It was profitable, therefore, for foreign producers to ship seed wheat into the United States, and it came in in an unprecedented volume. From Canada, the chief source, 2 million bushels were imported in 1955-56. The effect on the producer of seed wheat in North Dakota and other States was disastrous.

Cleaned and treated Canadian seed wheat was being sold for less than uncleaned and untreated American seed wheat, and the American-produced wheat wound up in Government storage as a result. The direct and immediate result was 2 million bushels of American-grown wheat added to Commodity Credit Corporation surpluses, or otherwise entering the nonseed market.

When I introduced H. R. 4663 last year, a companion measure was introduced on the Senate side by my colleagues from North Dakota, Senator Langer and Senator Young. This measure, I understand, has been reported out of the Senate Agriculture Committee and is pending on the Senate Calendar.

H. R. 11581, to which I referred earlier, includes the amendments suggested by the Department of Agriculture to make sure this loophole is thoroughly plugged. It also includes an amendment suggested by the Treasury Department, which will allow 30 days to notify customs collectors before the act becomes effective. I hope the committee will act favorably on this measure.

Mr. ALBERT. One of the other bills, H. R. 3360 which is similar, we are also considering; and we took testimony on that bill at the last meeting of the subcommittee. At that time Mr. Bentley, author of the bill, advised that he had also introduced H. R. 11581 which was to incorporate or did incorporate certain recommendations made by the Department of Agriculture and the Treasury Department and that bill now is also before the subcommittee. We met on this matter earlier this week and heard from the authors of these bills and we also heard from Department of Agriculture officials. It was the opinion of the subcommittee that since the State Department had raised some question about these bills that we should hear from the State Department before we proceeded with consideration of this matter in executive session. It is in response to that request that these gentlemen are here from the State Department this morning.

As I understand it, Mr. W. T. M. Beale, Deputy Assistant Secretary of State for Economic Affairs, will make a statement on behalf of the Department. Is that correct?

Mr. BEALE. That is correct.

Mr. ALBERT. Would you come forward and bring any associates you wish to come with you?

Mr. BEALE. Yes.

STATEMENT OF W. T. M. BEALE, DEPUTY ASSISTANT SECRETARY OF STATE FOR ECONOMIC AFFAIRS; ACCOMPANIED BY L. I. HIGHBY, INTERNATIONAL ECONOMIST; JOHN J. CZYZAK, ASSISTANT TO THE LEGAL ADVISER; AND WILLIAM T. DIROLL, INTERNATIONAL ECONOMIST

Mr. ALBERT. The committee will be pleased to hear from you now, Mr. Beale.

Mr. BEALE. Thank you very much, Mr. Congressman.

Mr. Chairman, and members of the committee, I am here to present the views of the Department of State with respect to H. R. 3360. This bill specifies that seed wheat treated with poisonous substances should not be classified as "wheat unfit for human consumption" for the purposes of the Tariff Act of 1930 and Presidential Proclamation 2489, issued pursuant to section 22 of the Agricultural Adjustment Act of 1933. We understand that the effect of the proposed legis

lation would be, first, to increase the duty on seed wheat treated with poisonous substances from 10 cents to 21 cents a bushel and, second, to make it subject to quantitative import restriction.

The Department of State has examined this legislation from the standpoint of its relation to the international obligations of the United States and our relations with foreign countries.

The enactment of this legislation would affect international obligations of the United States. The United States has agreed to maintain the duty on wheat unfit for human consumption at 5 percent ad valorem in the General Agreement on Tariffs and Trade effective January 1, 1948. As wheat for seeding purposes which has been treated with poisonous substances is clearly wheat unfit for human consumption, and has been so classified for customs purposes, an increase in the duty through the proposed legislation would be contrary to our undertaking in the general agreement. If the proposed legislation were to result in the imposition of a quantitative limitation on imports of chemically treated seed wheat under the provisions of Presidential Proclamation 2489 or 2550, such action would be contrary to the general prohibition in the general agreement against the imposition of quantitative restrictions.

The Department of State believes that legislative action is unnecessary, on the grounds that existing administrative procedures are adequate to safeguard American agriculture. It would be possible to increase the duty on the seed wheat or to impose quantitative restrictions on imports without violating our GATT obligations, if there were a determination that the domestic industry is being seriously injured by increased imports or that imports are interfering with the program of the Department of Agriculture. Procedures for determining injury from imports are provided in the escape-clause provisions of the Trade Agreements Extension Act of 1951, as amended. Procedures for determining interference with a program of the Department of Agriculture are specified in section 22 of the Agricultural Adjustment Act of 1933, as amended.

