The Russian people will know they are receiving American wheat. The United States has never had a policy against selling consumer goods, including agricultural commodities, to the Soviet Union and Eastern Europe. On the contrary, we have been doing exactly that for a number of years, and to the extent that their limited supplies of gold, dollars and foreign exchange must be used for food, they cannot be used to purchase military or other equipment. Our allies have long been engaged in extensive sales of wheat and other farm products to the Communist bloc, and, in fact, it would be foolish to halt the sales of our wheat when other countries can buy wheat from us today and then sell this flour to the Communists. In recent weeks Australia and NATO allies have agreed to sell 10 to 15 million tons of wheat and wheat flour to the Communist bloc. This transaction advertises to the world as nothing else could the success of free American agriculture. It demonstrates our willingness to relieve food shortages, to reduce tensions, and to improve relations with all countries, and it shows that peaceful agreements with the United States which serve the interests of both sides are a far more worthwhile course than a course of isolation and hostility. For this Government to tell our grain traders that they cannot accept these offers, on the other hand, would accomplish little or nothing. The Soviets would continue to buy wheat and flour elsewhere, including wheat flour, from those nations which buy our wheat. Moreover, having for many years sold them farm products which are not in surplus, it would make no sense to refuse to sell those products on which we must otherwise pay the cost of storage. In short, this particular decision with respect to sales to the Soviet Union, which is not inconsistent with many smaller transactions over a long period of time, does not represent a new Soviet-American trade policy. That must await the settlement of many matters. But it does represent one more hopeful sign that a more peaceful world is both possible and beneficial to us all. Mr. TOLLEFSON. I think it is generally conceded what he did say, whatever it was, gave the impression that American-flag vessels would be used to some extent or another. Mr. GILES. That is right. Mr. TOLLEFSON. Where "available" I think was the word used. If that was the case and there was no percentage figure why did you pick the 50 percent figure? I think your answer probably will because that sounds like our 50-50 law. Mr. GILES. Well, I won't say that the 50-50 law didn't have a little halo effect, but that was not the only reason, sir. We looked at the total picture. We took into account the Public Law 480 anticipated shipments during the next 5 or 6 months, and, remember, we are now back in October looking ahead 5 or 6 months and we are not looking ahead all the way through June 30, 1964, but through about April of 1964. We looked at that. We took into account and anticipated 41⁄2 million tons to be shipped to Soviet bloc countries, not all necessarily to the Soviet Union, but to Soviet bloc countries. That is what the discussion was, and it was evident to the shipping people and it was evident to the Government officials that physically we would not have the American tonnage to handle one-half of all of that. Then the discussion went to the point as to what is a reasonable top percentage that we could reasonably expect our American carriers to handle, and based on our estimate as to the physical availability we did arrive at the 50 percent on the basis of discussions with various people in the shipping industry. I don't know how much in our collective minds the cargo preference law such as Public Law 480 and the 50-percent requirement had an influence. I will say that it was not selected purely on that basis. Mr. TOLLEFSON. I have no quarrel with what you did in that respect. As a matter of fact, I wish there was something we could do to see to it that 50 percent of all our cargo coming and going is carried in American-flag ships. Presently that 50-50 provision applies only to Government-sponsored cargoes, and I am glad that you were at least thinking in terms of trying to be helpful to the American merchant marine. As a matter of fact, that is your responsibility, isn't it? Mr. GILES. That is right, yes, sir. Mr. TOLLEFSON. You are the promotional branch of our maritime setup as opposed to the regulatory branch, the Maritime Commission, which, while you theoretically are promoting the American merchant marine, the Commission is putting its brakes on. I am glad to see some thinking on your part about the welfare of the American merchant marine. I am interested in this statement of yours that this is a purely commercial transaction. I just frankly can't quite see this. We have always talked about our 50-50 law as applying to Government-sponsored cargo, and this certainly must be some kind of a Government-sponsored cargo. Further than that, your actions with respect to it indicate a lot more Government interest and activity than is normally the case with purely commercial transactions. Isn't that so? Mr. GILES. With respect to the shipping aspect that is true. Mr. TOLLEFSON. I am going beyond that even. I am talking about the export license, and the export subsidy, and that sort of thing. I am taking the whole picture. It seems to me that the