Mr. SAYRE. It all depends on how great the difference in price is. It is quite conceivable; yes, sir. As I say, I have asked an expert of the Department of Agriculture to be here today and he is prepared to answer these questions, which I am not. But, before I ask him to answer the questions, I want to make a possible further amendment here to take care of the situation which we developed a moment ago, which Mr. Cooper was speaking of; that is, the situation of where would these southwestern millers be if the new arrangement with Cuba took the form of a trade agreement. Let me say that this is a matter which primarily concerns the Department of Agriculture, and I have before me a letter which Secretary Wallace has written me with regard to this matter, which I should like to read and insert into the record. The CHAIRMAN. Without objection, that may be done. Mr. SAYRE. Shall I read it, or just put it in? Mr. MCCLINTIC. I would like to have the information, because I represent that section of the country. Mr. SAYRE. I will read it. It is dated March 10, 1934, addressed to me, and says: Reference is made to your informal request of this morning for a statement by this Department in regard to the provision in the Tariff bill (H.R. 8430) now pending before the Ways and Means Committee which would repeal paragraph 3 of section 311 of the Tariff Act of 1930. * * * That is not quite an accurate statement. As I have just explained it, it does not repeal it; it repeals it only insofar as its application to new trade agreements is concerned. Mr. MCCLINTIC. It holds it in abeyance. Mr. SAYRE. Well, it limits its application. The letter continues: * * * The provision in question reads as follows: "No flour, manufactured in a bonded manufacturing warehouse from wheat imported after ninety days after the date of the enactment of this act, shall be withdrawn from such warehouse for exportation without payment of a duty on such imported wheat equal to any reduction in duty which by treaty will apply in respect of such flour in the country to which it is to be exported." This provision was presumably adopted with the provisions of the reciprocity treaty of 1902 with Cuba in mind. Ünder that treaty American flour enjoys a preference of 30 percent under the duties and taxes levied in Cuba on flour from Canada and other foreign countries. The effect of this provision is to limit the benefit of the Cuban preference to flour milled in the United States from domestically grown wheat. With respect to the proposed repeal of paragraph 3 of section 311, two questions arise: (1) Whether it should be modified so as not to apply to flour exported to countries which do not grant us exclusive preferences on wheat flour; (2) whether the paragraph should be repealed, so that it would cease also to apply to countries which do grant us exclusive preference, as in the present case of Cuba. As to the first question, it seems important to this Department that this provision be not applied with respect to countries which do not grant exclusive preferences to the United States. * * * That is, in other words, with such new countries as trade agreements are negotiated with. * * * In cases where the United States is not granted exclusive preference the effect would be to penalize the bonded mills grinding imported wheat for export without resulting in any material advantage to the mills grinding American wheat for export. Such mills grinding foreign wheat would, by virtue of the most-favored-nation clause, receive no tariff advantage over competing foreign mills, whereas they would be subject to the added handicap of having to pay the amount of the preference into the United States Treasury. Most, if not all, of the flour business with countries other than Cuba lost by American bonded mills would probably go to foreign mills rather than to the American mills which grind American wheat. That is the danger, that the Canadian millers, grinding Canadian wheat, would get the advantage and ship to these new countries X, Y, and Z, with whom we might make new trade agreements reducing the tariff on wheat. Secretary Wallace goes on to say: With respect to the second question, it should be remembered that the paragraph was originally adopted primarily at the request of the southwestern millers. It involves a conflict of interest between them and the Buffalo millers. The provision has been of relatively little benefit to domestic wheat growers, but this Department is inclined to feel its repeal with respect to Cuba would not be desirable at this time. In order to take care of the possibility which Mr. Cooper, by his question, was suggesting and which is a real possibility, a few of us were trying to find some formula which would protect the southwestern millers, even in the event that a new Cuban treaty should take the