It is the understanding of my Department, that Canadian seed wheat is greatly desired by American farmers for crop improvement purposes. It is a preferred agricultural practice in international trade to treat seed wheat chemically before importation in order to prevent the introduction of diseases into this country. Imports of such wheat reflect in large part United States efforts to secure the cooperation of Canada in helping to meet a shortage of rust resistant varieties in the United States.

Canada is the principal source of United States imports of wheat in various forms. In the crop year 1956-57 approximately 2 million bushels of seed wheat treated with poisonous substances, with an estimated value of $4 million, were imported from Canada. Imports of millable wheat from Canada are limited to 795,000 bushels pursuant to restrictions imposed under section 22.

Under the proposed legislation the volume of millable wheat and wheat treated with poisonous substances could be reduced from an aggregate total of approximately 2,795,000 bushels to a total of 795,000 bushels. Any imports in excess of 795,000 bushels would be limited to quantities approved by the Secretary of Agriculture under the authority conferred upon him by Presidential Proclamation 2550

made effective in 1942, which permits the entry of certified or registered seed wheat for use for seeding and crop improvement purposes. In addition, any permitted imports would also be subject to a higher rate of duty.

Wheat is Canada's principal agricultural export. The Canadian Government is, therefore, particularly concerned about measures which might limit or otherwise adversely affect Canada's exports of this commodity. It has made strong representations on many occasions to the effect that the United States surplus disposal program has seriously reduced Canada's wheat exports and has been an important factor contributing to the accumulation of record surplus wheat stocks in Canada. It has formally expressed the hope that no new restrictions will be imposed on United States imports of seed wheat. I would also like to draw attention to some broader considerations which the Department of State believes should be taken into account in examining proposals affecting our trade with Canada. The United States and Canada are inescapably interdependent from the standpoint of continental defense. In 1957 Canada bought from us about $3.9 billion worth of goods produced in all sectors of the United States economy and sold to us about $2.9 billion of goods. In that year, Canada was the most important market for our agricultural exports in the Western Hemisphere and the fourth ranking market in the world. In the fiscal year 1957 United States agricultural exports to Canada were valued at $374 million and exceeded United States agricultural imports by more than $200 million. These exports included more than 100 agricultural products. Among the most important were citrus and other fruits, fruit juices, vegetables, cotton, soybeans, soybean oilcake, corn and eviscerated poultry. Three-fifths of United States grape exports and one-half of total United States exports of fresh oranges were sent to Canada, and it is the largest foreign market for United States grapefruit.

Canada has expressed concern over its billion dollar adverse trade balance with the United States. It has protested strongly against United States measures which have had, or threaten to have, adverse effects on Canada's exports of rye, dairy products, petroleum, lead, zinc, and alsike clover seed. It would be unfortunate if action were taken which might impair the cooperation which has proven so beneficial to both countries.

For the foregoing reasons, the Department recommends against the enactment of H. R. 3360.

Thank you.

Mr. ALBERT. We thank you for your statement, Mr. Beale. Are there any questions by members of the committee?

Mr. WATTS. Yes, Mr. Chairman. I would like to ask 1 or 2 questions of the State Department witnesses.

Mr. ALBERT. Mr. Watts.

Mr. WATTS. Am I correct in assuming that in this agreement that you speak of, the general agreement with reference to wheat, there was provided a quota for wheat that is used for human consumption? Mr. BEALE. No, sir.

Mr. WATTS. That is in this general agreement?

Mr. BEALE. In the general agreement we undertook a general prohibition against quantitative restrictions except such as existed at the time.

Mr. WATTS. Well, is there now existing a quantitative restriction with reference to wheat that is consumed by humans?

Mr. BEALE. Yes, by the United States.

Mr. WATTS. How did that come into being?

Mr. BEALE. That is under section 22 of the Agricultural Adjustment Act, that was an action taken on our part under section 22 of the Agricultural Adjustment Act.

Mr. WATTS. And when was that taken?

Mr. ALBERT. 1938, passed originally

Mr. BEALE. 1941.