Government is more active in this transaction than in any other commercial transactions. Mr. GILES. It is to the extent, Mr. Tollefson, that this involves an important commercial sale to the Soviet Union and it raised questions about our basic export policy. There are other sales in the export of items, for example, to a Soviet bloc country, that individually will receive as much concentrated attention in one form or another; say, for example, a requested sale of machinery of some type. It doesn't get the attention that this particular sort of transaction does because it is not of the same size or magnitude, and of course this did raise basic questions of policy. The President was involved. Congress was involved. Mr. TOLLEFSON. It involves our whole foreign policy and our foreign trade policy. Mr. GILES. Yes, sir. Mr. TOLLEFSON. And this transaction would not have taken place except that the President made a foreign policy or a foreign trade declaration or announcement that we would sell grain to Russia. Had it not been for that decision, this transaction wouldn't have taken place at all, would it? Mr. GILES. That is true, and that would be true with respect to the export of any other item to the Soviet bloc countries. Mr. TOLLEFSON. There is no point in us discussing it. You say it is a commercial transaction. I say it is as much of a Governmentsponsored transaction as any that I can think of, but then that is just a matter of difference of opinion. However, I am intrigued by some things that have happened. You have said today and yesterday that one of the reasons you fixed a guideline on cargo rates was to give Continental an opportunuity to know just where it stood so it could negotiate a contract or agreement with Russia. Incidentally, does Continental deal directly with the Government of Russia? Mr. GILES. Well, with the Soviet trade representatives. They are in their purchasing agency now. Mr. TOLLEFSON. I would assume there is not much private enterprise over there. Mr. GILES. There is not much private enterprise, I understand, so they were government employees or officials, but they were in their international trade department. Mr. TOLLEFSON. So here is an exporter in what you call a purely commercial transaction getting the Federal Government to assure him in advance a ceiling on his rates so he will know exactly where he stands. Has the Government ever done that in other commercial transactions, sort of assured the commercial exporter that his ocean freight rates would not exceed a certain ceiling? Mr. GILES. I don't recall any other commercial transaction or shipment, sir, but I don't recall any other shipment in this category where this sort of shipping requirement has been imposed. Mr. TOLLEFSON. You mean your shipping requirement? Mr. TOLLEFSON. Which leads me to an incidental question because of what you said. What would have been wrong with imposing the 50-50 thing and just letting nature take its course? Mr. GILES. Well, that is the point I was commenting on awhile ago, sir. Perhaps, and apparently, there are some people in the shipping industry now who, looking back on it, have some views along that line. Nobody has come in, though, and put things down in black and white and said, "Well, we are willing to stand up and say that this is so and we are asking the Government on behalf of the shipping industry to remove this requirement." Mr. TOLLEFSON. I am not advocating it. I am glad that you are seeking to see that we get 50 percent if, in fact, this proves to be what you really are trying to do. Mr. GILES. Well, it is, and let me just add, sir, that at the time in last October when this decision was made and the President announced this, the Department officials had been consulted and everybody involved then thought it was a desirable thing; it would be to the interest of our country; it would be to the interest of our merchant marine; it would mean certainly that American ships would get more business than they could anticipate if they did not have this 50-percent requirement; it would assist our balance of payments; it would give us employment and all of that, so the policy decision which was made then was made in the light of what the President and the other officials thought would be in the total public interest and in the interest of the merchant marine. Mr. TOLLEFSON. Now, then, there isn't any ceiling imposed on the foreign-flag ship that might carry this grain, is there? I mean your ceiling applies only to the American-flag ship? Mr. GILES. Any rate ceiling? Mr. TOLLEFSON. Yes. Mr. GILES. No, sir; there isn't. The matter of rates is between the charterer and the operator. Mr. TOLLEFSON. There is no protection against the foreign-flag operator at all by your ceiling on the American-flag freight rate? Mr. GILES. No, sir; we wouldn't have any authority to tell the foreign-flag operator what he would have to charge. Mr. TOLLEFSON. I agree with you there, but I am constrained to say that your Department or any department or agency of Government has a different point of view with respect to ordering foreign-flag shipsas to what and what not to do. Mr. GILES. I mean in this particular case. If the foreign-flag operators come in and their prices edge up there to the level of what the American-flag operator could offer, then I would certainly assume that the American-flag operator is