Now what does that mean? With Great Britain, for instance, we have a most-favored-nation treaty whereby the United States undertook to grant to British commodities, as Britain undertook to grant to American commodities, treatment no less favorable than that protests from one country after the other because of treaty violations; of the treaty, therefore, made compulsory by this contingent-duty provision. And, as a result, the State Department began receiving protests from one country after the other because of treaty violations; and the bad part of the situation was and is that the State Department could not deny it. It is a violation of our treaties and we have had formal protests. I have in mind a number of protests from some important countries demanding that we accord most-favored-nation treatment to them. Unfortunately, those provisions in the tariff law, with a single exception, are mandatory. That is, the President is compelled to fix this higher rate of duty. It is not permissive; he is compelled to violate the treaties.

Now, you see, there you are confronted with an altogether different situation from that of countervailing duties. With countervailing duties, it is easy enough, if a country is giving bounties, to raise your tariff rate so as to offset those bounties. But here, in your contingent duty, you have a situation where, although American commodities may be receiving equal treatment in the foreign country, as, for instance, American automobiles were receiving the same tariff treatment as automobiles from any other country so far as England was concerned, yet America is compelled, under these provisions, to discriminate against the commodities coming from such foreign countries as happened to have, with respect to any commodity, a higher tariff than we have.

Now that makes for a very unfortunate situation. In the first place, as you know, we have most-favored-nation treaties or agreements with some 48 different nations, so that we run into the possibility of direct treaty violation with 48 countries, so far as these specific commodities are concerned. And, in the second place, even with respect to those countries (the few countries) with which we do not have most-favored-nation treaties or agreements, as I say, it compels America to discriminate against them although they may be giving to America equal treatment. This, of course, would mean an even more unfortunate situation if we commence a bargaining treaty program; it would mean an almost impossible background and would create great ill feeling.

Let me add, that so far as I know, with a single exception, no foreign country has adopted such things as these contingent duties. Remember, I am not speaking of countervailing duties, now; I am speaking of contingent duties. The United States stands almost alone in that policy. The single exception which exists, so far as I know, is Canada. Canada followed the example which the United States set, and there has been a great deal of criticism in Canada about the policy. It is hardly an old, established policy, even in this country. I believe I am correct in saying that these contingent duties were first inserted on a large scale in the act of 1922. Theretofore there were some scattering examples.

Now, in section 2 of the proposed act, those contingent duties are repealed. Subparagraph (d) of paragraph 369, which you see mentioned in line 13, relates to automobiles and automobile parts. The

last sentence of paragraph 1402, relates to paper board, wall board, and pulp board. The proviso of paragraph 371 relates to bicycles and parts thereof; that of paragraph 401 relates to timber and lumber; that of paragraph 1650, relates to coal and coke; that of paragraph 1687 relates to gunpowder; and that of paragraph 1803 relates to certain lumber. Every one of those except the last is, as I say, a mandatory provision. The President, in spite of the fact he knows he is breaking a treaty by doing so if he is dealing with a country having the most-favored-nation clause, is compelled to impose these contingent duties. The last one, namely, 1803, subsection 1, is permissive. The CHAIRMAN. Right there, Dr. Sayre, as to those provisions you propose to repeal, which you just enumerated: Are they causing any difficulty or embarrassment at the present time?

Mr. SAYRE. They are to the State Department; because we are confronted with these protests-"You are violating the treaty." But what can we do about it? It is causing great embarrassment, sir. The CHAIRMAN. Without we repeal them, there is no remedy; is that right?

Mr. SAYRE. No remedy; because these are mandatory provisions. Mr. HILL. It is not equally true that a countervailing duty violates the most favored nation treatment?

Mr. SAYRE. No, sir. Countervailing duties are generally conceded to be legitimate exceptions to the most-favored-nation clause.

Mr. HILL. That would not affect the principle, provided the duty were enforced.

Mr. SAYRE. It would to this extent, sir. It is almost universally agreed, because it is the practice of other nations as well as ours, that the imposition of countervailing duties, using that word in the strict sense, does not violate the most-favored-nation treatment. That is, other nations are doing it as well as we.

Mr. HILL. Let us assume, as a concrete example, that country A pays a bonus on the export of automobiles to all countries; that is, regardless to what country they are exported or sent. Now we impose a countervailing duty to the extent of that export balance. Mr. SAYRE. Yes.

Mr. HILL. We are raising our tariff rate on automobiles from that country A.

Mr. SAYRE. As against that country, yes, sir.

