96, as amended by the acts of February 19, 1900, 31 Stat. 30, May 25, 1914, 38 Stat. 381, March 1, 1933, 47 Stat. 1417, August 21, 1935, 49 Stat. 668, 669, May 20, 1936, 49 Stat. 1367, and April 22, 1940, 54 Stat. 150.

(3) So much of the vessel inspection laws of the United States as requires the inspection as a passenger vessel of any cargo vessel, foreign or domestic, when carrying more than twelve passengers or persons in addition to the crew.

(4) Federal laws levying tonnage duties, light money, or entrance and clearance fees.

FRANKLIN D. ROOSEVELT.

THE WHITE HOUSE,

May 21, 1942.

[7 F.R. 3842]

CARGO PREFERENCE ACT-SALE OF AGRICULTURAL SUR

PLUS COMMODITIES ON CREDIT

The Cargo Preference Act (August 26, 1954, c. 936, 68 Stat. 832, 46 U.S.C. 1241(b)) requires that when the United States furnishes equipment, materials, or commodities to or for the account of any foreign nation, either without reimbursement or on credit, or guarantees the convertibility of currencies in connection with such transaction, at least one-half of the goods so furnished must be carried on privately-owned United States-flag commercial vessels. This act applies not only to dealings with foreign governments but also to transactions with private persons which are made on terms not of a purely commercial character pursuant to statutory programs designed at least in part to assist the economy of the country to which the goods are shipped. Long-term supply contracts with the private trade for the sale on credit of agricultural surplus commodities entered into by the Secretary of Agriculture pursuant to Title IV of Public Law 480, 83d Congress (July 10, 1954, 68 Stat. 454), as amended by Title II of the Food and Agriculture Act of 1962 (Public Law 87-703, September 27, 1962, 76 Stat. 610, 7 U.S.C. 1731-1736), contain interest and credit terms which are more favorable to the purchaser than those of normal private transactions. The purpose of the statutory program is at least in part to benefit the country to which the commodities are exported. Shipments under this program are therefore subject to the provisions of the Cargo Preference Act.

THE SECRETARY OF AGRICULTURE.

AUGUST 29, 1963.

MY DEAR MR. SECRETARY: This is in reply to your letter of February 12, 1963, in which you request my opinion whether long-term supply contracts for the sale on credit of agricultural surplus commodities through the private trade, pursuant to Title IV of Public Law 480, 83d Congress, as amended by Title II of the Food and Agriculture Act of 1962 (P.L. 87-703, 76 Stat. 610, 7 U.S.C. 1731–1736),1 are

subject to the provisions of the Cargo Preference Act, 68 Stat. 832, 46 U.S.C. 1241 (b). The latter statute requires in substance that "Whenever the United States shall furnish to or for the account of any foreign nation without provision for reimbursement, any equipment, materials, or commodities within or without the United States, or shall advance funds or credits or guarantee the convertibility of foreign currencies in connection with the furnishing of such equipment, materials, or commodities, ***" at least onehalf of such equipment, materials, or commodities shall be carried on privately owned United States-flag commercial vessels. I understand that this question is of considerable practical importance in view of the substantial differential between the freight rates charged by domestic and foreign ocean carriers.

The focal question raised by your inquiry is whether the export of surplus agricultural commodities through the private trade pursuant to the 1962 Amendments to Public Law 480 constitutes the furnishing of commodities on credit to or on behalf of a foreign nation within the meaning of the Cargo Preference Act. Understanding of this issue and of the program pursuant to which these sales are to be made will be facilitated by a discussion of the development of Public Law 480.

Title II of the Food and Agriculture Act of 1962 constitutes the latest development in a series of enactments, going back for approximately ten years, which have sought to facilitate the export of surplus agricultural commodities by utilizing two methods. Originally, payment for these commodities in foreign currencies rather than in dollars was permitted. Later, long-term installment credit was provided. The first statute of this series, section 550 of the Mutual Security Act of 1951, added by section 706 of the Mutual Security Act of 1953 (67 Stat. 159), authorized the President to enter into agreements with friendly countries for the sale and export of surplus agricultural commodities to be paid for in the currency of the importing country. In

1 For the text of the pertinent provisions of Public Law 480, as amended, see Appendix I, infra.

2 For the text of the Cargo Preference Act, see Appendix II, infra.

carrying out this program, private trade channels were to be used to the maximum extent practicable.

