We are buying all kinds of buildings through certain foreign exchange, and we are buying property through foreign currencies and taking credit on lend-lease, and we are taking credit on surplus. I want to know what this foreign currency picture is going to look like if we are going to subsidize these private industries.

There is going to be a demand made upon us by other industries, as was stated by Mr. Keefe, who find themselves in the same position and who want to expand and who, perhaps, want to be subsidized in the same way. It may be that we can use it in the ECA program or that we can use it in the foreign building program. I would like to know what the picture is, but I definitely want to know that this thing is going to be supervised, so that we will know that they are making an honest effort to get rid of their foreign currency for which they want to be subsidized to the tune of $15,000,000. You get my point, do you not?

Mr. NITZE. Yes, sir.

Mr. MACY. I concede that these foreign currencies could be used for those purposes.

Mr. STEFAN. They should be used for anything you can possibly use them for to get rid of them.

I talked to a Foreign Service officer here not long ago who had so many pounds that he would like to get rid of them. I said to him, "How about coupons, you have to have them in England to buy things with." He said, "Oh, I can take care of that all right." There is a lot of manipulation in foreign currencies and in foreign exchange.

Mr. NITZE. We can supply you, Mr. Stefan, with estimates or perhaps specific figures on that, on the current purchases of local currency. We can supply that for you.

(The matter referred to is as follows:)

STATEMENT RELATING TO DISPOSITION OF FOREIGN CURRENCIES Acquired Under GUARANTEE PROVISIONS OF THE FOREIGN ASSISTANCE ACT OF 1948, SECTION 111 (B) (3)

The above section providing for guarantee to United States investors including producers of information media, states that the foreign currency counterpart of such guarantees shall be turned over to the United States Government upon the guarantees becoming operative. Implementation of this and other aspects of the guarantee operation will be in accordance with rules and regulations which will be prescribed by the ECA Administrator as required by the act.

In order to give effect to paragraph 1 of section 111 (b) (3), the draft text of the proposed bilateral agreements to be negotiated with the countries participating in the European recovery program contains clauses relating to the operation of the guarantees provisions of the Foreign Assistance Act. The participating countries will be requested to undertake to recognize as property of the Government of the United States any foreign currencies or credits in such currencies as may be assigned or transferred to the Government of the United States as a result of the guarantees to American investors in such countries becoming operative.

It is anticipated that whatever amount of foreign currencies is turned over to the United States Government as a result of implementation of the guarantees provisions will be available for any and all United States Government expenditures in that foreign currency.

However, the time when and the circumstances under which the foreign currencies would become available for such expenditure is believed to be a matter for determination by the ECA Administrator, at least in the first instance. Naturally, such currency would have to be disbursed against funds appropriated by the Congress for the operation of the Foreign Service and other United States Government agencies since otherwise such expenditure would result in an unauthorized augmentation of the appropriations of the agencies concerned.

Foreign currency required by the Foreign Service in the ECA countries, fiscal year 1948

The figures for general administration do not include fee receipts collected for consular services and disbursed for administration.

2 Included in figure for United Kingdom.

The above figures showing the estimated expenditures in foreign currencies of the Foreign Service have to be considered as subject to two modifying factors. They do not include all of the expenditures of all United States Government agencies in these countries. Secondly, all of the expenditures shown above for the building program are now and some of the general administration shortly will be covered with foreign currencies obtained under surplus property sales and lend-lease settlement agreements.

Mr. STEFAN. When we were talking about trying to give these people some help and getting some dollars for them so they could increase their circulation, and I think it was the Herald Tribune that came before us, I did not realize at that time we were going to go into so many other countries. We were confining this to countries that were definitely dominated by the Soviet Union. I do not like to call it Russia any more, because I think that is a misnomer, and that we should call it the Soviet Union, and I think the State Department should call it the Soviet Union. I thought at that time that we were going to confine that assistance in helping those people in getting a bigger circulation to the countries dominated by the Soviet Union. How does it happen, Mr. Nitze that they expanded that to these other countries; did the newspapers themselves request it?

Mr. MACY. I frankly do not know, sir. This is a provision in the bill, and that is all the Department knows about it.