Mr. HILL. Above the rate which we levy against countries which do not have such export bounties.

Mr. SAYRE. That is true, sir.

Mr. HILL. And it seems to me, in abstract principle, to say the least, it would be a violation of the treaty.

Mr. SAYRE. In abstract and theoretical principle, yes; but since world opinion is against bounties, most countries tacitly agree that it will be quite within the privilege of any, regardless of the most-favorednation principle, to levy countervailing duties. And since nations in general have engaged in the practice, none in fact complains. That is, most-favored-nation treatment is considered, if I may put it that way, in the treaties and agreements as generally not applying to the case of countervailing duties, using that term as I have been defining it; whereas, on the other hand, where you run into those provisions of contingent duties, as I have explained, we are the only country, with the possible exception of Canada, which does impose contingent

duties, and there you are running into something which directly conflicts with not only the practice of foreign nations, but with their agreements. And you can see what it would lead to. It would lead to this, that whenever a country has a tariff higher than another, the other country boosts its tariff up and the tariffs would go on climbing up, up, up, without end. And I suppose that is one of the reasons, at least, why nations generally have frowned upon contingent duties. It is a tariff-climbing procedure.

I have already spoken concerning the repeal of section 336. The committee has an amendment, suggested by the Secretary of State, which I would be glad to discuss if there are any questions about it; but which, in the absence of questions, I think is pretty clear and, Í think, raises no contentious issues.

I do want to speak about the last 3 lines of section 2; that is, lines 16 to 18, page 3, which concern the Buffalo and other border millers. That is a very complicated matter. I will make it just as brief as I can.

Section 311, Tariff Act of 1930, includes a provision written into the tariff act in order to prevent Buffalo millers, who were milling wheat imported from Canada, from shipping the flour into Cuba and enjoying the Cuban preferential of 30 percent. Before the passage of that act, the Buffalo millers had found it possible to take Canadian wheat, mill it in bond, ship it to Cuba, have the Cuban preferential of 30 percent, and thus secure an advantage in the milling of that Canadian wheat as against the Canadian millers. It meant that that business of milling went from Canadian millers to American millers. Then, however, a contention developed between the Buffalo millers and certain southwestern millers. The contention of the southwestern millers, if I am correctly informed, was that here was a practice that resulted in taking Canadian wheat for milling and shipping to Cuba, rather than American wheat and, therefore, that this should be discontinued, the hope being that American wheat could be taken, milled, and sold to Cuba in the place of Canadian wheat. Therefore, under the influence of a group of southwestern millers, this provision was written into the tariff law, providing, in effect, that no flour manufactured in a bonded warehouse from wheat imported into this country could be withdrawn from the warehouse for exportation, without payment of a duty equal to any reduction in duty which by treaty should apply in respect of such flour in the country to which it was to be exported.

In other words, if Canadian wheat should be milled in Buffalo in bond, then the Buffalo millers, upon shipping it to Cuba, must pay an amount equal to any reduction in duty which was accorded them under the Cuban treaty.

Mr. McCORMACK. I understand that is 64 cents?

Mr. SAYRE. It is a 30-percent reduction. According to my figures, it amounts to 68.6 cents. I speak subject to correction.

Mr. McCORMACK. I understand you are right, sir.

Mr. SAYRE. Now the contention has gone on ever since that was written into the statute books. The Buffalo millers, if I am correctly informed, claimed that even if this act were repealed it would not be possible to utilize American wheat, because the Cuban people want the hard wheat. There is some question whether or not the Cuban people could or would want to consume the kind of wheat which is

produced in the Southwest, and the contention of the Buffalo millers is that the repeal of the enactment would simply mean that the Canadians themselves would do the milling and ship into Cuba.

With the truth or falsity of that contention, I have no immediate concern. The proposal which was written into this enactment was not a repeal of the existing provisions of section 311; but merely a provision to the effect that section 311 should not apply to new agreements concluded under this authority. That is to say, suppose the tariff should be reduced in country X; then under this language it would mean that section 311 would have no application as to country X.

