MERCHANT MARINE ACT, 1936

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					                                           Calendar No. 1799
74tH CONGRESS 1                SENATE                         / REPOUT
   2d Session J                                               \No. 1721




       MERCHANT MARINE ACT, 1936


                          REPORT
                                  OF


             THE COMMITTEE ON COMMERCE
                  TO ACCOMPANY-IHE BILL S. 3500
   A BILL TO DEVELOP A STRONG AMERICAN MERCHANT
      MARINE, TO PROMOTE THE COMMERCE OF THE
            UNITED STATES, TO AID NATIONAL
               DEFENSE, AND FOR OTHER
                      PURPOSES
    TOGETHER WITH MINORITY Vl'WS SUBMITTED BY
                            MR. GUFFEY"




   FEBRUAUY 24 (calendar day, AVUIL 3), 193G.- -Ordered to bo printed



                            UNITED STATES
                     GOVERNMENT PRINTING OFFICE
                           WASHINGTON : I93S




                               1250
                                                       Calendar No. 1799
74m CON-GUESS )                          SENATE                                (     RETORT
  2d Session  J                                                                (    No. 1721




                     MERCHANT MARINE ACT 1936


       FEBRUARY 24 (calendar day, AI>R. 3J, 193(5.—Ordered to be printed



Mr. COPELAXD, from the Committee on Commerce, submitted the
                         following

                                     REPORT
                                 [To accompany S. 3500]

   The Committee on Commerce, to whom was referred the bill (fe.
3500) to develop .1 strong American merchant marine, to promote
the commerce of the United States, to aid national defense, and for
other purposes, having considered the bnmc, report thereon with
amendments.
   The message of the President of the United SKtcs on March 4,
1935, sets forth lli*> principles which lm\s guided your committee in
preparing ihis legislation, and these principles are so clearly and
effectively stated by the President, ]•!.-> mcssagc^is quoted as follows:
                             THK PHESIDEXT'S .VKSSAGE
To (he Congress of the United Stales: _
   I present (o the Congress the question of whether or mot the United States
should have an lubrpmtc merchant marine.
   To irio there arc three reasons fur answering this question in the affirmative.
The first is thai in time of peace, subsidies granted by other nations, shipping
combines, and other restrict he or rebating methods may well bu used to the
detriment of Aniciican chippc.-o. The iimiiitoi.ance «<f fair competition alone
calls for American-ling '•Lips of sufficient tonnage to carry u reasonable portion
of our foreign commerce.
   Second, in the cxt-nt uf a major \\ar in which the United .Suites is nut involved,
our commerce, in tl.r nl^rtico uf MI i.iU<|ti;itu Anierican nitTcliuiit murinc, niight
fiirl ;tnclf j>erioilsl.\ crippled because uf iU in.il:ilit> tu secure buttums fur neiitr.il
Iienccfiil foreign trade.
   Thinl, in the event of a war in which the Uiiilu! States itself might he engaged,
American flagships .ire oli\iou;-l\ needed nut in.!\ for iift\;il niixili.-.n'as but nNo
for the inaintiimncc of riK«oii.'iMo ainl i,m.vs-m coinmcrcml intercourse uith
other nntion-i. \\c .should ti~.,.t^.,'.»T IC.^OIM learned in tin- lust war.
   In many instniiccs in our hKturv thr Cuii>,ri.-^ ln> |/ro\ ided for inrioiiR kinds
of di.--giii.vcd Kiib.sidics to Ainerir..n sl.ij/|.ii,(;. In rtcuiit ,\i.;irs tlic Congress lins




                                           1251
2                              MERCHANT MAttIXE ACT, 1930                                                            ^

provided this aid in the form of lending mont,. at low r.iter. of interest-to-American
shipping companies for the purpose of h>iildi:ig -^~- -'.ips for furcign trade. It
lias, in addition, appropi i.itcd large anu.ial aii.as under the guise of payments for
ocean-mail contract?.
   This lending of money for shipbuilding lias in practice been a failure. Few
sh!ps h.iva been luiilt 'jLind m.tru .li.licultu^ have arisen mcr the repay ment of
the loans. Similar -iTiculties ha\c at'ended the granting of occbn-uu.il con-
tracts. The Government today is paying at.nuully about 830,000,000 for the
carry ins jf m.ils which would Co>t, under normal ocean rate--, only §3.000,000.
The" difference, S'27,000,000, i- .1 suh-idy, and nothing but a stib.-idy. Rut f,ivcn
under thi.-. di?gm<ed furfu it i> an u.i.siti-f.ictun and n»t .in honest way of pro-
viding the aid that Government ought to give to shipping.
    I propose tli.-xt we end this subterfuge. If the Congress decides that it will
maintain n reasonable, adequate American merchant marine, I belic\e tli.it it car.
well afford honestly to call a subsidy by its right name.
    Appruaclied iit this \saj a subsidy amounts to a c«iii(>arati\cU .Miii|ilc thing.
It must lie based upon provu'-'ig fur American ^hippiiig Government aid to iii.kkc
up the diffcrrntial between Aiiierican and furcign .shipping ousts. It hlnmhl cu.cr
fi^t, the ilifTorcnce in the Cu&t •>( biiildtiiK ^lii|->, t<ccund, Ihi- difTcrunce in the dot
of operating &hips; and fiioil.., it &huidd take int. c>in>ideratiun the libcRii MI!>-
sidics that many furpigii g»\briiincntt> i»r<i\idc fi ilicir .shi|iping. Onh \>\ meet-
ing tliiit threefold differential can uc c.\|it-ct . • luaiiitam a i<w.-.onablt place in
ocean cuinmcrcc fur ships 1U ing the Arncrican l'..ig, and at the .same tun,: maintain
American standard*.
    In setting up adequate [<r<>\ isii>n.-> fur t>.ib.>iili(x-, f»r Amcric:iii .-<hipi>iiig the Con-
gress should pru\idc for the tennii>atiuii «f e,\istiii;; uccan-mail Ojhlr.ict.^ as
rapidlv as pu^ihlu and it should tenuinate the practice uf lending Gu\eri'i!iuiit
money fur ^upbuilding. It sluxild pruxide annual appru|>ri.itiuii£ for si..^idies
siiflicfcutly- largo to cover tiie differentials that I have described.
    I am submitting to yoii'!ii....vith two reports dealing with American shipping.
A report of an interdepartmental committee kiiuun as the t'uinmittec on Ship-
ping Polic>, appointed June IS, 1934, by the Secretary of Commerce, and a
report to me front the Postmaster General on ocean-mail Contracts prepared
pursuant to .in Executive order of July 11, 1034.
    RejHjrti which have been made to me by appropriate authoritic:> in the execu-
tive bninch of the Govcmincnt ha\c .shonn that MIMIC A murk in nhipping com-
panies ha\e engaged in practices and abu^CA nl.ic'i should and niiinl be ended.
Suineuf thc-M; h;m to do nitli the improper uperaling uf .sul»idi.ir\ com|«inies, the
paxrncnt of c-.ce.vi\c salaries, the engaging in ImMnuoes not directly a part uf
si.ippinc, aiul other abuses wliich have made for poor management, improper use
of profits, and scattered efforts.
   Legislation pro\Ming for adc<ni.ite aid to the Aincricaii merchant marino
Jioiihl include iiut»idy adciiu.ite approptiatiuii fur nii;h purpo.se.sand appropriate
sifeRi);ird.-v fur it.-, expenditure, but a rcorg.iniz.-ttiun of the m.ichincr\ for its
adi.dni.ttmtiuii. The i|iia.si-jiidici.d and qii.tsi-Icginl.ttivc duties of (hi (irc^ent
Shipping B.i.-inl. Run an of the Department ••' Cuinniercc .should be tranifcm-d
fur the present to the IntcrM.ite Cummcnc C.)mmiv.ion. Purely .-ulmiiii-.tr.-iti\e
fUlictiui^, l i U \ \ L . V v f , AIIV*I <Xi iiifofili.ttioit Jtuxl pltlliliiu^, ahi t i iii^ptt-tiuii, *lt*d titU
iiiainteii.il ce of aid-> to n.iu'gatioii .-.hoiild, uf Cutir.st, rcnuin in tin: Department
of CpmuiMrio.
   Ah American merchant marine is one uf our most firmly established tradition.-..
It was, during the first ha!f of our national CMxtenci^a great and grouing n.-.^ct.
Since then it has declined in \aluc and importance. The time I ins cuinc to
s(|iiars this traditional ideal with effective performance.
   Free Cumpctiti.iii among the nation* in the building of mmhrn .shipping facili-
ties is a manifest.ilioii uf uhollj, da-iimMe and \\hule.stiiuc nati»i..d am'>.ti»i.. In
such free Competition the American people \\ant u.s t be |>roperly rt1iri"-.i-iited.
The American people \\anl to u.^e American flhip.s. Tlic.ii Cimernment out s it to
(htm to make cirlnin that si.cli ships are in keeping uitli mir imliuii.d pride and
tntional ncwl.-f.
                                                                         FltAXKI.IN' D. JIOOSBVKI.T.
    TUB WIIITB HOUSR.
                        Mnrch /„ 1035.




