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in fairness and equity to all parties, the bulk carriers receive their proper proportion of this business, and the liner berth services their proper proportion.

At a recent meeting with members of industry and labor, the administrator of the European recovery program suggested the possibility of separate funds, or a separate appropriation to cover the extra cost of transporting not less than 50 percent of ECA cargoes in United States ships at market rates for United States vessels. He stated his purpose was not to intermingle such costs with the cost of European recovery. It has previously been suggested by ECA officials-and I may say that this morning's paper quotes Mr. Hoffman as still holding to this view-that such additional ocean transportation costs represent_additional subsidy to American shipping rather than a part of the European recovery program. If such a suggestion is offered, the shipowners represented by the federation are opposed to any division of accounts or separate funding which has the effect of creating the false impression that the transportation of not less than 50 percent of such cargoes in United States ships at market rates constitutes an additional shipping subsidy. We have already pointed out that, upon a fair accounting basis and certainly on a national basis, no additional cost results.

We submit that the participation of United States ships in the European recovery program on the basis stated is no more an additional subsidy to American shipping than is the higher American cost paid. to other American industries for commodities or services over and above the price level therefor at a European or world market level based upon the use of cheap labor and low living standards. Unless such a philosophy is adopted as to all other American industries furnishing commodities and services to the ECA program, we very strongly protest against such discriminatory treatment of United States ships, and the creation of a false public impression that an American industry, rather than the Marshall-plan nations, is the recipient of substantial portions of the funds appropriated for European recovery.

We support H. R. 1340, and urge favorable action by your committee. Thank you.

The CHAIRMAN. We have with us today Senator Magnuson, and in inviting him I stated that the Senate committee would be permitted to ask questions.

Do you desire to ask questions?

STATEMENT OF HON. WARREN G. MAGNUSON, UNITED STATES SENATOR FROM WASHINGTON

Senator MAGNUSON. I thank you, Mr. Chairman.

I might state for the record that my purpose in being here is that we might expedite the passage of this legislation and not have hearings in the Senate, so that we can get at this matter quickly.

At that meeting with Mr. Hoffman, he indicated to us at that time that, because of world conditions, he would withhold his order for probably another 60 days after February 1; so it is vitally important, if we favor this legislation, that we get it done quickly, before another order comes out of ECA.

I have no questions to ask Mr. Bailey. I think he presented the matter very well. It was unfortunate that the wording of the amendment caused this confusion, because at the time-I know in the Senate we thought it was clear. As a matter of fact, we thought 50 percent was too little; that it should be 75 or 80 percent.

Mr. BOYKIN. It should be 100 percent.

Senator MAGNUSON. There was a compromise even then on this matter; so we are clear over there in the Senate committee as to what we meant, and we hope to clear this matter up quickly.

I want to compliment the chairman on his resolution. I am submitting the same in the Senate, so it will cover this matter for all Government departments once and for all, and there will be no question about it; because, if we don't do this, the American flag is fast going off the seas.

The CHAIRMAN. The purpose of the hearing is to expedite matters as much as possible; and for the reason that correlated with the same problem is the question of chartering ships, on which another resolution has been introduced, Mr. Bailey will address himself to that later.

Mr. Weichel?

Mr. WEICHEL. No questions. I agree with the Senator. The intention was that it should be all in American bottoms. That was the intention from the beginning right down to now.

The CHAIRMAN. Mr. Hart?

Mr. HART. No questions, except a statement to support Senator Magnuson. It is my view that the Congress was under no mistake as to what its intention was, and its intention is in accordance with H. R. 1340.

The CHAIRMAN. Mr. Hand?

Mr. HAND. I am curious, Mr. Bailey, to find out how you arrived at the figure I think you mentioned, of $2.30 a ton, which could be offset against the higher cost as a result of the additional income-tax return and other factors that you then mentioned. That seems to me to be a rather complicated thing, and I don't know how you arrived at it.

I might suggest to you, in the first place, it doesn't make any difference to me what your answer is, because I am for the bill; but I would like to know how you arrived at it.

Mr. BAILEY. Under the circumstances, sir, I will be very brief.

We made some actual computations of actual charter hire paid by the companies and related it to the tonnage of coal carried and the taxes paid by particular companies for corporate taxes on income and other corporate taxes, and it worked out in instances running all the way from about $2.20 up to $2.40, and we used about $2.30 as somewhat of an average; that is, the income from taxes and the payments of charter hire which the Commission actually received in particular instances.

