Is it your view, then, that no change is necessary in 4769, in order to preserve as is the protections in section 805(a) of the Merchant Marine Act?

Mr. WHYTE. At this time I believe as far as our company is concerned it should stay where it is, because at this time if we are going to compete-and I don't mind competition, but if we are going to compete unfairly, then I would like to see the bill stay where it is.

Mr. MURPHY. You are concerned that 4769 would allow CDS vessels to go anywhere in the United States with apparent impunity. Isn't the payback required by the amendment sufficient to stabilize the competitive effect?

Mr. DETELS. Mr. Chairman, may I respond to that?

Mr. MURPHY. Mr. Detels, identify yourself for the record.

Mr. DETELS. I am Martin Detels, attorney, of Seattle, Wash., counsel for Alaska Marine Shipping.

We agree with the position stated to the committee by Foss, but I would put it I think this way: As the law now exists, Congress has declared a policy. If Congress announces a different policy, we can only anticipate that the Secretary of Commerce will, consistent with what he believes to be the intent of Congress, authorize entry into this trade of American President Lines.

Mr. MURPHY. Mr. Snyder.

Mr. SNYDER. Are you saying that you think that it would be authorized without a payback?

Mr. DETELS. No. I assume there would be

Mr. SNYDER. Then either you did not respond to the chairman's question or I did not understand the answer.

Mr. DETELS. I assume that there would be a payback, but the position of Alaska Marine Shipping is that unless it can maintain and increase its share of the Dutch Harbor traffic, which would be threatened by the entry of American President Lines into this trade, then it cannot continue to serve the 40-plus other ports, which would not receive service from American President Lines. Mr. SNYDER. If I understood Mr. Whyte correctly, he said that he did not mind competition if it was fair.

Mr. WHYTE. That is right.

Mr. SNYDER. Consequently, I had assumed that he referred to competition as meaning the basis of one carrier who pays his own way versus that of a subsidized carrier. Then the chairman asked, if I may be allowed to paraphrase, whether requiring a payback wouldn't solve the problem of unfairness. I didn't understand whether there was a response to that question. You apparently do not believe that a payback would result in fairness.

Mr. DETELS. I think that is the answer.

Mr. SNYDER. Do you want to tell us why?

Mr. DETELS. Yes. Because, as I tried to indicate, Alaska Marine Shipping cannot embark on the expansion program nor can it hope to continue to serve more than 40 ports, if its market share is diluted in the single port which makes its operations possible now. Mr. SNYDER. But that market share could be diluted by an unsubsidized carrier and produce the same result, could it not? Mr. DETELS. That is certainly true.

Mr. SNYDER. Thank you.

Thank you, Mr. Chairman.

Mr. MURPHY. Counsel.

Mr. SEIFERT. Your attack has been on the unfair nature of competition from vessels which have been subsidized. Supposing a CDS vessel has outlived its useful life. Should it then be allowed to enter the kind of trade that you are now protecting?

Mr. DETELS. I don't think we are prepared to comment on that. I am sure it involves issues that we have not considered.

Mr. SEIFERT. I take it that the entire opposition to the flexibility of movement is that the payment of CDS subsidy for the construction of a ship is the one and only factor which provides prejudicial and discriminatory effect upon your trade. Consequently, if the useful life of that vessel is ended, and the subsidy in effect has been completely paid back, why shouldn't it be allowed to enter the trade? You indicate that you cannot answer that without subsidy, but could you prepare an answer for the record on that?

Mr. DETELS. Yes, I would be glad to, but I would extend our objection to ODS as well as CDS.

Mr. SEIFERT. Would a vessel operating in the domestic trade be eligible for ODS?

Mr. DETELS. Subject to the payback provisions, that is exactly what the amendment to 605(a) would permit.

Mr. SEIFERT. You don't get ODS for domestic operations. You get ODS only for international operations. If you were operating in the domestic trade with the permission of the Secretary of Commerce, you would be doing it in open competition head-to-head with you. The entire theory of the payback of CDS, is to establish parity between the domestic operator and the international operator, isn't it? You can prepare your answer for the record. We would appreciate having that response. It is something which has not been asked before.

What is your answer to the demands by people in Kodiak and thereabouts that the service that is being provided is insufficient? Mr. WHYTE. Alaska Marine Shipping does not go to Kodiak, does not serve Kodiak at all.

