statement that we have been able to present. I think in certain respects it is open to very serious criticism.

I would be glad to indicate as we go along what the difficulties are. It is based on the assumption that where other countries have chosen to set up state trading, we cannot tell them that they cannot do that. We do not want to isolate ourselves from countries in which state trading is in existence, so we have to work out a method by which the private-trading part of the world can do business with the state-trading part of the world on an equal basis; that has been the purpose behind this section.

The CHAIRMAN. To the extent that we adjust ourselves to state trading, or appease state trading, to that extent we are impairing some of the idealism of the charter?

Mr. WILCOX. Well, the charter has has grown out of a philosophy of private trade; yes.

The CHAIRMAN. I remember at an earlier part of our discussion you gave considerable emphasis to the objective of having a free economic world in which private trade could operate?

Mr. WILCOX. That is right.

The CHAIRMAN. And to the extent that we appease state trading we are certainly working against that principle, are we not? Mr. WILCOX. That is right.

I think if the world moves on into a condition in which the bulk of trade is in the hands of states, the type of provisions that we have in this charter will come to have less and less meaning.

The CHAIRMAN. You have mounting artificiality of all kinds.
Mr. WILCOX. That is right.

The CHAIRMAN. That frustrates your basic purposes.

Mr. WILCOX. Yes, sir.

The CHAIRMAN. The effect of state trading, generally speaking, is repressive, is it not, as far as the expansion of the kind of foreign trade that we would want to see is concerned?

Mr. WILCOX. Well, conceivably you could have a considerable volume of trade under state trading, but state trading is prejudicial to multilateralism and is more likely to lead to bilateralism in trade; yes.

The CHAIRMAN. What is the present status of British cotton buying? As I understand it private trading in cotton has been set aside in Great Britain. The Government has taken over. Is my understanding correct?

Mr. WILCOX. The Government has a monopoly on cotton imports. There is no private trading in cotton.

The CHAIRMAN. That would be an illustration of state trading, would it not?

Mr. WILCOX. That is right.

Senator GEORGE. They also have them in other trading?

Mr. WILCOX. I believe they do and I believe we do, too, in rubber, for instance.

Senator GEORGE. We do in rubber.

They have a purchasing agency, Senator, if I may say, which is of course financed by Government directly and indirectly, and they do the buying for all the fabricators and processors and manufacturers in Britain and elsewhere under the British flag in those other areas. if they come under or wish to come under it. They have a monopoly of purchasing and monopoly buying.

Mr. WILCOX. Yes.

The CHAIRMAN. Does that not have a direct effect in depressing prices of world cotton?

Mr. WILCOX. Yes; I should think the more you concentrate buying in the hands of one single buyer, the more advantage it gives the buyer when there are many sellers.

The CHAIRMAN. Obviously a monopoly in control of the market will buy as cheaply as possible.

Mr. WILCOX. Certainly.

The CHAIRMAN. Now, in paragraph 1, it is said:

If any member establishes or maintains a state enterprise, wherever located, which imports, exports, purchases, sells, or distributes any product, or if any member grants exclusive or special privileges, formally or in effect, to any enterprise to import, export, purchase, sell, distribute, or produce any product, the commerce of other members shall be accorded treatment no less favorable than that accorded to the commerce of any country other than that in which the enterprise is located in respect of the purchase or sale by such enterprise of any product.

.

That is a little muddy to me. Just what does that mean?

Mr. WILCOX. Well, it means equality of treatment in the sales of a state trading enterprise as among different foreign buyers and its purchases as among different foreign sellers.

The CHAIRMAN. Does not the word "commerce" go beyond that? Mr. WILCOX. I do not think it is intended to; no, sir.

The CHAIRMAN. I picked up the word "commerce," and it seems to me to go beyond words that might have been limited to products dealt with on a state trading basis.

Mr. WILCOX. I do not believe it is intended to.

The CHAIRMAN. What would you say is the relationship of paragraph 1 to the British preferences system?

Mr. WILCOX. None.

The CHAIRMAN. That does not grant equal privileges as far as commerce of other nations is concerned.

Mr. WILCOX. The British preference system has to do with control of flow of private trade.

