The Merchant Marine Act, 1936, as amended, implies, without specific statement, that foreign ship construction which is to serve as the yardstick or basis of the construction-differential computation should be ship construction contracted for abroad at about the same time the contract is made here for the construction of the new American ship. The act, then, necessarily contemplates the continuance of conditions normally prevailing in the various shipbuilding centers both here and abroad. In general, the current war situation has disrupted conditions abroad to the extent that the present method of fixing the differential no longer constitutes an adequate or reliable yardstick wherewith to carry out the purposes of the act, whereas shipbuilding conditions in the United States remain generally normal. Furthermore, censorship is making it more and more difficult to secure reliable information.

Before discussing European yards as possible construction-differential bases, it is necessary to point out certain criteria which Congress apparently intended should govern the Commission in making its findings.

It appears clear that the congressional intent in enacting the amended form of section 502 (b) in 1939, stressed the theory of deriving the construction differential from comparison with a foreign shipyard in which an ordinary prudent businessman would be justified in having a comparable ship constructed.

European countries which are considered representative shipbuilding centers for the construction of the types of ships being built under the Merchant Marine Act, 1936, with the exception of Italy, are involved in the war.

With respect to countries which are involved in the war, it is understood, for example, that the British Government virtually has taken control of all British shipyards, and while there may be activity in these yards, it is not for private

account.

Although it appears that there may be shipways available in Italy at the present time, it does not follow that a prudent businessman would be justified in the exercise of good judgment to cause a ship to be built in one of these yards under present conditions. It may properly be presumed that his sole purpose in having a ship built would be to acquire the use of the ship upon its completion. He would not be satisfied with merely being made whole with respect to his expenditures in the event a ship were commandeered and never delivered to him. The situation in Europe today is such that there could be no assurance whatever that a ship presently contracted for would be delivered to the original party to the construction contract. It is obvious that there is a constant threat and possibility of involvement of those European countries which have not yet been drawn into the war.

The conclusion appears to be that despite the probable physical availability of building ways in Italy, such ways either would not or could not be availed of by an ordinary prudent businessman at the present time, and the Commission, therefore, might not be justified in deeming any European shipbuilding center to furnish "a fair and representative example for the determination of the estimated foreign cost of construction of vessels of the type proposed to be constructed." Furthermore, if Italy enters the war the Commission's last available source of information which could be considered at all applicable for the purposes of the act would be eliminated.

Shipbuilding conditions in Japan at the present time are highly artificial and the Government-fostered merchant-ship construction program for Japanese-flag operation is of such proportions that it appears improbable that an American operator would have ships built there.

Since, therefore, the information heretofore received and analyzed by the Commission indicates that available evidence as to contemporaneous European and Japanese shipbuilding costs does not provide sufficient effective criteria such as Congress apparently had in mind when it passed the law (a situation which will be more acute if Italy becomes involved in the war), the question arises as to what data should be so used, if it is intended that merchant-ship construction for private account in the United States under the act should be continued. Here again recourse must be had to a basic principle of the act, that of producing parity. The policy of parity was distinctly in mind in connection with the 1929 amendment to section 502 (b) as is indicated by the following statement on page 5 of the House committee's report on the amending bill (H. R. 6746, enacted as Public, 259, August 4, 1939), and on page 6 of the Senate committee's report:

"The object of the Merchant Marine Act was to put our operators on a comparable basis with foreign competitors

8. Repts., 76-3, vol. 2- -81

**

Since the same consideration of uncertainty of delivery would govern the plac ing of orders by a foreign competitor as would govern the action of a prudent American operator, and since as a matter of fact, and as a result thereof, and as a result, of course, of other conditions, it appears that shipbuilding contracts that can be regarded as either normal or related to the competitive conditions which the American operator will have to meet are not being let in Europe, with the possible present exception of Italy, it would appear that the parity theory of the act requires the determination of that cost of foreign construction which is most nearly contemporaneous with the American construction. The most nearly contemporaneous foreign construction which would be determinative of the competitive conditions that an American operator building a ship will have to meet, would appear to be either construction which will be undertaken immediately following the lifting of the present war conditions, or construction contracted for during the period preceding the instance of war conditions.

Obviously, to base a differential upon an assumption as to the conditions that will prevail after the war would carry the matter into the realm of pure conjecture. If such conjecture were permissible, then it might well be extended to take in such considerations as the probability that merchant vessels built during the war period under the auspices of the belligerent governments will be disposed of to private operators, when the emergency condition no longer obtains, at greatly reduced prices, thus producing a most serious competitive situation which any American operator who might have acquired tonnage at high cost would have to meet. This is what happened after the World War, and its repetition is a reasonable assumption. But as noted, this lies in the realm of conjecture; its possibility may strengthen the view as to what is a reasonable and fair present policy, but can hardly be used as a basis of computation.

