PRELIMINARY RESULTS FROM FASTO CIRCULAR 6-UP TO 10-YR EXPORT FINANCING TO BE USED FOR MARKET DEVELOPMENT PROJECTS

Applicable attache comments

Senator LUGAR. S. 2405 does not establish the eligibility for nonmarket economy countries to participate in this CCC credit program. The reason is simple-bills have already been introduced which would extend CCC credit to nonmarket ecenomies.

These proposals, which I support, must nevertheless stand on their merits, and should not jeopardize increased agricultural exports which could be provided with intermediate credit to the so-called market economy countries.

Mr. Chairman, I want to thank you for holding these important hearings. I am hopeful we might be able to markup legislation in the near future which would increase the volume of our agricultural exports.

As part of what I have requested of the committee, and Mr. Chairman, you have granted, I have a letter from Secretary Bergland on January 23, 1978, in which he is saying, among other things:

We find the prospect of an intermediate term credit program intriguing and are pursuing an evaluation of the benefits it might bring to our export position. He then sent cables to all the attachés on April 11, 1978, reports from the 22 countries, and he says:

The projects cited covered bulk unloading facilities and port development, additional elevator and cold-storage capacity, soybean crushing * * * and so forth, which he believes would be very helpful in this respect. Mr. Chairman, I think that there are simply four basic differences that we will be examining, and my bill is not necessarily incompatible or competitive with others. But clearly, in terms of the credit idea, my bill is a 5- to 10-year credit program tied to market development, a separate program.

It does not pick up the 3 years and take it to 10. Since a separate 5- to 10-year intermediate credit program would be established, countries participating in the current short-term credit program would not be able to roll-over their short-term loans into the intermediate program for no economic reason. We have simply a separate idea, in which some things have to occur in terms of repayment which would increase the level of our agricultural exports for years to come-not just for 1 or 2 years.

There must be some attempt in the infrastructure of these countries receiving this credit to do some things that make possible a long-term export ability for us. The emphasis of S. 2405 is on increasing the size of the export market, rather than increasing our percentage of the current market.

Second, I do not provide for credit to nonmarket countries, as I have pointed out. Other bills do. But they might very well travel on their own. I think this is important because this might mean we will have a bill which does not confront the Jackson-Vanik stipulations, and, therefore, might have a better chance of passing and being signed by the President.

My bill does not state that 5- to 10-year CCC credit is subject to Public Law 664, the Cargo Preference Act. However, if it is eventually determined that the provisions of Public Law 664 apply to intermediate CCC credit, we have a varying interest rate provision which would help cover the ocean freight differential. Expert testimony will

come in as to how much one-half percent will cover. Some will say you need more than one-half percent. But in any event, an attempt has been made here to be flexible enough to accommodate a Public Law 664 ruling.

Finally, in terms of rationale for the credit, the bill would extend 5- to 10-year credit only if the buyers agree to use the money in the interim for market-expansion activities. That is a terribly important incentive and back-up, and assurance to American taxpayers, why we are doing this on behalf of increased agricultural exports and strong long term market relationships.

Senator STONE. Thank you, Senator.

I have just one comment-not a question.

I am intrigued by your thrust in trying to do for market customers what we have been trying to do for the Public Law 480 recipients, which is to assist in their infrastructure, in storage, and in port facilities, that would enable them to become practical users of our agricultural exports. What we are trying to do here, with your bill-among other things-is to have market customers, cash customers, and credit customers work toward the same support facilities that would expand their ability to buy from us in our agricultural exports.

Is that not right?

Senator LUGAR. That is correct-and to build up herds-which takes some time-that would consume more of our grain.

Senator STONE. I really appreciate your testimony and the trouble that you took to get the USDA and foreign reaction to it before simply introducing it.

Senator STONE. We have Senator Stevenson here, and since he is under restrictions of time in other hearings let me call on Senator Stevenson right now.

STATEMENT OF HON. ADLAI E. STEVENSON, A U.S. SENATOR FROM ILLINOIS

Senator STEVENSON. I would like to thank all the distinguished members of this committee for the opportunity to be here today, and also commend you for your attention to agricultural exports.

I have the privilege of Chairing the Senate Subcommittee on International Finance, which is a subcommittee of the Banking Committee. Senator Lugar is familiar with it.

The subcommittee has general jurisdiction over exports, and we have been conducting a lengthy series of hearings on U.S. export policy, with hopes of developing such a policy as an alternative to current suggestions for more export subsidies on the one hand or protectionism on the other.

