point to the fact that it has had a history of 6 years, as indicative of that fact.

This is a formula that Congress has known about, the industry has known about, the importers have known about, the Uruguayan Government has known about. This, again I say, is nothing new. Senator PASTORE. That's right.

Now, I can follow you very, very closely, but isn't it a surprise to you, Mr. Flues, that here you have a number of articles, five or six, and as the refinement of the article increases, as the export of that refined article to the United States of America means more jobs in that foreign country for example, to take the raw wool and to wash it, which means people to wash it, and then to purify it or refine it further, and finally get to the wool top, isn't it rather surprising to you that as you further refine this article in a foreign country, that the rate of the exchange becomes greater and greater, so that more and more American jobs will be eliminated?

Isn't that quite apparent to you: that your formula is helping a foreign country to work a subterfuge in other words, to destroy American jobs?

Now, why should the rate of exchange vary with the category of the product, an act that is voluntary and exclusively within the power of a foreign government?

Is that true or isn't it true?

Mr. FLUES. Senator, this formula up until now has produced a countervailing duty and it has been one means of protecting the American industry. Now, applying the same formula, the protection is gone, because we no longer find the subsidy.

Senator, I must remind you again this is not the only means that an American industry has to protect itself against foreign imports. Senator PASTORE. It is the only means that American industry has to protect itself against foreign imports insofar as subsidies are concerned. You cannot invoke the tariff laws. You cannot invoke any other law that will cure your subsidy situation, because you have an entirely different situation when you apply the tariff laws.

Now, the purpose of the Congress in passing this law was to countervail a subsidy being paid by a foreign government that desired to export more of one article as against another.

The argument has been used here this morning that this is a penalty against some. It isn't that at all. This is a premium for some. As a matter of fact, the more you refine this product, and you get up to the wool top, the higher the rate of exchange. That rate of exchange is within the exclusive jurisdiction of the Uruguayan Government, over which we have no control.

So, by their process of manipulation, they can change the effect of your formula any Monday morning.

Am I right or wrong?

Mr. FLUES. No.

Senator PASTORE. Why not?

Mr. FLUES. Let me say this: I am going back to the first part of your statement. You speak about the countervailing duty being the only thing that deals with subsidy.

That may be true, but here we no longer have a subsidy.

Senator ANDERSON. What?

Mr. FLUES. We no longer have a subsidy as relates to wool top underneath the application of our formula.

Senator PASTORE. That's right, you have always got to put that in, "under the application of our formula," and that is what I am finding fault with.

I am finding fault with your formula. The formula is the crux of the trouble here.

As you look at your sheet here, Mr. Flues, you find that the rate of exchange is 2.81, on wool waste and other export products. There is practically no manpower involved at all in that; so, naturally, it doesn't mean too many Uruguayan jobs; so the rate of exchange in Uruguay is pretty small.

Then you get to greasy wool, which is a refinement over the first category, and there it goes up to 3.45. It means a few more Uruguayans have to work on that product, so there is an incentive there to raise the exchange from 2.81 to 3.45.

Then you get the washed wool, and it requires a few more people to take this greasy wool and wash it; so that means a few more Uruguayan jobs.

So it is of interest to Uruguay to raise that from 3.45 to 3.72. Then you come to the wool top, which is the exportable article, and it works right against American wool-top manufacturers. There, the rate is 4.10.

Now, I ask you this question: Why should Uruguay change its rate of exchange with reference to these articles and raise it as they get into the field of refinement providing more Uruguayan jobs? Don't you see what your formula is doing?

It is allowing these countries to raise the rate of exchange where they want to export goods, to lower it where they don't care too much to export goods. You come along and you strike an average and you play right into their hands and you destroy American industry. That is precisely what is happening here, and I say this: That the Congress of the United States, when it enacted this law, had that in mind. That is why it said "any article."

I realize this. It is pretty hard for you to invoke a formula in every particular article. It may be the fault of Congress that we did not write the right kind of law.

It might well be the chances are you hit a compromise. The importers of the wool tops, they wanted the low figure of 2.81, the free mark on your pesos. The manufacturers of wool tops wanted it high, the larger figure. So what did you do?

You come along and you compromise the two. You try to make the both of them happy at the time when maybe it did work, but today it won't work.

I am told by manufacturers of wool top in the State of Rhode Island that if you remove this countervailing duty from these products, the wool-top industry in the State of Rhode Island will become extinct. Now that is how serious this is. The problem is not academic. This is not a theoretical problem. This is a real practical problem that requires a sound solution.

In view of the fact that countervailing duties have prevailed alone. on wool tops, it strikes me that that is where we ought to concentrate our attention and not be talking about a general overall benchmark.

I say this to you, sir: I do hope this. I realize it might be thought that I am making a whistle-stop speech, here, but I do say this to you, sir: I regret very much that you are committed to a position that you have instituted a formula and you are adamant in maintaining that formula. I think it is going to do irreparable harm, and I would prefer to see an administrator of your caliber come before this committee and say. "In view of the sentiments expressed here this morning and the fact that this industry is being hurt, we are going to review this whole matter. We are going to sit down and talk to the Uruguayan Government and see if we cannot reach a sensible formula which will at least compensate American manufacturers for the subsidy that is being invoked by the Uruguayan Government."

I thank you, Mr. Chairman.

Senator ANDERSON. I want to get started with the other side of the story. But will you just furnish me this one statement? This law was passed in 1930 and a similar law in 1898. Was there ever a weighted average formula under the countervailing duty system used before the year 1953?

Mr. FLUES. I do not believe so.

Senator ANDERSON. You do not believe so?

Mr. FLUES. No, sir.

Senator ANDERSON. I think that is probably a correct statement. Therefore, this is an invention that has come up since 1953.