It would appear that the best possible basis, and that most nearly conforming to the letter and the spirit of the act, is construction which was entered into as late as practicable, but prior to the breaking out of the war. Such construction is most nearly representative of the actual competition from the standpoint of capital costs which the American ship now building or presently to be built will have to meet and hence is the best yardstick with which to measure parity.

In accordance with the terms of title VII of the act, the Commission is to some extent taking the initiative in constructing for Commission account vessels urgently needed for the national defense and economically to carry our commerce, and which private enterprise currently is unable to contract for. If the selling price of these vessels must be computed on the basis of abnormal wartime foreignconstruction costs, it is evident that the Commission will encounter serious difficulties in finding private purchasers in order that the vessels may be "owned and operated by citizens of the United States insofar as may be practicable" to accord with section 101 of the act. If the determination as to foreign cost cannot be made the vessels could not be sold in any event due to the limitation of section 705 of the act, as amended.

* * *

Furthermore, by the terms of sections 706 (b) and 714 of the act, as amended, it is necessary that the Commission determine the estimated foreign cost before vessels constructed under the act can be chartered, because of the relation of that cost to the statutory minimum charter hire which the Commission may accept for the use of the vessel.

It is emphasized that the difficulties stated are engendered by abnormal foreign conditions which affect the "yardstick" of the act, but that shipbuilding conditions here still are generally normal.

It is highly important to the welfare of the United States as a whole that the Commission continue a stable construction program rather than a sporadic one, regardless of conditions abroad. Not only will shipyard labor benefit, but every State in the country produces materials which go into the construction of ships. Furthermore, uninterrupted vessel replacement during the war period should give the United States the rare advantage of being in a position to capture trade routes with the aid of new and efficient vessels when the war is over and normal trade is resumed.

It appears improbable that Congress, when it enacted the Merchant Marine Act, 1936, intended that the activities of the Commission in carrying out the construction program which is the cornerstone of that act should cease if it became impracticable to apply a yardstick based on contemporaneous construction contracts or because private commercial ship construction abroad practically has ceased.

The Commission has available suitable and reliable data reflecting foreign shipbuilding costs prior to the outbreak of the present European war. Since the outbreak of the war it has made, and is now making strenuous efforts to secure, from every available source, evidence as to contemporaneous foreign commercial ship-construction costs. All evidence received is being carefully studied and analyzed by the Commission in order to resolve the question whether such evidence is sufficiently applicative and convincing to enable the Commission to make the determinations contemplated by the act.

Since it is possible that the Commission otherwise would be unable to make the determinations which will permit it to proceed with the long-range construction program as directed by Congress, the Commission favors the proposed legislation and urges its early enactment.

In view of your request that the Commission advise you with respect to this legislation as soon as possible, this report is being transmitted to you without the comment of the Director of the Bureau of the Budget. His comment will be transmitted to you as soon as it is received. In the meantime, nothing in this report is to be construed as an indication of the relation of the proposed legislation to the program of the President.

Sincerely yours,

E. S. LAND, Chairman.

76TH CONGRESS 3d Session

SENATE

{

REPORT No. 1647

EASEMENT FOR A ROAD RIGHT-OF-WAY OVER THE COAST GUARD RESERVATION AT FLAGLER BEACH, FLA.

MAY 21 (legislative day, APRIL 24), 1940.-Ordered to be printed

Mr. PEPPER, from the Committee on Commerce, submitted the

following

REPORT

[To accompany S. 3958]

The Committee on Commerce, to whom was referred the bill (S. 3958) to authorize the Secretary of the Treasury to grant to the Road Department of the State of Florida an easement for a road right-of-way over the Coast Guard Reservation at Flagler Beach, Fla., having considered the same, report favorably thereon without amendment with the recommendation that the bill do pass.

A letter from the Treasury Department, which follows, indicates that no objection is made to the legislation:

Hon. JOSIAH W. BAILEY,

Chairman, Committee on Commerce,

United States Senate.

TREASURY DEPARTMENT,
Washington, May 20, 1940.

DEAR MR. CHAIRMAN: Further reference is made to your letter dated May 14, 1940, enclosing copies of S. 3958, Seventy-sixth Congress, third session, a bill "To authorize the Secretary of the Treasury to grant to the Road Department of the State of Florida an easement for a road right-of-way over the Coast Guard Reservation at Flagler Beach, Florida", and requesting a statement of this Department's views on the proposed legislation.

The records of the Department disclose that the easement is desired to cover the existing road extending through the reservation, which was dedicated to public use many years ago. The State road department desires to improve this highway and to make certain changes in the route thereof to eliminate curves. Such action will necessitate relocation of portions of the road, as well as require an increase in the width of the right-of-way.

The bill provides that the Secretary of the Treasury shall designate the location of the right-of-way and that the easement shall be granted subject to such reasonable conditions as he may deem desirable to be included therein for the protection of the Government's interests. These safeguards appear adequate for the purpose, and I am pleased to inform you that the Department perceives of no objection to the enactment of the proposed legislation.

The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee.

Very truly yours,