arranged on that bill soon. They have had ample time in which to study their wishes and formulate their suggestions as to that bill, and the bill is not going to be shelved.

(The bill under discussion will be found in the appendix.)

REQUISITION OF VESSELS

SEC. 1004. Section 702 of the Merchant Marine Act, 1928, is hereby amended to read as follows:

"REQUISITION OF VESSELS

"SEC. 702. (a) The following vessels may be taken over and purchased or used by the United States for national defense or during any national emergency declared by proclamation of the President:

"(1) Any vessel in respect of which, under a contract heretofore or hereafter entered into, a loan is made from the construction-loan fund created by section 11 of the Merchant Marine Act, 1920, as amended-at any time until the principal and interest of the loan have been paid; and

"(2) Any vessel in respect of which an ocean-mail contract has been heretofore or is hereafter entered into-at any time during the period for which the contract is in effect.

The CHAIRMAN. Now we will be very glad to hear first Mr. Peacock, Director of the United States Shipping Board Bureau, who, I believe, has several amendments to offer. You can just incorporate those in the hearings and point out such of them as you want to, Mr. Peacock. You sent up a memorandum yesterday with a number of amendments, some of which are being taken care of, I may say, in this new committee print that will be out in the Senate tomorrow. The draftsmen could not get it together in time for me to send to the Printing Office last night, or we would have had the new committee print here today.

STATEMENT OF HON. J. C. PEACOCK, DIRECTOR, UNITED STATES SHIPPING BOARD BUREAU, DEPARTMENT OF COMMERCE

Mr. PEACOCK. Mr. Chairman and members of the committee, in response to the request of the committee to the Secretary of Commerce to have a representative present from the Department, the Secretary has asked me to attend the hearing and, as I have already stated before the Senate committee, the Department is, of course, generally in favor of this bill.

There are a number of detail suggestions and a few major suggestions which we have to make with respect to it. Most of the more important ones I have already mentioned in the testimony before the Senate committee and have incorporated all of those and a number of minor suggestions in a memorandum which I sent to you a few days ago, and which you have already referred to.

The CHAIRMAN. And which will be incorporated at this point in the record. I may say, in fact, I have a galley proof on my desk of your testimony before the Senate committee, and many of the sugges tions in this galley proof, I find, were suggestions that are outlined in this mimeographed memorandum. We have not sufficient mimeograph copies for everyone, but we are going to incorporate these in the hearings, and I will ask that the mimeograph copies that came from the Department of suggestions to this bill will be distributed to the members.

(The paper above referred to is as follows:)

DEPARTMENT OF COMMERCE,

UNITED STATES SHIPPING BOARD BUREAU,

Washington, April 25, 1935,

INFORMAL MEMORANDUM ON IDENTICAL BILLS 8. 2582 AND H. R 7521 a15e reference in this memorat dum are to Committee Print 22 with earn nonding references in parentheses to the original

'I

diewed r der pre eina! head” gs relating to subsidies, regu-
Animum strat, di, in the or fer named, with a fit al section
ded a ber of menor comments of a misectia eous or
stenorati im is wc in nosite of suggestions from, all of the
BANT
No efort as boet t, ade to wiggest major

exspt in a few pratar en W ere administrative exper

ail am rade trabe. The entire effort has Tjenerat i am con-tr jetive D 1o at ire a d to confire it to ! -, t in perfect, g the general seseme sit up in

Lawns of gely a troduced T B crest strot gly reaf rm the
Pr bertad the Interdepertige,tai Comittee on
De feet subsidy through po tal eos traets should be
CAPVT 1- a vd by direet se,bidies such as are provided for m
rfit in t, thorough second with the red't as set forth
Pr
Where's Bles provoso » relativ · to posta, co tracts
femu trebala d the oceani mia ¦ contract provisions of the Mer-
Act. 1928 are renaled

སྩས ༞ 、,་!.* Comantice Ppt No 2 I eat reet or, with th
401 a 443 of the Meres ** N° 1 1, 1928, attention
།།།.”“!mtu* * ! *
rep
dvario is provis
order to accord wit, tre now oral balettret wy
of wort.o 4-』iott༄ I{wt vkf ac% ! u" s fuu th" fxT@¢ € ! Mo;s! * o$

etion joan tor is tot appoed for

I offer to ever nil es-es it is negested to strike o
to the end of the were tot, qui dit sert the fo

kjet Vimmel in caturated on a voyage it for trade but makes it feratura at ports within the United States for the joy fug or the artesang mane, of passengers between ports within te Exited States, or is oper

ated in the joint domestic and foreign trade, the owner shall refund only a proportion of the repayments for such period equal to the ratio of the revenue derived from domestic trade to the revenue derived from the foreign trade."

It is also suggested that at the end of section 505 (c) a similar proviso be added to the following effect:

"Provided, That in the case of vessels engaged in foreign trade but making intermediate stops at ports within the United States for the loading or unloading of cargo, mail, or passengers between ports within the United States, there shall be no operating differential subsidy for that proportion of the operation that is in such domestic trade."

Section 505 (c): This paragraph provides for an "operating differential subsidy." It states that the basis shall be "an amount per voyage for the operation and maintenance of said service, route, line, vessel, or vessels, based on the difference in cost of insurance, maintenance, repairs, and the wages and subsistence of officers and crews", etc.