                                               1252
r
                         MERCHANT MARINE ACT, 193G                               3

                               HISTORY OF THE BILL

       Pursuant to this message, extensive hearings were held by the
    Commit tec; on Commerce of the Senate and the Committee on Mer-
    chant Marine and Fisheries of the llousc. The report of the Com-
    mittee on Merchant Marine and Fisheries which accompanied II. II.
    S555 is an admirable statement of the present unhappy status of our
    merchant marine and of the needs for legislation. II. R. $555 w-Uic»
    passed the House at the last session of this Congress is now pcjuling
    on the.Senate Calendar.
       Prior to the close of the last session of Congress, your committee
    submitted its report on S. 2582. \VIiiIe this bill failed of passage,
    it is believed that it would be helpful to a proper understanding of
    this problem if the Members of the Senate would reread that report.
       Since the adjournment of Congress last August, shipping legisla-
    tion has been the subject of extent-he negotiations between the
    Department of Commerce and the Post Office Department rcitilting
    in the submission to your committee of a draft of a. uill which had
    been agreed to by these Departments. This bill printed as a com-
    mit'ee phut was the basis upon which hearings were recently held.
    At these hearings were heard the reprcsentati\es of the Post Office,
    Commerce and Navy Departments, and the shipping nml labor
    interests involved, together with disinterested witnesses from
    patriotic organizations and societies.
       The need for legislation on the subject of the merchant marine is so
    imperative and urgent that the delay in its consideration by the
    Senate can only be excused if the bill nou submitted by your committee
    is an improvement over the bill submitted for your consideration at
    the last session of Congress. Your conin.ittcc bclic\cs that S. 3500
    as amended fully answers any criticism of inaction.
                  TIFF- rilKSIDKXT'S MKSSAOK AS A YAUDSTICK

      The President's message presented to Congress the following
    principal problems:
       («) The termination of the existing foreig-i ocean-mail contracts;
    and the repeal of the sections of the Merchant Marine Act of 192S
    which authorized them:
       (V) The termination el the construction loan fund;
       (r) The creation of n direct subsidy calling for the payment to tho
    shipbuilder of n co?<struction subsidy representing the difference
    between the American and foreign cost of construction, and nn
    operating subsidy which represents tho difference between the
    American and foreign operating costs in which should be considered
    tho subsidies pud by foreign governments to their shippings;
       (il) The termination of the undesirable practice a?id abuses which
    ignited from prior legislation;
       \c) The creation of an administrative body to administer sub-
    Mdies and tho transfer of ((iniM-judicial a.ud i|ua.-,i-lcgii>luti\c! duties to
    the. Interstate Commerce Commission.
      Tho bill submitted by yom committee fully complies with every
    recommendation of the President, except the one calling for the

                             _,»,_>..».              - -

                                           •     1253
4                   MERCHANT MARIXE ACT, 1936                                ^

immediate transfer of regulatory powers to the Interstate Commerce
Commission. Your committee Las not believed the present time
opportune for such transfer.
   It is stated that the Maritime Authority should not possess both
administrative and regulatory powers. There is no precedent in the
existing Federal laws for this contention. E\ cry independent govern-
mental commission created prior to and during the present adminis-
tration possesses and exercises both administrative and regulatory
pow«rs. The development of an adequate merchant marine is as
distinctive a problem :u> that involved in the regulation of communi-
cations, securities exchanges,.and so forth.
   The enormous powers now vested in the Interstate Cornmr -co
Commission with respect to railway carriers, motor carriers, an.l to
aome extent air carriers, together with the innumerable administra-
tive functions with respect to the operating and financial problems
of these earners, suggist the advisability of delauug for future con-
sideration the question of vesting wafer-carrier regulation in this
body. To provide for this period of further stud;, .mJ lunsidcration,
your committee has suggested in title Vll that ait t the expiration
of 2 years from the effective date of this act, the President is authorized
to transfer to the Interstate Commerce Commission the regulatory
powers relating to the coastwise and intcmuistal water carriers.
If, in the meantime, there shall have been sach a m^rgani/ation of
the Interstate Commerce Commission and ..uch progress lias been
made in the exercise of the new regulatory [towers with respect to
motor carriers as to make it appear that th-- Commission is ready
to take over the regulation of intcrcoastal and coastwise water
carriers, the President may make the necessary transfer.
   This separation of ihe regulation of dome.^tii -utter curriers nnd
 foreign water carriers is a compromise arrived at-b\ _.our cominiUec.
Many of the committee have grave doubts a> to the ad\isai<ilit.v of
 conferring upon the In'Tsta'c Commerce Commission ah\ ri'j.'ul..;^ry
 powers over water carriers, but in view of the close rolalii.iohip
 between rail and motor carriers in the United States and the coa.-.t-
 wisc and intercoastal water carriers with whirh tlu-jt ••oi.ipote, it has
seemed not unreasonable to make it possible for thr t.\tm.-».> by the
 Interstate Commerce Commission of a coordin.itr.l ngul,iinr> po»\cr
 over all types of carriage y: "«v the United Statc-.^. These. m:isnn<
 do not apply to water can .-. in foreign i-oinnierre n. they do not
 compel" with our internal transportation s\.-.!tm. The regulation of
 these carriers presents a problem with iu!'-ni.i!i,.nal ospceU v\ith
 which the Interstate Commerce Coimn!»ii.i. h..- l..i>! n-i e\perience,
 and is so closely related to and inseparable fi..m the devi.iopment of
 our merchant marine and foreign commerce (hat separation of these
 two functions nt this lime is inadvisable.
      TIU. AMflUCAX MKItCHAXT MAItlXK AND WOULB CONDITION'S

    While the Maritime nations of the world ha\e been engagc<l in the


rcspcel
merchant ship £<r our foreign commerce li.i.-> bei n sl.,rli.l in Ann rita

                               1254
*                       MERCHANT MARINE ACT, 193C                             5

shipyards. Altliough the volume of our foreign water-borne commerce
is second to only that of the British Empire, our Government hns
ftiiluilto take the measures which arc recognized by all as essential to
the development of our merchant marine and overseas trade. Every
principal maritime nation lias found it necessary to subsidize the
construction and operation of their national merchant fleet. If
the United States desire* n merchant fleet to carry its foreign com-
merccj operate as a naval auxiliary and give employment to our
lajwr, nn.l if it desires to maintain' the American wage scale in its
shipyards and on its ships on the high swu., it is apparent that Govern-
ment nid- is required.
    The reasons f,\r an adequate American merchant marine so elo-
quently stated b> the President in his message of March 1933, are
accentuated by tlie di-turbcd economic and political conditions exist-
ing in Europe ami Asia today. If n match should be set to this tinder-
bu.\ of national jealousies and conflicting international ambitions, a
largo part of UiC foreign merchant fleet upon which UK Li/Jted Statps
depends for earning t no-thirds of its f«roisjn commerce would bo
withdraw mfruni this service, and thciproducJvs'f t'»r American farms
\\oiild again lit; rotting in the licJd> or on wlmr>Ss:jis ti ;y did in 1.014
•to 1917, and-our vvarelioiL-ca would bulgi -v.ith the oWiM products of
our factories. Thr-re would not be suf{icieni ships to urrry them.
    Moreover, in carrying out a ncccWtry i.rograiii of prcpaicdijcss by
 building our Xavy up to treaty strength, we have embarked upon a
program of naval expansion involving expcnditurco of five or si.v
liundrcd million dollar.-, a \cnr. Our Navy, \utL:'it adotjiiatc auxili-
arii^, is as ineffective a» an arm.\ at the front uithom munitions and
Ann! transportation to .support it. From the standpoint ,>( national
defense, our >afct\ demands imperalivci^ an inuia-diatc and cHWtno
solution of the problem of building up our merchant marine.
                     THE MERCHANT MAIUXK ACT OF 1023

       An excellent start was made under the Merchant Marine Act of
    lOllS, but the payment of niil>bidic.-> l)\ indirection through mail con-
    tract.-^ ha,-, proved distasteful to our people. The period of prosperity
    prc\ ailing at the time the first mail contracts ucrc entered into under
    this act undoubtedly resulted in the exercise of bad busings judg-
    ment by some uf the beneficiaries of lliis act in the v.ay of large sal-
    nries and expense accounts, and in tin frtilure to create adcipinto
    reserves against periods of less prosperity and of deprL^ssiun. Tho
    ninnunt of siil)sidy authorized by that act involved the payment of
    a somevvhai arbitrary .^iim for o.ich mile of tlie outuard voyage with-
    out any \er_\ direct rolatioriship bet \\euii the iiiiioiint of Mich subsidy
    and the lii^hcr constnu tioii and opuidting costs of such Ahierican
    opcratoi as roinpnrcd uitli similar cosU of his foreign competitor.
       Tlie payment of divide .ds liigh exporsc nm>ujit«s, a?ul salaries, has
    given nso to the bi-luf, ncll founded or othcrvv iho, that the subsidy
    under th.it act rosiillfd in great pn.fiU to the operators. Thcrcforo,
    it seems appropriate (hut the .s, stem uf indirect .subsidy represented
    by that act no replaced \vilh uiie of direct aid, tluit tho payment of an
    arbitrary sum as n b'lbsidy ne dinco)itiiiucd, and that tho |)!\\mcjils
    be liiiiitcd to tho const furtitui and operutiiig differential in favor of
    the forcigii o|>erulor, affd that tho 'lijianciul assistance rendered be.


                                         1255
                              MERCHANT MARINE ACT, 1936

surrounded by safeguards which would insure that it goes for the
objects for which it-is designed and not diverted or piped out to other
ends.
   Taking stock of the results attained through the ocean-mail con-
tracts authorized by the 1928 act, we find (hat these contracts have
resulted in the eonUriiction of the 33 fine new vessels listed below.
A further 517,700,000 has been spent in the reconditioning of 42
vessels, increasing their speed, etc. Had the new vessels built been
freighters, instead of the more expensive combination \cM>uls listed,
there would, probably have been no complaint as to the number of
new ships built under the act.
   Since Congress, by the independent Offices Appropriations Act,
1034, enacted June 16, 1033, gave the President the power to cancel
or modify the ocean-mail contracts, there has been no construction
under these contracts.
   It should be remembered also thjit expenditures under the 192S
act have equalized operating cost differentials of from $11,000,000 to
$13,000,000 per year, neutralized the effect of foreign Mibsiilics, paid
for carrying mail, and kept our merchant marine on the ,* .is (hiring
the period of economic depression when many foreign steamship
companies, although unburdened with our higlicr coat scale, have
gone into bankruptcy and reorguni/alion, and when many of our
industrial concerns, although protected by tariffs, went to the wall.
                          \ c.
                             :sids built under Merchant Marine Ad, 102S

                                                                                           Anirxmt of
                                                                               Amount of Icon rcmM Tol.il C65t
   Name of vessel          Gross                     Owner                     corrtruc- to FcU a of Vfcstl
                          tonua;e                                               tiuii loan    \<M

