On this point, article XVI of GATT provides as follows: "If any contracting party grants or maintains any subsidy, including any form of income or price support, which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into, its territory, it shall notify the contracting parties in writing of the extent and nature of the subsidization of the estimated effect of the subsidization on the quantity of the affected product or products imported into or exported from its territory and of the circumstances making the subsidization necessary. In any case in which it is determined that serious prejudice to the interests of any other contracting party is caused or threatened by any such subsidization, the contracting party granting the subsidy shall, upon request, discuss with the other contracting party or parties concerned, or with the contracting parties, the possibility of limiting the subsidization." Pursuant to this provision, the United States will have to give notice of its intention to institute this subsidy program and may have to discuss with other governments the possibility of limiting the subsidization. In March 1955, various amendments to GATT were drafted at Geneva, including an amendment to article XVI. The United States has signed this amendment. Altogether about 13 governments signed it and since signatures of a total of 24 governments will be required to put the amendment into effect, we understand that the amendment may go into effect within about a year. It is, therefore, advisable to test the proposed subsidy program against the provisions of the amendment. The new form of article XVI takes over the present article XVI as section A and adds section B thereto, as follows: "SECTION B. ADDITIONAL PROVISIONS ON EXPORT SUBSIDIES "2. The Organization recognizes that the granting by a contracting party of a subsidy on the export of any product may have harmful effects for other contracting parties, both importing and exporting, may cause undue disturbance to their normal commercial interests, and may hinder the achievement of the objectives of this agreement. "3. Accordingly, contracting parties should seek to avoid the use of subsidies on the export of primary products. If, however, a contracting party grants directly or indirectly any form of subsidy which operates to increase the export of any primary product from its territory, such subsidy shall not be applied in a manner which results in that contracting party having more than an equitable share of world export trade in that product, account being taken of the shares of the contracting parties in such trade in the product during a previous representative period, and any special factors which may have affected or may be affecting such trade in the product. "4. Further, as from January 1, 1958, or the earliest practicable date thereafter, contracting parties shall cease to grant either directly or indirectly any form of subsidy on the export of any product other than a primary product which subsidy results in the sale of such product for export at a price lower than the comparable price charged for the like product to buyers in a domestic market. Until December 31, 1957, no contracting party shall extend the scope of any such subsidization beyond that existing on January 1, 1955, by the introduction of new, or the extension of existing, subsidies. "5. The organization shall review the operation of the provisions of this article from time to time with a view to examining its effectiveness, in the light of actual experience, in promoting the objectives of this agreement and avoiding subsidization seriously prejudicial to the trade or interests of contracting parties." Relevant interpretative notes to this amended article XVI are as follows: "Section B. * * * "2. For the purposes of section B, a 'primary product' is understood to be any product of farm, forest, or fishery, or any mineral, in its natural form or which has undergone such processing as is customarily required to prepare it for marketing in substantial volume in international trade. "Paragraph 4. * *The intention of paragraph 4 is that the contracting parties should seek before the end of 1957 to reach agreement to abolish all remaining subsidies as from January 1, 1958; or, failing this, to reach agree ment to extend the application of the standstill until the earliest date thereafter by which they can expect to reach such agreement." The definition of a "primary product," as above stated, is not clear, but we understand that in conversations at Geneva, flour and vegetable oils were understood to come within the definition. Apart from the uncertainty as to the scope of the term "primary product," consideration should be given to several factors, (a) that the program will provide for a payment only on the raw cotton content of the processed commodity; (b) that the existing program on the exportation of raw cotton in effect extends assistance to foreign manufacturers and discriminates against United States manufacturers of cotton products; and (c) that the program now under consideration would merely remove that discrimination. We have been informed by the Foreign Agricultural Service that a subsidy (or import charge) on the raw material contained in a processed product associated