Now the fact remains, the two items that are of the greatest financial concern to the economy of Uruguay so far as exports are concerned were wool and meat products. Mr. FLUES. I believe so; yes. Senator CURTIS. And the policy of that country is to grant a more favorable exchange rate to both of them; is that right? Mr. FLUES. One happens to be above and one now happens to be below our benchmark. The canned meat or the meat products are above and the wool top is below, as are all the others Senator CURTIS. The committee has been most generous in their time to me, and I will not repeat every question already raised, but I would like to inquire once more: Is it the position of the Treasury that Uruguayan exporters of wool waste and greasy wool to the United States are penalized or not? Mr. FLUES. They are penalized. You can say they are taxed more. The raw wool exporter is taxed more. Senator CURTIs. But it wouldn't take a very smart citizen of that country to ascertain that if he exports wool top to the United States, by better sales methods or otherwise, he will get more pesos for his dollars when he brings them back home. Mr. FLUES. Of course, by the same token, you might say that he would feel he should get out of the growing of wool and start manufacturing Swiss watches, as Senator Bennett has said. Senator CURTIS. Of course he will run into the world's most powerful cartel there and they will put him out business. In a little while they will export them and sell them in the department stores there for $5 apiece as they have here for a long time. We have had a long history of the closing of jeweled watch factories in this country, the last casualty of which was the Elgin jeweled watch factory of Lincoln, Nebr. That is all, Mr. Chairman. Senator ANDERSON. Senator Bennett had a comment. Senator BENNETT. This law which set up the system of countervailing duties, the law to which we have been referring to today, was passed in 1930, and, as I understood your testimony earlier, there were similar requirements as far back as 1896. Mr. FLUES. 1898, sir. Senator BENNETT. Is the policy of using an average or some kind of a calculated benchmark rather than comparison between two specific commodities; is that a policy that has been standard practice by the Treasury over many years? Has there ever been a time that you know of when the Treasury prior to 1953-because we know what your policy has been since thenused a comparison between specific commodities? In other words, is this a standard practice, a standard basis of comparison, or is this a new approach? Mr. FLUES. This is a standard basis of comparison. Senator ANDERSON. It has been for how long? Mr. FLUES. I might point this out: As I think I mentioned previously, multiple exchange rate systems are fairly recent. They`are a fairly new development. Senator BENNETT. In terms of how many years? When did they start to present a problem? Mr. FLUES. There were some right about the time of the war. Senator BENNETT. There must have been some in existence in 1930 or there would have been no reason to write a section into the law. Mr. FLUES. Of the indirect as well as the direct. Of course, there are other types of indirect subsidy than those which might arise from a multiple exchange rate, but I am just trying to give you what I know of that. I think these multiple exchange systems were somewhat contemporaneous with the Second World War. Senator BENNETT. And do you know were there any problems arising before 1953, and were they faced on the basis of this kind of an averaging approach? Mr. FLUES. I could only say of my own knowledge that 1953 was when this problem was faced by the Treasury and the formula worked out. Senator BENNETT. Can your staff identify any earlier manifestations of this same problem? Mr. FLUES. They tell me that there were no similar cases prior to that time. Senator BENNETT. Thank you. Senator ANDERSON. Do you wish to put those letters into the record? Senator BENNETT. Mr. Chairman, on February 12, I addressed identical letters to the Secretary of Commerce and the Secretary of State asking for four particular communications between the Embassy at Montevideo and the U.S. Government which I felt would provide the information to the committee. Since then-the letter, unfortunately, is not dated-I received a reply from William B. Macomber, Jr., an Assistant Secretary of State, denying me access to the four communications and making a statement to the effect that these communications were not the only or necessarily the vital basis of the determination of this benchmark. Those are not his words but for the record I would like to put both my original letters and