                             M?S Evtcrn StcamOiIp I.lnc*. Inc _ _ $2.3ir,.noo                 $3(7,irjO     $.xiao«
                             US$2 United Mnil SlMm.«lil|> Co. 2.J3J.7M                       1, N'.', 1>7   3.4W.OI7
                                     nnil Unltnl Frull Co.
Uorinqucn                    7, IH Coamo Stc->m.<liip Corixmlten LOTH, SIO                     191.913      a723,IM
                                     an<l Acwillnc.N Inc.
Chir'iuf                     G.9C3 Unllc-l Mall Sldimshlp Co. ncd 2,!3J.7JO                  I.!fAS7i       3,Ki,(XlJ
                                     UnilcU Fruit Co.
City of N'cw York            $.272 A'nencan South African Line, 1.3W.KQ                        1U.ODO       l.S(3,i21
                                     Inu
                             S,2M Colomliiin Slosmship Cor|>ora- i,«;.«o                       2i3.12J      2.40S.7i7
                                     llun nn<l Cb!onilii.m •'Irnni-
                                     ship CV-., Inc.
KxcaliMir                    9.K9 Export Stcnmjliip rnrrinrnllon.. 1.T25.000                   431.28       Z.10R.3IS
                             a, MC      rjo                           1.77X000                 3f5.f,xi     2.317.01(1
                             0 3-XI     >I«           . .             1,71'i.OOu               3 15. COO    2..117.M9
                             9, M9      do                            1 72i.r«X)               43I.2M       2.3W.S1S
Ualii                        J'23-; Coln:nlii.in SlMm*til[i Corpora-  1,G>7,JOO                2?m ia       ^lul'.lS?
                                     niul ColumMan Slc.m^lilp
                                     Co., Inc.
                            IS. 021 Orc.inlc .Stc.inv<lilii C'o. nn'l3.OJO.OOU               2. 0«>. 000    7.000,023
                                     Mrilwn Xnvlnilion Ca.
                            21.259 N'l.rlh Allnntlc jlr.tni^liip Cor- 7. ox; 7w              1. 1J0.011     10.2n40i
                                     pornilon nml Unite-! &AU-.
                                     l.liie< Co.
                            is 017                                             S,S.'.0,O.O   2.0I7..VW      S,iS7.MU
                            IS.OI7           do...                             .'..S27,.'W      *74. 121    S.u\2ra
Morro Cusilc                11. 'OJ     AKH! Nurmllnn Co. nn-l At-              • <n.M       S,122.:sl      4.174,230
                                          linllr. Quit ,t \\"IL-I Iivllc.
                                          SlMir»lilp Lino).
Orlcnte                     II. .'20   — da                                    3.«I.M'i        lnl.'frV.    1.W.729
                            tt.200      Aimrtam I.lno Stmm^liln IV-            1.7«S;JOO     i,2oo,sno      C,M7./2iJ
                                          [f.niil'.n »n<I .Ml'intlc Tr.iiis.
                                          port Co. ol WtM Vfrjlnb
                                          (1'nnnnm IVidfic. l.lno).
                             WR         I'nllc.I Mnll ^it^inihlp Co. nn>l
                                          (Tnllcd Knill Co.
                                                                                l.nM '50     i.rw.r/ci      2,S7S,8.'.l
rrcolilent Coolldgo....     2i,w,       Dollar Stoimslilp Lines, Inc.,         .% MS, 120      M9,tSX       7.4V0.7M
                                          I.Kl.
I'rtsMcnl Uoov«r. ...       21, DM                                 .....
                                       -. - uo. •••••... ...^... . . . . .     S,JW,tOO        Hit.MO       7,479,8*4




                                                    1256
                             MERCHANT MARINE ACT, 1936

              Vasth built under Merchant Marine Act, 102S—Continued

                                                                                 Amount of
                         Gross                                        Amount ot loan re|«!d Total cost
    Name ol vend        tonnage                   Owner               construc- to Feb. 29. of vessel
                                                                       tion loan    1936


                           6.9S2 United Mall Steaiiishlp Co. and      $2,533,750            $380,052      13.490,781
                                   United Fruit Co.
                           8,185 KafUrn Steamship Lines. Inc.-.         2,312.000            346, £00         3,111.808
                           6,220 Grace Steamship Co. and W. R           2,454.750            736, 425         3.449,26?
                                  Grace & Co,
                           9 135    do                                  3,031,030             308,102         4 217 294
Santa Lucia                9.131 Grace Steamship Co .                   3.0GI.02U             459,158         4,214 598
                           9,135 Panama Mail Steamship Co               3.0CI.020             459,153         4,162,830
Suit* KM»_.                9,135    do                                  3.001.020             459,153         4,210,312
                           8,061                                        1.189397'             178,453         1 587 128
Seatnln New York...        aw    . do ...                               1.189,397             178.4.13        1,587 123
Talarmnca                  G.963 United Mail Steamship Co. and          2,533,750          ],2<G,875          3,491.001
                                   United Fruit Co.
                           &9S2 . do                  . ...             2.5.13.750           3SQ.082           7,508,024
                          24,259 Iransat'antic Steanisnip Cor-          7,757 200                             10.342,929
                                   poration -and United States
                                   Lines Co.
      Total (33) .       368.133                                     102,787 835       27 209 839        144 580 SK

  There are W9.05i.3SO actually Invented In these .13 vessels by the owners at the present time.
  The 33 vessels IbteJ a!x>>e represent the finest rocrchariv fleet assembled under the American flax sine*
the adienLof s team. These ships, for their size anil type, areas modern and efl.-Jent as any In the World,
   U. S. Shipping Hoard Bureau, Division of Research. Mar. 23, lOT'               -i '

                               BASIC PRINCIPLES OF S. 3500

   The financial assistance required to adjust the construction differ-
entiuio is for tho purpose of equalizing the difference between American
uiicl foreign cost. It is not paid to the ship operator. It is paid to
the shipbuilder and represents the difference in cost between the
American and foreign ship from which American labor benefits.
Since approximately 85 percent of the cost of constructing u ship is
labor, therefore labor is the chief beneficiary. It is wholly desirable
that American wage scales and standards of living be maintained in
shipbuilding for foreign trade-. The profits of the shipbuilder in tho
transactions are adequately restricted by recapture.
   The operating differential is paid to the ship operator. Tho
 Amount of this so-called operating subsidy is primarily limited to a
repayment of sums of money which he lias already disbursed in pay-
ment for the American labor cniploycd upon his American ship and
for the American materials required in its maintenance and opcruton.
This labor and these materials cost more under the American flag
than they would have cost under a foreign flag. The repayment or
reimbursement to the operator »f the excess cost is not, therefore, in
any sense of the word, a subsidy. It is merely an equalization of his
American costs as ugaiiut the costs of foreign-flag operation. There
cnn be no profits to the ship operator in the repayment to him of
these out-of-pocket excess expenses wh'ch he lias already incurred.
For this reason, many of the restricting ami limiting provisions con-
tained in this bill may seem unnecessary, but arc inserted to make
sure there can be no recurrence of tho alleged abuses made possible
by deficiencies in the act of 1028. It is tho purpose of this bill to
endeavor to place tho American owner and operator of an American
flag ship on ft competitive parity with his foreign-flag competitor.
"Parity" carries with it-no guarantee of profits, and if-thpro arc to bo
any profits, they must
             "               ifcade in competition with foreign shipping.
                                       - •>-•--    ---    _.      ---------          ---            -------          ---




                                                         1257
  8                   MERCHANT MABINE ACT,         1936

               PRIVATE CAPITAL AND AMERICAN SHIPPING

    It has been stated that private capital will not invest in the shipping
 industry. This is completely disproved by the fact that private
 capital has invested enormous sums in the building of snips in foreign
 yards where those ships can be built cheapest, and in the operation
 of such ships unr1?"- foreign flags. It is true that private capital Tvill
 not invest in the building of ships^ in American shipyards where
 they are to be operated in foreign commerce in competition with
 cheaper-built foreign ships. American Capital could not survive in
 such an unequal contest. The sens are free 'to the ships of any
 nation, large or small, no matter where the ships arc built or what
 wages arc paid. If we would preserve our own freedom in the
 overseas trade, and arc not willing to be bond slaves to the shipping
 interests of foreign nations, we must place the American owner of an
 American-built ship on a basis of. competitive equality with these
 foreign ships. If this be done, what reason-is there to belisvc'that
 capital will not be invested in American-bin-1 ships?
                         GOVERNMENT FINANCING

      It is contended that if the Government puts up. all the money,
    then it should own the ships, operate them either directly or under
   charter, and get the profits, if any, -from such ownership. In the
   first place, under the proposed bill t!ie Government does not put up
   all the money. The operator must put up 25 percent of the foreijjn
   cost of the ship, the identical amuunt required if he chose to build in
   certain large European shipyards; and he uuist satisfy the Authority
   of his financial ability to mamtain-the-ship-in service. He must also
   repay to the Government the other 75 percent of the foreign cost.
   This is not a gift from the Government, but a deferred payment plan,
   to be authorized only after receiving adequate guarantees of its pay-
   ment, together with interest. Moreover the. ask. has. not proved
   great. Out of Government loans of $148,000,000 (on a construction
   and reconditioning investment of $215,000,000) made under the
   existing merchant marine legislation, less than $3,000,000 is in de-
   fault, a most creditable record as compared with any loan risks taken
   in recent years.
      A further point generally o\crlookcd ih.discussing what percentage
   of the cost of a chip the Government might possibly "put up", is the
   nature of the construction diftcrential. A ship that would cost
   $1,000,000 if Built in the United States and $600,000 if built abroad is
   worth just $000,000 in foreign trade. The shipowner dops not "got a
   million-dollar ship" as is stated, because its utSlu\ vn.Iuo is SGOO.OOO.
   American labor benefits from the difference, not tj e shipowner.
      Because of the provision authorizing thp-A'^Iiority ti» purchase old
   vessels, it is said (hat an opcrntor migh^'je't a now vessel by putting
  up but a sinall part of the 25 percent casli pnymcu! required, as the
  .rest of the 25 percent would come as a credit on the old vessel. The
  credit the Authority may gnc for an old vessel is narrowly limited to
   the lowest depreciated cost on a 20-ycar-lifo basis, and then only if a
' now vessel is constructed. It is wholly within the power of tho
  Authority to refuse to authorize a new vessel unless it is in tho interest
  of tho United States to ha\ o the old vessel retired and a now ono built.