Mr. SEIFERT. You are not restricted in going to Kodiak, are you? Mr. WHYTE. No, we are not.

Mr. SEIFERT. Do you have the type of equipment which could serve that particular trade?

Mr. WHYTE. Not at this time.

Mr. SEIFERT. Refrigerated cargo?

Mr. WHYTE. We have all refrigerated ships.

Mr. SEIFERT. We have wires from Alaska Pacific Seafoods and several other fish processors here, Redowalt and several others who indicate that one of their demands is for additional carriage capacity for the kind of cargoes which they generate. One would assume that they would be refrigerated cargoes. Are they?

Mr. WHYTE. You are talking about Kodiak?

Mr. SEIFERT. Yes.

Mr. WHYTE. Well, like I have said, we do not serve Kodiak, so I know very little about Kodiak customers.

Mr. SEIFERT. Have you ever thought of moving into the Kodiak trade?

Mr. WHYTE. No, we haven't.

Mr. SEIFERT. Then why are you opposing somebody who wants to come into the Kodiak trade?

Mr. WHYTE. I thought we were just talking about Dutch Harbor here.

Mr. SEIFERT. Were you here when we talked to Alaska Foss about the Kodiak Daily Mirror article?

Mr. WHYTE. Yes, I was.

Mr. SEIFERT. You are not familiar with their need for more service?

Mr. WHYTE. No, I am not.

Mr. SEIFERT. Do you have capacity which now could be diverted to serve Kodiak?

Mr. WHYTE. No, we don't.

Mr. SEIFERT. Do you know of anybody who does?

Mr. WHYTE. That serves Kodiak now?

Mr. SEIFERT. People who are not now serving Kodiak who could divert service to Kodiak, and still serve their own needs.

Mr. WHYTE. Not in Alaska trade I don't.

Mr. SEIFERT. I have no further questions, Mr. Chairman.
Mr. MURPHY. Mr. McCloskey.

Mr. MCCLOSKEY. No questions.

Mr. MURPHY. Thank you very much, Mr. Whyte and Mr. Detels. Our next witness is Mr. James Amoss, president of the National Maritime Council. Mr. Amoss, we really appreciate the work that you and the National Maritime Council have done, since November 18 in bringing together the very difficult positions of sometimes divergent interests in hammering out a position that we hope we will be able to carry. We are looking forward to your testimony this morning. If you will proceed.

STATEMENT OF W. JAMES AMOSS, PRESIDENT, LYKES BROS. STEAMSHIP CO., INC., AND CHAIRMAN OF THE BOARD OF GOVERNORS, NATIONAL MARITIME COUNCIL, ACCOMPANIED BY M. LEE RICE, PRESIDENT, OGDEN TRANSPORTATION CORP., AND VICE CHAIRMAN, NATIONAL MARITIME COUNCIL; JESSE M. CALHOON, PRESIDENT, NATIONAL MARINE ENGINEERS' BENEFICIAL ASSOCIATION; AND LEO V. BERGER, PRESIDENT, APEX MARINE CORP.

Mr. Amoss. Thank you very much, Mr. Chairman. We, at the National Maritime Council consider that this has been a great dialog, and a great opportunity for the industry and the Congress to develop a truly revived American merchant marine, and we are most appreciative of the opportunity to participate in this endeav

or.

Mr. Chairman, I am W. James Amoss, Jr., president of Lykes Bros. Steamship Co., Inc., and chairman of the board of governors of the National Maritime Council. I am accompanied by M. Lee Rice, president of Ogden Transportation Corp., and vice chairman. of the NMC, Jesse M. Calhoon, president of the National Marine Engineers' Beneficial Association, and Leo V. Berger, president of Apex Marine Corp.

On November 28 we addressed the substance of the NMC- recommended legislative changes to U.S. merchant marine promotional programs. You asked us, at that time, to provide specific legislative

language and to estimate the cost of the council's program. You now have the proposed legislation, so I would now like to speak briefly on the estimated costs of our proposals and some of the underlying assumptions used to calculate those costs.

At the outset, I must stress that the costs of our program are tied to the maintenance of an adequate shipyard mobilization base. In addition, the number of vessels constructed under the program will depend upon the response of individual operators to governmental initiatives. This is especially true with respect to the bulk carrier program.

