70

known to him, the primary beneficiary of this transaction is supposed to be the United States.

I speak, of course, as an outsider, unaware of the host of factors being weighed by the administration in negotiating this commercial transaction with Communist countries. Perhaps there are impelling reasons why the administration is anxious to conclude an agreement with the Soviet Union and its satellites on terms less favorable than could be achieved through tougher and more protracted bargaining. But those reasons remain unexplained and therefore beyond the realm of discussion.

It is true that the public has been informed of two benefits to this country from this sale of grain. First, our surplus stocks of grain, accumulated as a result of the policy of subsidizing agricultural production through price supports would be reduced. Second, the deficit in our current international balance of payments would be reduced. It is important to point out that these benefits would accrue to us whether our grain is sold by us directly to Communist countries or indirectly through other countries. That is to say, there is no substance to the argument that we should sell directly to the Communist countries because, if we don't they will simply buy the same commodities from some dealer, say, a German firm, who has bought them from us. If we sell the goods indirectly, so the argument goes, we merely let some other country, say, Germany, make a profit in acting as intermediary. Hence, the argument concludes, we should be willing to make some concessions to the Communist countries in order to make a direct sale.

The entire argument is, of course, fallacious. The only matters of importance are whether we sell the wheat in the first place, and how much we get for it in the second place. It does not matter who buys the wheat so far as the central issue here is concerned, as long as no additional goods are imported into this country or no credit is extended by our citizens in connection with the sale.

If we can sell to a German firm at an acceptable price, it would be folly to sell directly to the Communist country of ultimate destination at a reduced price just to make a direct sale. On this score, it also makes no difference whether the payment is in gold or convertible currency. The effect on sales of surplus stocks and on the balance of payments is identical in both cases. Only if the sales are made on credit does the American balance of payments have no improvement for as long as the credit is outstanding.

The moral is simple: If we decide to make wheat available directly or indirectly to Communist countries, we should sell it at the highest cash price we can get, regardless of who the immediate buyer is. Our best chance of driving a hard bargain is to deal directly with the Communist countries on an all-or-none basis, provided we can control the volume of indirect sales. In any event, there is no sense whatsoever in setting favorable terms just in order to make a direct sale. Granting special concessions to the Communist countries would indeed be sadly ironic. We have given foreign aid to various countries in order to inhibit the spread of communism. This foreign aid has helped to bring about a deficit in our current international balance of payments. We would then propose to correct that deficit by giving aid to Communist countries.

This brings me to the question before the committee this morning. The primary effect of governmental underwriting, through the Export-Import Bank, of credit risks incurred by private lenders to Communist countries is to reduce the cost of credit to those countries. There is no reason for us to reduce the cost of credit to Communist countries unless we wish, as a general and longrun policy, to encourage expansion of our trade with them. If we are to embark on this course, we should do so only after careful consideration of its full consequences. As far as I can see, nobody in authority has argued that the present negotiations of wheat sales is the first step in a general program of trade expansion with Communist countries.

The question of underwriting aside, we should also recognize that any financing of wheat sales by extension of credit in dollars, no matter who extends the credit, has no effect in easing our deficit in the current international balance of payments for as long as the credit is extended. This is another reason for doing nothing to encourage credit financing of sales to Communist countries.

Of course, everything I have said this morning would apply in greater or lesser degree to trade in any other commodities with Communist countries.

The issue of governmental underwriting of credit risks involving Communist countries is likely to arise from time to time in the future as transactions involving other commodities come under consideration. In the absence of a broad decision by Congress to encourage expansion of trade with Communist countries, it would therefore seem prudent to enact into law the bill now before this committee.

I think you for the courtesy of your attention.

The CHAIRMAN. Dr. Nutter, you have given us an interesting statement. I want to ask one question.

When I was a boy I used to hear about black bread in czarist Russia; that was rye bread, wasn't it?

Dr. NUTTER. Yes, sir.

The CHAIRMAN. And you can produce twice or three times as many bushels of rye out of the same ground as you can wheat, and rye is cheaper. They ate cheap bread and exported the wheat.