Mr. FLUES. That is right.

Senator PASTORE. Mr. Chairman, will you yield on that point?
Senator ANDERSON. Yes.

Senator PASTORE. The way these foreign countries have overcome prior practices, you see, is by using these multiple exchange formulas now. I mean the multiple exchange process is only to undermine the formula that was instituted by the Treasury Department. That is the way they can do it, because by multiple application, they get into manipulation, and they lower it where the do not care to export and they raise it where they care to export, making it attractive for their manufacturers to get into that particular category which commensurately destroys American jobs in American industry.

I say this: That while they are insisting here that the tariff law will take care of this, the tariff law will not. There is nothing in the tariff law that takes care of a subsidy on an article.

Senator MCCARTHY. Mr. Chairman, could I ask one more question? Senator ANDERSON. Senator McCarthy.

Senator MCCARTHY. I would like to ask the witness what great changes were made in December 1958 as to the general average in your formula. What changes were made of the rates, either export or import rates, of the Uruguayan Government which resulted in the change which brought about your decision to take off the countervailing duty! This could have happened through a change in the rates on wool tops or it could have happened through changes which moved your benchmark.

Mr. FLUES. Senator, there are many, many changes. There are hundreds, even thousands of commodities involved. I do not say there are changes as to all of those. The changes were extensive.

Senator MCCARTHY. Which are the major ones affecting your formula, the weighted average?

Mr. FLUES. I mentioned earlier that we do have the two decrees here which set out these changes, and those are in English, but we have others that are in Spanish that have not yet been translated.

I doubt if I could give you the information that you want at this point, Senator, but we will provide you with that, if you would like it. Senator McCARTHY. I think it is rather fundamental to the whole question, it seems to me, so I would very much like to have that information for the record.

Mr. FLUES. We will get that to you, sir.

Senator MCCARTHY. Would you do it in one of two ways: Change the rate on wool and wool tops, or you can leave that alone and shift your benchmark. It is a question of which the standard is in this case. (The following was later received for the record :)

The Uruguayan exchange rate changes in December 1958 completed a series of exchange rate changes which started in September 1958, when the Uruguayan Government issued an extensixe series of changes in export rates, including the rates affecting wool and wool top. At that time, it was announced that further changes in export and import rates would be issued. The December changes themselves dealt largely with import rates and involved transfer of two categories of imports (representing about 10 percent of total imports) to the free market exchange rate.

The series of rate changes between September and December have raised average export rates in Uruguay above the rate of exports of wool top. Since the benchmark actually used by the Treasury, however, was the average of export and import rates, an overall computation was not made until the import changes had taken place at the end of December. This computation confirmed that the average export-import rate was above the rate for wool top, thus indicating the removal of the countervailing duty on wool top.

Senator HARTKE. Mr. Chairman.

Senator ANDERSON. Senator Hartke.

Senator HARTKE. I just have one question which I asked and it is a repetition again, but I asked the Secretary a moment ago if there is any other country with a multiple exchange rate system in which a countervailing duty is imposed, and I did not mean with reference to wool; I mean to any article. And the Secretary said, "No." Mr. FLUES. No; that is correct.

Senator HARTKE. This is the only country in which there is a multiple exchange rate system in which a countervailing duty is imposed, is that right?

Mr. FLUES. That is correct.

Senator HARTKE. So we are dealing with a very isolated thing here which involves one country and practically one item under this law, is that right?

Senator PASTORE. It is clear here that the countervailing duty is only applied in Uruguay, and only on wool tops.

Mr. FLUES. No.

Senator PASTORE. And nothing else.

Mr. FLUES. No; that is not a true statement.

Senator PASTORE. On what else?

Mr. FLUES. It is a true statement as of now, but what I mean is that the formula is available for any other commodity.

Senator PASTORE. I realize that, but has it applied to any other commodity?

Mr. FLUES. No; it has not.

Senator PASTORE. That is what I mean. It is only applied to wool tops.

Mr. FLUES. Where there is a multiple exchange rate.

Senator MCCARTHY. This is a distinctive formula which is used only on wool and only in Uruguay at the present time.

Senator ANDERSON. Which is effective.

Senator MCCARTHY. Yes, effective. It has been in effect. What are some of the other countries that have multiple exchange rates? I think there are 14.

Mr. FLUES. There are some 14. I could mention Spain, Israel— let me see if I can work up a little list.

Senator ANDERSON. Supply it for the record.

(The information requested is as follows:)

FOREIGN COUNTRIES WITH MULTIPLE EXCHANGE RATES FOR COMMODITY TRADE AS OF FEBRUARY 1959

Senator MCCARTHY. In these situations which use countervailing duty which is based upon the lawful exchange formula?

Mr. FLUES. Pardon me, Senator?

Senator MCCARTHY. You say there are 14 other countries

Mr. FLUES. Yes.

Senator MCCARTHY. Which have multiple-exchange rates?
Mr. FLUES. Right.

Senator MCCARTHY. And it is theoretically possible that you might use countervailing duties against those countries based upon the average determined, using the same formula you used in Uruguay? Mr. FLUES. Yes.

Senator MCCARTHY. But there are none on which you now impose any countervailing duties except Uruguay?

Mr. FLUES. That is correct.

Senator MCCARTHY. And if this is taken off, there would be none. Mr. FLUES. As I mentioned earlier, the only countervailing duty other than this which has been asserted is that against Spanish almonds, but there a direct premium was made. There was a different condition.

Senator MCCARTHY. It is not a matter that is being determined on the basis of exchange?

Mr. FLUES. That is correct.

Senator MCCARTHY. So if we did something about this particular formula, it would not disrupt relationships with many other countries?

Mr. FLUES. No.