going to get his portion of the business at that point by competition, but where there is this difference that we started out with-there is still a very substantial difference in the level of the two rates-the American operator with his higher operating costs simply can't haul this grain at the price that the foreign operator can. Mr. TOLLEFSON. The exporter here is the subject of concern on the part of the Government, whether your Department or the Department of Agriculture. You put him in a different position than any other commercial exporter has ever been put before, and it just seems to me, while you expressed concern for the welfare of the American merchant marine, I am inclined to think that taking the Government's position as a whole it is more concerned with something else.. The Government is offering this export subsidy of what is it— 722 cents a bushel on the average, which is something like 14 or 1412 cents a bushel more than ever has been given before. I am not certain in my own mind who is getting the guarantees or the assurances here. Is the object to try to protect our Government or do something for our Government, or is the object to give assurances and assistance to the exporter, or is it to assist the purchaser, Russia? Who are we most concerned with here? Mr. GILES. As to the export subsidy which the Agriculture Department gave here on the Continental sale, I believe I should defer to the Agriculture Department witnesses on that. I frankly don't have the details or know enough about it. I do have a comment and a view. So far as any subsidy or assistance to the purchaser, that is, to the Soviet buyers, I do not think that that is involved at all. The Soviets say, "Well, we will purchase wheat at the world market," and they know what the world market is. Then they say, "When we say world market, we also know what the world shipping market is," and they do. They have experts on that. "Then we want to buy wheat on the same basis that you would sell to Yugoslavia, or to Poland, or to West Germany, or to any other country," and I am informed and understand, and I think it is correct, that the net total price that these exporters have been able to make actual sales on has been on that basis. So far as the shipping is concerned, any subsidy involved in this, for example, if we have higher costs in Public Law 480 because we use smaller vessels rather than the larger, that is an indirect subsidy to our merchant marine, and that is understood. I am prepared to defend that because our merchant marine has higher operating costs than their foreign competitors and I think we have to recognize that as a matter of Government policy. So far as the export subsidy, which Agriculture has on its wheat, I think there couldn't be any real doubt as to who is really the beneficiary, and I think the proper beneficiary, of that export subsidy is the American farmer. If we want to sell wheat on the world market, if we want to sell it to France, or to West Germany, or to these other countries at the world prices, which are lower than our domestic prices, lower than what we pay our farmers for the wheat, then we have the subsidy. That is what we have, in effect. Mr. TOLLEFSON. I know. I am aware of all the arguments in behalf of this Russian wheat sale, but the fact remains that the export subsidy in this particular case is roughly 142 cents per bushel higher than in any other. I don't know where this 142 cents is going. My impression is that it was designed to help Continental with its ocean freight rate. Now, if that is the case and if American-flag vessels aren't available at fair and reasonable rates as established by your guidelines, then Continental could conceivably ship the wheat on foreign-flag at a rate whereby that 142 cents per bushel could net a tremendous profit to Continental. Is there anything in the arrangement that you know of to stop that? Mr. GILES. I don't know of any arrangement between the Agriculture Department and Continental which says that, if you don't get so much American-flag shipping, then our export subsidy rate will be recomputed. I have not heard that there is any such arrangement. My general information is from Continental officials, general talking, and I do not know the details of their transaction or the exact price at which they sold, or the exact price they had to pay, but they have indicated to me very definitely-and he said they have told this, that it is no secret-that they did not have a price which would allow them any margin on the American shipping above about 25 percent, and that they were taking this risk in terms of cutting down their usual profit margin, and we have made it plain to them that if the 50-percent American shipping is there they are going to have to use it, and they have a price apparently where they could come out about even or at least not lose too much if they get that. Mr. TOLLEFSON. Are you going to watch all those transactions? Mr. GILES. Under the export regulations put out by the Secretary of Commerce we get reports from all of the exporters who are involved in these transactions of their actual shipments, the ships that they use, foreign and domestic, and we get the name of the ship, the tonnage, and so forth as promptly as the exporter can give it to us for the purpose of policing, you might say, this 50-percent requirement to assure |