The CHAIRMAN. What, if anything, would be the relationship between British state-controlled products and its preference system? Those products, of course, would flow in commerce between constituent parts of the Empire and they would also flow in commerce to some extent as to the rest of the world?

Mr. WILCOX. Well, in a state-trading enterprise, when the United Kingdom made purchases, do they have to pay duties?

Mr. LEDDY. I think the point is covered by the last clause in the next sentence, which is by way of implementation of the principle stated in the first sentence. It provides that they buy on the basis of commercial considerations, such as price, quality, and so forth, having due regard to any differential customs treatment maintained consistently with this charter. That would mean, for example, let us take wheat: If there were a duty preference on wheat in the United Kingdom market, the state enterprise would have regard to the duty-paid price. In other words, by engaging in state trading it is not required to eliminate the preference. That would be taken care of under the negotiations provided under article 24.

The CHAIRMAN. We have been doing some state trading in copper. We have been buying copper in the world market and then we have been bringing that in duty-free and have been passing it on to the consumer duty-free.

We have also bought some with duty and have passed it on to the consumer with duty.

Is there any bearing between what Great Britain might do with the cotton which she buys under her state trading and the preferencesystem?

Mr. LEDDY. Insofar as there were a preference, a duty preference, on cotton imported into the United Kingdom, the state enterprise could take that into account, yes.

The CHAIRMAN. This morning I asked you whether there was anything in the charter any place that might affect the monopolies that result naturally from the granting of patents by this country and their maintenance through agreements in foreign countries. Just for the sake of the record I will ask you as to whether there is anything in this section that bears on that?

Mr. WILCOX. No, I do not think this section has any bearing on that. The CHAIRMAN. What would be the bearing of this section on oil concessions granted by a nation to some subsidiary, government-owned corporation? Would that be considered state trading?

Mr. WILCOX. If the corporation were owned by the Government and located outside of its own borders, operating a concession in some other country "wherever located" is the phrase here-and it wereengaged in production, yes, I think it would be covered.

The CHAIRMAN. It has been suggested, for example, that we pro-tect our interest in the Mediterranean area by setting up Government corporations and acquiring oil rights and using the product, for example, for the supply of our Navy. Would this cut across the purpose of the paragraph we are discussing?

Mr. WILCOX. Well, it would not prevent us from doing so. The only principle would be that in selling the oil that was produced by such a Government-owned corporation, the corporation should sell it

on a commercial basis.

The CHAIRMAN. Exactly.

Mr. WILCOX. It should act like a business concern would act.

The CHAIRMAN. It could not monopolize the distribution of the product to a particular purchaser.

Let me give you a case, something that we can measure. Let us assume that the United States, in one form or another, by one set of mechanics or another, goes into a foreign country, acquires oil for the purpose of delivering that oil to itself or its agency exclusively, and would not admit the rest of the world to the right to buy that oil on any basis, allocated or otherwise. Would that be condemned by that section?

Mr. WILCOX. I think that illustration would be covered by the exception in article 37 (d), that nothing in the chapter applies to measures relating to traffic in arms, ammunition, and implements of war, and to such traffic in other goods and materials as is carried on for the purpose of supplying the military establishment.

The CHAIRMAN. Supposing the purpose were other than the supply of the military establishment? Supposing it were to get an additional source of oil for general uses in this country?

60316-47-pt. 1-26

Mr. WILCOX. Well, in that case I think the provision in the paragraph would apply; that is, sell on a commercial basis and do not discriminate for political reasons in your sales.

The CHAIRMAN. In other words, we would not be permitted to maintain that sort of exclusive selling arrangement?

Mr. WILCOX. No; I think, as it is written, the answer to that is "No." The thing that causes me to hesitate in the answer would be the possibility of a producing company selling its whole output to a distributing company which would then handle the distribution.

The CHAIRMAN. Looking through the form, if it came to that ultimate substance, it would be condemned, would it not, by the article? Mr. WILCOX. If it is not for military purposes, if it is a Government corporation, if it is exporting, it treats all commerce the same on the basis of commercial principles.

The CHAIRMAN. And of course the same thing is applicable to all of the other countries that might pursue that policy?