form of a trade agreement negotiated under the authority of H.R. 8430. That formula I have here, sir, and I would be glad to suggest it to you. It is in these words: The third paragraph of section 311 of the Tariff Act of 1930 shall not apply to any agreement concluded pursuant to this act with countries which do not grant exclusive preference with respect to flour to the United States. Mr. COOPER. Now, will you read that again, so that we can take it down-just the new language, please. Mr. SAYRE. It starts out like the other: "The third paragraph of section 311 of the Tariff Act of 1930 shall not apply to any agreement concluded pursuant to this act' And then add the following language: * * * with countries which do not grant exclusive preference with respect to flour, to the United States. Mr. McCORMACK. That means Cuba. Mr. SAYRE. That means Cuba. Mr. McCORMACK. You are going a long ways to get around that question, aren't you? Mr. SAYRE. To get around mentioning it? Mr. McCORMACK. Yes. Mr. SAYRE. Of course it is conceivable that in the course of time there might be some other country which would grant exclusive preference. Mr. McCORMACK. This is really a conflict between two sections of the country. Mr. SAYRE. Yes; concerning agricultural interests. I have an expert here from the Department of Agriculture who is prepared to answer these questions, if you choose. But maybe I had better complete my statement and then we will have the questions. Mr. Chairman, would that be satisfactory? The CHAIRMAN. Yes. Mr. TREADWAY. Well, Mr. Chairman, I think he could very properly complete his statement; then we will proceed in our own way as to calling the next witness. Mr. SAYRE. Yes. Mr. TREADWAY. You are not expecting to call somebody from another department? 45571-34--25 Mr. SAYRE. No. All I meant, sir, is that there was some one here from the Department of Agriculture within whose peculiar province lies this question of the Buffalo versus Southwestern Millers controversy, and I am not competent to speak about it. The CHAIRMAN. Should there be doubt in the minds of the committee, you have made a suggestion, which will be helpful, that we can call the expert from the Department of Agriculture. Mr. COOPER. I suggest this, as the Doctor has in mind, that he come right on with this now, so that we keep it all together. The CHAIRMAN. Very well; without objection, you may proceed. STATEMENT OF FRANK H. THEIS, CHIEF, GRAIN SECTION, AGRICULTURAL ADJUSTMENT ADMINISTRATION Mr. THEIS. My name is Frank H. Theis; I am Chief of the Grain Section, Agricultural Adjustment Administration. Now what is the question, sir? Mr. MCCLINTIC. Won't you explain the effect of the added words in the amendment brought to our attention by Dr. Sayre? Mr. THEIS. I think, Mr. Chairman, there is very little that can be added to what the Secretary has already pointed out-that there is no desire on the part of the Department of Agriculture to penalize the Buffalo millers who are now grinding Canadian wheat in bond. In a case where most-favored-nation treatment was accorded to Canada, using Country X as an example, it is conceivable that the Buffalo millers would be penalized to the extent of whatever benefit was accorded. We will assume it is 30 percent, as in the case of Cuba; they will be penalized to that extent for the reason that the Buffalo millers will be required to pay into the United States Treasury the amount of that 30 percent. On the other hand, if the exclusive privilege is granted to the United States, as in the case of Cuba, or any other trade agreements that may be accomplished, then naturally that exclusive privilege should accord and reflect the benefit to the American producer of wheat. That is the reason the language is placed in there just as it is. Mr. MCCLINTIC. Now, how does this leave the millers of the Southwest in respect to the utilization of hard wheat manufactured into flour, to be shipped to Cuba? Mr. THEIS. It leaves them in the position of getting the exclusive privilege of having the preferential 30 percent accorded to them, just exactly as the present 1930 Tariff Act provides. Mr. MCCLINTIC. By the adoption of this amendment? Mr. THEIS. Yes. Mr. MCCLINTIC. Now, does it give to the Buffalo miller any particular advantage in dollars and cents with respect to the cost of production of flour in the United States? Mr. THEIS. No. Mr. MCCLINTIC. It leaves him in just the same position? Mr. THEIS. That is right. Mr. DICKINSON. Let me ask in regard to soft wheat. Is there any soft wheat grown in Canada? Mr. THEIS. No, sir. Mr. DICKINSON. Now in what States and in what sections do we have soft wheat and how is that soft wheat affected by this proposed change in this section 336? Mr. THEIS. The soft wheat, of course, is grown not only on the Pacific coast in the Pacific Northwest, but