COTTON ACREAGE ALLOTMENT AND MARKETING QUOTA

PROGRAM

WEDNESDAY, JANUARY 12, 1949

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE OF THE COMMITTEE ON AGRICULTURE,

Washington, D. C.

The subcommittee met, pursuant to adjournment, at 10 a. m., in room 1310, New House Office Building, the Honorable Stephen Pace (chairman of the subcommittee), presiding.

Mr. PACE. Gentlemen, the committee will come to order.

Our first witness this morning is the Under Secretary of the Army, W. H. Draper. Mr. Draper, will you have a chair, please, sir.

STATEMENT OF HON. W. H. DRAPER, UNDER SECRETARY OF THE ARMY, WASHINGTON, D. C.

Mr. DRAPER. Yes, sir.

Mr. PACE. Do you have a prepared statement?

Mr. DRAPER. I do, sir.

Mr. PACE. You might read that, and no doubt the members of the committee will want to question you on it.

Mr. DRAPER. Mr. Chairman, it is a pleasure to appear before the committee.

As I understand it, the committee is primarily concerned in the testimony that I would give with respect to the American cotton primarily, that has been used in the occupied areas of Japan and Germany, and I assume with the prospects for the future.

Mr. PACE. Yes, sir.

Mr. DRAPER. I might just summarize that before I make my statement so that you will have in mind a little general picture.

Since the occupations, begun after the end of the war, the total cotton used in the two areas has been approximately two and a half million bales; about one million eight hundred thousand bales in Japan and about six hundred thousand-odd bales in Germany. That includes, in both cases, all cotton, but the great bulk of that has been American cotton. Not over 20 percent has come from other areas and that has been to piece out with such cotton as was required of different staple or other requirements, but the great bulk of the imports has been American cotton.

The consumption has been running recently at the rate of about 50,000 or 60,000 bales a month in Japan and 30,000 or 35,000 in Germany; or a total for both areas of about 100,000 bales a month. It is a little less than that, but the minimum requirements for the next few months would appear to be in the range of about 100,000 bales a month.

That will just give you the general magnitude of the consumption at the present time.

I have been requested to appear today to discuss with the committee the subject of textile and related programs of the occupied areas, Japan and bizonal Germany, with particular reference to cotton and rayon. As a background for that discussion I should like to review briefly for the committee those programs which have been implemented since the occupation began in 1945.

You are, I am sure, generally familiar with the conditions which existed in Germany and Japan at the time of the capitulation. Industrial plants were badly battered and deteriorated through poor maintenance; raw materials were essentially nonexistent, except for limited military reserves; and all industrial activity had come to a virtual halt. A first responsibility of the occupation authorities was that of preventing disease and hunger among the civilian population such as would endanger the occupying forces; a further high-priority responsibility was that of reactivating peaceful industrial production to meet the needs of the indigenous economy as well as assist in the restoration of a self-sustaining economy through the reestablishment of an export. trade. Textiles of all types were in world short supply and represented a major potential source of foreign exchange; prewar textile industries in the occupied areas had been important producers of foreign exchange, especially in Japan; moreover, the textile industry could be more easily put into operation than the heavier industries. It was natural, therefore, that reactivation of the textile industries should be of major importance.

FINANCING RAW-MATERIAL IMPORTS

Raw materials to support the textile industries were available in small quantities from enemy war reserves. These were rapidly consumed and late in 1945 negotiations were entered into with the Commodity Credit Corporation for advancing to the occupied areas quantities of raw cotton from a 10-year accumulation of stocks then on hand. Arrangements were completed whereby 217,017 bales of cotton, costing $34,206,079, were shipped to United States zone of Germany, and 1,253,850 bales, costing $180,147,012, were sent to Japan for manufacture. Shipment of the CCC cotton was completed in 1947 and essentially all of the cotton has been processed. Both accounts-and this is the first time this statement has been made, and it has not been true very long, but I think it is a major accomplishment on the part of both areas-totaling $221,390,970 have been repaid in full, including $6,956,878 interest paid to the CCC. I must say I personally at times during this program had some doubt about whether I would ever be able to make that statement.

This program exhausted the CCC cotton stocks and other means of financing cotton imports became necessary inasmuch as CCC could not advance cash against open-market procurement-they had exhausted their cotton stocks-sources available for such financing were limited. Each of the occupied areas had generated limited funds from proceeds of exports which could be used but these were wholly inadequate to meet over-all needs.

For Germany a credit was secured through the American Cotton Supply Corporation formed for that purpose in the amount of $20,

000,000 of which 5 percent was furnished by shippers and 95 percent loaned by the Export-Import Bank; of the total available under this credit, approximately $5,000,000 has been utilized to date.