Mr. Macomber's reply into the record. Senator ANDERSON. Without objection, they will go into the record. (The letters referred to are as follow:) Hon. LEWIS L. STRAUSS, U.S. SENATE, COMMITTEE ON FINANCE, February 12, 1959. Secretary of Commerce, Department of Commerce, Washington, D.C. DEAR MR. STRAUSS: On Tuesday, February 17, the Senate Finance Committee, of which I am a member, will consider a proposal which has been made by the Treasury Department to rescind the countervailing duty on Uruguayan wool. The wool industry is most important in my State, and I am anxious, therefore, to be fully informed on the Treasury proposal prior to the February 17 meeting so that I can participate intelligently in the hearings. It is my understanding that you have several communications from the American Embassy at Montivideo which would be helpful: (1) Dispatch No. 49 of June 21, 1958. I am sending this letter by special riding page so that I may receive the foregoing material at the earliest possible time, preferably this week. Thank you for your assistance. Sincerely, WALLACE F. BENNETT. DEPARTMENT OF STATE. Hon. WALLACE F. BENNETT, DEAR SENATOR BENNETT: I have received your letter of February 12, 1959, in which you requested copies of four communications from the American Embassy in Montevideo, Uruguay, dealing with the countervailing duty on imports of Uruguayan wool tops. Upon examining these communications, I find that they are of such a nature that I am not able to furnish them to you. However, I may summarize their contents for you by saying that they state that the exchange rate situation which led to the imposition by the United States of the countervailing duty on Uruguayan wool tops has changed, urge that the United States keep its word that the same criteria would be used in considering removal of the countervailing duty as were used in putting on the duty, and set forth the political advantages to the United States of acting in good faith on this matter. I understand that the Treasury Department did not rely on the data included in these communications but has made its own investigation of the statistical basis of the exchange rate subsidy against which the countervailing duty was levied and maintained. If I can be of further assistance to you, please feel free to call on me. WILLIAM B. MACOMBER, Jr., Senator ANDERSON. Are you familiar with these four documents? Mr. FLUES. I do not believe so. Senator ANDERSON. A dispatch of June 21, 1958, and January 1959, January 14, 1959, and February 6, 1959. I have been advised those all relate to the message from Uruguay saying, "Get rid of these countervailing duties," to the State Depart ment. Mr. FLUES. I am not aware of those. Senator ANDERSON. The Treasury never saw them at all? Mr. FLUES. No, sir; I say I did not see them. Senator ANDERSON. You stated a moment ago that the current rates were December 1958 rates. Are they compared to the 1957 export and import statistics? Mr. FLUES. That is right. We have taken the last available annual period. Senator ANDERSON. Senator Hartke. Senator HARTKE. I understood you to say awhile ago this business of the multiple exchange rate systems are relatively new; is that right? Mr. FLUES. Yes. Senator HARTKE. About how many countries are involved in multiple exchange rate systems and also in which there are countervailing duties? Mr. FLUES. There are some 14 nations that have multiple rate systems. Senator HARTKE. They are involved in this same formula? Mr. FLUES. No. Senator HARTKE. How many countries are involved in both? Mr. FLUES. Uruguay is the only one involved at this particular time. Senator HARTKE. In other words, the only country which is involved in this computation is Uruguay ? Mr. FLUES. That's right. Senator HARTKE. Do they establish this exchange rate arbitrarily? Mr. FLUES. It is a fixed rate by the Uruguayan Government. Senator HARTKE. And so if they saw fit to enter into any particular export field, they could manipulate the exchange rate to keep you people pretty busy. Mr. FLUES. Yes; if they change their rates we are certainly going to be a little busier than we were. Senator HARTKE. And if they are in concert with some other country which is not interested in the welfare of the United States, they could practically wreck any domestic industry we had in the United States. Mr. FLUES. Well, sir, I would then remind you of the fact that the countervailing duty law is only one of the laws that we have to protect American industry. Senator HARTKE. Are any of those involved with the wool industry? Mr. FLUES. I cannot say. Senator HARTKE. As I understand Senator Cotton's question awhile ago, I did not quite get the answer to this, and