Another major problem that affects the projected construction of both liner and bulk vessels is that of capital formation. Obviously, the users of these vessels must have the financial resources to justify the new vessel construction if it is to be undertaken. Therefore, our basic assumption of using the adequate shipyard mobilization base for the purpose of projecting new vessel construction may not be valid as a matter of commercial reality.

The numbers which we present concerning the cost of the new program to the Government are in our opinion unrealistically high because if the investment climate in the U.S. shipping industry does not materially improve, and if capital formation does not become more attractive, it is unfortunately a verity that the level of new construction will be significantly less than we projected.

EXPANDED COMMERCIAL BUILDING PROGRAM

We have examined the market opportunities for U.S.-flag operators that should result from the implementation of a title II for liners modified along the lines suggested by our earlier testimony on that title and the responsive bilateralism proposed for the bulk shipping sector.

In the liner sector, we have assumed that U.S.-flag operators will be competitive and achieve 40-percent market penetration in our trades with developing countries and retain the present market share with Europe and Japan.

During the decade of the 1980's, this will create a demand for at least 135 liner vessels allowing for trade growth. In the bulk sector, we have estimated the impact of agreements with Communist countries and with our seven largest free world trading partners having active national flag cargo preference.

We see an initial market for 125 bulk vessels, expanding to at least 165 vessels allowing for trade growth over the next 10 years. It should be noted that more than half of these bulk ships are handy size dry bulk carriers.

In reference to the national security evaluation of the shipyard mobilization base, we call your attention to the manpower graph in exhibit 1. This graph illustrates a projected decline in the labor force in the major yards to a level of 70,000 by 1985, given the fiscal year 1980 projected naval construction program and a minimal commercial construction program.

Exhibit 2 shows the effect between 1980-90 of an expanded construction differential subsidy program adding 300 orders to the presently forecast baseline. Also, it shows the effect of the administration's recently announced 95-ship, 5-year-naval-construction program. Such a program would return the work force to a level of

116,500 by 1984, a level we believe adequate to satisfy our national defense and national security requirements.

The cost of an expanded CDS program is difficult to calculate precisely because of the important innovation of per diem subsidy in the bulker area. We have estimated the cost of such a program under the traditional CDS/ODS format and I will deal shortly with the possible impact of per diem subsidy.

Expressed in 1980 dollars, the cost of the CDS portion of the 300ship incremental program would be about $7.9 billion or an average of about $720 million per year over the 11 years, 1980-90. The operating differential subsidy component over that period would total about $2.2 billion or an average of about $203 million per year. The ODS cost would continue to rise somewhat beyond 1990 as ships contracted in 1989-90 are delivered to the fleet. A year-byyear breakout of this cost is in exhibit 3. This cost is in addition to the baseline cost of operating the existing subsidized fleet.

This program is very similar to that envisaged in the October 16 testimony of the shipbuilding industry. My colleague, Mr. Rice, made a statement at that time on the economic benefits of such a program. Since we assume the intent of this subcommittee is to expand the U.S.-flag fleet, the concept of an increased ODS budget has been assumed. But we would again draw your attention to the data resources finding that, regardless of whether CDS is funded with an increase in the Federal budget or a reduction in other Federal programs, the net cost to the Government will be negative after all direct and indirect economic benefits are taken into account.

We feel this conclusion is important. If any doubt remains that our national defense and national security is worth the cost of first round CDS and ODS, these projections should convince the Congress that funding the program at the level we propose is one of the most cost-effective national security expenditures that can be made. What we are really talking about is the cost of a vital national asset.

The question of the impact of per diem subsidy for bulkers on the cost of the program is, as I said, difficult to assess. But two conclusions are unquestionable: First, as Captain Berger testified on November 28, to the extent that these vessels will carry some domestic cargoes, some of the cost of CDS and ODS will be eliminated altogether. Second, this innovation spreads the cost of placing a U.S.-built vessel in the fleet over the economic life of the ship, although the total cost to the Government is the same after allowing for inflation.

For example, a $50 million bulk vessel would cost $25 million in CDS under the present program, payable during construction. Under per diem subsidy, no funds would be expended during construction. The first year capital component of the per diem subsidy, if the vessel operates 20 percent domestic and 80 percent international, would be only $2.8 million.

On this basis and for the 1980-90 period, the capital component of the per diem subsidy for the 165 bulk ships in the program, in 1980 dollars, would be reduced from approximately $4.6 billion to approximately $2 billion.