with an equivalent subsidy (or import charge) on the raw material itself is an accepted commonplace of international trade. In GATT tariff and subsidy discussions, such subsidies and charges are usually called "compensatory" and prevent distortions of the trade in the processed product, which would result if subsidies were paid or charges levied on the raw material when it is traded as a separate commodity but not on the raw-material content of a processed commodity. We have also been informed by the Tariff Commission that duties under our laws on imported processed products are computed so as to take into consideration both the raw-material content in the product and the cost of processing. In most instances, the two elements are combined in a single rate, but in some cases they are stated separately. For instance, the rates on woolen products are expressed in a number of cents per pound plus a percentage ad valorem, and we are informed by the Tariff Commission that the cents per pound correspond to the duty on the raw wool content of the product and the percentage ad valorem is laid on the cost or processing (19 U. S. C. 1001, schedule 11, paragraphs 1108 et seq.). We, therefore, believe that this Government may take the position that the parties who agreed to the amendment of article XVI of GATT understood that permission pursuant to paragraph 3 of section B to pay subsidies on raw cotton exported from the United States would also include permission to pay subsidies on the raw-material content of cotton textiles exported from the United States, not exceeding the subsidy on the equivalent quantity of raw cotton, and that the payment of such export subsidies on the raw-material content of cotton textiles is not in violation of article XVI of GATT, as amended. R. L. FARRINGTON. UNITED STATES DEPARTMENT OF AGRICULTURE, To: Board of Directors, Commodity Credit Corporation. The attached docket provides for the implementation of the International Wheat Agreement for the 1954-55 fiscal year. This docket authorizes a program similar to that authorized by Docket UCX 2a, now in effect. It covers (1) payments to commercial exporters pursuant to sales of wheat and wheat flour made by them, and sales of wheat made by CCC, if any, after June 30, 1954, which are considered to meet the requirements for recording against the 1953-54 Wheat Agreement guaranteed quantities, and (2) payments to commercial exporters pursuant to sales made by them, and sales made by CCC, if any, after the date of approval of this docket, which are considered to meet the requirements for recording against the 1954-55 Wheat Agreement guaranteed quantities. The docket provides that export rates which exceed by more than 30 cents the difference between current domestic prices and the current equivalents of the agreement maximum price (after allowance for quality) may be established only when the Vice President, CCC, determines that such action is necessary. As of this date, the prevailing level of IWA selling prices is approximately 30 cents under the basic maximum, so what is provided in the docket is that any change in rates which would result in a further lowering of IWA selling prices may be made only with the prior approval of the Vice President. However, a temporary deviation or tolerance of an additional 5 cents is provided for purposes of needed flexibility in day-to-day operations. To illustrate: A rate may be established which is designed to permit sales at a calculated sales price, but because of certain temporary market or supply factors the sales may actually materialize at a lower price or may be shut out because the rate is too restrictive. This 5-cent tolerance is needed to provide flexibility in adjusting the rates in the light of the actual transactions which take place. The estimated cost is predicated on the assumption that the 1954-55 guaranteed quantity for the United States after certain adjustments have been made at the 15th session of the wheat council which convenes June 16, 1954–will be 193,650,000 bushels, and that this entire quantity will be sold during the life of this authorization except for 10 million bushels which will fall within the following fiscal year. An average payment rate of 70 cents per bushel is estimated on the balance of 183,650,000 bushels. The total estimated cost also takes into account estimated sales of 10 million bushels in the final concluding month of operations of the current IWA crop year, 1953–54, at an average payment rate of 50 cents per bushel. The estimated cost takes into account the prospective domestic market prices of wheat and the probable wheat agreement selling prices. It is assumed that domestic market prices of wheat during the crop year will remain approximately at levels which prevailed during the preceding year and that the IWA selling price level will be approximately 40 cents below the maximum whereas currently it is approximately 30 cents below the maximum. No press release will be issued announcing this program. However, reference to this program will be made in the announcement to be issued by the Department in connection with applicable export payment rates. Recommended: (Signed) MARVIN L. MCLAIN, Director, Grain Division. Approved for submission to the