Mr. NITZE. It could only be applicable to the participating countries in this bill.

Mr. STEFAN. Why do we have to go into Ireland, Luxemburg and the Netherlands? Why not confine it to Austria, Germany, Greece, Italy, and perhaps Turkey?

Mr. MACY. Those are decisions which the Administrator can make. This is not a program proposal which you have before you. This is merely a compilation of the present demand for dollar exchange.

Mr. STEFAN. This is merely a supplement to the Voice of America. When they came before us they asked for some little help. This is

the avenue that they eventually found to expand the information. They added countries that we have absolutely no thought of ever putting into our informational program. Mr. Benton never thought about it, and I have not talked to Mr. Allen about it.

What

The CHAIRMAN. We will have to have that total in front of us and the ideas and the testimony when we go to mark up the bill. language we use will depend on what the committee determines. Mr. STEFAN. Did you talk this over with Mr. Allen, and did he want this?

Mr. MACY. I know that Mr. Allen's general policy is in favor of this, but again these figures are merely a compilation of the existing demand for dollar exchange.

The CHAIRMAN. They are merely a set-up to look at.

Mr. MACY. That is right.

The CHAIRMAN. We will look at them, and we will size it up when we mark up the bill.

Mr. STEFAN. What I am fearful of, Mr. Chairman, is that if we do not look it over very carefully, instead of having just the publishers of books, of which there are approximately 80 in number and the motion picture producers and a few newspapers and a few magazines, we are going to have other private industry coming in here for subsidies because they cannot get rid of their pounds, their francs, their dinars, or cannot get rid of anything.

The CHAIRMAN. We will have to consider that as we mark up the bill. There is no question about it, the committee will have to take that into consideration, and we will.

Mr. STEFAN. I have no further questions, Mr. Chairman.

TOURISM

MONDAY, MAY 10, 1948.

STATEMENTS OF FRANK A. SOUTHARD, JR., DIRECTOR, OFFICE OF INTERNATIONAL FINANCE; GEORGE H. WILLIS, CHIEF, EUROPEAN DIVISION, OFFICE OF INTERNATIONAL FINANCE; DILLON GLENDINNING, CHIEF, BRITISH EMPIRE AND MIDDLE EAST DIVISION, OFFICE OF INTERNATIONAL FINANCE; PHILIP SCHAFFNER, EUROPEAN DIVISION, OFFICE OF INTERNATIONAL FINANCE, TREASURY DEPARTMENT; AND RICHARD BREITHUT, ASSOCIATE CHIEF, DIVISION OF FINANCIAL AFFAIRS, STATE DEPARTMENT; F. R. CAWLEY, ACTING BUDGET OFFICER, ECA (Editor's Note: Tables hereinafter referred to by numbers I to XII may be found beginning on p. 913.)

The CHAIRMAN. The next item is "Tourism," which is on page 8, item 51. Who will take up this item?

Mr. SOUTHARD. I will take it, Mr. Chairman.

The CHAIRMAN. This means tourist travel, does it?

Mr. SOUTHARD. Yes, sir.

The CHAIRMAN. Those are the earnings that they make out of tourist travel; that is what it is.

Mr. SOUTHARD. This item includes both the ERP country's earnings from tourist traffic in that country and any payments which they might make on account of the travels of their own residents overseas or outside of their frontiers.

We have here some tables and we have also a prepared statement on the whole invisible problem and appropriate tables covering each category, including the tourism item.

Mr. STEFAN. Do you have extra copies of it?

Mr. SOUTHARD. Yes, sir; we have copies which I would be glad to make available to the committee, or I will read it into the record. This short statement goes over the whole problem.

The CHAIRMAN. The whole problem?

Mr. SOUTHARD. Yes, sir; the whole problem of invisibles and it includes tourism in it.

The CHAIRMAN. Perhaps you might make that statement.

GENERAL STATEMENT

Mr. SOUTHARD. Thank you, sir. This relates to the entire problem of invisibles, meaning by invisibles, of course, those items which are not in commodity trade, but we have excluded from our statement anything with reference to ocean freight because we understand you have had separate testimony on that.

