U.S. EMBARGO POWERS

At the time of the embargo of soybeans we had before the Banking Committee a question of the export control authority and there was some question at the time about the legal right to embargo. The administration was asking for additional authority to embargo. I assume you would immediately have the power to embargo wheat now if you wanted to.

Secretary SHULTZ. I think so; yes.

Senator PACKWOOD. We are projected

Secretary SHULTZ. But I would like to enter the caveat that no one should take that remark as meaning we are about to do so.

Senator PACKWOOD. Oh, no, I wanted to know about the authority. Secretary SHULTZ. I say that because this is such a touchy business, and you mention that word and you start off a chain of events that is very disruptive. It is like price controls, the existence of the ability to control prices brings about price increases.

Senator PACKWOOD. I do not want to get us into a bind and have the administration come forward and say, "We do not have the authority," and I am curious if it exists.

Secretary SHULTZ. I think the act, the basic act, is up for renewal June 30. I think it expires, so in any case, it has to be renewed and examined.

Senator PACKWOOD. Very good.

We are projected to have 2.1 billion bushels of wheat this year and we normally use 700 or 800 million bushels domestically. Do you know what part of that difference is already contracted for exports?

Secretary SHULTZ. Well, we have an extensive set of information on domestic demand and exports recorded and also export contracts. Contracts to export are, the statistics on that are tricky to evaluate because again the thought in some people's mind that there might be controls suggested to them they ought to enlarge the volume of their export contracts so if there is a cutback they are way up here and they would only be cut back to there, which is where they wanted to be anyway. So that you can deceive yourself with some of these figures. But we have been working within the administration to have a good understanding of this, and to take steps that will insure that we will bridge over to the next crop year in a proper fashion.

Senator PACKWOOD. Would the power of embargo include the power to embargo wheat already sold under concluded contracts?

Secretary SHULTZ. I am sorry, I could not hear you very well. Senator PACKWOOD. Does the power to embargo include the power to embargo wheat already sold for export under completed contracts? Secretary SHULTZ. Well, one of the problems, of course, is that we ran into this in the soybean case-is you get to the point where there is more sold than there is. That is what the situation was, at least according to the contracts. There were more soybeans bought than existed, and so if you are going to cut off some place you are going to cut into some contracts, and, of course, that is undesirable.

FLEXIBLE EXCHANGE RATES

Senator PACKWOOD. Let me switch gears on you now, George. In your testimony, you talk about the counterveiling duty law. I am not too familiar with it but I assume as I read your testimony, it gives you

some kind of unilateral power to respond to what we would call unfair unilateral export subsidies; is that correct?

Secretary SHULTZ. Yes.

Senator PACKWOOD. OK, the value added tax, your view in a value added tax to exporters, as I understand.

Secretary SHULTZ. That is correct.

Senator PACKWOOD. Is that a serious detriment to our competing on our exports?

Secretary SHULTZ. Not in the world of flexible exchange rates.
Senator PACKWOOD. Why?

Secretary SHULTZ. Because I believe the export subsidy question, as I said in my testimony, needs to be worked on so that we can get some multilateral agreements on what we mean by an export subsidy and what we do not mean, and so on. But I think that the problem is less serious when exchange rates can take account of particular efforts that may be made by a country to affect its flow of trade. In other words, an export subsidy in a sense, can be defined as a partial devaluation, that is what it amounts to. It affects only certain products and it affects only one side of trade, affects every export-import trade but it has that general effect. When we had a system of fixed exchange rates, particularly from our point of view, where everybody could sort of operate against us, which was the situation we were enduring for low these many years, then it constituted a great problem. But I think now, while it is still a problem that needs very much to be worked on, it is a lesser one.

Senator PACKWOOD. Do you expect we are going to stick with the flexible rates for an extended period of time?

Secretary SHULTZ. Yes.

Senator PACKWOOD. I have no other questions, Mr. Chairman.
The CHAIRMAN. Senator Byrd.

Senator BYRD. Thank you, Mr. Chairman.

PROBLEMS IN THE SHOE INDUSTRY

The shoe industry provides a great many jobs in many States, it provides a lot of jobs in Virginia, and I want to ask three or four questions in this regard. I have got for myself and for my colleague from Rhode Island, Senator Pastore.

