I think Barbara has an opening statement which we would like to hear.

Ms. MIKULSKI. Mr. Chairman, I know we are eager to hear our witnesses, and I am going to just ask that my opening remarks be included in the record.

I would like to thank you for coming to the Baltimore community. Because of our close proximity to Washington, we often lose out in having our own special hearings the way the folks in San Francisco or New Orleans do, and we are usually heard in Washington, where we are part of the national scene.

But we are happy that you could come here today, because I think the Baltimore community combines two things in terms of its port-one, the vitality of an inner harbor and one type of economic development, and then a working port, and we have been able to mix those in a very interesting way.

But I am glad that you are here today on the bread and butter issues of shipbuilding. I feel that the omnibus maritime bill must be explored in great detail because of its impact on maritime policy and thus its impact on job security and it is equally important to our national security.

So I look forward to hearing the other members, and I want to welcome you here.

[The following was received for the record:]

STATEMENT OF HON. BARBARA A. MIKULSKI, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MARYLAND

Good morning. I would like to take this opportunity to welcome Chairman Murphy and the subcommittee to Baltimore and thank him for allowing us this opportunity to testify on the Omnibus Maritime Act.

Recognizing that the legislation before us represents a complete overhaul of the 1936 Merchant Marine Act and will have an enormous impact on all segments of our maritime community, I was particularly anxious for Baltimore, as a port city, present its views on this far reaching bill.

For decades our country has maintained a stagnant and regressive maritime policy based on outmoded laws. Now, the merchant marine subcommittee has come forward with an innovative and comprehensive bill which would completely reverse the direction of U.S. maritime policy. This effort must be closely examined by those segments of our country most affected. There is no question that change is needed, no question that change is desired-but such change must not be made in a vacuum. Every segment of our maritime community must have an opportunity to speak out since industry, labor, shipping and shipbuilding will all feel the impact of this act for better or worse. In addition, each of these segments of the maritime community has a responsibility to cooperate in seeking ways of reversing the tide of U.S. policy which has led to decline in the U.S. flag fleet, erosion of the commercial shipbuilding industry, loss of jobs in maritime related industries, and threat of unreadiness in our naval preparedness program.

Baltimore's status as a port city and our innovative and acclaimed approach to economic development provides us with a unique opportunity to provide expertise in this long awaited and much needed overhaul of U.S. maritime policy. For these reasons, I welcome testimony from our witnesses today.

The CHAIRMAN. Thank you, Barbara.

We are privileged to have as our first witness today one of the barons of the House. When you get to be chairman of an Appropriations Subcommittee, you join the stratosphere of leadership in America. We have with us a man who came to the Congress the same time I went, a very close personal friend, Congressman Clarence Long.

Clarence?

TESTIMONY OF HON. CLARENCE D. LONG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MARYLAND, SECOND DISTRICT

Mr. LONG. Thank you, Mr. Chairman, very much.

I am pleased to welcome you to Baltimore today. You are acknowledged to be one of the real leaders in Congress. You have been here as long as I have, which is a fair length of time. Not only that, but you are one of the most respected Members of the House. We have to be very grateful to you for taking the time to come here, out of your district, into a distant city, to try to get the word firsthand from the people. This is something I wish was being done more extensively by Congress. Much of what goes wrong in Congress frequently occurs because of lack of knowledge and insight of the kind that you will get here today.

It is particularly appropriate that we look out on this harbor, one of the most beautiful in the Nation. You come from the harbor of New York, which is the greatest harbor in the world. You can look out at Baltimore Harbor with the eye of a real professional and see that we have here something that we have to improve and maintain.

I commend your subcommittee for holding hearings in the field to learn firsthand the maritime issues and problems confronting those who handle the cargo, process the paperwork, build and repair the ships, direct the maritime traffic and coordinate port operations.

My colleague and friend, Barbara Mikulski, an able member of the committee, is a dedicated and knowledgeable worker for the betterment of the port and commerce of Baltimore. I am delighted that she is here today as an active participant in these hearings.

There are two major issues, Mr. Chairman, which I urge the subcommittee and full committee to consider closely in its review of H.R. 4769 and related bills. The first is the impact of exporting our capital, both through construction subsidies to foreign-built ships and operating subsidies to foreign-built vessels. The second is the effect of this bill on the vital national defense role played by our merchant marine, an aspect which I consider to be perhaps the most important of all.