Mr. HAND. Later you made a statement that in reality no additional cost would be involved. Is that your view?

Mr. BAILEY. We say no additional cost would result, sir; and we feel confident of it because, if we did not have this provision no American ships would be available. If no American ships were available, foreign rates would increase more than an amount which would be

offset by the $2.30. We think they probably would be equal to about what the American rate is today, if there were no American ships available to compete for part of the business.

Mr. HAND. Thank you.

Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Bonner? [Absent.]
Mr. Latham?

Mr. LATHAM. No questions.

The CHAIRMAN. Mr. O'Toole?

Mr. O'TOOLE. I heartily approve of the resolution. I am very happy the committee has taken such speedy action on it. I hope it is reported out and soon comes before the House..

The CHAIRMAN. Mr. Tollefson?

Mr. TOLLEFSON. I, too, support the resolution. I have no questions. The CHAIRMAN. Mr. Thompson?

Mr. THOMPSON. No questions.

The CHAIRMAN. Mr. Allen?

Mr. ALLEN. What countries have given the American ships 5 percent or less of the cargoes handled?

Mr. BAILEY. It is a fraction over 5 percent, Mr. Allen, in the case of Denmark, according to figures we have, which we received from the ECA.

Mr. ALLEN. Any others?

Mr. BAILEY. No, the others are all higher, but there are some that are relatively small.

Mr. ALLEN. Who are the American officials responsible for the interpretation with regard to Denmark, Mr. Bailey?

Mr. BAILEY. The source of the figures?

Mr. ALLEN. No, the interpretation that permits only 5 percent to be handled by American ships.

Mr. BAILEY. I think that the law, Mr. Allen, to be fair about it, is that in the aggregate to these Marshall plan nations it must be 50 percent. It does not, in the present instance, divide it between different countries, so that if in the aggregate 50 percent were shipped, it would fill the requirements of the act. We are putting in an amendment that it must be accounted for by individual countries, so as to overcome the conditions mentioned.

The CHAIRMAN. Mr. Boykin?

Mr. BOYKIN. No questions. I think Mr. Bailey made a wonderful statement. I think it was very clear. I only wish it was 100 percent instead of 50 that we were going to ship in our bottoms, because we have a lot of ships tied up in our country. I want to vote for it as soon as I can.

The CHAIRMAN. Mr. Miller?

Mr. MILLER. I favor it, Mr. Chairman. I have no questions.

The CHAIRMAN. Mr. Garmatz?

Mr. GARMATZ. Mr. Chairman, I am very much in favor of this bill, but I have no questions at this particular time.

The CHAIRMAN. Mr. Potter?

Mr. POTTER. No questions.

The CHAIRMAN. Mr. Wickersham?

Mr. WICKERSHAM. Mr. Chairman, I would just like to say that I think Mr. Bailey has presented the matter very fairly, and since Amer

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ican shipping interests certainly pay a considerable portion of the ECA appropriations, I think the bill is very fair.

The CHAIRMAN. Mr. Lichtenwalter?

Mr. LICHTENWALTER. No questions, Mr. Chairman.
The CHAIRMAN. Mr. Barrett?

Mr. BARRETT. No questions, Mr. Chairman. I am in favor of the bill.

The CHAIRMAN. Mr. Jonas? [Absent.]

Mr. Hare?

Mr. HARE. No questions, Mr. Chairman.

The CHAIRMAN. Mr. Nelson?

Mr. NELSON. As a new member of the committee, I would like to find out why it is limited to 50 percent.

Mr. BAILEY. Perhaps we are too modest, Mr. Nelson.

Mr. NELSON. That is your estimate of what the American merchant marine can carry?

Mr. BAILEY. No, the American merchant marine could carry more of it, but in the first instance it was somewhat agreed that if we got 50 percent participation we would be content. Maybe we are too modest about it, but we said we would be content if we got 50 percent of all the cargoes financed by Government-aid programs in both directions.

The CHAIRMAN. Mr. Bennett?

Mr. BENNETT. I favor the bill as presented, but I would like to ask a question if it has not already been brought out. I do not believe it has. That is, what the difference would be on the basis of our last year's experience, or on the basis of the estimated future year's experience, as to how much money would be involved.

