ARGENTINA WOOL TEXTILE INDUSTRY

Argentina's wool textile industry more than doubled its output during and following World War II, becoming largely self-sufficient, and in the case of wool tops shifting to an export basis. The Argentine industry now uses almost all of the Argentine wools of 64s and finer, amounting to about 30 million pounds annually, clean basis. In addition, it uses perhaps a third, or about 30 million pounds, clean basis, of the production of wools finer than 56s but not finer than 64s. Argentine wool exports consist of that portion of the medium wools between 56s and 64s which are not used domestically, and of the wools coarser than 56s, relatively little of which are used in Argentina. Most of the Argentine exports of wool tops have been of the grades between 56s and 64s.

In Argentina, in contrast to the United States and European industries, there are few, if any, companies engaged exclusively in making wool tops. Production of tops in Argentina is largely by so-called integrated mills which perform all of the processes in converting raw wool to worsted cloth. The production of tops for export is done largely by these mills which run their combing machinery extra shifts for that purpose. The tops are produced primarily on French combs, and generally have been of a quality nearly as good as comparable grades of United States tops.

During most of the years 1946-49, Argentina exported small quantities of wool tops, but in 1950 and in early 1951, following establishment of the 50 percent higher preferential exchange rate for wool tops as compared to wool, exports moved in large volume. In the spring of 1951, when world wool and top prices began a sharp decline, the Argentine Government established price floors below which wool could not be sold in the home market or exported. These floors were above the world prices and as a consequence there has been relatively little combing wool or wool tops exported from Argentina since May 1951. In January 1952, the Argentine price of scoured combing wool was about 30 percent above the world market.

Because of the large profits made on the sale of the 1950 clip Argentine wool growers have been in a position to hold their current clip off the market in the hope of rising prices. A price increase has failed to materialize, however, and there is mounting pressure for the Government to take action to permit the normal movement of Argentine wool exports. As of April 1952 market reports indicate that although the Government appears to be relaxing its minimum price regulations it has made no change in the preferential exchange treatment of wools tops.

FOREIGN EXCHANGE SYSTEM OF ARGENTINA

The system of exchange control established in 1931, in which the Argentine Government now sets different values for foreign currencies according to the nature of the product bought and sold, supplements customs duties and the export tax, and is used for similar revenues and protective purposes.

Since the simplification of the multiple exchange rate system, effective August 29, 1950, there have been three official rates of exchange for the Argentine peso, namely, the basic rate of 5 pesos to the dollar, the preferential rate of 7.5 pesos to the dollar, and the "free" rate of about 14.4 pesos to the dollar. Other foreign currencies are quoted in pesos in proportion to their dollar exchange value in terms of three official rates. The "free" rate applies mainly to noncommercial financial transactions but also to certain favored exports and less-favored imports. The limits within which it is allowed to fluctuate are set by the Central Bank. In addition, dollars are sold on the curb, or black market, for up to 29 pesos per dollar.

Most of Argentina's exports of natural products, such as grains, meat, and wool, are negotiated at the basic rate of only 5 pesos to the dolar. Except for wool, these are handled exclusively by a Government monopoly, the Instituto Argentino de Promocion del Intercambio. In the case of meat (and at times in the past, also in the case of grains), subsidies are paid to the producers because the applicable rate of exchange, in terms of the prices fixed in bilateral trade agreements, or prevailing in world markets, does not adequately remunerate the producers. The preferential rate of 7.5 pesos applies to about 15 percent of Argentine exports, including canned meats, quebracho extract, wool tops, and other processed products. The "free" rate of about 14.4 applies to only a few products, chiefly pears and grapes. In February 1952 the Central Bank introduced a mixed rate for exports of casein, butter, and cheese by permitting 60 percent of ex

change proceeds to be sold at the 7.5 rate and the remaining 40 percent at the free market rate, giving an effective rate of about 10.3 pesos per dollar.