                                     1258
*                    MERCHANT MABINE ACTT, 1936                             9

    If the theory that the United States should become tha owner of
all properties upon which Government loans have been extended
were put into effect, it would become the owner of so many of our
banks, railroads, insurance companies, homes, h, d farms as to over-
shadow all private bwnersnip.
    The statement has repeatedly been made that the present m&il
contractors'would be ui.a.ble to raise the first payments required by
S. 3500 for the construction of new vessels. This remarkable state-
ment is based on the claim that these mail contractors, with the
exception of the United Fruit Co., have only $4,000,000 in net current
assets.
    The construction of all the vessels required should not he under-
taken at once, but should be spread out over a period of years.
Otherwise, in the course of time our present .situation would be dupli-
cated, and most of our ships would become obsolete at the same time.
    To expect the contractors to have available at the present time
sufficient net liquid assets for u shipbuilding j/ogram to extend over
a period of years is an unreasonable expectation. Certainly such *
situation would not indicate particularly good judgment on the pa t
of these contractors.
    A study hits been made comparing the ratio of net liquid assets to
total asscU.uf-these contractors with the corresponding ratio of assets
of other transportation groups, including the railroads, and approxi-
mately the same ratio is-found to apply throughout. It should bo
remembered, in this connection, that a t.ansportation business differs
froni the ordinary industrial or mercantile coneerii where a large
ppitiun of the current working capital is tied lip in inventories, not
onij finished goods hut raw materials, which would not be converted
into cash for a considerable length of time/ Transportation revenues
are usually received in cash, so such accounts, receivable as there may
bo would be converted into cash >vithin a very sliort time.
    The ntt current assets of any business do not necessarily reflect its
ability to make expansions. Expansions of any business .ire financed
by additional hummed or 'inu-stcd capital and particularly is this
true of transportation. The net current position id this time is not
at all surpri»in<; cmisiiltring the period of depression through \\hich all
transportation has passed. The mail contractors have not only been
confronted with a domestic de|»re,s.si<in, hut they havo-fclt the effects
of \\orlil-\\itle dc|.ressH>n<aiu!, of course, the results of their operations
II.IAC been correspondingly affected. When Congress has been work-
ing long hours since the depression, and many of its efforts have been
frankly extended to help domestic business through that depression,
it wou^.d lit' surprising if that same bod.v expected the shipping business
to have Ii«|iiid net assets immediately available not only fcr current
nsp hut to finance an expansion program to extend i\ considerable
period into the future.
            SUBSIDY PAYMENTS XOT A GIFT TO SHIPOWN'rn

   The contention of opponents that the subsidy payments provided
in S. 3,500 wmdd constitute a gift,to the shipowner cannot be .substanti-
ated by even the most prejudiced reasoning.
   The'fnctsnro:


                                          1259
10                  MERCHANT MARINE ACT,         1»3«

  ^ 1. The shipowner never receives the construction differential sub-
sidy because it is paid t« the shipbuilder in order that ships may be
built in the United .States instead of abroad, and is necessary to main-
tain the American standard of wages.
    2. The operating-differential subsidy merely reimburses the ship-
owner for the excess of the cost of American labor and materials over
 the foreign cost of the same items, an amount ho would not pay at all
if he chose to operate n foreign-flag ship.
    3. In accordance with the President's message, and subject to his
approval, subsidies paid by competing foreign governments to their
shipping may be partly or wholly equalized. Without this it should
be apparent to even the most casual student of economics that Ameri-
can shipping could easily b.e driven from the seas.
    In consideration of its contract the Government receives:
    1. Naval and military auxiliaries.
    2. Protection and extension of American foreign commerce, and
assurance of available transportation for it.
    3. Employment for American labor, and consequent reduction of
relief expenditures.
    4. The right of requisition at low cost to the Government.
    5. The right to specify and "infme the operation of the vessels
to a definite trade route.
    6. Registry of vessels under the American flag for at least 20 years.
    7. The use of American materials and supplies.
    8. Right of readjustment of contracts.
    91 Right to control the sale, transfer, and management of vessels.
    10. The right to impose upon the shipowner, in the conduct of his
business, a multitude of restrictions not borne by shipping or any
other business.
    11. Right to spocify that national-defense features of no value for
commercial purposes bo incorporated in the ship.
    12. Posbibility of reducing even the limited "parity" attained by
recapture of profits.
    The above is but a partial list of the rights and benefits secured
by the Government in consideration of its contract to place the
American shipowner in the position ho \\ould bo if he- chose to build
abroad and operate under a foreign flng.
               GOVKUNMENT OWNKHSHIP AI/TEITN'ATIVE

   Your committee, by a divided vote, rejected a motion to substitute
S. 4110 for S. 3500. The reasons for this action arc neither capricious
nor personal. They ore deep-rooted and fimdincntal. No contention
that private ownership is encouraged by S, 4110 can mask the real
issue of Government ownership, because the condition:* imposed upon
private ownership could not bo fulfilled. The choice is between
private ownership and operation with limited Government aid und
GoviM'iiin" > it ownership and operation with unlimited expenditure.
   The prop incuts of Government ownership in S. 4110 hnve resorted
to ovory device that t'.io outspoken enemies of a Government-aided
merchant marine can conjure up *o hamper, restrict, and prevent
private 1 'nterprise from constructing ships in American shipyards and
operating them under the American flag; and yet they throw down all
barriers and open wide the Treasury door to ut ''united and unrestricted


                                  1260
                    MERCHANT MAMXE ACT, 1936                         11

 expenditures in a costly and extravagant scheme of Government
 ownerslu'p. The issue is not whether adequate safeguards are con-
 tained in S. 3500, because the Authority is given the power to pre-
 vent any abuses complained of.
    The advocates of Government ownership would not vest ths
Authpritj with discretionary power to deal with the operating details
of private ownership and operation, but would vest the Authority
with unlimited powers to build shipyards, to build ships, to buy ship
lines, to charter ships without any charter hire, and f^^pcrate ships
regardless of the cost or loss involved in such operation.
   It is singularly significant that it is the advocates of Government
ownership who would impose upon pr vate enterprise a myriad of
onerous conditions which would not appty to Government owner-
ship:
    To enact S. 4110 into law would* mean the undoing of all the con-
structive work for the upbuilding of an American merchant marine
that has been accomplished within the last 15 years. It would bring
about a condition of chaos from which American shipping would not
recover in the next generation. It would put us back where we were
at the close of the World War.
   Stripped of verbiage, S. 4110 would set up conditions impossible
for private enterprise to meet. Few, if any, private American ships
could or \\ould be built under its drastic provisions. No reputable
businessman wouiil eii^i- into a contract with the United States
Government, so hampered and restricted that he could not make a
reasonable profit, or any profit. In the second place, the inevitable
procession of public hearings, questionnaires, reports, and resort to
the Authority for (jermissiun to do the most trivial and usual thing
incident to the ordinary conduct of his business in order to comply
with go\oniiuental regulations, would leave him little timo properly
to conduct that business.
   Not content with these practical obstacles to successful private
operation, they deal their inost elTectivo blow against it by the threat
of vas>t expenditures in a plan of Government shipbuilding and opera-
tion. No conscnativc person would invest a dollar in an industry
over which hang> such an ominous throat.
   What, then, would be the result? There can be but one answer:
I~r«icr llio provisions of S. 4110 the Government would build and
opera to ships. .A vast bureaucracy would he sot up to assume charge
of the highl> technical work of building and operating shipyards, nnd
the building and operation of ships. I'nniiiiihcrcd Government em-
ployees would be needed to study the constantly changing economic
conditions that govern world-wide ship operation, the imuimenihlo
issues which confront experienced shipping men ir> 'their efforts to
find ami carry cnrgu at a profit, the world polities involved in ques-
tions </f export ami import. All these complicated, technical, and vital
questions would ho parceh-d out nmong men who, however worthy,
must of necessity Imve little or no practical knowledge of such trc-
mcndo'.is responsibilities in connection with shipping.
   Let us glance at the powers conferred upon the Government and
upon Government employees by the S. 4110.
   The Government can locate nnd hu'id shipyards wherever and
whenever itjilcaHes- and at whatever cost, duplicating the facilities
            •* ••    »




                                1861.
12                   MERCHANT MABINR ACT,           193«

and competing with the American shipbuilders who have splat yean
in learning how best to build American, ships.
   The Government is authorized to build ships without any limit as
to post of construction. The Government may operaU1. these ships
without regard to the cost or loss involved 'in such operation.
  /The Government may charter these ships to the highest bidder
without regard to whether such charter hire would 'cover even the
interest and amortization of, the investment, and in the same bill the
private operator is forced to pay interest, create 'amortisation, and
set up an operating reserve-under penalties.
   The Government may also charter these ships, for a nominal charter
hire, or no charter liire at all, and payroll capital costs without limit
or restriction and may pay all or part of ship wages.
   The Government may charter at will these Government-owned
ships to any ambitious "shoe-string" operator who would not put up
$1 of capital investment, whereas the private operator must at least
put up 25 percent of the foreign rest- of the ship.
   Government shipbuilding a'.id ownership of- snips in foreign trade is
no solution of our 'merchant;rniirine problem; it is utterly imprac-
ticable. It would act rcduce'-the construction cost of ships, nor the
operating cost. It i.» provcrbi-illy more expensive; tied down with red
tape, and not so effelti"<? in 'results. History records no -successful
merchant fleet that was Government-ov/hed. No merchant fleet of
any of the principal maritime nations that sails the seas today in
foreign trade is Government-owned. The rehabilitation of the
British merchant marine so soon after the war is due largely to the
fact that the ships taken over by the Government were almost
immediately restored to private ownership and operation. Our
lesson in Government shipbuilding-and ownership has already cost us
billions of dollars and placed a heavy mortgage upon our taxpayers, a
debt which will Kike generations to discharge. The opportunities
which it affords for maladministration fire -without parallel.
   It should-hc remembered that tl-e President's message of March 4,
19315, contains no suggestion ot 3ovcrnmenf; ownership or operation,
nor can any such theory be reconciled wilh.that message.
                         REVIEW" OF S. 3500
  The following is a brief review of the nine titles constituting'lliis bill:
                  Tm,E I. DECLARATION ox
    This title so clearly sets forth, »h« car(ilii«)l principles written into
this bill that it is worth repeating hero:
    Section 1: It is necessary for the national drfcnso and develop-
ment of its foreign and domestic commerce that 'tho United: Statos
shall have a merchant marine (a) sufficient to ci-rry its .lomcstic
waicr-bornc commerce and a subslan'jal portion of tnp \vuter-bornc
export and import foreign commerce of the Uniicd Status and to
provide shipping service ou all routes essential for muintiiining tho
'low of such domestic and foreign Wiitcr-burne commerce at nIHimcs,
 (6) capnhlo of serving as a naval'and military auxiliary in time of .war
or national emergency, (c) owned and operated •itiulcr tho United
States flag by citizens of tho United States, mid' (d) composed of tho

