counting and Auditing Division, General Accounting Office, and Congressman H. L. Fountain, who is chairman of a subcommittee of the Government Operations Committee which has been conducting an investigation of certain of the operations of the Commodity Credit Corporation. Congressman Fountain's statement was read for him by Mr. Naughton, who is counsel for the subcommittee. Mr. McDowell's statement quoted from the General Accounting Office 1958 audit report concerning export prices for American cotton on the world market. We have replied to this audit report and Mr. McDowell quoted from our reply in his statement to the committee. We think these quotations adequately set forth the position of the Department on this subject, and I do not believe that it is necessary to add to the record on this topic. If, however, the committee so desires we could insert our complete reply to the General Accounting Office on the question of policy for pricing CCC cotton for export. The other major topic of Mr. McDowell's statement relates to price review made by the Department of Agriculture of export sales financed under the provisions of title I of Public Law 480. This same topic was dealt with in Congressman Fountain's statement in more detail. Secretary Benson has received from Congressman Fountain a letter dated July 16 with which he transmitted to us the recommendations which were contained in his statement before this committee. We have had, of course, only a very short time to consider them. However, inasmuch as title I price review had previously been the subject of GAO audit reports and of hearings before Congressman Fountain's committee we have been looking into the matter and have initiated some changes. We are issuing instructions to improve the documentation in the New Orleans office of CCC so that when the price of an export sale has been approved the records will show clearly what items were taken into consideration and the basis for arriving at the decision. We are also eliminating the 90-day limitation on claims. I am not able to report at this time what additional changes will be made. I can give the committee assurance, however, that we are studying the matter and will make whatever changes in our procedures we find may be warranted. The price review with respect to cotton is by no means a simple matter. To those not fully aware of the complexities of international cotton trade it would appear that the simplest way to handle a price review would be to require that all cotton exported be "Form A" cotton, that is cotton which has been. classed by the Federal Government so that its value can be determined. Unfortunately cotton is not normally marketed in international trade on the basis of its formal classification. To require that all cotton exported under title I have a Government classification would greatly slow down operations of the exporters and would increase their cost from $1 to $3 a bale. We have been informed that imposing such a requirement would reduce total amount of cotton we might expect to export under title I program by 50 percent. I am not in a position to say whether this estimate is correct or not, but I cite it merely to indicate that we would have to investigate very carefully before imposing any such requirement. Another alternative would be the elimination of private trade on these cotton exports and the institution of state trading. That would be burning the house down to get rid of the mice, and we are not giving it serious consideration. We feel that even those cases where the gross profits on cotton, as cited by the exporters seem large that the net profits may not have been excessive and were the results of acrossthe-table bargaining. In this connection we should like to point out that the so-called gross profits are misleading if they are construed as a final profit except for the overhead for clerical staff, cables, rent, etc. One exporter has reported to us that out of his gross profit there must be deducted $3.35 per bale for freight for moving the cotton from interior points to port of export. There must be deducted $6 for storage, weighing, sampling, compression to high density and delivery to shipside. The foreign selling agent's commission and arrival charges amount to about $1 per bale, and finally purchases from CCC are on a gross weight basis while sales abroad are on a net weight basis, and this amounts to $5.60 per bale. He therefore indicates an out-of-pocket cost of approximately $16 per bale to come out of his gross profit of $28 per bale. It has also been reported to us that some of the sales cited in the committee reports were made in the spring of 1956 for shipment in September. In the interim on May 28, 1956, Public Law 540 was enacted which had the effect of reducing the export price of cotton by about 22 cents per pound or $12.50 per bale. Although this may have represented a windfall profit to cotton exporters in some cases, it did not afford a basis for CCC to refuse to finance the sale under title I, Public Law 480. Again let me emphasize that I am citing these situations not as an indication that our minds are made up and that we do not intend to make further changes in our procedures, but merely to indicate that it is a matter of considerable complexity for which no easy solution is readily available. It is my understanding that some representatives from the American cotton trade will testify before this committee. We will be particularly interested in their testimony. In conclusion I wish to express my appreciation for having this opportunity to appear before your committee. Mr. Chairman, this concludes my formal statement but I could add one thing more. We have with us eight charts. They are informative. Two of them tell the history of our barter program from the materialsacquired side, and the other six are based upon destination history of the agricultural commodities moved under barter. If you wish, we will show you these charts at this time. The CHAIRMAN. All right. Mr. PALMBY. The first two charts, Mr. Chairman and members of the committee, are, as I stated, based upon the materials received since the inception of the program in 1946. I shall spend but a minute on them. You can see from chart No. 1 that we have done nearly $1.2 billion worth of business in the barter program. |