In February, the trade deficit, as you know, reached a staggering $4.5 billion. Last year, it was $31 billion. The dollar has been declin

ing erratically, with increasingly adverse consequences, including inflation, economic stagnation, unemployment, and declining levels of trade and investment in the world. Suffice it to say that the importance of this subject-to which this and my own subcommittee are addressing themselves-can scarcely be exaggerated. And agricultural exports are the most important component of our entire export picture.

So I would like to take advantage of this opportunity, Mr. Chairman, to share with you some ideas that our own hearings have generated, with the hope that we can, in the future, work together to increase opportunities for U.S. exports abroad.

Some of the impediments to U.S. agricultural exports, such as import barriers within Europe and Japan, cannot be breached by legislation. So I would urge this subcommittee to join with my own subcommittee and such others who may be interested, to impress upon Ambassador Strauss the importance of reducing foreign barriers to U.S. agricultural exports, and especially meat exports.

Much of the present controversy surrounding meat exports might be diminished if instead of exporting grains to feed hogs and cattle abroad-which result in greater meat imports back into the U.S.— we exported more meat. This would require more funds for agricultural research and development, improved means of processing, packaging, transporting and storing meat, as well as agreement on international standards for meat quality.

So first, I think we ought to impress on Ambassador Strauss the importance of reducing barriers to exports of U.S. agricultural commodities. Second, we ought to pay more attention to the technical problems that stand in the way of meat exports.

We export soybeans and corn to Poland, for example. They run it through their hogs and we buy back the hams. Now, if they can do that, we ought to be able to run corn through our own hogs and sell them the hams.

I have held some hearings on the subject, and yet have found no satisfactory answer to the failure of the United States, an efficient livestock producer, to export anything except offal. We do not export red meat in any significant quantity. Livestock byproducts, yes. We ought to be able to enlarge markets in a hungry world, especially in the many countries that are striving to increase the protein content of diets.

I think part of the problem is one of technology, of making the production, transportation, and shipment of red meat more efficient. It can be by far the most efficient means of exporting agricultural commodities, that is, exporting more meat is, in many ways, more efficient than exporting more grains.

Senator STONE. Part of the problem is import barriers, the receiving end.

Senator STEVENSON. That is right. That is the first step, through negotiation, of reducing the barriers. Then whatever technological improvements are necessary to make the production and shipment of meat more efficient, and we are very efficient producers as it is.

Then, next, Mr. Chairman, I suggest a few means by which we could begin to reduce some of our own barriers to U.S. farm exports.

Some barriers are created abroad. Some we have created for ourselves. The principal roadblocks are the absence of intermediate credit terms under the CCC export credit sales program, and the special requirement for participation in CCC programs imposed on nonmarket economy countries under the Trade Act.

I intend, Mr. Chairman, to introduce a bill to permit the Commodity Credit Corporation to extend commercial export credit for up to 10 years. Presently, as you well know, the CCC is limited to 3-year maturities.

Our principal competitors are not similarly handicapped. This limitation not only serves to put our exports at an unnecessary competitive disadvantage, but also prevents U.S. sales of farm exports to countries facing severe bunchings of international debt in the next several years, I think that the latter point should be emphasized, Mr. Chairman. It is not just a question of competitive equality, although we are in an unequal competitive position now.

Lest there be any doubt on that score, I would like to submit for your record a statement from the Department of Agriculture, which outlines the credit practices of certain of our major competitors.* Senator STONE. It will be received for the record.

Senator STEVENSON. But the point to be underscored is that some countries simply cannot acquire substantial amounts of U.S, agricultural exports without longer term credits. And that is because they are faced with bunchings of debt in the near future.

Poland, which I visited not very long ago, is a principal example. If we could provide longer credit terms, we might make it possible for certain countries to buy, on credit, more of our commodities. Many countries do not have that ability now under 3-year terms. Senator STONE. Excuse me.

There is some evidence that that would really happen. I think the State Department has a different view.

Senator STEVENSON. Well, the State Department has a different view, as I understand it Senator Stone, on the competitive equality issue. That position is contradicted by the Department of Agriculture in the document which I have offered for your record. I do not believe there is any disagreement about the need of certain countries, including Poland, for longer term credits. And I have discussed that subject with the State Department, including the officials of the U.S. Embassy in Warsaw.

The Poles face a short-term financial crunch and to get beyond it have to have longer term credit.

Now, this proposal is not intended to offer concessionary terms or unsound loans, and in fact, it requires that there be reasonable assurance of repayments. It is the same repayment language that exists in the Eximbank legislation. It simply fills a market gap in credit terms.

Senator STONE. You would not just be replacing the short term with a long term and no increase in sales. I guess that is the point I was making. I think the State Department may suggest that what you are doing just transfers the 3 years to a longer period, but no increase in exports.

*See p. 126.