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($4,290,000) to cover operating deficits. This loan was a debt to the French' Treasury which must be refunded. Another loan of 68,748,000 francs ($2,681,172) was made for completion of construction under way, against mortgages and real-estate security. But the line itself was reorganized in 1933.

The CHAIRMAN. You may proceed. I am going to ask you a little later about that line.

Mr. SAUGSTAD. The operating company to Brazil and River Plate is the South Atlantic Navigation Co. of Paris. The amount paid that company for 1935 is forty million francs which, at gold par is $1,560,000 or, at current exchange, about $2,650,000.

The fourth operation is that between France in the Mediterranean and Corsica, which is part of the metropolitan French area. erating company is the Marseilles Navigation Co. of Marseilles, and the amount of subsidy is 13,150,000 francs which, at gold par, amounts to $515,000 or a current exchange value of about $870,000.

That covers the contract service system of France in a broad way. Now, Mr. Chairman, shall I go into the contracts of that system or shall we save that for subject discussion later on?

The CHAIRMAN. I am inclined to think if you cover the one country at a time it will probably be more understandable. going to speak of the contract system of France now?

Mr. SAUGSTAD. Yes, sir.

The CHAIRMAN. I rather think it would better to present everything to members of the committee dealing with the particular country in consecutive pages so they could read it a little more intelligently than would be possible by having to jump about.

Mr. SAUGSTAD. The contract term, that is, the duration of these contracts, is as follows: The Far East contract is for 25 years beginning July 28, 1921. The contract to South America is for 24 years, beginning December 31, 1929. The contract to Corsica is for 20 years from July 23, 1927, with a revision every 5 years. The contract to North America, Mexico, the Antilles, and Central America which, by the way, is the total contract operation of the C. G. T., is for 14 years beginning January 1, 1933.

These contracts are all under a representative and strict control. There are three authorities that deal with their management on behalf of the Government. The operative features are in charge of the Minister of Merchant Marine. All questions as to loans, credits, bond issues, are passed upon by the Ministery of Finance.

The CHAIRMAX. Which would be equivalent to our Treasury Department?

Mr. Saugstad. Equivalent to our Treasury Department. The accounts themselves are audited by an official commission which is known as the Audit Commission for Subsidized Navigation Companies. Thus there is a three-way control over the operation of the contracts themselves.

The CHAIRMAN. And if we had had the last during our last regime, many of the things that are now complained of would never have happened?

Mr. SAUGstad. Probably not. The French Government, in some instances, is a partner in the contract through joint profit and liability clauses. "Thus, in the Far East contract, the Government assumes 80 percent of the liability for losses and takes 80 percent

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of any possible profits, making first allowances for repair funds and normal depreciation, and even some allowances for dividends to stockholders.

In the Brazil and River Plate contract the same conditions exist, with the difference that the French Government in that contract has a 90-percent element of profit and loss risk.

In the Corsica service, the contracting company owns the ships, charters them to the French Government, and the French Government in turn hires the owners to manage the ships.

The fourth line, that is, the C. G. T., is to all practical purposes presently under Government control. The supervision over the line's operation is exercised by the Minister of Merchant Marine through a Government commissioner, and, in this case, the audit commission which audits the account reports directly to the Minister of Merchant Marine, who reports his recommendations once a year to the French Parliament.

Not less than one-third of the administrative board of the French Tine must be Government representatives and the financial control within the line, so far as its liabilities, its liquidation of old accounts, payment of old creditors, is an elaborate structure. If there is any reason why the committee would like to study the contract, I have the entire contract in translation.

The CHAIRMAN. I would be very glad if you would just simply file that to be made a part of the record.

(The paper above referred to will be found on page 147.) Mr. SAUGSTAD. Now, we come to the operative conditions. First is the element of speed. The speed in the Far East contract is fixed by an allowance of days and hours in passage from France to Far East terminal points. At the beginning of the contract in 1921, the managing company had 16 vessels of 13 to 1412 knot speeds. Since 1921, the following vessels as to speed groups and size groups have been added by the company. I cannot say that all these vessels are actually covered by the contract itself, but some of them obviously have replaced other vessels that have come off of the services. The vessels are 1, 912 knots; 1, 10 knots; 1, 1112 knots; 1, 121, knots; 5, 13 knots; 4, 14 knots; 5, 15 knots; and 1, 1612 knots.