Mr. Flanigan, over 3 years ago the Tariff Commission submitted to the President a split decision in the escape clause investigation covering nonrubber footwear which the President himself had initiated. As I understand it, that was the first and only time to date that a President of the United States has asked for such an escape clause investigation. Is my understanding correct?

Mr. FLANIGAN. I do not know whether that was the only occasion in which such had been-Ambassador Eberle says it is correct.

Senator BYRD. It is the only case. Since the tie decision has been submitted to the President there has been no action taken by the White House. Could you tell us what the status of that tie decision is and when the nonrubber footwear industry and the Congress might expect some resolution of the escape matter now before the President?

Mr. FLANIGAN. Senator, the fact is that there was some action taken and some successful action, though not the action that the industry itself wanted under that split decision. At the time the decision was

rendered, the vote was taken, the major source of imports was Italy, and the second major source was Spain. The administration, recognizing the broad economic relations, particularly trade relations, that existed with these countries, undertook to negotiate a voluntary restraint agreement with these countries, and did so successfully with Italy and, I think, if you look at the record in the last couple of years you will find that they have not taken an increasing share of our shoe market.

We also, while having a very significant trade surplus in a broad range of goods with Spain, only partly offset by their surplus resulting from shoes, did discuss with the Spanish this problem. We did not get a voluntary restraint agreement but we have found, again if you look, that within the last year imports from Spain have leveled off and are no longer increasing as a percent of our market from a volume point of view.

There were, however, two new entrants into the market, Brazil and Argentina. Both have been very, very small. I think Brazil is just 2 or 3 percent of the market, and Argentina less than 1.

The Treasury is conducting an investigation of the matter to see what the facts are, and that investigation is currently being pursued.

But I would suggest that the two major exporters to the United States have leveled off in their growth and they are no longer increasing their percentage of the market. The others that the Treasury is investigating are currently a very small percent of the market.

Senator BYRD. The Treasury is investigating under the countervailing statute, I believe.

Mr. FLANIGAN. That is correct, and that, I believe, is the area in question.

Senator BYRD. How does that differ from this escape clause?

Secretary SHULTZ. They are two separate acts. In the countervailing duty situation the question is asked is whether this particular export is receiving a subsidy from the State or a bounty, and if the report is being subsidized then the Treasury may countervail to the extent of the subsidy. That is a different kind of a question.

Senator BYRD. That is a different action from what we were speaking of a moment ago on the escape clause.

Now, Mr. Flanigan, has the escape clause decision-do you feel that has been complied with, is that your testimony?

Mr. FLANIGAN. Well, it was a split decision.

Senator BYRD. It was a tie decision.

Mr. FLANIGAN. As you pointed out, Senator, so I do not think it was a matter of compliance. I think it was a concern and we attacked it in the two major cases through what seemed to us a more appropriate and better method, in the best interests of our exporters and of the international economic community as a whole. If there is a problem with regard to these two remaining areas in which there is a growth, although it is on a very small base, that it is appropriate that it be done on the countervailing duty method basis.

Senator BYRD. Mr. Secretary, could I ask you then, about the status of the countervailing duty? The first petition to the Treasury Department was submitted over a year ago, and the second about 8 months. To date, as I understand it, no action has been taken. I note in the Federal Register that the Treasury Department is proceeding to investigate. Is that the status?

Secretary SHULTZ. Well, the Treasury Department is investigating, although our investigation is not as yet in a formal stage. We are trying to find out in a less than formal way as much as we can about the Spain, Brazil, and Argentina areas, which seem to be the ones involved. Senator BYRD. A year is a rather substantial period, is it not? Secretary SHULTZ. Well, we have gotten a fair degree of progress, but not as much as we would like.

Senator BYRD. What progress has been made?

Secretary SHULTZ. We have received, I think, a fair amount of information from Spain and we are in the process of evaluating that. In the case of Argentina, the amount of exports coming to us is really minuscule. It does not seem to be large enough to warrant us moving forward.

In the case of Brazil, we are trying to get a better understanding of their export subsidy practices, and we do not feel we have sufficiently gotten that as yet.

Senator BYRD. Could you indicate as to when action or investigation might be completed and when it might be analyzed?

Secretary SHULTZ. Well, I hesitate to lay down a precise date, although I suspect that one reason why the House put in a 1-year timespan on these matters is in order to prod us along.