The greater portion of exchange earnings is sold to importers at 7.5 pesos per dollar for commodities essential to the functioning of the economy. However, fuels, unavailable in Argentina, which amount to roughly 10 percent of total imports, enjoy the rate of 5 pesos per dollar. Manufactured goods competitive with local industry, when admitted, usually have to be imported either at the "free" rate or "without use of exchange," ostensibly as a capital contribution or with funds privately held abroad but apparently at times (though illegally) with exchange acquired at the curb rate. The arrangement of giving the lowest rates to exports of basic agricultural products and of providing higher rates for both exports and imports of manufactured products tends to promote manufacturing enterprises at the expense of basic agricultural products.

Because the bulk of exports are paid for at the rate of 5 pesos to the dollar, while most imports require payment of 7.5 or more pesos per dollar, the Central Bank realizes a net profit on exchange transactions. In 1949, exchange profits amounted to about 16 percent of the budgeted Federal revenue of Argentina while import duties and port dues constituted about 15 percent of the total. In addition the Government derives substantial revenue from an 8-percent ad valorem export tax which is levied on all exports except dairy products and fruits.

Imports, with negligible exceptions, are subject to a licensing system of obligatory exchange permits. Delivery of export exchange proceeds to the banking system is compulsory and exports are also subject to licensing. Thus the Government guides foreign trade as far as possible into channels where Argentina can spend its surpluses of certain foreign currencies and conserve its short supply of others.

The Argentine authorities try to prevent exports to soft-currency countries for reexport to hard-currency countries, because in such transactions, even though a higher peso price may be received by the Argentine exporter, the eventual hardcurrency proceeds are acquired by the country from which the goods are reexported, rather than by Argentina. For example, when it was discovered recently that certain wool shipments consigned to Sweden were being reexported to the United States, the Argentine Government refused to issue any more export permits for such shipments.

The existence of different exchange rates affects the price relationships as between commodities within Argentina as well as the external prices at which Argentine goods are exported. It is sometimes inexpedient for the Argentine Government to permit a downward revision of internal prices as external prices fall, as in the present case of wool. The reason is that the banking system has made extensive loans to producers, secured by the wool clip at a high peso value. There is, accordingly, a strong demand for a more favorable exchange rate on exports of wool rather than a reduction of the internal price, but the Argentine Government has so far not yielded to this pressure.

The Argentine authorities have sometimes maintained minimum prices on exports of basic commodities by refraining from issuing licenses to export the goods at a lower price. The recent policy with regard to wool is an example of this tactic. With the decline of world wool prices after a period of extraordinarily high prices induced by the Korean war, the Argentine policy has been to hold stocks of wool for a return to higher prices, and to refuse export permits until and unless the desired prices are offered. The prevailing high prices paid by Argentine woolen mills and the credit policy which enables wool producers to await a more favorable export market, have strengthened this maneuver.

Exports of wool have always received the lowest or basic exchange rate except for the period from October 1949 to August 1950, when the basic rate remained unchanged but wool was given a 30.5-percent preferential rate, equivalent to the ratio by which the pound was devalued by the southern Dominion wool-exporting countries.

As shown in table 7, the exchange rate applicable to wool tops was the same as that on wool until January 30, 1948, when because of a lull in exports from Argentina a preferential rate was applied to this product. Thereafter, exports of wool tops enjoyed a preference of 18 percent over exports of wool. With the devaluation of the peso with respect to wool in October 1949, approximately the same degree of preference to wool tops over wool was maintained. However, in the simplification and devaluation of August 29, 1950, wool tops received a 50-percent preference over wool. The incidence of the exchange preference for wool tops has been slightly offset by the 8-percent ad valorem export tax which adds more to the cost of exporting wool tops than wool.

TABLE 7.-Argentine exchange rates applicable to exports of wool and wool tops, compared with basic official "free," and curb rates

Source: Compiled by U. S Tariff Commission from U. S. Foreign Service reports and statistics of the International Monetary Fund.

Analogous products.-The preferential export rate (7.50) is applied to a large number of minor products, agricultural, mineral, and manufactured. However, the most important group of products thus favored consists of prepared and canned meats and certain meat byproducts, produced by branches of American and British firms for export mainly to the United States and the United Kingdom.1 Linseed oil, cake, and meal enjoyed preferential treatment for a time in 1948–50, but on August 29, 1950, they were returned to the basic rate, the same as applies to flaxseed. These flaxseed products are exported through the Government export monopoly, the Instituto Argentino de Promoción del Intercambio, chiefly on the basis of bilateral contracts with Argentina's trading partners; accordingly, internal prices can be regulated without resort to a preferential exchange rate. Flour, on the other hand, is exported at the basic rate the same as wheat.