Mr. WATTS. Well, at that same time, did you make provision for the importation into this country from Canada of seed wheat?

Mr. BEALE. The importation of seed wheat is under the direction of, as I understand it, the Secretary of Agriculture.

Mr. WATTS. And that has been true since that agreement was made? Mr. BEALE. Yes.

Mr. WATTS. And this wheat which is now being brought in, the wheat we are dealing with in this bill, was wheat that was to come in at a different rate, because it was not fit for human consumption and was supposed to be seed wheat, was it not?

Mr. BEALE. When the Bureau of Customs classified it as wheat, then the lower duty became applicable.

Mr. WATTS. What I am talking about, the category was set apart originally for the purpose of bringing in wheat not fit for human consumption but as seed?

Mr. BEALE. Yes, sir.

Mr. WATTS. That was the original purpose of the category?
Mr. BEALE. May I consult on that for a second?

Mr. WATTS. Yes.

Mr. BEALE (after consultation). I do not think the question has been clear because I do not think the answer I got from my associates was what you were trying to get at.

Mr. WATTS. Well, let me see if I can clear it up

Mr. ALBERT. If you will yield; the legislative history on this thing shows that the only reason for an import quota on wheat unfit for human consumption was that we did not mind them bringing in wheat

for seed

Mr. BEALE. All right, I understand that question now.

Mr. ALBERT. And that was the reason for it, there was no intention to bring in seed or millable wheat.

Mr. WATTS. As I understand the situation, when the law was enacted you provided a quantitative quota for wheat that was to be used as millable wheat for human consumption; then you provided a method for bringing in seed wheat; and then you put in this other category of wheat not fit for human consumption. Then, actually what happened was that the Canadians used a little poison in it to make it classify as wheat unfit for human consumption and used it as a device to get in seed wheat that we had already provided a method for; is that right?

Mr. BEALE. As I understand, this chemical treatment process was adopted after the other three divisions had been established.

Mr. WATTS. And you think it was within the contemplation of the Department or of the Congress, to let seed wheat come in as wheat unfit for human consumption?

Mr. BEALE. Well, that I don't know, sir; the legislative history would show.

Mr. ALBERT. Well, the truth of the matter, I believe, is that this exception in the law is being used to get around the intention of the law. Do you people have any doubt about that?

Mr. BEALE. AS I understand it, there was an interest on the part of our farmers in receiving this wheat. Whether there was a subterfuge on the part of the Canadians I do not know.

Mr. ALBERT. In other words, to bring it in outside of the quota or bring it in under the seed wheat provisions, they bring seed wheat in but not at the same rate; is that not right?

Mr. BEALE. That is correct; the seed wheat.

Mr. ALBERT. In other words, in order to bring it in at the cheap rate and without reference to quotas, first they had to classify it as not millable and, secondly, as unfit for human consumption, is that not true, otherwise it would be subject to quantitative restrictions and to the rate limitation; is that right?

Mr. BEALE. I do not think that I can speak for the intent of the actions of another Government agency, but I can accept the effect.

Mr. ALBERT. Well, that is the reason for this legislation. This type of wheat is coming in, and it is felt that we have allowed it to be brought into this country without being subject to this extra 10 cents a bushel or 12 cents a bushel, which makes a Canadian product unfairly competitive with that of the American producers, as I under. stand the matter.

Mr. BEALE. Well, Mr. Chairman, as pointed out in our statement, our concern is the action or the effect, the result that it would have on our existing importations.

Mr. ALBERT. It looks to me like this is the situation here. If we change the designation of "unfit for human consumption," that does not change the fact that it is technically unfit; but when the poison is added to the wheat to get around a provision in the law, then my feeling is that the State Department should work with us and not Canada and should recommend changes in the law, if necessary, and not try to uphold a practice of evading the real intent of the law. Mr. BELCHER. Would you yield?

Mr. ALBERT. Yes.

Mr. BELCHER. I do not know, but I would just imagine that there are probably some restrictions about bringing in seed wheat that has been treated.

Mr. ALBERT. That is the idea.

Mr. BELCHER. You cannot drive into the State of California without getting searched, you cannot take an orange or an apple or anything else into California. You get stopped right at the State line. There might be some reason why, perhaps because of disease, that these wheat farmers do not want this wheat brought across the line from Canada.