also, beginning in the eastern part of Kansas, and extending into Missouri, through the Mississippi and the Ohio Valleys and down through the Southeast. Mr. DICKINSON. I always heard a great deal of talk with reference to soft wheat in connection with this Buffalo proposition. Mr. THEIS. The hard-wheat flour that goes from the Southwest is mainly raised in Texas, Oklahoma, and Kansas; that is the type of wheat that usually goes to Cuba in the shape of flour. Mr. DICKINSON. How would the soft-wheat people of Missouri and Oklahoma and Kansas be affected by any change in this provision? Mr. THEIS. It would be just the same as it is at the present time. Mr. MCCLINTIC. You make the statement that the difference would in no way affect the producers of flour in the sections of the United States that grow hard wheat? Mr. THEIS. That is correct. Mr. MCCLINTIC. With this amendment? Mr. THEIS. That is correct. Mr. KNUTSON. Mr. Theis, the millers, I understand, now have 90 days in which to manufacture and dispose of bonded wheat? Mr. THEIS. That is correct, sir. Mr. KNUTSON. Under this legislation, does this legislation confer the power to extend that 90 days? Mr. THEIS. I think it would not disturb it at all with this amendment; it would not disturb it at all. Mr. KNUTSON. It would not disturb it? Mr. THEIS. No. Mr. KNUTSON. Just for my own information,-wheat that is milled in bond and shipped to a foreign country, that is, Canadian wheat, we will say Mr. THEIS. Yes. Mr. KNUTSON. Does that go as Canadian flour or American flour when milled in Buffalo, we will say, or Minneapolis? Mr. THEIS. Well it is difficult to say. The identity, I am afraid, is usually lost in that case, that is, the actual identity in moving out. Mr. KNUTSON. How would that flour be treated for tariff purposes? Mr. THEIS. You mean in our export figures? Mr. KNUTSON. I mean for tariff purposes, in the country where it goes to? Mr. THEIS. Well it would be in bond, of course, and would naturally be canceled off as an in-bond movement. Mr. KNUTSON. Then it becomes Canadian flour, so far as the tariff is concerned? Mr. THEIS. Yes; that is correct. Mr. McCORMACK. Did I understand that Cuba buys very little wheat from the United States? Mr. THEIS. Very little wheat. Mr. McCORMACK. Very little wheat? Mr. THEIS. Practically none. Mr. McCORMACK. For example, in 1932, we exported 54,879,484 bushels to all countries of the world, and Cuba purchased 30,710 bushels. Mr. THEIS. A very small amount. Mr. McCORMACK. In 1931, we exported 80,311,041 bushels and Cuba purchased 25,671 bushels. In 1929, we exported 90,169,600 bushels and Cuba purchased 44,041 bushels. In 1927, we exported 168,307,000 bushels; Cuba purchased 38,674 bushels. In 1925, we exported 85,525,940 bushels and Cuba purchased 29,910 bushels. In 1923, we exported 98,533,482 bushels and Cuba purchased 30,247 bushels. Now Cuba is a purchaser of flour? Mr. THEIS. Correct. Mr. McCORMACK. I notice that in 1923, Cuba purchased, of hard spring flour, 360,726 barrels; and, of soft wheat flour, 696,320 barrels. In 1924, she purchased 381,043 barrels of hard wheat flour and 732,000 barrels of soft wheat flour. In 1925, Cuba purchased 416,782 barrels of hard wheat flour and 751,000 barrels of soft wheat flour. In 1926, she purchased 530,000 barrels of hard wheat flour and 602,000 barrels of soft wheat flour. In 1927, she purchased 727,817 barrels of hard wheat flour and 485,000 barrels of soft wheat flour. In 1928, she purchased 714,000 barrels of hard wheat flour and 370,000 barrels of soft wheat flour. In 1929, she purchased 721,283 barrels of hard wheat flour and 493,000 barrels of soft wheat flour. In 1930, she purchased 570,843 barrels of hard wheat flour and 431,000 barrels of soft wheat flour. In 1931, she purchased 591,000 barrels of hard wheat flour and 280,000 barrels of soft wheat flour. In 1932 she purchased 593,000 barrels of hard and 186,000 barrels of soft. In 1933 she purchased 315,640 barrels of hard and 83,000 barrels of soft. How do you account for that increase in the consumption of hard wheat flour, or flour made from what the farmers usually call hard wheat, and the marked decrease in the consumption of flour apparently made from what is called soft wheat? Mr. THEIS. The higher price that has prevailed in the United States for the last 2 years has accounted for that increase entirely. Mr. McCORMACK. Now, have you any figures breaking down this hard wheat flour, to determine where that came from? Mr. THEIS. No, I have not them available at the present time. Mr. McCORMACK. Have you any figures showing whether or not, as a result of this provision in the 1931 Tariff Act, the southwestern millers have profited? Mr. THEIS. I think the statement of the Secretary shows that our figures do not indicate that; there is no way of breaking them down, |