In Japan, gold, silver, precious stones, and small quantities of currency, all of Japanese ownership and aggregating about $125,000,000, were used as a basis for establishing, in August 1947, the occupied Japan export-import revolving fund. This fund is designed to provide financing for raw-material imports and an initial credit of $60,000,000 has been established with private banks and with the Export-Import Bank for the import of cotton. Approximately $31,000,000 has been utilized as of December 31, 1948.

Additional financing, in the amount of $150,000,000, was made available by the Eightieth Congress under Public Law 820, passed June 28, 1948, whereby American-produced natural fibers could be supplied to the occupied areas for processing and sale in world markets. Time was necessary for formulating the procedures incident to use of these funds; these have been completed and financing of fiber can be effected immediately upon request of the occupied areas. There has been no delay in cotton-textile programs, however, as funds available from other sources were adequate during that period to meet current needs.

The inclusion of bizonal Germany under the Marshall plan has provided ECA financed cotton for export and indigenous needs. A total of $40,000,000 in ECA procurement authorizations have been issued and an additional $10,000,000 is programed for this first quarter of 1949. No ECA cotton has been available to Japan as the European recovery program does not apply there, but there is now under procurement 36,300 bales, estimated to cost $4,300,000 from rehabilitation funds provided as part of the appropriation for Japan. This cotton is for the internal Japanese economy and none of the finished products will be exported. Much of it is for fishing-fleet needs-nets, line, and so on-to increase Japanese self-sufficiency in food.

Much of the current foreign trade of Germany and Japan is conducted under bilateral trade agreements to reduce foreign exchange requirements they ship something to a country and get something in return, and, therefore, do not have to have dollars or other foreign currency for paying for the import. Limited short-term credits may, thereby, become available to the occupied areas for raw material imports, including cotton in some cases, through carry-over from one trade period to another.

TEXTILE PRODUCTION CAPACITY

This has a bearing, I am sure, in your future thoughts on this question.

Installed spindles in bizonal Germany were approximately 4,194,000 on July 1, 1947; and by July 1, 1948 the installed capacity had increased to 4,310,000. Of these 2,447,000 were operating on July 1, 1947 as against 3,105,000 on July 1, 1948-that is an increase of about 40 percent on the 1st of July a year later. Bizonal Germany textile production index was 61 in September 1948, using 1936 as an index of 100, compared with an over-all industrial index of 66. In September 1947, the textile production index had been 32 compared

with an over-all industrial index of 43. In September 1948, it had come up to 61 compared to a prewar 1936 index that compared with an over-all industrial index of 66, so that it was pretty nearly the general average, and had risen from September, 1947, when the textile production index had been only 32 percent to 61 percent.

Japan's textile production capacity reached a minimum at the end of the war due to some bombing damage, but largely due to the dismantling of textile mills for scrap metal as a part of the Japanese war effort. They actually melted down cotton spindles to make bullets.

Although the prewar peak installation was 12,190,000 spindles, the industry as of January 1, 1946 had only 2,200,000 spindles, of which 190,000 were operating. You see, it had been cut down to about 16 or 20 percent of prewar, and even those were only partially operating. A total of 4,000,000 spindles installed by June 30, 1949, was estimated necessary to supply Japan's internal requirements and to meet export needs of a minimum self-sustaining economy.

Installation of additional spindles has not progressed as rapidly as contemplated, and the total installed by June 30, 1949, will fall far short of that goal. As of October 31, 1948, 3,300,000 spindles were installed and operable, and 2,300,000 were actually in operation, so there had been a big increase, but not quite as rapidly as had been planned.

Efforts have been made in many quarters to secure reduction in the goal of 4,000,000 spindle installed capacity. These efforts have been based partly upon fears of Japanese competition and partly upon the prewar trade practices engaged in by the Japanese. No cognizance has been given by the occupation authorities to these efforts, and increased capacity is being installed as rapidly as conditions warrant-they are still far below anything like the prewar and will be for many years to come.

Mr. ANDRESEN. Mr. Chairman, may I interrupt? There are a couple of points I would like to ask questions on.

Who was making a request for reduction?

Mr. DRAPER. The British textile industry, and we have had some comments or questions from the American textile industry.

Mr. ANDRESEN. The main objections come from the British textile industry?

Mr. DRAPER. Yes, sir.

Mr. ANDRESEN. To keep the Japanese production down?

Mr. DRAPER. Yes, sir.

Mr. ANDRESEN. Does that come from the British Government itself?

Mr. DRAPER. No, sir. It has been from the textile industry as such. They have had various conventions and discussions of the

matter.

Mr. ANDRESEN. As I recollect, the British started the textile industry in Japan about 40 or 50 years ago.

Mr. DRAPER. I believe they had something to do with it.

Mr. PACE. May I suggest that the members check the point in the statement and then we will question after the statement is completed; if that is all right.

Mr. DRAPER. Export of textile machinery, principally to India, also has been opposed vigorously as inimical to established textile industries.