As chairman of the Foreign Operations Appropriations Subcommittee, I have studied U.S. aid to foreign steelmaking-a vital component of shipbuilding-from 1945 to 1978, the last 25 years. Over $4.5 billion in U.S. assistance has been sent abroad to establish steelmaking in foreign nations or to upgrade existing steel facilities there. Here is the report we published last year, U.S. Subsidy of Foreign Steel Producers.

We have not undertaken a study with respect to foreign shipbuilding capabilities, but would be happy to work with your committee on such a project.

I am distressed that our scarce capital could be diverted abroad for shipbuilding under H.R. 4769 at a time when the Nation faces a vast capital shortage during the next decade. Capital shortage in this country has been estimated anywhere from $600 billion, which is a New York Times estimate, up to a couple of trillion dollars, if you want to add all the capital needs this country has. It is Capital shortage, in fact, that is keeping us from moving ahead in the

solution of our energy problem and the solution of so many other problems. So capital is something we no longer can waste in this country or divert to an inferior use.

As my study of aid to foreign steelmaking suggests, encouraging less-developed nations to undertake capital-intensive industry such as shipbuilding wastes capital and does not aid basic development. It simply deprives the poor in those nations of the capital needed for essential shelter, medical care and education.

Our whole philosophy of foreign aid-and I have been on the subcommittee now for 15 years and chairman for 3-has been wrong, misguided. We claim that we are helping poor countries, and instead we are hurting them when we try to develop the kind of industry which is not congenial to their expertise, to their needs, to the skills of their workers and which does not go to the areas of poverty and unemployment, or to the production of food, clothing and shelter.

Foreign competition, as we all know, has already hurt our Nation's shipyards. At my request, in 1978, the Department of Labor accepted and investigated a petition from workers at Bethlehem Steel's Sparrows Point Shipyard for trade adjustment assistance. I quote directly from the favorable decision which awarded TAA benefits to over 2,000 unemployed workers. Jim Harmon, the head of the local union, who will speak later today, worked closely with me on this. I was very pleased to be able to win a victory.

That decision said,

The market for the U.S. shipbuilding industry in general and for the Sparrows Point Shipyard specifically are those merchant vessels intended for U.S. registry. The number of merchant vessels intended for U.S. registry that were being built in foreign shipyards increased in 1977 compared to 1976 and continued to increase in 1978 compared to 1977.

That certainly does not sound as though shipping lines need further encouragement to build foreign and flag American.

The Department of Labor cited one specific case in its decision to award TAA benefits:

A major order by a U.S. firm for twelve merchant ships intended for U.S. registry was placed with a foreign shipyard in 1978. There are approximately 6 U.S. shipyards capable of producing the type of vessel referred to The vessels would have been eligible for a US government construction subsidy if the vessels were built in a U.S. shipyard * The company requesting bids had information which showed that prices available from foreign shipyards would be well below domestic bids even after adding in the U.S. government subsidy.

This does not suggest it is wise to encourage the export of scarce shipbuilding capital to foreign countries.

My second concern is the viability of foreign-built shipping as part of our merchant fleet for strategic purposes. A recent series in the Washington Star, November 2-4, 1979, outlined our national experience with a mock war mobilization exercise known as "Nifty Nugget." This exercise was designed to test our ability to conduct a conventional war in Europe against Warsaw Pact aggressors.

An estimated 95 percent of cargo for our troops-tanks, jeeps, ammunition, and so forth-would have to be shipped by sea. The articles suggest that 3,000 ships per month would be required for resupply. One article observes that military cargo reaching our ports "would have relied heavily on something the Navy calls EUSC (Effective United States Controlled Fleet) the Navy's

* *

authority to commandeer ships of Liberian, Panamanian or Honduran registry owned by U.S. business interests.'

The legal authority of the Navy to control such ships has never been tested, let alone the advisability of placing war-critical materiel on ships crewed by foreigners.

In addition, the "Nifty Nugget" exercise revealed that container ships-a large proportion of the nonbulk fleet-do not readily lend themselves to loading of military equipment and cannot be unloaded if the seaport they reach has been damaged or destroyed.