Let's check the figures. I understand we have in the Commodity Credit Corporation 1,200 million bushels of wheat. And the Russians say they would like to buy 140 million bushels. If so, they want to buy about 12 percent of our surplus. Are those figures in accordance with yours?

Dr. NUTTER. I believe so, expressed in terms of tons.

The CHAIRMAN. They were given to me as substantially correct. It is your contention then, that if they should be suffering from a shortage due to drought, on a one-shot sale we will get rid of only 12 percent of our surplus, which won't solve that problem, and we will have violated our previous trade policy, and as Cicero might say, cui bono. Is that your position?

Dr. NUTTER. That is essentially my position, any change we make in the conditions of sale at this point involves a decision on our longrun trade policy.

The CHAIRMAN. So your contention is, if it is going to be a one-shot sale, how about taking the troops out of Cuba as a condition, how about tearing down the wall in Berlin, how about easing up on competition

in military respects? You think we are not negotiating hard enough if this is going to be a one-shot deal?

Dr. NUTTER. That is my opinion, sir.

The CHAIRMAN. Any questions?

(No response.)

The CHAIRMAN. Thank you very much.

Now, I am going to ask the distinguished Senator from New York if he won't present and perhaps endorse the next witness from his home State.

Senator JAVITS. If the witness will come forward, Mr. Chairman, I will be happy to present him, though not endorse his statement. I don't think my position coincides with the witness'.

The CHAIRMAN. I was just throwing that out as a possibility. Dr. Gerald Steibel. He is foreign policy director of the American Research Institute. I know you want to commend the research.

Senator JAVITS. That is a very distinguished organization in New York headed by Leo Cherne and Carl Hubbard.

The CHAIRMAN. All right, you may proceed.

Senator JAVITS. I know them both very well, Mr. Chairman, and I am very glad to introduce the witness to the committee.

Mr. STEIBEL. This is a challenge, Senator, to see whether I can convert you.

STATEMENT OF GERALD L. STEIBEL, RESEARCH INSTITUTE OF

AMERICA, NEW YORK, N.Y.

Mr. STEIBEL. Mr. Chairman, my first reaction to the invitation to testify before your committee was one of surprise that there was an issue such as this to testify about. Like most Americans I had assumed that the wheat deal with the Soviet Union was to be for cash, and that there was no question of credits involved.

To find that the requirement for cash has been transmuted into an arrangement for credit is disturbing enough. But to find that it has apparently taken place as part of some "normal" application of business practices, without fanfare or publicity, is even more disturbing. For airing this issue alone, this committee is to be praised, regardless of how the final vote on S. 2310 comes out.

As I read the debates prior to the referral on this bill, those who oppose placing additional restrictions on the underwriting of credits seem to be saying that the United States has agreed to sell wheat to the Soviet Union, that this decision was for sound reasons, and that we oughtn't to cavil at the distinction between cash and credit. But there is a distinction, and it is infinitely more important where we are dealing in trans-Iron Curtain shipment of goods in the midst of a cold war that is very much alive.

When we grant credits-and the fact that the Export-Import Bank merely insures someone else's credit is not significant-we are announcing our faith in the debtor. In ordinary commercial transactions, this faith generally extends only to the prospect for repayment in this transaction it inevitably goes much further: We are saying that we are expressing faith in their system, because we are doing more than selling them commodities; we are aiding them to ride. out some very fundamental internal troubles.

I realize that this is not necessarily the purpose of the administration. Nevertheless, that is its effect. It will be so read by other nations, and it is so being read by them now.

A business deal with the Communists for cash is, in my opinion, bad enough. Nevertheless, it does maintain at least some reserve on the part of this country. It informs the Communists that we are dealing with them, to be sure, but that we are doing so gingerly, that we do not trust them. A cash deal also is a warning that we are not committing ourselves to a "next time." It gives them at least some incentive to behave better in all the ways in which we would like them to behave better. And it gives us the option of stopping the flow of goods quickly when that becomes necessary.

But when we underwrite credit we are going far beyond that. For one thing, we are opening ourselves to the possibility that we may be asked to take Communist goods as repayment for the credits. It would be entirely within the Communist character to say to us after the 18 months are up, "Sorry, we don't have the cash, but we'll be glad to give you oil, or chrome or something else that will cut the heart out of your own allies' markets." And, what would that do to the balanceof-payments argument for the wheat deal? We would deserve that fate if it turned out to be ours.