Senator BYRD. Well, the year has expired, has it not?

Secretary SHULTZ. Right.

Senator BYRD. Well, may I draw the conclusion from your testimony that expeditious action will be forthcoming?

Secretary SHULTZ. Always, always. [Laughter.] Expeditious as is appropriate under the circumstances. [Laughter.]

Senator BYRD. With the nonrubber footwear industry having lost better than 40 percent of its market to import footwear, do I judge from your testimony that there will or will not be relief in sight?

Secretary SHULTZ. Well, I can speak about countervailing, and to the extent that we find that this 40 percent is supported by subsidies from governments, and I do not believe it is, but to the extent that we find that, then we would countervail.

Senator BYRD. But your investigation does not at this point bear that out?

Secretary SHULTZ. The three countries that we are currently reviewing do not amount to anything like that proportion of the total. Senator BYRD. There has been some suggestion about the possibility of negotiating an international agreement to limit trade in nonrubber footwear such as the multilateral fiber arrangements recently negotiated in textiles does that seem a feasible action?

Secretary SHULTZ. Ambassador Eberle volunteers to that. He is the expert.

Mr. EBERLE. Senator Byrd, there has not been the same interest as in the textile industry. There are a few countries involved. At this point my judgment would be it would not be practical.

Senator BYRD. It would not be practical.

I have another subject but how much time do I have remaining? Senator HANSEN. May I yield 2 minutes of my time to Senator Byrd, Mr. Chairman?

Senator BYRD. I thank my colleague from Wyoming.

REPAYMENT OF RUSSIAN DEBT CONTINGENT ON MFN STATUS

Mr. Secretary, on the settlement of the Russian debt, much of that settlement was made conditional on the Soviet Union obtaining mostfavored-nation status. That is correct, is it not?

Secretary SHULTZ. We are trying to call that nondiscriminatory treatment status. But with that amendment, that is correct.

Senator BYRD. Whether or not Russia obtains certain concessions, trade concessions, bears on whether or not she has agreed to pay a substantial part of her debt, does it not?

Secretary SCHULTZ. There has been an effort to negotiate an understanding about conditions of trade between the two countries, and one of those conditions is that imports from Russia be treated in the same manner as imports from other countries are treated so far as tariffs are concerned and another portion has to do with the debt. Until we are able to implement the whole agreement, it is not possible to have it totally implemented in each of its parts.

Senator BYRD. So the unconditional part of the debt was that she agreed to pay it was $48 million and 2 percent of the total. The conditional part was $674 million. I wonder who established that condition and why was it done?

Secretary SHULTZ. I think Mr. Flanigan was there and perhaps he can comment on that.

Mr. FLANIGAN. There was an agreement on the part of the Soviets to begin the repayment of their lend-lease debt in the amount that was negotiated. They pointed out that the original lend-lease agreement made repayment conditional on normal trading relations existing between the lender and the borrower, and they interpreted these normal trading relations to be nondiscriminatory trade treatment.

They agreed to begin the payment of the debt, the first tranche, on the assumption that they would get nondiscriminatory trade treatment, but they put a time limit, Senator, on that period after which they would suspend repayment until such nondiscriminatory trade treatment was put into effect. It was that time limit, its expiration, which I do not recall exactly but I think it was about a year, which determined how much would be paid before they would expect as a condition of continued payments nondiscriminatory trade treatment to their goods entering the United States.

Senator BYRD. I think in regard to that agreement, the same as to the other agreements made with Russia in 1972, the United States came out second best by far. I do not want to take more of Senator Hansen's time, but I ask unanimous consent, Mr. Chairman, to insert in the record at this point pages 17, 18, and part of page 19 of the hearing before the Subcommittee on International Finance and Resources of the Finance Committee, October 29, 1973, dealing with the subject.

The CHAIRMAN. Without objection, it will be done.

[The excerpt referred to follows:]

Senator BYRD. May I interrupt at this point? The amount which the Soviet Union owed the United States was $2.6 billion; is that right?

Mr. WEINTRAUB. No, sir. There had been no agreed amount that the Soviet Union owed the United States. This was subject to a negotiating procedure.

Senator BYRD. What the United States claimed the Soviet Union owed the United States was $2.6 billion.