993

After section 550 had been given "a successful trial run, Congress enacted the Agricultural Trade Development and Assistance Act of 1954 (68 Stat. 454), commonly referred to for the sake of brevity as Public Law 480. Title I of Public Law 480 expands the plan embodied in section 550 on the basis of the experience gathered during the preceding year.* However, the basic principle of section 550, to facilitate the sale of surplus agricultural commodities by authorizing their sale abroad for foreign currencies, while using private trade channels to the maximum possible extent remained unchanged. Section 102(b) of Public Law 480 (infra Appendix I) expressly provides for a machinery pursuant to which the United States guarantees the convertibility into dollars of the foreign currencies received by the private exporters who would not ordinarily be interested in sales for foreign currencies unless assured that they could exchange them into dollars without loss.6

Section 14 of Public Law 86-341 of September 21, 1959 (73 Stat. 610), added to Public Law 480 a new Title IV Long-Term Supply Contracts-designed to facilitate the export of surplus agricultural commodities by a second device, the extension of long-term credit at low interest rates. The stated purpose of Title IV, as originally enacted, was "to utilize surplus agricultural commodities and the products thereof produced in the United States to assist the economic development of friendly nations by providing longterm credit for purchases of surplus agricultural commodities ***"" The act authorizes the President to enter into agreements with friendly nations pursuant to which the

3 H. Rept. 1776, 83d Cong., 2d sess., p. 6.

4 Id. at p. 5.

5 Title II of Public Law 480 deals with Famine Relief and Other Assistance. Title III contains General Provisions. As will be explained presently, Title IV was not added to Public Law 480 until 1959.

It appears that American exporters were given guarantees of currency convertibility even before section 102(b) established an express statutory authority for this practice. Cf. 41 Op. A.G. 192, 195-196; see also Cargo Preference Bill, Hearings before a subcommittee of the Committee on Interstate and Foreign Commerce, United States Senate, 83d Cong., 2d sess., on S. 3233 (hereafter referred to as Senate Hearings), p. 99; Waterborne Cargoes in United States-Flag Vessels, Hearings before the Committee on Merchant Marine and Fisheries, House of Representatives, 83d Cong., 2d sess., on S. 3233 (hereafter referred to as House Hearings), p. 93.

United States would undertake to deliver surplus agricultural commodities for periods not to exceed ten years, payment to be made in annual installments over periods not to exceed twenty years, interest to be computed at Government financing rather than commercial rates (see section 403 infra, Appendix I).

Section 201 of the Food and Agriculture Act of 1962 (P.L. 87-703, 76 Stat. 610), to which your inquiry is addressed, has broadened the purposes as well as the scope of Title IV of Public Law 480. The stated purposes of Title IV now include the stimulation and increase of "the sale of surplus agricultural commodities for dollars through long-term supply agreements and through the extension of credit for the purchase of such commodities, by agreements either with friendly nations or with the private trade, thereby assisting the development of the economies of friendly nations and maximizing dollar trade.”

In conformity with this expansion of the statutory aim, the President is now authorized to enter into agreements not only directly with friendly nations, but also with financial institutions acting in their behalf, and the Secretary of Agriculture "is authorized to enter into sales agreements with foreign and United States private trade under which he shall undertake to provide for the delivery of surplus agricultural commodities over such periods of time and under the terms and conditions set forth in this title. ***" i.e., on terms and conditions calling for the annual delivery of agricultural surplus commodities up to ten years and for repayment in dollars in annual installments over periods not to exceed twenty years.

Your General Counsel takes the position that long-term sales agreements on credit entered into by you with the private trade under Title IV do not come within the purview of the Cargo Preference Act. It appears to me that this conclusion must rest upon either of two grounds: first, that the Cargo Preference Act applies only to donations and not to sales; and, second, that the words "foreign nation” in the Cargo Preference Act mean "foreign government," specifically, that under this program the commodities sold to the private trade would be furnished to individuals on their own behalf and not "to or for the account of" foreign govern