Mr. BAILEY. Our position, Mr. Bennett, is that if the accounting took into effect all of the factors I have mentioned, there would not be any additional cost at all. I believe that at a meeting recently the Administrator of the ECA said that without taking into account these return credits that come to other departments of the Government, there was something around $10,000,000 involved so far.

The CHAIRMAN. Mr. Welch?

Mr. WELCH. No questions.

The CHAIRMAN. Mr. Breen?

Mr. BREEN. No questions, Mr. Chairman.

The CHAIRMAN. Mr. Murphy?

Mr. MURPHY. No questions, Mr. Chairman.

The CHAIRMAN. Mr. Fugate?

Mr. FUGATE. No questions.

The CHAIRMAN. If I have omitted anybody, please hold up your hand. It has been unintentional if I have omitted anybody.

That concludes the examination. We will proceed with the next witness.

Admiral, are you ready to go on this morning?
Admiral SMITH. Yes, Mr. Chairman.

Mr. BAILEY. Thank you, Mr. Chairman.
The CHAIRMAN. All right, Admiral Smith.

STATEMENT OF VICE ADM. W. W. SMITH, CHAIRMAN, UNITED STATES MARITIME COMMISSION

Admiral SMITH. Mr. Chairman, I have a letter, signed today, addressed to the Honorable Schuyler Otis Bland, House of Representatives:

MY DEAR JUDGE BLAND: Under date of January 13, 1949, you request that most careful consideration be given H. R. 1340, a bill to provide for United States flag shipping participation in Government-financed cargoes.

The text of the bill is as follows:

I will not read that, because you have it before you. [Reading:]

The Administrator for Economic Cooperation announced in a letter to the Honorable Styles Bridges, chairman, Joint Committee on Foreign Economic Cooperation (made public), that, not later than January 1, 1949, he would no longer require that 50 percent of the Economic Cooperation Administration bulk cargoes be carried in United States flag ships unless such ships are available at "competitive rates." On December 22, 1948, it was announced that this change in policy would be postponed until February 1, 1949, and more recently it has been postponed for an additional 60 days.

In this letter, the Administrator stated that he was advised by the general counsel of the Economic Cooperation Administration that the provision in question (the second sentence of par. (2) of sec. 111 (a) did not require the Administrator to insist that 50 percent of the ECA bulk cargoes be carried in United States flag ships unless such ships are available at "world-wide competitive tramp rates."

The Commission is convinced that the action proposed by the Administrator will not be in accord with the provisions or the intent of the law, is not in accord with the economic factors involved in the administration of the 50 percent minimum participation provision, and will be detrimental to the national commerce and the national security of the United States.

The Commission is convinced that the provision in question was a considered decision of policy on the part of the Congress in favor of giving overriding consideration to protecting and promoting the American merchant marine over the making available of dollar credits to the nations participating in the ECA program. The legislative history of the provision contains several statements recognizing that enactment of the 50 percent participation provision would involve increased cost of shipment. The subsidy argument was advanced in opposition to the enactment of the provision. Congress obviously intended to adopt the provision notwithstanding that its effect might be an indirect subsidy to American flag operation. There are other provisions in the act which evidence an intention to minimize as far as possible the effect of the program upon channels of trade forming a part of the domestic economy of the United States.

The Maritime Commission has examined the economic effects of the participation provision and has given careful attention to the probable effects of a suspension or waiver of the provision as proposed by the Administrator for Economic Cooperation. It has explored the extent of the differential between market rates for United States flag vessels and the world-wide competitive tramp rates. It is clear that the diflerential is smaller and involves much less cost to the taxpayer than has been alleged. The Commission is convinced that the participation provision is a fair and resonable requirement in connection with the Economic Cooperation program. It is beyond question that the relatively minor monetary consideration involved is more than outweighed by advantages to the domestic economy and the national security of the United States. In considering the employment of United States flag vessels at market rates for such vessels, it should be obvious that keeping a substantial portion of United States Government-owned vessels employed and maintained in class at the expense of the charterer is preferable to lay-up of such vessels with the attendant expense and loss of employment together with loss of taxes on the income from such operations and taxes on the earnings of personnel employed in such operation.

With reference to the matter of contribution by the United States shipping industry to the economic rehabilitation of Europe, attention is called to the

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