                                   1262
                    MERCHANT MARINE ACT, 1936                         13

best-equipped, safest, and most suitable types of vessels, constructed
in tho United States and manned with a trained and efficient citizen
personnel. It is hereby declared to be the policy of the United States
to foster the development and encourage the maintenance of such a
merchant marine.
         TITLE JJ. UNITED STATES MARITIME AUTHORITY
   This title creates a Maritime Authority of five members, appointed
by the President by and with the advice nnd consent of tho Senate for
terms of 6 years, with salaries of $12,000 per annum, and authorizes
the other administrative personnel to carry out the purposes of the
act.
   There is a provision that no one should be eligible for appointment
to the Authority if at any time within the 3 years preceding such
appointment he has had any financial interest in any water carrier or
ah3* subsidiary or affiliate thereof, any concern subject to the shipping
laws or in any concern deriving a substantial portion of its revenue
from any such source. This will prohibit the appointment of any one
who owned a share of stock not onl3' in shipping companies but in tho
industrial companies supplying any substantial volume of supplies to
the shipping industry. While it is considered desirable that tho
President should have wide latitude in selecting men of intelligence,
industry, candor, and courage, this provision is not considered unduly
restrictive, since railroad men have never been appointed to the
Interstate Con.nierce Commission. It is conceded by all that tho
success of this bill if enacted into law v ill largely depend upon tho
ability and integrity of those appointed to constitute the Authority.
  Your committee has been glad to at'opt the principle embodied in
S. 4110 of requiring the Authority to make a long-range plan for tho
merchant marine.
        TITLE III. ADJI STMENT OF OCEAN MAIL CONTRACTS
   This title provides for the termination of the existing ocean-mail
contracts \\itliin 1 3-enr after the Authority shall have been appointed
and qualified. Your committee is of the opinion that. Micsc>contracts
should be terminated AS soon a» possible but that it «.ouUI' probably
be impossible to make the necessary studies required, :reatc tho
necessary administrative machinery, and at the same tin.c ,iarry on
to a siicccMiful conclusion, negotiations for the tcrmir.ation of 43
contracts in a less period of time.
   Mail contractors mny file an application within 90 days from tho
passage of the act for >>n adjustment of their mail contracts. Tho
Authority is required to delo.nnino the amount justly due in full
settlement of all claims of both parties upon the termination of each
mail contrai-t, and in this connection it is required to take into con-
sideration all of the facts thought to he pertinent in arriving nt just
compensation. If an agreement .cannot bo arrived at, then tho
contractors are nutliorixed to sue the United States in tho Court of
Claims in accordance with existing law. In such suits both parties
shall have a right to have determined all legal and equitable claims,
differences, offsets, credits, and recoupments to which either may bo
cnlitledj so tjmt aH cpjiHicting claims,^a5acdionb..and_rights..may.be


                                   1 OOP
     14                  MERCHANT JIARINE ACT,         1936

     fully, fairly, and completely settled an$ adjudged by the court. There
     is preserved to the United'States in such suits the right to urge as a
     defense any collusion or fraud which may have existed m the obtaining
     of such contract.
        It was urged with some insistence that the bill contain some further
     definitions of just compensation to be awarded cither by the Authority
     or the Court upon the termination of mail contracts. Your committee
     is of the opinion that it is fair to both parties that the question of just
     compensation be determined under common law rules, or be left to
     the courts for dctermination-in the light of all of the-facts which will
     be presented in each case. Your committee believes it should not
     now 'attempt to revise or limit the established doctrine of just com-
     pensation represented by the many decisions of our Supreme Court
     upon this subject. There is no reason to fear that the United States
     would suffer from an application of the legal precedents upon this
     question.
                          TITLE IV. NEW CONSTRUCTION
        This title declares that a necessity exists for the replacement of
     obsolete vessels and for the addition of new vessels, to develop and
     maintain a well-balanced and adequate merchant marine. In order
     to encourage the retirement of old and obsolete tonnage which may
     be a detriment to our merchant marine and foreign commerce, the
     authority is authorized to purchase such ships as it feels is in the
     public interest, but in each instance at a price not exceeding its cost
     or depreciated price on a 20-year basis, whichever is lov. er, This
     cannot be done, however, unless the owner replaces the old vessel
     with n new one.
        This governmental policy of allowing a credit on obsolete ships
     would result in the Government having available for prompt emer-
     gency use a reserve fleet of ships in operating condition, acquired at
     minimum cost. It could dispose of the vessels '-t") such services as
     might bo benefited, but in any event, the plan would retire from
     service obsolete and useless ships. The Authority coijld then pro-
     ceed to scrap the present laid-up fleet, which would cost an excessive
     amount to put in operating condition.
               TITLE V. FINANCIAL AID TO MERCHANT MARINE
-\               TAUT I. CONSTRUCTION DIFFERENTIAL SUBSIDY

        Part 1 of this title provides for the payment by the Authority to
     tho shipbuilder of the difference between the American and foreign
     cost of building such ship. The new ship must be one required for
     foreign coimucrce and suitable as a naval auxiliary. The ship
     operator does not borrow money from the Government, as 1ms been
     the cnso heretofore; ho purchases the ship from the Nfaritimc Authority
     upon the payment in cash of 25 percent of the foreign cost and tho
     balance of such cost is to bo liquidated in 20 annual installments, with
     interest at 3K percent.
        This construction differential subsidy is lin.ilcd lo 33J4 percent of
     tho American cost, except where tho Authority possesses conclusive
     evidence that tho actual differential is greater, in which case an
     allowance not tojjxcood 4J) porcoii^jnay^bo^inado. In no case can
                            -^          1264
                      MERCHANT MARINE ACT, 1'9r 9                        15

the construction differential exceed 40 percent, unless the President
shall determine that in some particular case an additional 10 percent
may be granted.
  Differences of opinion have arisen as to the extent to which the
construction subsidy should be limited. The advocates of S. 4110
would place an absolute limit of 33ji percent -and have stated that
there is no proof that this is insufficient. This statement is some-
what misleading in view of voluminous testimony before this com-
mittee and the Merchant Marine and Fisheries Committee of tho
House, as well as the records of the Po?t Office and Commerce De-
partments. It must be borne in mind that a chief purpose of this
act is to get ships built in American yards; if the cost of construction
here exceeds by more than 33K percent the cost of construction abroad,
we still want to build ships here. It :is now believed by all experts
on the subject that the differential on cargo ships is approximately .,
40 percent, and *his is the type of ship most urgently needed for our ,,
merchant marine. It is significant that those who wish to limit the .
construction subsidy to 33}j percent if the ship is to be owned and
operated privately, are willing to empower the same Maritime
Authority to build the ship without limit upon the cost if built by,
or to be owned by the Government. The fact is, that S. 3500 places
an absolute limit of 40 percent upon the Authority, and a limit of
10 percent additional if approved by the President; S. 4110 by au-
thorizing Government construction, places no limit whatsoever upon
the construction differential, and the Authority can build the ship
regardless of cost.
                           LIMITATIONS AS TO TRADE

   In S. 3500 the granting of n construction subsidy has been limited
to vessels to be engaged only in foreign commerce. It has been urged
with insistence that a < construction subsidy should aLo be authorized
for ships to be used in the joint coastwise ^nd foreign trade. It has
been urged that under some circumstances the combination of coast-
wise and foreign trade might permit the construction of larger and
faster ships than w ould be justified fur cither of these trades separately.
It is stressed, too, Unit these larger and faster ships might be more
efficient, nut only in developing our foreign commerce, but also more
desirable as na^nl auxiliaries. If such joint coastwise and foreign
trade should be authorized, it was suggested that the construction
subsidy iiiuiild be reduced iu the some proportion that the revenues
derived from the coastwise trade bear to the total re\cnues in tho
joint coastwise and foreign trade. While iccognizing the merit of
these contentions, your committee has felt that for the present a
conhtruction subsidy should not be authorized for the joint coastwise
and foreign trade.
   The hill makc.s an exception to cover the case of American vessels
engaged in what \\ould otherwise be foreign trade, but which call at
ports of our island possessions, Hawaii and Puerto Rico. Likewise
exception is made for vessels engaged in the intcrcoastul trade but
which arc also engaged in foreign tnule between intermediate foreign
ports. In-the Inttor case, however, they could bo permitted to carry
pnssengers and ..innil, but could not carry cargo between American
ports. In each of such exceptional cases tho construction subsidy


                  *   w,              1265
16                  MERCHANT MARINE ACT,         1936

 would be reduced ic proportion to the amount of the revenues de-
rived from the domestic or protected part of such trade, ns compared
 with the entire revenue.                            '• :i
    It has been suggested that in addition to the well-known divisions
 of "foreign trade" and "domestic trade", there is a third class called
 the "scmiprotected trade", which is said to be trade with Canada,
Mexico, Central America, and the West Indies. IJpon the theory
 that there is some soct of "semiprotection" to our shinning indu- .7
 engaged in this trade, these suggestions of S. 4110 would prohibit the
granting of an operating subsidy for ships in service to those nearby
.countries.
    The proponents of such a classification and restriction have utterly
failed to explain the nature, extent, or even the existence of the
 "semiprotection" about which they talk. There is no luw or practice
 which either creates or grants any protection, favor, or privilege of any
 kind for American ships in this trade. Foreign-flag vessels suffer from
 no disadvantage in their competition with American ships, ami Ameri-
 can ship., enjoy no preferential treatment. The suggestion that bar-
riers should be erected ag.iinst American ships in trade with our nearest
neighbors is inconiprclu-nsiblc. On the contrary, if. there is any field
in foreign shipping where our own ships should predominate it is here.
The geographical, commercial, and political importance to the United
States of commerce with Canada, Mexico, Central America, and the
West Indies impels ar.d Counsels the adoption of every measure
 which would encourage the building and operation of American ships,
and more American ships ft r this trade. We cannot- let our coniincrce
with these countries depend upon foreign-flag ships which niiiy at
any time be withdrawn, from scrv cc, nor should our country be sub-
jected to the uncertainties or exactions which might come from such
dependence.
                       PACIFIC COAST DIFFERENTIAL

  The desirability of having shipbuilding yards on the Pacific const
has prompted your committee to authorize the acceptance of bids
of Pacific const shipbuilders which do not exceed by 6 percent tl
bids of shipbuilders on the Atlantic coast. This privilege is limited to
vessels built foi companies, the hemlq inrtcrs of which are on the
Pacific coast and for vessels operating from that const.
              GEXKRAL I'UOVISIOXS ItKOAUDINO COXSTUUCTIO.V

   If the bids of the shipbuilders should prove unreasonable or collu-
sive, the Authority may authorize the construction of ships by the
nnvy yards, if this is approved by the Secretary of the Xnvy.
   In order further to encourage shipbuilding, the power's of the
Reconstruction Finance Corf -ation are extended to the making of
loans for shipbuilding purposes. Any such loan may not exceed
7o percent of the foreign cost, ami the remaining payments shall run
over 15 years at 3Jj percent.
                       GOVEUNMKXTAI. HAKKttUAHD.S