Board of Directors, Commodity Credit Corporation: Attachment. (Signed) PRESTON RICHARDS, 1954-55 CCC WHEAT AND WHEAT FLOUR EXPORT PROGRAM PURSUANT TO THE INTERNATIONAL WHEAT AGREEMENT VCX 2a A. INTRODUCTION I. Purpose This authorization implements the International Wheat Agreement by providing for CCC (1) to make payments to commercial exporters on wheat and wheat flour sold and exported by them to designated countries and (2) to sell and deliver wheat and wheat flour to designated countries at prices within the International Wheat Agreement price range. The program is designed to facilitate exportation of wheat and wheat flour to those importing countries participating or expected to participate in the Internaional Wheat Agreement and at the same time exercise the rights, obtain the benefits, and fulfill the obligations of the United States under that agreement. II. Justification For purposes of this docket it is assumed that the United States guaranteed quantity for the crop year beginning August 1, 1954-after certain adjustments have been made at the 15th Session of the Wheat Council which convenes June 16, 1954-will be 193,650,000 bushels. The United States is obligated to furnish its guaranteed quantity to participating importing countries at prices which are the equivalent of $2.05 per bushel for No. 1 Manitoba Northern bulk wheat in store Fort William/Port Arthur, Canada. Importing countries are obligated to purchase their respective guaranteed quantities from participating exporting countries at prices which are equivalent to $1.75 per bushel for No. 1 Manitoba Northern bulk wheat in store Fort William/Port Arthur, Canada. Voluntary transactions occur at prices between the maximum and the minimum. In order to meet the obligation of the United States and to obtain the benefits of the agreement, it will be necessary to provide payments to exporters of wheat and wheat flour in order to facilitate exportation through private channels of trade, since United States domestic market prices undoubtedly will be higher than the selling price prevailing under the Wheat Agreement. Authorization is needed to establish export payments to commercial exporters at levels which will enable them to sell wheat or flour at prices which are the equivalent of the agreement basic maximum price, or minimum price, or any point in between, in order to place the United States in a competitive position with other exporting countries. Similar authorization is needed to sell CCC wheat under the agreement, if and when the President or Executive Vice President, CCC, determines that such action is necessary to obtain the full benefits of the agreement, inasmuch as there may be instances when sales could not be negotiated in any other way. III. Statement of Loss The cost of this operation will be recovered by payments to the Corporation from appropriation authorized under section 2 of the International Wheat Agreement Act of 1949, as amended, which authorizes reimbursement to the Corporation for the Corporation's estimated or actual cost of carrying out this operation. IV. Legal Authority Legal authority for this program is contained in the Commodity Credit Corporation Charter, as amended, particularly section 5 (c), (f), and (g) thereof, and section 2 of the International Wheat Agreement Act of 1949, as amended. A. Estimated total funds to be used or obligated.—It is estimated, for budgetary purposes, that the gross total amount of funds required for this operation is $136,095,800, which includes administrative costs, and also includes interest on CCC's receivable account. This amount is not proposed as a definite limitation on operations or expenditures. B. Period of commitment.-Obligations may be incurred under this operation from the date hereof through June 30, 1955, but with respect to any particular importing country not beyond such time as it is evident to the Vice President, CCC, that such country will not ratify or accede to the agreement. C. Allocation of costs.-The net cost of carrying out the program will be determined and established as receivable on the books of the Corporation as follows: 1. For wheat acquired by the Corporation under the price-support program and sold pursuant to the wheat agreement, the net cost to the wheat agreement program will be the amount by which the domestic market price exceeds the sales price for such wheat, even though the Corporation's cost may be above or below the domestic market price. 2. For wheat and wheat flour acquired by the Corporation under its supply program and sold pursuant to the wheat agreement, the net cost to the wheat agreement program will be the amount by which the cost of such wheat or wheat flour to the Corporation exceeds the sales price. The cost of such wheat or wheat flour to the Corporation will be calculated in accordance with docket CZ 200, Policy for Disposal of Commodities Acquired Under Commodity Credit Corporation Programs and Sales Prices To Be Charged on Sales by Commodity Credit Corporation, and any amendments and supplements thereto. 3. Payments to commercial exporters by the Corporation in connection with domestic wheat and wheat flour sold by them pursuant to this program. 4. Administrative expenses incurred by the Corporation in carrying out its functions in connection with this program. 