PELLY. Are you familiar with the distinction that is being made in the use of ships that have traded with Cuba between Public Law 480 and between these private transactions?

What I mean is there is a prohibition under the National Security Council against the use of any U.S. Government cargo to go in a ship that has traded with Cuba, but in these private transactions that prohibition does not apply.

Mr. FINDLEY. And that being the case, Mr. Pelly, my information is that several, if not all, of the non-U.S. ships signed up by Continental have touched Cuba in very recent months, and, therefore, would be disqualified from Government business, which is another reason that under the law we would have to regard this as a normal commercial transaction and the ships would not be qualified for a direct freight subsidy.

Mr. PELLY. That is the point I am getting at. In other words, these ships that have traded with Cuba, foreign-flag vessels, are in the market competitively against American-flag vessels, which they are not under Public Law 480, on Government-financed cargo.

Mr. FINDLEY. That is very true.

Mr. PELLY. I think that is very unfortunate.

Mr. FINDLEY. It is indeed.

Mr. PELLY. I think too there is a discrimination, is there not, in the fact that in the business of these grain shipments to Russia under the policy of the shippers there is an attempt being made to utilize the larger bulk carriers, but, as I understand, some of the Russian ports don't have the depth of water in order to allow these ships to unload there, so that if the larger carriers can't carry Public Law 480 cargo and it goes to the smaller vessels, and they are, because of their cheaper rates, being influenced toward carrying the grain to Russia, yet they can't carry that grain. I understand there is a port, Nakhodka, near Vladivostok, where the American-flag carriers, the supercarriers, are excluded from any shipment because they have a 34-foot draft as against a 31-foot capacity of those ports.

Mr. FINDLEY. This brings me to another hazard and hardship which is being placed on U.S. flags. They have no practical choice but to accept Continental's terms, but once they get the wheat aboard, they have no recourse against the U.S. Government or Continental. Their recourse is against the Soviet Union, and any complications or lighterage cost, for example, to lighten the load so they can get to the dock, would be upon the shipping firm and it would have to negotiate with the Kremlin on a settlement. They wouldn't really be in a very strong bargaining position.

Mr. PELLY. I understand, however, in Siberia the Russians do not have lighterage service, so that there is a complete ban on some American-flag larger carriers as far as carrying this wheat is concerned.

Mr. FINDLEY. They also face the hazard of higher port fees against U.S. flags. I have been informed by shipping firms that this is about three times as high for U.S. vessels as for foreign flags.

Mr. PELLY. What I think you are saying is that there has been a discrimination against the American-flag service, and it looks like the evidence points in that direction to me.

Mr. FINDLEY. Against certain U.S. flags, very definitely.

Mr. PELLY. Thank you, Mr. Chairman.

Mr. FINDLEY. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Now Mr. Giles, do you have a prepared statement?

STATEMENT OF ROBERT E. GILES, ACTING ADMINISTRATOR, FEDERAL MARITIME ADMINISTRATION, DEPARTMENT OF COMMERCE; ACCOMPANIED BY CAPT. MARTIN I. GOODMAN, CHIEF, OFFICE OF SHIP OPERATIONS; AND ROBERT ABLES, GENERAL COUNSEL

Mr. GILES. Mr. Chairman, I do not have a prepared statement. If it is all right with the committee I would like to take about 10 minutes and give the background on this and then try to respond to any questions.

I have, Mr. Chairman, with me on my left Captain Goodman, who is Chief of our Ship Operations Office in the Maritime Administration, and on my right Mr. Robert Ables, who is the General Counsel of the Maritime Administration.