Now let me point out, if I may, why it was considered inadvisable to allow section 311 to apply, as it stands, to new agreements. And this is a very complicated thing, so if I do not make myself clear, I hope you will ask me questions. If section 311 stands as it is now and if it applies to all new agreements that are made, it means this: Suppose that country X gives a tariff reduction on wheat to the United States. Under the generally prevailing most-favored-nation treaties, the United States probably will not be the only country which enjoys that reduction; other countries will similarly enjoy it. Very possibly Canada, let us say, will enjoy it. If section 311 remains unaffected, it means. that Buffalo millers would have to pay out an amount equal to the reduction gained under the new treaty; whereas the Canadian millers, enjoying that same reduction by virtue of most-favored-nation treaty provisions, would not have to repay. In other words, the Buffalo millers would be at a great disadvantage as against Canadian millers. And that is why it did not seem wise to allow section 311 to apply, in its present form, to new trade agreements negotiated under this power. It is permissible, so far as Čuba is concerned, because Cuba grants exclusive preferential treatment to the United States; but, under the new trade agreements, presumably there will not be this exclusive preferential treatment such as exists with respect to Cuba. That is the reason, sir, why the last three lines in section 2 were written into the enactment-not with a view of hurting in any way the southwestern millers, but with a view of making available to those millers who mill wheat in bond such advantage as may be gained under new trade agreements.

Mr. COOPER. Then is it correct to state that the application of this provision with reference to section 311 does not adversely affect the southwestern wheat producers so far as the Cuban trade is concerned?

Mr. SAYRE. I think not, sir, with one exception which I want to make and which I am coming to. I want to be absolutely frank with you all on this, because we want to get at the truth of the thing.

Suppose that a new Cuban treaty is made in pursuance of the authority granted under this particular bill, then where will we be? And that is what I want to address myself to next.

Mr. COOPER. Well, it would naturally follow that that would be one of the things that would have to be taken into consideration when that treaty was negotiated.

Mr. SAYRE. Of course, it may be that the new Cuban treaty will be made as an ordinary treaty, ratified by the Senate; on the other hand, if this authority is given to the President in time, it may be quite possible that the new Cuban agreement will take the form of one

of these trade agreements; in which case we have to think of these southwestern millers. That is what I want to speak of next.

Mr. COOPER. Now just on that point: As I understand the situation as defined by you, as it now stands under the treaty now in existence between Cuba and the United States, the application of the provision here relating to section 311 will not adversely affect them?

Mr. SAYRE. It is not affected in any way, because the language proposed here, which you see in lines 16 to 18, on page 3 of H R. 8430, is:

The third paragraph of section 311 of the Tariff Act of 1930 shall not apply to any agreement concluded pursuant to this act.

That is not a repeal of section 311

Mr. MCCLINTIC. In case the United States makes a new agreement with Cuba, then the Buffalo millers would be able to ship to buy wheat from Canada, mill it in bond, send it on down to Cuba, and have a drawback of 30 percent?

Mr. SAYRE. Well, it depends whether this new Cuban arrangement takes the form of a treaty, or of a trade agreement negotiated under the authortiy of this bill.

Mr. MCCLINTIC. But it is possible, is it not?

Mr. SAYRE. It is possible; if this bill is passed in time, so that the President has the authority, it is perfectly possible, sir, that a trade agreement may be concluded with Cuba and then we have got to face that situation, which is what I want to speak of next.

Mr. MCCLINTIC. Well, what would be wrong with leaving this provision out?

Mr. SAYRE. You mean omitting lines 16 to 18 altogether?

Mr. MCCLINTIC. Yes; so that the southwestern millers who are now milling hard wheat, can have the advantage of trade with Cuba. Mr. SAYRE. The objection, sir, as I have just been suggesting, is that those who are milling wheat in bond would have to pay back, under the provisions of section 311, any reduction procured in a trade agreement; whereas their competitive millers (let us say Canadian millers), would not have to pay back and could put them out of business.

Mr. MCCLINTIC. It seems to me the answer would be there would be no necessity for millers within the United States to mill wheat in bond when there is produced in this country a sufficient amount of hard wheat to supply the export demand.

Mr. SAYRE. I think the answer to that, sir-I speak subject to correction, but my understanding of the testimony which was brought forward here a couple of days ago was that there was a difference in price of $1.35 a barrel between American flour and Canadian flour for export. Now, I speak subject to correction on that, and I have asked an expert of the Department of Agriculture to be here this afternoon to answer these questions; but my answer to that is that there may be a great difference in price between the American wheat and the Canadian wheat, and that that difference in price may explain why the Buffalo millers are purchasing Canadian wheat rather than American wheat. And if that difference in price is as great as that testimony seemed to indicate, the Canadian millers naturally will sell Canadian flour to Cuba, or to some other country, cheaper than the American fiour can be sold.

Mr. MCCLINTIC. Taking into consideration the 30-percent differential?