Mr. WILCOX. That is right.

The CHAIRMAN. Would that not hit substantially at countries other than ourselves?

Mr. WILCOX. Well, this would not

The CHAIRMAN (interposing). Does not Great Britain, to put it another way, control considerable oil through devices of that kind, through government-owned corporations or controlled corporations, for uses which Great Britain dominates not on an equally accessible basis to the rest of the world?

Mr. WILCOX. If it is a governmentally owned or controlled corporation, whether located within the country or located within another country, this principle applies, yes.

The CHAIRMAN. Is this acceptable to Great Britain?

Mr. WILCOX. They have not objected to it.

The CHAIRMAN. You have heard the statement made many times by people who are considered expert on the subject, that we are depleting our oil reserves and other reserves to a point where we should acquire foreign reserves for substitution in the domestic field?

Mr. WILCOX. Yes.

I think I should amend my earlier answer about Great Britain. This was in the earlier proposals in essence, if not word for word, and the British Government indicated its agreement on all important points of the proposal.

The CHAIRMAN. I mentioned oil, and the same principle would go to minerals or anything else?

Mr. WILCOX. That is right.

The CHAIRMAN. Let me read the last sentence of paragraph 1:

To this end such enterprise shall, in making its external purchases or sales of any product, be influenced solely by commercial considerations, such as price, quality, marketability, transportation, and other terms of purchase or sale, having due regard to any differential customs treatment maintained consistently with the other provisions of this Charter.

Just what is that aimed at? The part that is confusing me is:

having due regard to any differential customs treatment maintained consistently with the other provisions of this Charter.

What specifically is in mind there?

Mr. WILCOX. I think this would permit, let us say in the case of the British Empire, the purchase by a government trading agency in

Britain, of products at a higher price within the Empire and a lower price outside of the Empire to the extent of the difference in the tariff. Mr. LEDDY. That is right.

The CHAIRMAN. And that would be a further buttressing for the preference?

Mr. WILCOX. No; it merely recognizes its existence.

The CHAIRMAN. But if it worked the other way it would tend to destroy the existence of the preference, would it not?

Mr. WILCOX. That is right.

The purpose of this last clause is to be neutral as to the question of preferences which are to be handled in the negotiations elsewhere. The CHAIRMAN. Now, paragraph 2, which reads:

The provisions of paragraph 1 of this Article relating to purchases of imports by State enterprises shall apply to purchases or imports of products for resale (or for use in the production of goods for sale). With respect to purchases or imports by State enterprises of products for governmental use and not for resale (or for use in the production of goods for sale), Members shall accord to the commerce of the other Members fair and equitable treatment, having full regard to all relevant circumstances.

Mr. WILCOX. The first sentence of this second paragraph says that the preceding paragraph applies to a commercial operation in which you are buying products for resale, or raw materials, and you produce the goods and you sell the goods.

The second part of this paragraph relates to governmental purchase for governmental use-that is, public procurement-which is not a commercial operation. There the rule is fair and equitable treatment. The CHAIRMAN. I read paragraph 3, as follows:

This Article shall apply to any enterprise, organ, or agency in which there is effective control by a Member government.

This simply describes the type of controls to which the article is applicable?

Mr. WILCOX. That is right. That period should be eliminated after the word "government."

The CHAIRMAN. Is all of paragraph 3 still open?

Mr. WILCOX. No; the alternatives are for the conclusion of the paragraph.

The CHAIRMAN. The alternatives do not indicate differing suggestions which have not yet been settled?

Mr. WILCOX. They do.

The CHAIRMAN. I will read the alternatives, as follows:

Alternative A

or over whose trading operations a Member government exercises effective control by virtue of the special or exclusive privileges granted to the enterprise.

Alternative B

or over whose trading operations a government is, under the arrangements providing for the special or exclusive privileges granted to the enterprise, legally entitled to exercise effective control.

Let me ask again, Is all of paragraph 3 open for further consideration, or has this been agreed upon?

Mr. WILCOX. The first clause in the paragraph is agreed.

The CHAIRMAN. Up to the comma?

Mr. WILCOX. Yes. The second clause is not agreed.