  The bill proposed contains elaborate .safeguards against excessive
construction costs. These safeguards mnv be simuiu.ri/.ed as follows,
  1. Proposals for conslnictiop must be Aiilv advcrtis?d.
          _thp_bi<Lof_tliplowest responsible.bidder ma}LJ>fi nccc.picjK

                              . 12,66
                    MERCHANT MABDTE ACT, 1936                          17

   3. All detailed estimates upon which the bid is based roust accom-
 pany bid.
   4. Bids of subcontractors arc required to bo filed with the bid.
   Also shipbuilders are required:
   (a) To make a report under oath as prescribed by the Authority,
showing the cost of performing the contract, the net income, and such
other information as the Authority requires;
   (6) To pay into the Treasury all profits in excess of 10 percent
realized upon subsidized ships built in any year;
   (c) To make no subdivisions of contracts or subcontracts so as to
evade the provision- of this act;
   (d) To submit all books, files, and other records of the shipbuilder
and subsidiary companies, as well as the preml-ies where ships are
built, to the inspection and audit by the Authority, the Secretary of
the Treasury,: or a committee of Congress;
   (e) To require subcontractors to agree to the foregoing conditions.
   These requirements will place the Authority is jx>sscssion of all
facts relating to construction costs.
   When a construction d r<T ercntinl is equalized bj the Government,
it is required that the \xoscl must remain under ithe American flag
fur 20 years, ami that the United States shall have the right to take
over the \ essel at its net depreciated cost to the owner regardless of
what its market vnluo at the time may be. .This isia very important
and far-reaching restriction which would hot exist if the American
owner should build in foreign shipyards. By receiving a ship upon
which the construction subsidy has been paid, the owner is obliged
to keep his ship registered unclur the American flag for 20 years. In
consequence, he necessarily becomes obligated to incur the higher
American costs of operation under the American flag, and he must do
this regardless of whether there is any foreign competition in the serv-
ice in which the vessel is operated. For this reason,, it is doubtful
whether an.\ new v-sscls will be built, even with the tjd of the con-
struction subsidy, unless the Authority enters into a contract *o pay
an operating subsidy. The simultaneous execution of; construction
and operating subsidy contracts is authorized in the bill. Tius is an
essential to the success of the proposed plan.
                         AID TO DOMESTIC TRADE

   In view of the depression in the shipping industry and the iuahility
of our coastwise operators to pri\ r.tcly finance the construcMon of new
ships, provision has been made whereby the Authority may build
ships for the coastwise trade and sell them to the coastwisc^cpcrattrs
upon the payment of 2."> percent of tho American cost and thi* balamo
in 20 ;*ears wit*. interest at 3}j percent. This is done without, making
any pnnision or allowance for a construction subsidy. This, the
committee bclicu-s, will t-ncuiragc the replacement of some of'our old
ships in the constwisc-inuje with new and modern ships, which will be
equally available in a national emergency.
             PATIT 2. OPKHATING DIFFERENTIAL SUBSIDY
  This part authorizes the payment to the operators of an operating
subsidy which represents, the CNCCSS of lhe i fair and reasonable cost of
operating an,Anjcrican-flag ship osjcr the cost of operating a foreign-.-
              "*^«          •

                                 1267
18                   MEBCHAXT MARIXE ACT, 1936

flag ship. During any year, ths Authority may advance not to exceed
75 percent of the estimated amount of the operating subsidy. The
fined accounting takes pmce after the end of the year, at which time
the operator must prove what he has paid out for American labor and
materials. He will receive by way of reimbursement no more than
that portion of these expenses which represents the excess American
cost over what foreign labor and materials would lune cost. This
places upon the operator of an American ship the burden of financing
during the year at least 25 percent of the higher American operating
cost, a burden which to that extent prevents parity with the foreign
operator. Ill no case, however, can an operating subsidy be paid
unless it is required to meet direct or indirect foreign-flag competition.
It must be shown, too, that the granting of uid is necessary to place the
American operator on a parity with his foreign competitors.
   It is elementary that if the American owner is to build a new ship
and operate it for 20 years', at the high American operating scale in a
trade route where ho.could operate a foreign flag ship as readily, he is
entitled to the difference in rust whether there is any competition at all
or not.
             PAYMENT OP WAOE DIFfERENTIAt. 7O SCALES INSURED

  The operating subsidy is designed in lar^e P^rt to repay the differ-
ence in cost of labor under American standards as compared with
foreign. To make sure that labor actually receives the benefit of the
plan, the operating subsidy cannot be.paid u.itil satisfactory evidence
has been furnished to the Authority that the x\agcs fixed by the Go\-
ernment have been paid to the ship's personnel. That American
labor shall share justly in the subsidy has been on the lio.nrts of the
committee. The bill provides that the advar.tagfci shall IK- with the
men who go down to sea in ships and not be absorbed by the ship-
owner.
                         11ESTIIICTIO.V3 AS TO TItADR

   An operating subsidy cannot be paid in the joint coastwise and
foreign trade. It was urged upon your committee that an operating
subsidy should be authorized for vessels engaged i.'i the1 joint c«mr>t-
wise and foreign trade. For the same reasons indicated in reference
to the granting of a construction subs-idY, the bill prohibits an operat-
ing subsidy in the joint cunstw ise and foreign trade. The same excep-
tions arc made as to vessels in foreign trade stopping at our island
possessions, and those engaged in the c.irriiigo of mail and piihbe.-igers
only in the intercoastal trade, on vo.\ ages that arc also foreign-trade
voyages.
     EQUALIZATION' OF FORKIdN SCII.HIDIE3 ONLY WITH CONSENT UP I'UKMDKXT

  The operating subsidy takes care only of Jic actual difference
between the Americarioand foreign operating cu.-.,.-. But the bill does
authorize the Provider.t to approve the granting of an additional
operating subsidy, to tin1 extent that such additional Mibs-idy i* neces-
sary to offset the effect of governmental nid paid to u foreign com-
petitor.
*                       MERCHANT 3TA1UXE ACT, 1936                          19

                  ADEQUACY OF O?EKATKG DIFFERENTIAL SUBSIDY

       There is grave doubt in the minds of thoughtful students of this
    subject whether the operating subsidy limited so strictly to the
    difference between the American and foreign operating cost, plus
    amounts possibly allowed by the President to overcome foreign sub-
    sidies:, will in all cases make it possible for the United States to
    establish and maintain new foreign-service routes that our national
    interests may require. Nevertheless, your committee feels that the
    plan suggested by it should be given a faic trial, and if this proves
    inadequate the Authority after experience and study, may ask
    Congress jbr'additional legislation.
                            COVERN'MENTAI. SAFCGCAUDS

       In order to terminate the practices and abuses \vhM> !..tve arisen
    under the old law, many rounding and limiting sn'^guards have been
    inserted in the proposed bill. Among these are:
       J, The Authority may impose penalties for violation of the con-
    tract, this act, or rules and regulations prescribed by the Authority;
       2. For suilicicnl reason the contract may be readjusted at any
    time upon the request of the Authority or of the operator;
       3. Tin*. Authority may cancel the contract, reduce or increase the
    amount of subsidy and make changes in the sen-ice required;
       4. Contracts mav not be sold, assigned, or transferred, either di-
    rectij or jiulircctly or tin jugh reorganization, merger, etc., nor shall
    the maintc....nre, management, or operation of the service be per-
    formed by any other person without the written consent of the
    Authority;
       5. The use of articles, materials, and supplies grown, produced, or
    manufactured in (lie United States is required;
       6. Except with the written w.se.-it of and upon such conditions as
    may bo prescribed by the Authority, ?.o contractor, holding company,
    subsidiary, affiliate, etc., or any director, officer, executive, or agent
    thereof directly or indirectly shall perform or have any interest in
    stevedoring, terminal, ship repair, ship ch.tmllcr, towbont, wharfage,
    or kindred sen ices, und if the Aiithoril;. approves such operations tho
    profits shall be included with those of the ship operations, and any
    such oper;:t!oni> to bo carriod-o.i i-i the United States bliall be by tho
    contractor or its wholly owned subsidiary. Unless with the approval
    of the- Authority, interests in agents or brokers are prohibited, and
    likewise it is prohibited t<> own, charter, act as agent for or operate
    any foreign-ling vessel competing with foreign services-of the United
    States receiving benefits under .this part;
       7. Ownership of any mt«res.t whale or in tho. coastwise business is
    prohibited, except tint the Authority after public hearing, if it find
    thnt the public mtcrivst and convo:iie;»cc so require, may grant per-
    mission to engage in the coa.stwiso trade, if it does not cause unfair
    competition to any person operating e.vclu ively in the coastwise or
    inteivons-tal service. In order to prevent great'lnjustice, a provision
    similar to that in the Motor Carrier Act is inserted to protect those
    companies alreml> interested in the coastwise or intcrcoastal service;
       8. "When a contractor is in default, the Authority can supervise tho