Furthermore, what guarantee do we have that they won't repudiate this debt, just as they have repudiated so many others? I won't retrace the figures on Soviet and other bloc defaults which Senator Mundt has already read into the record.

But I would just point out one additional fact: their unwillingness to pay their share of United Nations costs. Are these the people this country now proposes to reward by sending good credit chasing after bad?

But more than that, we are failing to recognize the real currency in which Communists deal. This is not primarily money; it is the psychological and political intangibles of will, determination, and initiative. I cannot prove this, but I am convinced that our willingness to sell them wheat in the first place encouraged the Soviets to harass us on the Berlin autobahn and to arrest Professor Barghoorn. The code of the Communist leadership, as I read it, is to treat all evidences of permissiveness on the enemy's part as an invitation to further aggressions. If you elevate the wheat deal from cash to credit, this, I believe, will be read as one more such invitation.

I realize that this committee is not inquiring into the fundamentals of the wheat deal, only the question of the terms of payment it establishes. But I am urging that those terms be made as unpermissive as possible. The Soviets will not respect us the less for it; they will respect us the more.

Too much of our policy, in the past, has been conceived in the hope that they would respond to easier terms on all kinds of deals. Yet the hard fact is that at some point we have always had to confront them with firmness and power in order to stop the drift. We acquiesced in their takeovers of Eastern Europe, and so had the first Berlin access crisis in 1948-49. We gave them easy terms at Geneva in 1955, and got their thrust into Egypt for our pains. We were permissive toward their Hungarian bloodbath in 1956, and got the second Berlin crisis in 1958.

One thing is clear to me: we don't know how to bargain. We, the acknowledged experts in horse trading, always seem to treat them, not as rival traders but as some kind of errant bullies whom it is possible to turn back by kindness. We apparently cannot stop this latest show of kindness, but we certainly ought to use it to our interest, which is to notify both our declared enemies and onlookers in the "third world" that we can be just as tough with them as we have been toward most of our friends and allies.

I must add, in concluding this statement, that if U.S. East-West trade policies in general confuse everyone else as they confuse me, we are in for a bad time. For years we fought a good fight to keep economically useful goods out of Communist hands. We watched the so-called NATO strategic list get cut down piece by piece, but at least our position was clear.

Now we are encouraging trade in so-called nonstrategic items, while still trying to hold the line on what we call strategic. And, at this moment, we are reduced to pleading with our allies to "restrict" credits to no more than 5 years on those goods-a position certain to be further compromised when they too discover that we are planning to extend credits of our own. No wonder the British and the French and our other friends don't take our whole posture very seriously.

It may be, as some have argued, that the cold war is ending, that it is time to change our image. If so, that debate should be out in the open. The one thing we cannot afford is to drift into change in some supposedly "pragmatic" fashion, for reasons which the American public has not been able, adequately, to explore. If credit is better than cash in this situation, that claim, in my opinion, remains to be proved.

Senator BENNETT. Thank you, Mr. Steibel. The chairman has indicated we will now stand in recess until 2:30, at which time our witness will be the Honorable Douglas Dillon, Secretary of the Treasury. We are in recess.

(Whereupon, at 12:30 p.m., the committee was recessed, to reconvene at 2:30 p.m., this same day.)

AFTERNOON SESSION

The CHAIRMAN. The committee will please come to order. We are pleased and honored to have as our first witness for the afternoon session, the distinguished Secretary of the Treasury, Mr. Dillon. The Chair understands that Mr. Dillon will appear in opposition to the bill, and the Chair will be pleased to recognize him.

STATEMENT OF HON. DOUGLAS DILLON, SECRETARY OF THE

TREASURY

Secretary DILLON. Thank you, Mr. Chairman. As the officer of our Government who is most directly concerned with both our foreign and domestic financial situations, I want to make it clear at the outset of my remarks that the proposed grain sales to the Soviet bloc would, in my considered opinion, be in the best interest of the United States, for three very important reasons: