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extent of United States assistance in rehabilitating the merchant fleets of ECA nations through sale of Government war-built vessels at low prices, enabling foreign nations competing with the United States in shipping to place their fleets in competitive operation rapidly and under conditions of competition which involve continued detriment to the American shipping industry. There is no doubt that if the proposed ECA policy of using foreign-flag vessels to carry bulk cargoes is carried out, it will, in effect, wipe out operation of an American tramp fleet. This proposed policy means the elimination of American ships, seamen, operators, and shore establishments which are essential to a balanced American merchant marine commensurate with the needs of the United States and adequate for its national security. The lesson of two World Wars with respect to the shipping industry is a mandate to avoid in the future the extraordinary expense and the dangerous delays of building a merchant marine in time of war or national danger.

The Commission approves of the objectives of the bill, and recommends its favorable consideration by your committee.

This report is being transmitted to you without the advice of the Director, Bureau of the Budget. Under the circumstances, nothing contained in this report is to be construed as an indication of the relation of the proposed legislation to the program of the President. When the comments of the Bureau of the Budget are received, they will be transmitted to you.

Sincerely yours,

W. W. SMITH, Chairman.

Mr. Chairman, I would like permission to read into the record a letter dated July 16, 1948, from Mr. Charles E. Dewey, agent general of the committee of the House and Senate, which is known, I believe, as the Watch Dog Committee on this ECA program. It is addressed to Mr. Paul G. Hoffman, Administrator, Economic Cooperation Administration:

DEAR PAUL: Recently, in consequence of several conferences with members of the United States Maritime Commission, some of the difficulties of interpretation of section 111 (a) (2) of Public Law 472 have been brought to my attention. However, I believe that the legislative history of the act is such as to establish a clear congressional intent to assure that at least 50 percent of the gross tonnage of commodities procured in the United States be transported abroad on United States flag vessels.

While the cost of operating United States flag vessels is generally recognized as higher than that of foreign flag vessels, the adoption of a market rate determined by the world rate would preclude the attainment of objectives sought to be accomplished by this provision. It must be assumed that in providing this protection for United States flag vessels the Congress was aware of this price differential between United States flag and nonflag vessels.

It would appear from conversations that in determining the proceedings essential in achieving a workable solution to section 111 (a) (2) the following points require careful attention:

1. At present large numbers of United States maritime chartered vessels are being returned to the Commission for the lack of cargo and the nonprofit rate offered. The rate at which these vessels are being returned indicates that the cargo supply may soon reach a point where the present available United States flag ships will not be in such force as to provide capacity for 50 percent total gross tonnage envisioned by the act.

2. There are not sufficient United States flag privately owned vessels to move 50 percent of the gross tonnage, therefore requiring continued bare-boat charters by the Maritime Commission.

3. National security depends to a degree upon an available maritime industry. Therefore, one of the objectives of section 111 (a) (2) was to provide by this provision maximum employment in this industry. This accomplishment necessarily requires the operation of a maximum practicable number of United States flag ships.

4. It is evident, in view of the world supply of cargo space, that as the United States cargo space is diminished, the rate for foreign cargo space will be in creased, with the end result that the total transportation cost of this progra may increase to an amount in excess of the amount that would be necessary even

though the 50-percent tonnage shipped on United States vessels were provided at a rate higher than that prevailing for foreign-flag vessels.

I am sure you will find the facilities of the Maritime Commission availab to you to the fullest extent in resolving these problems so that the protection intended for the United States flag vessels may be provided and at the same time rates established so as to protect to the greatest extent possible the expenditures of American dollars.

Your general counsel has taken the position that the 50-percent requiremen covers China as well as the European participating nations and that it will be satisfied if the 50 percent is made up of the total shipments to Europe and China. This is not our view of the matter. Agreeing that China should be included by reference from section 403 of title IV of Public Law 472, it is our opinion that Europe and China must be treated separately, and that 50 percent of the total tonnage of shipments to Europe and 50 percent of those to China must each be transported on United States flag vessels.

Sincerely yours,

CHARLES E. DEWEY, Agent General.

I would like to state, Mr. Chairman, that this ECA program is very closely related to House Joint Resolution No. 92, on the extension of the sale, charter, and operation of vessels by the Maritime Commission, because there are not at the present time, as brought out, enough privately owned ships to carry 50 percent at the present time, and with our authority expiring on the 28th of February, operators are reluctant to charter from us more ships, because they have to pay the cost of taking the ship out of lay-up. Ships must be preserved, and they are preserved, and the cost of taking them out of lay-up is considerable, and they would have only one voyage and cannot get their money back. It is very important that it be determined whether or not our chartering authority is going to be extended beyond February 28 of this year.

The CHAIRMAN. That is the reason the two bills have been set for hearing at this time.

Does that conclude your statement?

Admiral SMITH. Yes, sir.

Mr. Chairman, I will state that if great detail is required, we have designated Commissioner Mellen, who, from the inception, from the time this ECA Act was put into effect, has been in liaison, by direction of the Commission, with the ECA, and he has been abroad and studied the matter from both ends.

The CHAIRMAN. He will be called next.

Are there any questions?

Mr. Weichel?

Mr. WEICHEL. No, sir.

The CHAIRMAN. Mr. Hart?

Mr. HART. No questions.

The CHAIRMAN. Gentlemen, I am not going to go through the routine of asking each man. If any member of the committee present wants to ask any question, if he will just hold up his hand I will recognize him.

Mr. Boykin?

Mr. BOYKIN. Admiral Smith, do you have enough vessels to charter, enough laid up all over the country, to haul the entire 100 percent of these ECA shipments?

Admiral SMITH. Yes, sir; we do.

Mr. BOYKIN. We own them and paid for them?
Admiral SMITH. Yes, sir.

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I would like to say this in answer to a question asked of Mr. Bailey about the 50 percent. I believe one argument in favor of that in the past several years was that if we carried 100 percent, each country would carry 100 percent of its cargoes, and each nation would have its ships going one way in full load and going back in ballast, including ourselves, and with a 50-percent rate they will get cargo both ways. I believe that was part of the argument.

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The CHAIRMAN. Are there any further questions? If I omit anybody just call my attention to it.

Thank you very much.
All right, Mr. Mellen.

Will you take the stand?

STATEMENT OF HON. GRENVILLE MELLEN, MEMBER, UNITED STATES MARITIME COMMISSION

Commissioner MELLEN. Mr. Chairman and members of the committee, I think that Mr. Bailey made a splendid presentation. There are two points that I would like to indicate, however, in additional fortification to his recitation.

First, no one in the ECA can possibly know that it would cost the United States Government, or the taxpayers, any more at all if all of this cargo were assigned to American flag ships. At best it is nothing but a speculative concept. The presence of American flag ships in this trade has been a most stabilizing influence. The important point is that even if rates tendered by foreign flag ships have been lower than the rates tendered by American flag ships, in major part it has been due to the presence of the American flag ships. and therefore you must tie together the tonnage moved at the lower foreign flag rates with the tonnage moved on what they would recite to be the higher American flag rates in order to get a weighted average rate for the total number of tons moved.

It is my contention that if the American flag ships were removed by an edict from the ECA it would cost the American taxpayers more money, all of which would be paid to foreign flag ships, however, because the ratio of the demand for space, the space being a constant quantity, would force the rates higher on foreign flag ships.

man.

It has already been manifest since the announcement by Mr. HoffEven the potentiality of the removal of the American-flag ships has caused the foreign rates to rise some $2 or $2. 25 at least per ton, with particular reference to coal movements to France, inasmuch as that has been the type of cargo indicated in the letter signed by Mr. Howard Bruce, the Deputy Administrator, in his letter dated, I think, September 13.

In that letter, Mr. Howard Bruce's letter of September 13, he indicates a difference of $4. 50 a ton. That is a very misleading statement. It is possible that on one or two shiploads, or maybe two or three shiploads, there was that difference. But in relation to the weighted average of the over-all cost, there is no such difference. There has never been any such difference.

In the last 2 months the rates on foreign flag ships in the movement of coal from the United States have risen, as I recited a moment ago, between $2 and $2. 25 a ton. Now remove the American flag ships, and I think I can conclusively show that the rates that the foreign flag

ships would charge would be higher than the American rates today. And therefore the over-all cost to the ECA would be higher-higher, not lower-if the American flag ships were removed, because they would be higher than the presently prevailing and the recently prevailing weighted average rates.

So let's be factual about it. I am well aware that the ECA is under pressure from a great many interests that are world wide. Perhaps they have some international economists and what have you among their advisers that tell them these things. But the facts do not sustain them. Therefore it is my contention that if the American flag ships are removed from this category, the rates will be higher and therefore the cost of the American citizens will be greater, not less.

I just add that in supplement to what Mr. Bailey stated in his recitation.

The CHAIRMAN. Does that conclude your statement?
Commissioner MELLEN. Yes, sir.