URUGUAYAN WOOL. TEXTILE INDUSTRY

Though the total production of wool in Uruguay is less than half that of Argentina, the production of wools finer that 56's, the grades preferred for worsted apparel, is about as great as in Argentina. The Uruguayan wool textile industry uses 10 to 15 million pounds annually, clean basis, for domestic consumption and, in 1951, probably used about 10 to 12 million pounds, clean basis, in the production of tops for export. There are eight combing plants in Uruguay, largely equipped with French-type combs, and most of these plants are operated by concerns also engaged in the production of yarn and cloth. In the past 2 years combing capacity for export has been substantially increased, and the largest combing plant is reported to be producing for export exclusively. Present combing capacity is estimated to be between 30 and 40 million pounds annually, of which two-thirds or more could be exported.

Exports of tops were small until 1949, when, under benefit of a highly preferential exchange rate, they exceeded 1 million pounds. In 1950 they increased to over 5 millio pounds, nearly doubled in 1951, and, judging from official export sales registrations, probably will approximate 8 to 10 million pounds in the first half of 1952. The Uruguayan tops exported during the past year have generally been of good quality and have been largely of the grades between 56's and 64's. In contrast to Argentina, the Uruguayan Government placed no minimum price restrictions on the sale of wool following the price break in the first quarter of 1951, hence Uruguayan wool prices went down with world prices and Uruguayan top producers were able to obtain full advantage of the preferential exchange treatment accorded their product.

On April 5, 1952, the Uruguayan Government suspended sales of wool tops for export. It is believed that this action indicates a possible adjustment of the exchange differential between raw wool and tops.

1 The United States excludes fresh meat from Argentina and Uruguay under quarantine regulations.

2 In May 1948. the United States discontinued issuance of import permits for either flaxseed or linseed oil.

FOREIGN-EXCHANGE SYSTEM OF URUGUAY

The exchange-control system of Uruguay is similar to that of neighboring Argentina in its historical development, purposes, and effects. It was introduced in 1931 when all exchange operations were placed under the control of the Bank of the Republic. From 1934 to September 1949 three rates were in effect. The kinds of transactions to which they were applicable varied from time to time, but after 1937 the general pattern consisted of one rate for basic exports, a higher one for essential imports, and a still higher free rate for other permitted transactions. The free rate was, and remains, subject to stabilization by the Bank of the Republic by means of its intervention in the buying and selling of foreign exchange.

After the United Kingdom and Argentina had devalued their currencies, Urnguay, in October 1949, rearranged its system of exchange control by introducing additional special rates for both exports and imports of favored commodities and limiting the free rate to noncommercial transactions. No further modification of exchange rates has been made since that time. The basic rate was not altered at the time of sterling devaluation, and exportation of primary products such as wool, meat, and grains was continued at the basic rate. However, from time to time Uruguay has shifted some minor exports from one buying-rate category to another-apparently in relation to changes in the world market or to an aggravated accumulation of stocks.

As shown in table 8, wool has remained at all times subject to the basic rate of 1.519 pesos to the dollar. When Uruguayan combing mills, in 1947, first found themselves in a position to export tops, they were granted a special rate of 1.78, later increased to 1.88 pesos, representing an advantage of 17 and 24 percent, respectively, over the basic rate. The granting of these higher rates for wool top was subject to approval of individual applications for each transaction. The applicable rate for wool tops was increased to 2.35 pesos in October 1949 and remained at that figure until April 1952, when issuance of export permits for wool tops was temporarily suspended in order to permit a study of the equitableness of the rate, which is 55 percent higher than the basic rate, though still somewhat below the free rate, quoted in February 1952 at 2.59 pesos to the dollar. TABLE 8.-Uruguayan exchange rates applicable to exports of wool and wool tops, compared with basic and free rates

1 Exceptions could be made to favor manufacturers upon individual application. However, Uruguay's car acity to export wool tops before 1947 was negligible.