The size groups are 4 vessels ranging from 5 to 8 thousand gross tons; 6 at about 10,000 gross tons; 4 at about 12,000 gross tons; and 4 at from 15,000 to 17,000

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tons. On the line to Brazil and River Plate the speed requirements call for a reduction of 18- to 21-day passages to 15- and 18-day passages, respectively. The new ship l'Atlantique was built under that contract. That ship, as you know, was 39,000 gross tons and of 23 knots speed and completely burned in the early part of 1933.

The CHAIRMAN. Was that the ship that burned in the English Channel?

Mr. SAUGSTAD. Yes.
The CHAIRMAN. How many lives were lost; do you know?

Mr. SAUGSTAD. No lives of passengers. She was out of commission and under reconditioning. The point is the ship was built under the contract.

On the system to Corsica the contract provided for replacement of 3 ships by 4 ships, 3 of which were to have a speed of 15 knots.

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On the C. G. T. system on all lines the speed is to be determined by an annual average performance. A tolerance or an allowance of one-tenth of 1 knot per year is allowed on all passenger ships of the C. G. T. that were in the service when the contract was signed or that may be added to the line as new vessels. The CHAIRMAN. What is that tolerance ! Mr. SAUGSTAD. One-tenth of 1 knot per year. The CHAIRMAN. I mean what is the purpose of it? Mr. Saugstad. The purpose is to recognize the age of a vessel, her loss of efficiency with years, and the French Government recognizes that by a tolerance of one-tenth of a knot per year on all passenger vessels under this contract.

The contract of the C. G. T. on the New York line requires the company to own at least three passenger vessels of 20 knots and the average speeds which must be made by those vessels under the contract are as follows: The T-6, which is the official contract titleof the Normandie, must make an average annual speed in service of 23 knots. The Ile de France must make an average speed of 20 knots annually; the Paris must make good a' speed annually of 20 knots, and the France, which I believe now is out of service, must make good a speed of 18 knots. While the Normandie is being completed, the Champlain and the Lafayette are in the service. Any vessel built to replace any vessel in the New York run must be of at least 22,000 gross tons.

On the Mexico, Antilles, and Central America Line of C. G. T., line no. 1 must have vessels of 14 knots; lines nos, 2, 3, and 4 must have vessels of 11 knots, with a reduction allowance for certain old vessels that were in the service when the contract was signed.

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POSTAL PROVISIONS IN THE FRENCH CONTRACT SYSTEM

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All contract lines carry the mails for account of the French Postal Administration at rates which are equivalent to the rates of the Universal Postal Union, and may be made lower according to the contract and law provisions. The compensation for the mails, accordingly, may be fixed and is to be fixed once a year jointly by the Postal Administration and the Merchant Marine Ministry. The parcel post is carried under the same regulations.

Now we come to certain concessions made by the contractors to the French Government.

On the line to the Far East, the French Government has the first refusal on 25 percent of the passenger and cargo space of all ships up to 14 days before the day set for sailing. There are certain reductions in tariffs on several categories of public business, and pref. erence, all things being equal, for French goods over the lines and a nondiscrimination clause which prohibits the contractor from discriminating against French goods as against foreign goods. All ships entered in the contract service must have gun mountings and must include 112 knots, reserve speed as a military requirement. On the lines to South America, the contractor agrees to fix freight and passenger rates according to the competitive tariffs and agrees by contract to enter all agreements and conferences in that trade. There are certain limited space reservations and some reduction in rates on government business.

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In the Corsica service, certain passenger classes receive reductions according to the special rates and rate reductions set by the metropolitan railways of France.

In the New York line of the C. G. T., there is a 30-percent reduction in passenger rates to French public servants traveling at State expense and to students traveling under scholarship arrangements.

In the C. G. T. lines to Mexico, to Antilles, and Central America, the State has the first refusal of 25 percent of the passenger space. Three weeks' notice is required if the State reserves more than one-half of the passenger space. One-tenth of the cargo space is reserved for the State until 10 days before sailing time. Disabled war veterans receive a 25-percent reduction in passenger fare if they carry a 50- to 75-percent disability; they receive a 50-percent reduction if they carry a 75- to 100-percent disability. Large families traveling together receive a 20-percent reduction in fare for 5 persons; 30-percent reduction for 6 persons; 35-percent reduction for 7 persons, and 50-percent reduction for more than 7 persons.