                                        1260
20                  MERCHANT MARINE ACT,         193C

number nnd compensation of employees, and no salary in excess of
$25,000 may be paid, and in any case any sum for salary in excess of
§25,000 caiinct be allovvcd as ::ji expense.
   9.. The contractor is required to conduct Ins business in an eco-
nomical and efficient manner and maintain the Manning and wage
scales prescribed by the Government.
   10. The contractor is required to set tip from>earnings before pay-
ment of dividends, proper rescrv es for payment of any mortgage debt,
and for replacement cf the vessels and also .1 reasonable operating
reserve. The runoimt of such reserve funds is in caclrcasc prescribed
by the Authority. This requirement alone should prevent a recur-
rence of many unfortunate practices heretofore prevailing with some
companies, such as untimely payment of dividcmU, and depiction uf
funds necessary to meet mortgage indebtedness and current opi-.r.uing
expenses.
   11. Provision is made for' the recapture by the Government to the
extent of the operating subsidy of 50 percent of the pr ..'Its abov c
 10 percent, after the creation of the required reserves.
   Your committee thought it wise to insert this, provision although
the possibility of recapture to some extent destroys the "p.irit.v" or
equality of opportunity with the foreign competitor, no duiibt con-
 templated by the President in his message of March 193-0. No foreign
subsidizing nation, other th.m France, applies this theory, but France
shares losses as well, a proposition \ astly more desirable to the ship-
owner than our proposal, which contains no guarantee \\hatc\cr
against losses.
   Jn addition to the ;.^ove safeguards, evcrjone receiving, a subsidy
is icijiiircd to disclose the names of all persons in any \\u\, interested
in the business receiving the subsidy. Hooks, records, and accounts
must be kept in the form-prescribed by the Authority and such bal-
ance sheets, profit and loss statements, etc., as required must be filed.
The audit and examination of the books, records, and accounts of
the contractor and all subsidiary companies, etc., is also autliuri/.ed.
   The above restrictions which Imv e been referred to in some detail,
represent a compromise of viewpoint between those \\Iu> wish to make
these limitations even more stringent, and those \\lio feel that even
these compromise restrictions are too far-reaching. It is felt by ,\our
committee that the restrictions in the proposed hill most thoroughly
and.adequately protect. ii.c interests of the United States and will
prevent, to the extent that a law caii do so, the abuses and practices
wlich have given rise to'so much criticism.
   The alternative bill reported by the minority of your committee
summarily prohibits many of the ancillary ln'«iiH«» operations of
contractors. Your committee feels it is essential that decisions in
these mailers be left to the discretion of the Authority. S. -1110
imposes inflexible and unworkable limitations and restrict! jus upon
details of business management, with which (lie Authority has no
concern. In many ports the prohibitions the.v propose would bu
absolute, would have the effect of increasing the cost of .shipping
operations without any corresponding public advantage, and in some
instances are wholly unreasonable and impractical. Only bv way of
illustration: Why should a ship operate, bo absolutely prohibited
'                       MERCHANT MATtTXE ACT, 1936                          21

    from owning a tow boat, or from painting his ship, or doing ordinary
    running repairs while in port?
                           AMERICAN* SEAMEX PROTECTED

       In ordrr further to insure and protect American labor engaged in
    the slapping industry, your committee has inserted provisions giving
    the Department of Commerce the po\\er to prescribe manning and
    wj»gc scales upon every ship receiving an operating subsidy and to
    require that «11 officers ami crews of subsidized vessels shall be Ameri-
    can citizens, except on passenger vessels for A small percentage of the
    crew, to take care of the occasional necessity for foreign-language
    stewards, and for other unforeseen contingencies and c\cntualities.
    A provision calling for a continuous-discharge hook.or-scrvice record
    for seamen which is advocated by labor lias been inserted.
                       TITLE VI. CONSTRUCTION FUND
      This title abolishes the construction-loan fund and prohibits future
    loans under the 1020 net, as amended. This is in accord... «ce with
    the President's recommendation. In place of the con&truclioii-loan
    fund a construction fund uf §250,000,000 is crc.itcd in order to provide
    the funds required for carrying out the purposes of the act.
                      TITLE VTL TRANSFER or POWERS
       All the powers and duties heretofore \estcd in (lie United States
    Shipping Board and the Unite;! Suites, Shipping Board Merchant
    Fleet Corporation, arc transferred :to the Authority. The provision
    hercinabu\e indicated, authorizes the President after 2 years to tran.-.-
    for to the Interstate Commerce CoinmibMoii all of the powers of the
    Authority insofar as they relate to the regulation of rates in coastwise
    and intercoastnl commerce.
       This titlf also pro\idos for the creation of . joint transportation
    board to coordinate politics rcL.tiiig to rail and water trnflic. Like-
    wise it contains a limitation to prevent discrimination against the
    small ports of the United States.
                  TITLE VIII. ADMINISTRATIVE PROVISIONS
      This title contnhi-, the ncics&ary administrative pnnisions to carry
    out the purposes of the act.
                          TITLE IX. MISCELLANEOUS
       This title authorizes the appropriations required by the act; pro-
    vides for the requisition of \t.->scls during an.; national emergency
    declared !>> proclamation of the President or \\hcn jn the opinion of
    the President a national emergency it> imminent; specifies nationality
    requirement.-. for cre\\» of sul^idi/.ud \csscU; |>rovidcs for "uintinuous-
    discliargc liooki" for sotiinuii^ requires ar.nunl reports t-j the President
    ami to the C'oh^rcbs, and contains the other customary provisions with
    rcsncct to penalties, definition ., repeals, aupar.ibility, ufTcctivo date,
    amr title.


                                     1271
22                  MERCHANT MARINE ACT, 1936
                             CONCLUSIONS
   Summarizing briefly our merchant-marine problem, your committee
has concluded that it is a sound national economic policy to maintain
an adequate merchant marine in our foreign-carrying trade, under
private ownership and operation.
   We recognize the imperative need of placing American shipowners
on a parity .with their foreignT competitors, Ly equalizing the higher
cost of building ships in the L nitcd States and operating them under
American registry. Such higher cost is brought about by the higher
American wage standards.
   Your committee is cogni:.ant of the fact that American shipowners
and operators can obtain for themselves parity -with their foreign
competitors without Government financial assistance, by building
and registering their ships abroad. To permit this we should
consider an tiii ,ound national policy, since it would .prevent American
labor from participating in a business of pa-amount importance to
the Kjition us a whole.
   It is recognized that our American foreign trade must be protected
with adequate skipping services under thu American (Ing on the
trade routes of the world. These services must lie maintained with
regularity and frequency by ships comparable with the ships of other
countries. The maintenance of such sen ices, performs a twofold
purpose: It 'provides equal opportunity in the sale of American
products in (he markets of the world; it niakc£ available na\al and
military auxiliaries for national defense purposes. We cannot allord
to fail in both or cither of these purposes if we arc to rciuaia a Nation
of the first rank.
   Except for the periods during which our country has licen-in\ohcd
in war, it hns always been Ji; policy of the United States to have
its merchant marine operated by private citizens. The few lines
still operating for Government account would, drspite the depression,
probably have been disposed of to prnalc operators had not a change
from the in<!'rectto a direct form of Govenin.enl aid l.-reii anticipated.
   Since the Merchant Marine Act of 1920, the pri\a(e American
shipping industry lias cooperated with (he GovcrnmiMit in the pur-
chase and reconditioning of Governmcnt-ow neJ »csscL iiuj, thq build-
ing of new ones. It lias 'operated these vessels on routes deemed
essential in the promotion and expansion of our ioriigu trade.
   Inspired hy (he hope that (he merchant marine of the United
states was to bo privately owned and operated, the holders of ocean-
mail contracts, their subsidiaries, and r.jliliatos furnishing \essels for
operation on mail routes, htup imcatcd in the snipping iiuin.Mry over
a hundred million dollars. This is represented in \ C.-.M-IS, Moating
property, terminals, and equipment. In addition, (ln-M-. companies
are obligate! to the Government in loans, for no.\\ ci.iistrtiction and
reconditioning, in the amount of about §80,000,000.
   Of vital importance in the rehabilitation of the American merchant
marine is tho question of rapidly modernizing our foreign-trade (led.
To do this means embarking on an early, orderly, and adequate re-
placement program. I* is estimated that an investment of approxi-
mately $350,000,000 will be required to accomplish this. Thisliguro
docs not include the investment already imuluin tlu< ships built under
*                              MEBCHAXT MAHIXE ACT, 1936                                          23

    the act of 1928, 33 magnificent vessels which already serve as a
    nucleus for a well-balanced foreign-trade fleet.
       The cost of the ships comprising a modern competitive foreign-
    trade fleet nill total 500 million dollars. The expense to the Govern-
    ment in equalizing tho building and operating costs to place these
    ships on n parity .with their foreign competitors will range between
    25 'and 30 million dollars annually.
       The benefit to the Nation in equalizing such costs should not bo
    overlooked as it will result in large-scale-employ inent in our shipyards
    and related industries. In the operation of these ships 40 million
    dollars \\oidd be paid out annually for wages, repairs, subsistence,
    and insurance, which arc the chief factors in the higher cost of operat-
    ing American ships, fully IZ million dollar? of the annual subsidy
    would go toward paying wages to American crows.
       In hort, \\ hen the Go\ eninient equalizes the building and operating
    costs, enabling ships to be built in the United States and operated
    under the American flag, a total of 65 million dollars will be spent
    annually in building and operating American ships. Th's j,r gram
    will insure permanent employment for American labor, involving
    both the shipbuilding and shipping industries and their associated
    activities, reach:ng into c\cry State of the Union. It is the feeling of
    3'our committee that the objectives expressed by the President in his
    message of March 4, 1935, can be accomplished by the passage of
    S.3500.
       Because of the similarity of many of the pro\U>ions of S. 4110 with
    the so-called Moran hill, II. R. 7981, which was considered and re-
    jected by the House Commit tec on Merchant Marine and Fishcii<_>
    in the last action, the following communications arc pertinent:
                                                    DEPARTMENT OF COMMERCE,
                                                        OFFICE OF THE SECRETARY,
                                                        Washington, D. C., Jiiiic 14, 1035.
    Hon. S. O. BLAND, .
           Chairman, Committee on .1/erc/cjiif Marine ami Fisheries,
                                                House of llcprcsc.ilalhcs, Washington, D. C.
        MY DEAR Mil. CHAIRMAN. In ....«ir communication of June 3, 1035, you re-
     quested' the rvport aiiil ri<..'iuiiiuidatioi>a of tin. Department ^uiiocrniiig H.xR.
     TOSl.ftbill to further the dixckipniiutaud niaiiitiiinucc of uu adeq.iatc ami \\cll-
     balai.ccd Ainiriraii nu-rcl.aiit innriin., to pru\ide fur tlic M.par.itiun of the regu-
     latory functions of the Go . iiirin.iit ni,r Miippiiig fmiu tin; GiMrniiiicnt'sljiibLvsc.
     inturisiU in .-iiifii :tinl t>lii|i|'iiig, lu ruja-al ci...iiu fonu.r kgi.-Inluiii, ami fur uthcr
    •j>urposi!S.                                                                                  _
        Liiul<^-.I in a iiiLinorniiiliiiii from tl^ Director of the L'liitoil States Slitpping
     Boanl Hur^aii, this Department, in which I concur.
             Sincerely yours,
                                                                         DAXIF.I, C. ROPBH,
                                                                           Secretary of Cowmcrcc.