2 From 1942.

3 Individual application required to receive this rate.

4 Introduced after September 1947 and effective for all exports of wool top in September 1949 (last month before sterling devaluation).

Source: Compiled by U. S. Tariff Commission from U. S. Foreign Service reports and statistics of the International Monetary Fund.

Analogous products.-The concession by Uruguay of preferential exchange rates to wool tops has a parallel in the case of linseed oil and byproducts, and canned meats, all manufactures of basic products of the country, the exports of which were negotiated at the basic rate. Linseed oil, cake, and meal have usually benefited by the intermediate rate (1.78). In addition, an export subsidy on a weight basis was paid after the partial devaluation of the peso in October 1949. Canned meats are exported at the most favorable commercial rate (2.35 pesos to the dollar). These are produced mainly by branches of American and British firms for export to the United States and the United

Kingdom. Fresh and frozen meat, though subject to the basic rate, required a direct subsidy payment, after sterling devaluation in October 1949, in order to enable Uruguay to continue exports to the United Kingdom at the prices specified in the contract with that country.

Like Argentina, Uruguay exports flour at the basic rate, the same as applies to wheat.

POSSIBILITY OF AN INCREASE IN IMPORTS OF WOOL TOPS FROM FRANCE

The French Government, in February 1952, took measures to stimulate the export of manufactured goods. One measure, consisting of two decrees, provided for a rebate of certain production charges and taxes when goods are exported. The rebate reportedly approximates 14 percent of the cost of production. Since the issuance of these decrees, which are applicable to wool tops as well as to other manufactured articles, there have been offerings of substantial quantities of French tops in the United States at prices comparable to those of Uruguayan tops and substantially below those of domestic tops. Most of the French tops are made from Australian wool, which is generally superior to South American wools.

The production of wool tops in France, which is greater than the combined production of Argentina and Uruguay, decreased 28 percent in 1951 as compared with 1950, from 165 million pounds to 119 million pounds, and exports also decreased 28 percent, from 32 to 23 million pounds. The decrease in production and exports was general throughout the textile industry, and was largely responsible for the Government's decision to stimulate exports.

EFFECTS OF INCREASED IMPORTS OF SOUTH AMERICAN TOPS ON DOMESTIC

TOP MARKET

The increased imports of South American wool tops, at prices usually substantially below those of domestic tops of comparable grades, have had a particularly depressing effect on the United States market because they came at a time when the demand for tops was markedly declining due to a prolonged slump in the worsted trade. Government purchases have been comparatively small over the past year, and civilian demand has favored woolens rather than worsteds.

Sales of domestic tops have been very slow during the first quarter of 1952 because many buyers, noting a steady decline in prices over the past several months, have stayed out of the market in anticipation of further declines. Other buyers, in a natural effort to procure their needs at as low a cost as possible, have used the lower quotations on South American tops as a basis for determining what they will pay, and domestic top producers have found themselves unable to meet such prices without substantially undercutting their cost plus normal mark-up. In some cases the price of the South American tops has been under the domestic producers' cost of production for comparable grades. Several top dealers in the United States, whose normal function consists of buying wool and combing it on their own machinery or having it combed on commission, have purchased large quantities of South American tops because its duty-paid price has been low enough to afford them a profit without the necessity of performing the processing operations. Some of the large worsted manufacturing concerns in the United States, which have considerable combing machinery of their own, have also found it expedient to buy substantial quantities of South American tops.

The price advantage of the wool tops from South America results from the application of preferential exchange rates, and so long as these rates remain unchanged the tops will find a ready market in the United States. Domestic tops are preferred in this market, however, and if the worsted business should experience a material upturn, the adverse effects of the lower-priced South American tops would be less..

Senator O'MAHONEY. Let me briefly quote one or two of the facts which appear in this report of the Tariff Commission. First, the domestic production of wool tops in 1952 was about 111⁄2 million pounds less than it was in January 1951.

1 The United States excludes fresh meat from Uruguay and Argentina under quarantine regulations. Foreign Service dispatch No. 2633, dated April 4, 1952, from the American Embassy, Paris, France.