The so-called invisible items, excluding ocean freight, comprise such items as tourism and transfers of interest, amortization, profits, and dividends; they also include a group of "other transactions," many of which are vital for the operation of foreign trade.

I might interpolate there to say that in the statement attached tourism is the first item and there are then some interest and amortization figures-one for the United States Government credits only, and one the other private credits and then an over-all residual item.

For example, under this heading appear insurance premiums and payments of insurance claims; brokerage and management fees and commissions; advertising expenses; telegraph, telephone, and radio charges; rentals and royalties; and subscriptions to publications. Government operations abroad involve diplomatic and consular expenditures; contributions to international agencies for administrative purposes; Government pension fund payments and receipts by foreigners; and military expenditures. Personal and institutional remittances are also important. These may arise from earnings of foreign workers or from legacies, bequests, and inheritances.

In the period just prior to the war, it is estimated that net earnings by participating European countries from all invisible transactions (other than shipping) were sufficient to cover more than one-fifth of the cost of their commodity imports from the rest of the world.

May I remark there that our estimate is that the net invisible earnings, that is, the net invisible accounts, other than the shipping earnings for 1948-49 would cover about 31⁄2 percent of the gross commodity imports as against something more than 20 percent before the war. What we have here is a shrinkage in the relative importance of the net invisible earnings of Europe, as compared with the value of imports.

The CHAIRMAN. From where has that shrinkage come?

75408-48-pt. 1-57

Mr. SOUTHARD. That shrinkage has come in part from the net reduction in the investments of these countries, and it has come in part from the fact that the tourist traffic is by no means comparable to its prewar level for the ERP countries as a whole in their traffic from all parts of the world. Those two items account for the largest absolute shrinkages in the earnings of these countries.

Net invisible earnings, other than shipping, from the United States in 1938 covered almost one-eighth of the gross cost of goods imported from the United States in that year.

The war drastically altered the net invisible earnings situation of the participating countries particularly insofar as the receipts from tourism and overseas investments were concerned. Lack of facilities for handling large-scale tourist traffic and the disinclination of many foreigners to travel in Europe under the troubled conditions prevailing have reduced this source of revenue. Loss of overseas capital through liquidation and new obligations have seriously restricted net income from investments; at the same time the purchasing power of income on fixed-interest investments has been curtailed by rising prices.

The executive branch has reviewed data on invisible payments and receipts furnished by the participating countries and has adjusted these data in line with current developments in the international positions of these countries. It should be noted that 56 percent of the estimated invisible payments by particpating countries to the Western Hemisphere in the fiscal year 1948-49 consists of interest, amortization, dividends, and profits. A large part of these payments cannot be avoided except by violating contractual obligations and thereby weakening the basis for a resumption of normal business relationships with the outside world. The other 44 percent will include expenditures by European businessmen in this hemisphere, the costs of maintaining Government missions, insurance, and a wide variety of smaller payments, mostly of a business type. That is on the payment side.

On the receipts side, the executive branch has made a liberal estimate for income from United States citizens traveling abroad relative to the 1947 experience. Gross expenditures of United States tourists in the participating countries are estimated to rise from $115,000,000 in 1947 to $228,000,000 in the 12 months ending June 30, 1949. It has not been altogether easy to get really good, comparable prewar figures on many of those invisible items, but we can say that the expenditures by American tourists in the ERP area, making the best adjustment we can-because in those years we were not worrying about the ERP countries as against the rest of Europe-were about $195,000,000 in 1929, and we are estimating they will total $228,000,000 for the 12 months ending June 30, 1949. There has been a rise in prices, to be sure, but dollarwise we are estimating rather more than the prewar amount. In 1938, the United States tourist expenditures in the ERP area and dependencies are estimated at $72,000,000 as against $115,000,000 for 1947 and $228,000,000 for fiscal 1949.

The CHAIRMAN. Do you estimate those increases are largely because of the increase in prices?

Mr. SOUTHARD. As against the number of people, I would say it is very largely the prices. The number of people, I am sure, will be smaller than before the war. We can try to get a supplemental statement on that for you.