                                    TNMTKD STATES SIIIITINO BOARD HUREAU,
                                              DEPARTMENT or COMMERCE,
                                                           \\'a.ihtnylnn, D. C., J\nc 13, 1035.
    To: Secretary of Coiimirrrc.
    From: Diivctor, .•St>i|>]>ing Board Bureau.
    Subject: H. R. 70S1.
       H.v incmi>randi)iM dntfd .,iinc 7, 103"), this It.irt.iu ],m liecu rc(|uciUil to AinV
    mit to .MIII its rtcoiiiiiii i.ilations \\ith rr-.pfi*t t.i II. H. 70S1, a hill to further tho
    development 1 nini inaiiitt-iinnce of ,'ui ndn^iatt. an-1 Ucll-h.-ilniui'd Aiiii-ricnn nier-
    cfi.nt marine , to provide. fur the .-lipiirnliuu of tl.u nriulfitoo functions of tho



                                          1273
24                       MERCHANT MARINE ACT, 1930

 Government over shipping from the GoY«*r"meat's, luisinss interests in ships
 and shipping, to repeal-certain fonu<..- legislation, and for other purposes.
     Without entering upon a detailed nniu.v.-is of the pro-isioi.s of the bill, the
 Bureau desires to puint out that one of its primary purposes is to bring about
 Government ownership of American merchant vessels and their operation, cither
 by a Gu\erninent-owned corporation or by private American citizens on a charter
 basis. In considering the merits of the bill, the primary puint to be decided is
 whether the development and inaintenance of an adequate America-, merchant
 marine can beat be secured under publi'1 or under private ownership.
     This question h:u been carefully weighed by Congress on numerous occasions
 in the past. The Shipping Act of 191C permitted the sale of Go\ eminent tonnage
 fo private citizens, and the Merchant Marine Act of 1020 laid down the principle
 fiat the i.iercliant marine was "ultimately to be owned and operated privately
 Lv citizens of the United States", a national policv. which was confirmed and
 reaffinjicd by the Merchant Marine Act of 1928.
     The policy of pritatc ownership of merchant shipping has been subscribed ti»
 In all the Presidents of the United States who have occupied office since the
 Merchant Marine Act of 1920 became enacted into law. In a special message
 t j Congress, on March 4, 1935, tin, present Chief Incentive clearly indicated that
 he fa\orcd-a continuance of t'..v policy, the Government to furnish certain finan-
 cial aids in order to make private ownership and operation possible. The same
 principle haj been approved within the past few months by the Interdepart-
 mental Committee on Shipping Policv, and bv the Senate Committee on Com-
 merce in the bill (S. 25S2) reported to the Senate on May 13, 1935.
     Carrying out/ the national policy as enunciated in the Merchant Marine Acts
of 1920 and 192S, the United States Shipping Board and the Department of
Commerce liaxc beta working to dispose of the Government's merchant ships and
.•«.. vievsfv private citizens, with the result, that the great bulk of its active tonnage
has already pa.-v.cd into prhatc hands. Enactment of-H. R. 7981 would re\crso
thia v.cll-c"-.tablit.!icd policy, niido the work of years, and make necessary a.freJi
otnrt, predicated upon a new and strange philosophy as to the soundness or
ultimate success, of which we have no assurance.
    The Shi|.jj!ng IKiard Bureau recommmda tiia.t the Department place itself on
n-curd as opposed to the enactment of H. R. 79S1.
                                                             J. C. PEACOCK, Director.


                                                   POST OFFICE DEI-AKT.MEXT,
                                                  Washington, D. C., March 2, 1030.
Hon. ROYAT, S. Coi-F.i,.\xn,
         Chairman, { 'HIto/ Slala Senate Commerce Committee.
     DF.AU SI-.N.\TOII Cophi.A.M/ \\t- hand \on.herewith draft of a completed sliip-
subsuly liid. Our n-coiuni . .latioi.s are uinde onls after lung nud careful cim-
sidi ration by ri-prc'su.ln'i.rs of our depart nn.nts. In many instances the pro-
\iMiin-> h a v e bun agrti'tl upon by way of compromise, i-ach dtpartmeivt ha\ing
d i t i r g . nt \iev\sin MHII< rcspeets. Huwe\ir, ue ft el that if properly administered,
        bill IIIPW subinid.il fur your eoh.sidi riition will \vork out a very satisfactory
solution of the merchant-marine problems of the Nation.
     Ri-.MH'Ctfiillv submitted
                                                                •\V. W. lIow-KS,
                                                              Acting 'l-Taimimlrr General.
                                                                I)AN:V:I. C. ROI-KII,      ;
                                                                  Secretary of Commerce.




                                         1374
                      MINORITY YIETFS

   Mr. Guffcy, upon behalf of signatory n. Ambers of the Committee
on Commerce, subnfulcd the following minority views:
   The members uf the Committee on Conunerce subscribing this
report oppose the adoption of S. 3500 which has been favorably
reported to the Senate by the chairman of that committee.
   The bill repeats all the serious errors of policy contained Li previous
shipping legislation, upeiia the public pur»c c\cn wider than was
possible under existing law, and fails to present an adequate plan for
rehabilitating our merchant marine.
   In the President's message to the Congress, on March 4, 1935, ho
presented the question of "whether or not the United States should
have an adequate merchant marine." Believing, as we do, that, tho
Congress should, pass im appropriate measure, designed .to insure
athie\cmcnt of thi>' national need, we assert that the enactment 01 S.
3^00 would not accomplish what 'he President luia recommended
and what the people of this Nation have a right to expect.
   The bill, if enacted, would not result in the creation of a naval
au.Mliary of any coii^iqucncr, it \\oidd nut result in a fleet of modem
\esscls sufTuicnt to carry the greater purli -i of our commerce in a
national emergency. The only result of the measure would be tho
continuance of huge grants of public money to a private industry,
without the sciubLnce of any ? r uuraiity that tin money would produce
any substantial public benefit's The bill is framed \vholly in tho
intcu-st of pri\atc .-shipowner^ end shipbuilders, without any regard
for the interests of the tnxp'ivers.
   TiiC-o,\ce».-!v,. auuMiiics proposed in this bill, like the extravagant
allowance^ for m fan-mail pay in tl.c I92S act, place a premium upon
inflation of shipbuilding nwts in (his country without any corres-
ponding advantage to American labor.
   Xo limitation \\h.ite\rr i» j/laml upon the amount the new shipping
agency may spmd this year ui commit the Go\crnment to expend in
succeoding jcars. The national Budget ctinnul be balanced if Con-
gress issues "such blank checks on tin Treasury.
   The measure would purmit all the oiciin-niail contracts to bo con-
tinued i:i full forci- and ufTfi t for another your, although tho President
has told the Congress th.it those contracts have resulted in gra\e
abuses and should ho promptly terminated.
   The direc.t Mibsidios authorized by the propped ait would permit
the pmate shipping,itidustiy to obtain new \es>els on the tLin inxc.sl-
mcnt of only 12!j percent of their cost or upon no imcslinrr.l at nil of
now capital, if they luno an old \cssel to be traded back t«' the Gov-
ernment. In either event, the Go\eminent is to furnish seven-
eighths or nil the capital. Thi.s is prhalo u\\nersliip in name only.
   This measure, parades an intention "to .safeguard tho public interest
in the. administration of financial aid" (see. f>30, p. 128). This
laudable objocti\e is to he accomplished through a complicated
recapture, formula which may appear fair to the ciu'ial reader.
                                                                   26
26                    MERCHANT MARINE ACT,             1930

   Apparently, the subsidized operator is to be limited to a profit of
 10 percent prr annum and then must share one-half of any remaining
profits with the Government.
   Actual!}, the accounting formula permits the operator to charge a
double depreciation before determining the profit* subject to recap?
lure. The operator \\ould be permitted to pile up huge reserves for
himself, made possible by excessive subsidies, \\itli but slim chance
for Government recoupment of a single dime.
   Such pro\ision for safeguarding the public interest is but a d c i » j -
tive gesture, illusory and without substame. It K .1 mere sham.
   The theory of this bill it- that llr igh fat subsidies the private
shipping industry may be cajoled "                   ing something for the Nation
that they have failed to do in UK                  i: that is, build the necessary
replacement \ easels to rehnhilituu ...r lining merchant fleet. But
even with the tax pnjcrs at large furnishing most of the money, it
would still be necessary for the,\in?-f .te owneisto supph tome new
capital.
   Shipping experts ha\ e testified that within tin 1 nextV jc«r&\\c must
have approximately 200 new \essel.-, to>tii:g $:].")U,6cn,o60, to take the
place of the \cs-uU now rapidh approaching the strapping sl.-igc.
   E\cn tliough sf\ en-eighths of the money \\i-re furui.-hed by the
Government, «.- thi» bih' prupo>c», tlio pri\ate owners would \>a
required to find S13,7.jO,000 of new cupitiil. The n> t current assets
of all the ocean-mail contract companies axcu|jt!n<: i.-mv are rupurled
to bo about one-tenth of the sum required. Where would they
obtain the balance?
   I'nder the mail sii'/sid} system, onh 30 new \i-s.-cl.-< were i>ruduccd
in 7 3 cars, but *..e need that in:iii\ neu .ships e\ery ^ear to rcplaic the
S'Liw and now obsolete craft \\e hurricdh Luili vlnriiig the emergency
of war.
   rndercapitali/.eil, without adequate ca.-h resent-*, with no free
asstta to support bund isstu-s, the sliipjiing industry , taken as a whole,
might be able to build u few ships wiih the liberal go\ eminent aid
proposed ->in this bill, hut this will not meet the situation.
   lint S. "jOO prouiks no pi.in for rcestablMiing mn na-rchant mariiic,
if pritalc i n i t i a t i \ i is unable to niipply the need. There is no pro\i-
sion for a lonp-ranpe plan, in fact, for any ]>lan. The haphn..ard
building of tin; past ma\ hi repeated, uitho.ut.rcgard-io tin ni^i-ssilius
of national defense.
   Itncv.es*uril.\ folltius, that if the Anie.rtc^ n people are tu ha\e "shins
in keeping w i t h our natioiud piide and national ncul", as (In Pic-ident
iias rccominendud, tlii'\ u i l l nut be produced through (he n u d i u i n of
S. 3.")00. Therefore, wo -recommend against its passage.
                                                        JGSKPII l'.-'GiTKKi:v.
                                                         BKXNKTTC. CI.AHK.
                                                         HATTIK W. CARAWAY.
                                                         Louis MrupiiY.
                                                         FKAXCIS MAI.ONKY.
                                                         Vie- DOXAIIKY.
                                                         N. L. TiAriiMAX.
                                                        •15. W. GIIISON.
                                                        TIIKO. G. lJtt.no.
                                                        GI:KAI.I> P. XYK. .
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