If vessels are required to have military equipment, such fittings shall be for account of the French Navy and a special indemnity shall be paid the company as a result of all such equipment, provided that the space occupied by such equipment is more than 75 cubic meters. The vessels may also be required to have special bunkers which may be converted into magazines for carrying munitions. This also is for account of the French Navy.

That, Mr. Chairman, is the contract service picture of France. Do you wish to ask questions, or shall I proceed now with the next subject, which is the general credit field?

The Chairman. Have you anything on the personnel requirements ?

Mr. SAUGSTAD. French ships are manned by Frenchmen. That is fixed

Mr. SIROVICH. What are their salaries?
Mr. SAUGSTAD. I do not know; I have not the salary rates.
Mr. SIROVICH. Are they trained men that constitute the personnel?

Mr. Saugstad. The French personnel situation is included under a system which is called “Inscription Maritime." That is an old organization that has survived the French Nation through both monarchy and republican status. It was organized by the French statesman Colbert in 1663 and the principle involved is that in order to obtain seamen for French warships the French Government gave the privilege to young men who were conscripted for military service to choose going to sea under the same conditions. That system prevails in France today; a man may choose to go to sea as a sailor. He serves for a certain time at certain ratings and at the age of 50 he may retire and from that time on he has certain pensions for his services and he has an absolute monopoly to operate in the French fisheries. No one in France without special authority may be ir the French fisheries except members of this organization.

Does that answer your question on personnel?

Mr. CULKIN. Have you taken into consideration the distinction in the operation cost of French ships over the construction cost? Can you say what amount it will require for America to equal those 405,000,000 francs? Do you get my question. In other words,

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putting into the scale the distinction in the cost of operation and the cost of construction, assuming you are familiar with that, can you say what it would cost America to balance up or equal that contribution of 405,000,000 francs ?

Mr. SAUGSTAD. I have no knowledge.

Mr. CULKIN. I suppose the French costs are very much less for
construction?
Mr. SAUGSTAD. They must be somewhat less.
Mr. Culkin. And the operation, of course, is less.

Mr. SAUGSTAD. The French shipowners and French statesmen complain bitterly because French ship construction costs are much higher in France than they are in the rest of Europe and, as a consequence, the French Government allows French shipbuilders 15percent protective margin.

Mr. CULKIN. What I am getting at is what America would have to contribute to equal the French contribution. Mr. SAUGSTAD. I have no technical knowledge on that point.

Mr. SIROVICH. From the statement you made before and from the interesting remarks you made, I gather there are two forms of subsidy that France gives to its merchant marine, one of which really is a partnership in which it puts in a certain amount of money to these four different groups and assumes between 80 and 90 percent of the liability and at the same time takes 80 to 90 percent of the profits. Now that being the arrangement which the French Government has entered into with the merchant marine, it is striking proof to me they are partners with the companies who operate those ships; because, after all, that is a partnership arrangement. That is one form of direct contribution in which they participate in the profits.

The second form of indirect subsidy, is the subsidy that they gather from the mail delivery; is that right-based upon the statement that you have made?

Mr. SAUGSTAD. I did not mean to leave the impression that the postal payments to French ships was a subsidy. The contractors carry the mail tendered them by the French Government

Mr. SIROVICH. Are they paid just the same for the carrying of that freight as they are for any other freight? Mr. SAUGSTĀD. They are paid at Universal Postal Union rates. Mr. SIROVICH. Then, according to that statement, the French are really in partnership with the operators of the ships, putting in a certain amount of money and assuming a certain part of the liabilities and getting a certain amount of the profits; is that right?

Mr. SAUGSTAD. They are, on two lines particularly, the Far East and the Brazil Lines. They are in partnership indirectly in the C. G. T. by the process of being on the board.

Mr. SIROVICH. They contributed about $10,000,000 to their subsidy last year?

Mr. SAUGSTAD. I know, but the French Government assumes no percentage

Mr. SIROVICH. Does it participate in the profits at all of the
C. G. T.

Mr. SAUGSTAD. No, sir. May I say the French Government loaned
the C. G. T. a considerable amount of money during the period of
reorganization and it puts itself in the place of a creditor alongside

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