Foreign Relations of the United States, 1955–1957, Foreign Economic Policy; Foreign Information Program, Volume IX

58. Memorandum From the Deputy Under Secretary of State for Economic Affairs (Prochnow) to the President’s Administrative Assistant (Hauge)¹

Washington, February 24, 1956.

SUBJECT

• Compensation to Domestic Textile Industry for Adverse Effects, if Any, of Proposed Cotton Export Program

As pointed out in our meeting this morning, it is important to differentiate import-protective measures for the domestic textile industry according to (a) remedial measures that may be taken against injury from textile imports, even without an expanded subsidy program for raw cotton exports, and (b) remedial measures addressed specifically to offsetting any adverse effects on the domestic textile industry that may result from an expanded subsidy program for cotton exports.

As to the first point above, we have had extended discussions with representatives of the textile industry regarding the course available in legislation for seeking remedial action. We are also considering further with Agriculture and Commerce the proposal made in our meeting this morning that we seek official confirmation from the Japanese Government of the levels of restrictions voluntarily applied to various types of Japanese textiles exported to the United States, and the period during which these restrictions will be in effect.

As to the second point above, it is hoped that an expanded subsidy program for cotton exports will not necessitate the use of any additional protective measures for the domestic textile industry. But if such an export program does result in a wide differential in American cotton prices here and abroad, it may be necessary, in fairness to the domestic textile industry, to arrange a system of offsetting fees on textile imports and exports. The Executive Branch has adequate legislative authority to make such arrangements. If the proposed cotton export program is approved, I suggest that the Administration might give consideration to informing the domestic textile industry that the Executive Branch intends to apply these offsetting arrangements if necessary. This would eliminate the cotton export program as an additional reason that might otherwise be advanced by the domestic textile industry for protection against imports.

If needed as a consequence of the proposed cotton export program, legislative authority exists for offsetting compensation to the domestic textile industry in the form of (a) cash subsidies or subsidized raw cotton for textile exports, and (b) offsetting fees for relatively low-priced raw cotton in imported textiles. The legislative authority for such actions is described below.

(a) Cash subsidies or subsidized raw cotton for textile exports.

There are two authorities under which this may be done. Section 32 of PL–320, 74th Congress (approved August 24, 1935),² permits the Secretary of Agriculture to pay export subsidies to “encourage the exportation of agricultural commodities and products thereof.” I understand that it was under this authority that the Secretary of Agriculture paid a subsidy to exporters of cotton textiles in 1939 and 1940, in an amount equal, on a raw cotton content basis, to the subsidy on raw cotton then in effect.

Public Law 395, 84th Congress (approved January 28, 1956)³ provides that “sales for export shall not only include sales made on condition that the identical commodities sold be exported, but shall also include those made on condition that commodities of the same kind and comparable value or quantity, be exported, either in raw or processed form.” Under this legislation, domestic mills may purchase subsidized cotton equivalent to the quantity used in exported textiles.

(b) Legislation to offset lower cotton costs in imported cotton textiles.

Section 22 of the Agricultural Adjustment Act authorizes the President to restrict by quotas or fees the importation of any agricultural commodity or product thereof when it is determined, following investigation, that imports are materially interfering with Department of Agriculture programs or operations.

It is assumed that an export subsidy program on raw cotton would be a Department of Agriculture program under this Section and therefore could provide the basis for import quotas or fees in order to prevent imported textiles from materially interfering with the export subsidy program. Since such a program would entail sales of cotton on a subsidized basis of X cents per pound, it would be possible to offset the lower raw cotton costs in imported textiles through a fee on the raw cotton content of imported textiles equal to the amount of the subsidy for raw cotton. Quota limitations would be unnecessary and undesirable for this purpose.

Agriculture and Commerce concur in this memorandum.

Herbert V. Prochnow⁴

1. Source: Department of State, Central Files, 811.35212–2456. Limited Official Use. Drafted by Nehmer and Thibodeaux.
2. Public Law 320, lacking any formal title, consisted of amendments to the Agricultural Adjustment Act of 1933; for text of Section 32, see 49 Stat. 774.
3. Public Law 395 was an amendment to Section 407 of the Agricultural Act of 1949; for text, see 70 Stat. 6.
4. Printed from a copy which bears this typed signature.