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Ship Operators and Owners Association, Inc., to chairman.-
Spencer, Lyndon, vice president, Lake Carriers Association to
chairman, January 25, 1949...

Page

Lundeberg, Harry, Secretary-Treasurer, Sailors Union of the
Pacific to chairman, January 26, 1949-

134

258

135

Text of-

House Joint Resolution 92_.

20

H. R. 1340..

1

SALE, CHARTER, AND OPERATION OF VESSELS

TUESDAY, JANUARY 25, 1949

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE MERCHANT MARINE AND FISHERIES,

Washington, D. C.

The committee met at 10:30 a. m., the Honorable Schuyler Otis Bland (chairman) presiding.

The CHAIRMAN. We have before us first for consideration this morning H. R. 1340, which is especially important.

(The text of H. R. 1340 follows:)

[H. R. 1340, 81st Cong., 1st sess.]

A BILL To provide for United States flag shipping participation in Government-financed cargoes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) notwithstanding any other provisions of law, except the provisions of the Act of April 28, 1904 (33 Stat. 518), whenever the United States Government, or any department, agency, or instrumentality thereof, procures, or makes any loans, grants-in-aid, or provides credits or funds for the procurement of any commodities for transportation by water, at least 50 percent of the gross tonnage of such commodities, computed by countries,and separately for dry bulk carriers, dry cargo liner and tanker services, shall be transported on United States flag vessels at market rates for United States flag vessels, unless the United States Maritime Commission, after investigation, shall certify to the department, agency, or instrumentality of the Government charged with the administration of the laws under which such funds are made available with which the commodities are procured, that United States flag vessels are not available in sufficient numbers or at market rates for United States flag vessels to effectuate the purposes of this section. No recipient of commodities of the character described in this section shall be entitled to reimbursement for expenditures already made unless at least 50 per centum of any cargo to be paid for thereby shall have been tranported in United States flag vessels as herein provided.

(b) All Federal departments and agencies are hereby authorized and directed to cooperate with the Commission by entering into and carrying out such agreements as may be necessary to effectuate the purposes of this section: Provided, That the Commission is authorized and directed to report to the Congress within ninety days after the enactment of this section, and every four months thereafter the action taken hereunder and to give the names of any Federal departments or agencies or any other persons who have failed to cooperate with the Commission as herein directed. The records of the departments, agencies, or instrumentalities charged with the administration of such laws shall be available for public inspection at reasonable hours insofar as such records relate to the transportation of commodities as herein provided.

The CHAIRMAN. Our first witness is Mr. Frazer Bailey, president of the National Federation of American Shipping, Inc.

Mr. Paul G. Hoffman, Administrator of the Economic Cooperation Administration, could not be here, but his representatives, Mr. Wadsworth and some other gentleman, are here to follow the testimony.

1

STATEMENT OF FRAZER A. BAILEY, PRESIDENT, NATIONAL FEDERATION OF AMERICAN SHIPPING, INC.

Mr. BAILEY. Mr. Chairman and gentlemen of the committee, my name is Frazer A. Bailey. I am president of the National Federation of American Shipping, Inc., an organization representing the owners of more than two-thirds of the active dry-cargo merchant vessels under the American flag.

I am appearing before your committee in support of bill H. R. 1340 now under consideration. The purpose of this bill is to provide for United States flag shipping participation in Government-financed

cargoes.

We very much appreciate the opportunity which your committee has afforded us to appear before you, and to state our views concerning the provisions of this proposed bill. It contains very important provisions, and it should be enacted.

When Congress enacted the Foreign Assistance Act of 1948 it provided in section 111 (a) thereof that—

The Administrator shall in providing for the procurement of commodities under authority of this title, take such steps as may be necessary to assure, so far as is practicable, that at least fifty per centum of the gross tonnage of commodities procured within the United States out of funds made available under this title and transported abroad on ocean vessels is so transported on United States flag vessels to the extent such vessels are available at market rates.

In passing this act it is our belief that Congress intended that at least 50 percent of such traffic should be so transported on United States vessels at market rates for United States vessels. The sponsors of this provision in both the Senate and the House have stated such was their understanding, and we believe it to have been the understanding of a very large majority of the Members of Congress when they voted its approval. We were greatly surprised and concerned to learn subsequently that, based upon an opinion from the general counsel of the ECA, the Administrator of that organization proposed to interpret this provision so as to limit it with respect to bulk cargoes to instances where United States flag ships are available at worldwide competitive tramp rates.

When the Congress enacted the Foreign Assistance Act of 1948, it had before it large amounts of dependable data concerning the higher operating costs of American ships. Without burdening this committee as to the proof of this statement, may I refer you to an article on the Herter committee preliminary report No. 17 of February 17, 1948, pages 22 to 44, and also the speech of former Congressman Willis Bradley, on the Funeral of the American Merchant Marine, contained in the Congressional Record of January 13, 1948, on pages 144-145. May I also add that this federation issued public releases giving substantial data and information to the effect that, on account-among other things of the higher wages paid to crews, and the American standards of living prevailing upon United States ships, the aggregate operating costs of such vessels must necessarily be higher than those of comparable foreign ships. This fact is the foundation of the policy justifying operating differential subsidies under the Merchant Marine Act of 1936 which was largely formulated under the leadership of the distinguished chairman of this committee.