Senator MAGNUSON. Mr. Commissioner, there is also an intangible feature to this, too. The removal of American-flag ships from this program would have a very bad psychological effect, would it not, upon the whole program?

Commissioner MELLEN. There is no question about it, Mr. Senator. The point there is that I just wanted to add this in supplement to what Mr. Bailey said, and not to burden the record too heavily at this time, unless the members of the committee wish to ask me additional questions for amplification.

We do know that it has its effect with respect to national defense. We do know that it is rather incongruous to say the least that all of the American taxpayers are called upon to pay taxes to this Government, that Congress appropriates to the ECA to buy goods in this country, to have them transported on American railroads, and then to have it stop at the water front when it comes to the great American merchant marine and say, "Oh, now wait a minute. It is 100 percent to everybody else, but only 50 percent to the American merchant marine."

Now, the question has arisen, why it has been limited to 50 percent. Congress did that. We did not do it. But I say to you, in all fairness, in sound economics, there is no one that can gainsay what I recite here, and I believe that the intimate advisers of Mr. Hoffman know well whereof I speak.

I did not just go at this thing in a theoretical way. I took pains to go to Europe.

Mr. BOYKIN. Did you ever talk to Mr. Hoffman about it?

Commissioner MELLEN. By a strange coincidence I was on the same plane with Mr. Hoffman when I went to Europe in October. I say it was by a strange coincidence. I had two nice talks with Mr. Hoffman. I think he is a wonderful man and a wonderful American. But he has so much to do he must rely on others to give him advice on this, that, and the other topic.

I think Mr. Howard Bruce is a wonderful man. He, too, relies on the advice given to him by others. I say it is erroneous advice.

When you add to the fact that in my opinion it would cost the American taxpayers more money in the absence of the American-flag ships, add to that fact the recitation that Mr. Bailey reveals about this $2.30 a ton that the United States Government gets back under differ

ent items, such as charter hire to the Maritime Commission and through the Maritime Commission to the United States Treasury, in addition to taxes and social security that he has recited, if you add that to it, with the additional cost in my opinion that would result from the absence of American-flag ships, I think it would cost the American taxpayers, directly and indirectly, more nearly this $4 a ton that Mr. Howard Bruce stated in his letter, but in a reverse fashion.

Senator MAGNUSON. If the shoe was on the other foot, and England and France and the Scandinavian countries were giving us money for our recovery, what proportion of the cargo do you think they would let us haul?

Commissioner MELLEN. Just as little as possible, as little as they could possibly get away with. We are using our money for credits, grants-in-aid, and what have you, to do this thing, in terms of billions of dollars, yet someone comes along and grudgingly says, "Oh, my Lord, it's terrible. Don't pay the American merchant marine this handful of dollars. Bake all these loaves of bread throughout the Nation and spread them to the high seas of the world, but don't let the American merchant marine get even the crumbs that fall off the table."

I think it is deplorable.

The Chairman. Mr. Weichel?

Mr. WEICHEL. In discussing this matter with Mr. Hoffman concerning the free gifts to Europe, is it his contention that the Europeans are too poor to haul their own gifts home?

Commissioner MELLEN. I did not discuss that feature of it with Mr. Hoffman, Mr. Weichel.

Mr. WEICHEL. That is the next question, then. If they cannot afford, or are too poor to haul the gifts home, and we have to transport the gifts, I do not see any reason why we should pay them for transporting their own gifts. I think we should transport them in American ships.

Commissioner MELLEN. I quite agree with you.

Mr. WEICHEL. Did you ever discuss that with Mr. Hoffman? Commissioner MELLEN. No, sir; but I did discuss it with Mr. Howard Bruce.

Mr. WEICHEL. What does Bruce say about it?

Commissioner MELLEN. He said he had to go by their interpretation of the congressional act. It is my view that if you do this thing properly, what we are going to do, since we are going to tax the American taxpayers to raise this money for Congress to appropriate to the ECA, to have these goods delivered to the four corners of the world, we should complete the job. If we produce it in this country, so far as that which comes from the United States, and transport it in this country, merchandise it in this country, let's complete the job. Let's deliver it to foreign ports on American ships-all of it. That would be a proper thing to do.

But we bow to the will of Congress. They recited 50 percent, and it was very saddening to me when I learned that the general counsel of the ECA sought to write words into the act that are not there.

Mr. WEICHEL. Mr. Commissioner, with reference to Europeans hauling their own gifts, they are not hauling their own gifts free. We are paying them for hauling their own gifts.

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