5. Interest accrued on the receivable at the rate paid by CCC on borrowings from the United States Treasury. II. Provisions of program A. Period of operations.-This authorization covers payments to commercial exporters pursuant to sales made by them, and sales made by CCC (1) after June 30, 954, for recording against the 1953-54 crop year guaranteed quantities, and (2) after the date of approval of this docket for recording against the 195455 crop year guaranteed quantities. B. Payments to commercial exporters.-Payments are authorized to commercial exporters of domestic wheat, and wheat flour processed therefrom in the United States, pursuant to sales to designated importing countries which it is determined will meet the requirements for recording against the guaranteed quantities of the United States and the imorting countries even though such sales may not subsequently be recorded by the Wheat Council. In addition, payments are authorized with respect to sales made prior to such time as it is determined the exporter received or reasonably should have received information that the guaranteed quantity of the importing country involved had been filled, provided it is determined that the sale is otherwise eligible and does not represent a deliberate attempt by the importing country to obtain wheat or wheat flour in excess of its guaranteed quantity. The payments will be made on the basis of published announcements of rates for wheat and/or flour. Rates will be determined on the basis of the relationship between (a) domestic market prices, and (b) current prices which are equivalent to the Wheat Agreement basic maximum price of $2.05 per bushel for No. 1 Manitoba Northern bulk wheat in store at Fort William/Port Arthur, Canada, or the basic minimum price determined under the provisions of the agreement, or any point in between, as may be necessary in order to place the United States in a competitive position with other exporting countries or in a position to exercise its right under the agreement to call upon importing countries to purchase their guaranteed quantities. However, export rates which exceed by more than 30 cents the difference between the current domestic prices and the current equivalents of the agreement maximum price (after allowance for quality) may be established only when the Vice President, CCC, determines that such action is necessary in order to permit commercial sales at lower levels so as to obtain the full benefits of the agreement; except that a temporary deviation not to exceed an additional 5 cents may be reflected in the export rates in the course of day-to-day operations for purposes of needed flexibility. Different rates of payment will be established, based upon the ports from which shipped, destination, period of exportation, and other necessary pertinent factors. C. Sales by CCC. 1. Sales authorized: Sales authorized hereunder are sales to designated importing countries of wheat acquired under the price support program, and wheat and wheat flour acquired under the supply program, which it is determined will meet the requirements for recording against the guaranteed quantities of the United States and the importing countries under the Wheat Agreement. 2. Sales prices: Sales shall be made at prices which are at or below the maximum equivalent price, but not below the minimum equivalent price, provided for in the Wheat Agreement. CCC is authorized to sell at prices below the maximum equivalent price whenever the Executive Vice President, CCC, determines that such action is necessary to obtain full benefits of the agreement. Sales prices may be determined at the time of sale and in advance of the date of shipment. 3. Additional charges: In addition, as part of the sales prices computed in the above manner, purchasers may be charged for carrying charges and marketing costs as permitted under the wheat agreement. Such carrying charges and marketing costs may include the CCC markups for administrative expenses and losses and unallocated costs, provided for in docket CZ 200 Policy for Disposal of Commodities Acquired Under Commodity Credit Corporation Programs and Sales Prices To Be Charged on Sales by Commodity Credit Corporation, and any amendments and supplements thereto. D. Designated importing countries.-The importing countries to which sales are authorized are those (a) which have ratified the wheat agreement or which the Vice President, CCC, has information from which it is reasonable to determine that the country is expected to ratify, or (b) which have acceded to the wheat agreement or for which the Vice President, CCC, has information from which it is reasonable to determine that the country is expected to accede. E. Authority to determine detailed operating provisions.-Detailed operating provisions consistent with the provisions of this docket and desirable for effective and efficient operation of the program may be determined by the Executive Vice President, CCC. III. Classification This is an operation under the CCC commodity export program. IV. Administration This program shall be carried out by the Vice President, CCC, who is the Deputy Administrator for Price Support, through the appropriate CSS divisions and |