I hope that it is not repetitious. You say that this goes only to each product. Mr. FLUES. Pardon me, Senator. Senator HARTKE. At no time is each product considered alone in regard to your overall determination of this formula? Mr. FLUES. Every product is considered alone, but then its rate is considered in relation to our benchmark. Senator HARTKE. But, as I understand the law-I read through it all-it says that "an additional duty equal to the net amount of such bounty or grant," and it refers in such cases to any article, and not to the general overall. It does not mention anything about overall items. It says "any article," and then goes back, "*** ditional duty equal to the net amount of such bounty***" which to me would give every clear implication that they were referring to individual items rather than to an overall group. an ad Mr. FLUES. Yes; and we take up each individual items that is affected, but we have to have something against which to measure the fixed rate put for that commodity. Senator HARTKE. But the policy of the Treasury, then, is an element to determine the fixed rate with all the fairness weighted toward the foreign country, without any relationship to our domestic economy. Mr. FLUES. Sir, the Treasury always views with concern the effect on the domestic economy. We are not insensible to the effects which a Treasury decision has on American industry. Of course, we could not be. We, too, are Americans. But I must point out that within the law there is no provision that the Treasury should consider the economic problems involved. Senator HARTKE. Let me come back, then, to something. Just a few seconds ago, you said that there are other items in the law which are given consideration for protection of the domestic economy other than this particular law. In an answer a few moments ago when I said that Uruguay or any other foreign country acting in concert in an attempt to destroy some domestic economy, that they could under this particular setup that you are using, could, in effect, destroy our economy or make it practically nonexistent. Isn't that what you said? Mr. FLUES. I said that there are other means of protecting the domestic economy than the countervailing duty law. Senator HARTKE. I understood you to say that they were used in conjunction with the countervailing law. Mr. FLUES. No; not used in conjunction with it. For instance, one would be escape-clause procedures. Senator HARTKE. Can I ask you just for the record, is there any relation to the present interpretation, the present attitude of the Treasury Department as compared to the policy adopted by the State Department? Mr. FLUES. No, sir. We do not have any measuring stick according to State Department sentiments. Senator ANDERSON. Senator O'Mahoney. Senator O'MAHONEY. Mr. Chairman, I appreciate very much your permitting a nonmember of the committee to ask a question or two. I note, Mr. Chairman, that the witness, in responding to Senator Cotton a few moments ago, when reference was made to the law imposing countervailing duty, the witness said it was difficult to determind the intent of Congress either in 1898, when the original act was passed, or in 1930, when the present law was passed. The question here, it seems to me, is to determine what the intent of the Treasury Department is in fixing the formula. So, I ask you, Mr. Secretary, does the formula adopted by the Treasury Department amend the law? Mr. FLUES. In our consideration, no. Senator O'MAHONEY. You testified a few moments ago that the multiple rates first came into appearance about 1953. Mr. FLUES. No; after World War II. I would say they were somewhat contemporaneous with the Second World War. Senator O'MAHONEY. When was the formula devised? Mr. FLUES. In 1953. Senator O'MAHONEY. In 1953. Mr. FLUES. That's right. Senator O'MAHONEY. Did you ask Congress for a law at that time to fix a formula? Mr. FLUES. We didn't feel that we had to. We felt that this is a workable law. Senator O'MAHONEY. Yes; I think many of us up here have thought it was a workable law. Is there any law authorizing you to fix a benchmark or telling you how to fix a benchmark? Mr. FLUES. The law does not spell out that detail, Senator. Senator O'MAHONEY. Does it refer to any average rates? Mr. FLUES. No; it does not. Again, that is a detail which is not spelled out. Senator O'MAHONEY. Let us read the law, in the light of your testimony that it refers to articles. You have this law set forth in your statement. Whenever any country, dependency, colony, province, or other political subdivision of government, person, partnership, association, cartel, or corporation shall pay or bestow, directly or indirectly |