These press reports may indicate only the tip of the iceberg which lies ahead if we rely increasingly on vessels built or registered abroad to form a key arm of our national defense effort. I was pleased to learn that you will be holding special hearings next week on the lessons of "Nifty Nugget" for our merchant fleet. Moreover, increasing reliance on ships built overseas is sure to reduce our domestic shipbuilding below its already limited capacity. Such reductions, and the encouragement of foreign registry of vessels, will also reduce our capacity for ship repair. Both shipbuilding and repair capacities, as we learned in World War II, can be rapidly mobilized, but only if there exists a core of skilled workforce and modern facilities.

War is not the only scenario in which U.S.-built, owned and operated fleets become strategically important. The fact that over 96 percent of our oil imports arrive here in foreign ships is lamentable, and in event of war, dangerous. But international incidents short of war-terrorist activities which disrupt the commerce of other nations, or nations suddenly rewriting registry and commerce laws in ways inimical to the United States, for examplecould readily make foreign flagged ships unavailable to the United States for oil and other imports, with serious damage to our economy and our defense preparedness.

I am certainly not a protectionist-far to the contrary. Nevertheless, I voted for the cargo preference legislation which would have directed that at least 9 percent of our oil imports be shipped in U.S.-built and operated vessels.

The committee is to be commended for its strong initiative in encouraging debate about national maritime policy and for its effort's to articulate a coherent maritime policy in place of the outdated and unrelated programs with which we now must cope.

I look forward to additional hearings and to the committee's eventual markup and report of omnibus legislation. I hope my comments and those of others from whom you will hear today will prove helpful in your deliberations.

Thank you, Mr. Chairman, and thank you again for coming to Baltimore.

The CHAIRMAN. Thank you, Clarence. You really hit the nail on the head. On the 12th and 13th, the committee will hold hearings in Washington, and the "Nifty Nugget" that you referred to is one of the issues that we are taking up with Defense witnesses.

We are going to ensure that we have a fully funded, ready-to-go sealift that can support U.S. policy commitments-something we do not have today. We have watched the ready reserve fleet become minimal, the national defense reserve fleet become virtually a rust-heap fleet, and the inability of the Military Sealift Com

mand to do anything but business as usual, and that is run a marginal logistical operation for the defense services. It causes great concern to me, and of course, many Members of Congress. You were pretty brave to vote for that cargo preference bill, with the type of campaign that was carried on in opposing it. Of course, it was not opposed on its merits, or on the basic issue itself. Mr. LONG. Things seldom are in Congress.

The CHAIRMAN. Yes. But the world has come almost full circle since that debate. The major shipping areas of the world have come around to supporting the advisability of an UMTAD code of 40-4020, where cargo is the key element, of course, in the issue. If we can have cargo for the American fleet or a portion of our cargo, we can operate the fleet, and we can operate it effectively, and we can operate it, I think, without the subsidy percentages that we presently utilize. And we certainly appreciate your support and your

statement.

Barbara?

Ms. MIKULSKI. Thank you, Mr. Chairman.

Congressman Long, I would like to compliment you for highlighting the national security issues as they relate to the merchant marine. Too often, when we debate national security issues, we think in terms of dazzling new missile systems or other kinds of unique technology, and forget that what we are going to need is a basic system of transportation to be able to move people and goods. I was particularly surprised by your comment about the container ships as being really unworkable in terms of moving the types of supplies that we are talking about in the event of a national emergency.

But the question I really wanted to ask you, because of your experience on the Appropriations Committee and particularly in the foreign aid section, relates to the economics of this.

Capital, I believe, is a limited resource, just as is energy, and therefore must be spent very carefully. One of the reasons that is often given for foreign investment, for example, in foreign yards, is that it would be cheaper, and therefore we would get more for the buck.

In your experience with foreign aid activity, have you found that foreign economics are really a lot cheaper than American economics of production? I am not only talking about shipping, but across the board. Your forte has been steel, which is an area interest of mine, and therefore, my concern is putting our money in a foreign country, rather than putting our money here, which would generate jobs. Is it really worth it in terms of the cost savings?

Mr. LONG. Well, I am glad you raised that issue, Barbara. Japan used to be one of the cheapest places in the world in which to buy, because of their very low labor costs. Right now, I believe it is true that Japanese labor, all benefits considered, earns more than U.S. labor.

You cannot count, in other words, on any of these differentials remaining the same. If you operate on the assumption that sending work abroad is going to be cheaper, you cannot count on it staying that way very long. And what we are trying to do is to build up a permanent domestic capacity for shipbuilding.