It would be strange indeed for Congress to mandate the carrying of at least 50 percent of ECA cargoes of the character described, at world-wide competitive tramp rates, which could only result in heavy financial losses to the American-flag ships.

In view of the opinion rendered to the Administrator by his general counsel, we can appreciate his desire that Congress should clarify this provision so that there might be no question as to his administering the act in accordance with the desires of Congress, and that he in no manner exceed his authority thereunder. In our opinion, bill H. R. 1340 amply clarifies such congressional intent and will, we believe, completely satisfy the expressed wish of the Administrator for an unmistakable declaration.

We believe the Administrator was also motivated by a desire to administer the act in the most efficient and economical manner, and in this connection a very substantial amount of misunderstanding has arisen concerning the financial effect of the higher ocean freight rates paid to American ships. Unfortunately, in his letter of December 3, addressed to the Joint Committee on Foreign Economic Cooperation of the Senate (frequently referred to as the Watchdog Committee), the Administrator made the statement that "this differential has been as much as $4.50 per ton in the case of coal shipments to France."

In such a comparison, the Administrator used the maximum rather than the typical. There was a short period in the early fall when ship capacities substantially exceeded cargo offerings, and in such a buyers' market the owners of foreign ships obviously preferred to carry these cargoes at somewhat less than cost in preference to substantial delays or returning ships home in ballast. Since that time, foreign tramp rates have advanced until the differential is now only slightly in excess of $2 per ton and more nearly in conformity with the differential in operating costs. We believe that any such cost differential based upon comparable ocean freight rates should be considered upon a national basis; i. e., what is the additional cost to the United States?

Against any additional cost to ECA would have to be credited the basic and additional charter hire paid by American ship operators to the Maritime Commission, corporate income taxes resulting from this operation, and income taxes of the crews, which items in the aggregate will amount to some $2.30 per ton of coal carried (using France, the heavy coal consumer, as a basis). Even these figures do not take into account additional expenses to which the United States would be subjected, such as unemployment insurance, social-security costs, and so forth. It is, therefore, our contention that, in the aggregate and on a national basis, there is actually no additional cost to the United States in allowing our own vessels to participate in the carriage of this traffic on the provided basis.

There is also the very practical consideration that, if it were not for the availability of American ships to transport these bulk cargoes, the rates offered by foreign ships for such purpose would in all probability equal, if not exceed, the market rates for United States ships. When we consider the subject on a national basis, crediting payments to the Commission for charter hire and income and other taxes accruing to the Treasury from such operation, there appears to be no doubt as to the most desirable procedure.

Entirely apart from the legal and economic phases, we suggest that the right of American shipping to participate in the carriage of these cargoes to the extent of at least 50 percent thereof is the minimum consideration which can be afforded this important industry. To suggest that it should perform these services at a rate level comparable with low-wage foreign competition would be a great injustice. We hear no suggestion that the producers of other commodities should be required to similarly adjust their prices. Every other industry supplying commodities or services is receiving the full American price. This includes wheat at the guaranteed Government price level, coal, and freight charges to the railroads to bring these commodities to seaboard. Until other industries supplying commodities or services to the ECA program reduce their prices to approximately foreign production-cost levels, we see no justification for this discrimination against American shipping.

We must, of course, bear in mind that the subject matter we are discussing and that provided under H. R. 1340 relates exclusively to commodities procured by Government loans, grants-in-aid, or credits. To a substantial degree, and particularly with reference to the ECA program, these amount to a bestowal of our generosity. It appears strange to us that the recipients are contending concerning the manner of delivery of this bounty.

H. R. 1340 also provides for enforcement of the 50-percent provision treatment to United States flag ships when the commodities so transported result from any loans, grants-in-aid, credits, or funds accruing to any governmental department, agency, or instrumentality thereof. It does not restrict this participation to exports from continental United States alone; it applies equally to imports resulting from such funds and to such commodities wherever ocean transportation is involved and where United States flag vessels are available. We also support this provision in H. R. 1340, and we believe it to be in accord with the wishes of the Congress and of the people of the United States.

To this distinguished committee, it is unnecessary to point out the vital importance of the American merchant marine to transport our commerce and to aid our national defense. Many more authoritative persons have appeared before you, and the record is complete. We would like at this time, however, to mention a statement by the chairman of the Senate Committee on Commerce, who recently pointed out the inconsistency of expending approximately $15,000,000,000 per year upon national defense while at the same time, under the contention of a minor economy, opposing or weakening one of the very important elements of national defense: the American merchant marine.

H. R. 1340 also provides for enforcement of the 50 percent provision separately by countries and by different types of carriers. This is an important provision, so that any recipient nation may not contend that, inasmuch as some other country may perhaps be shipping more than 50 percent by American ships, they are entitled to ship less than this amount. Under this contention, certain of the recipient nations have in the past given American ships almost no business whatsoever. I may say that one of the important countries has given American ships. slightly more than 5 percent of the business. It is also important that

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