The experience of both the Shipping Board and the Shipping Board Bureau argue strongly that this is a most impractical and undesirable basis on which to predicate the payment of the operating subsidy, especially when read in conneetion with section 507 (b) which prohibits readjustment of the amount of the subsidy any more often than once a year. It is too similar to the so-called "lump sum" operating agreement which is probably the most unsatisfactory form of operating agreement the Shipping Board has ever had. Some of the principal faults in such a system may be briefly mentioned:

1. Maintenance. It is almost impossible to determine a fixed sum per voyage for maintenance costs, as such costs cannot be ascertained on a voyage basis. The Shipping Board and the Shipping Board Bureau have in connection with the so-called "lump-sum agreement" of maintenance made extensive studies of the costs of various types of vessels in various services for the purpose of fixing an amount of lump-sum compensation per voyage, and it has been found impossible to create a reserve for maintenance which would cover with any degree of accuracy the probable maintenance costs of a vessel for the voyage periods. As an illustration, certain damage repairs are recoverable from insurance underwriters if they exceed the franchise (usually $4,850) on selected voyages. The amount of such repairs is not determined upon a round voyage, but upon any two consecutive legs of such selective voyages. If damage repairs do not exceed the franchise, they are treated as either maintenance repair or voyage repair.

2. Repairs. The objections in case of repairs are primarily the same as in the case of maintenance. In the shipping business, repairs are divided into two groups, namely, maintenance repairs and voyage repairs, and studies made have disclosed that it is impracticable to allocate a fixed sum per voyage to cover either maintenance or voyage repairs.

3. Subsistence of officers and crews. It is impracticable to determine a subsistence differential on a voyage basis for the reason that the domestic and foreign cost ratio could not be readily obtainable on such a short period of service.

Periodic contracts affecting subsistence, stores, and wage agreements may change within the voyage, and in some instances may be retroactive and affect prior voyages. The differential with respect to subsistence should be predicated upon at least a year's operation.

The Shipping Board Bureau, out of its experience and that of the Shipping Board with the so-called "lump-sum contracts," etc., has found that forecasts made on operating costs fluctuate extensively. There is such a constant variation in costs that the Bureau has been unable, in its attempts to fix a compensation equitable alike to the Government and to the operator, to allocate operating costs on a voyage basis. The studies made indicate that typical voyages do not serve as guiding measures in the fixing of a lump sum compensation per voyage. This condition also applies to wages, food, and stores. If a vessel incurs insurance damage, a certain portion of subsistence, wages and stores is recoverable from the underwriters, provided the loss is due to the mari e accident and subject to the franchise. While the franchise is usually $4,850 for the consecutive legs of the voyage, some shipping companies have a franchise which apply to the aceident instead of the voyage.

The above applies especially to companies who are not self-insurers. In the event that companies are self-insurers, the question presents itself as to who would determine the amount of such charges that should be borne by the operator out of the insurance funds created by such operator. This also presents the question whether the insurance rate used by the self-insurer is comparable with the rates quoted by insurance companies for similar risks.

T

experience of this Bureau with lump-sum contracts suggests that the only i practica. provision for an operating subsidy of this sort would be that it to the difference between the items specified, that it should be based on sen inting for such periods not longer than 1 year as the Authority shall ari that the administrative ageneies should be authorized and directed =ase from time to time reasonable payments on account. The qualification tras-table" should also be made with respect to the term "cost" as nd it sect, in 505 el. It will be noted that the basis here suggested for com@ the operating subsidy is consistent and in accord with the method in which oping tra le promotion and is to be con puted under section 513. It may regar less of whether this section is revised as here suggested, somė nwha and be added similar to the limitation provided in that section. 'an 507 e This provision for appeal to a statutory district e›urt and the Supreme Court of the United States suggests serious question as exte tuercy and constitutionality Cf Williamsport Wire Rope Co. v. ** 277 US 537 ; 014 Colony Trust Co v. Commissioner of Internal 274 U S. 716 ; United States Navigation Co, v, Cunard Co. (2×4 U. 8, Williamsport case arose out of a somewhat similar provision of the Excess is Tax Act which provides for determination of the tax in special cases by aron with the regularly determined tax of representative corporations. guestion was one of statutory interpretation as to whether the Court of ● ? ad cor current jurisdiction with the Board of Tax Appeals to review such natun by the Commissioner of Internal Revenue. The nature of the ramota was of a very similar nature to that called for in the determination of je tomed operating subsidy. In support of its decision that Congress did not It' at such a determination should be reviewable by the courts, the Supreme etoplamızed that "The task was one that could only be per

yan official or a body having wide knowledge and experience with the £ je blems concerned"; that "The soundness of the judgment exercised by a i vidini or body to whom the task was confided would depend largely dive the extent both of the knowledge of the special subject possessed and of the etenence had in dealing with this particular class of problems”; that "the piced ration⚫ are facts concerning the situation of a large group of tax;-avers w'uch can only be known to an official or a body having wide experience en matters and ready access to the means of information"; and that it would ter i to defeat rather than promote the quality of administration sought by the statute if the administrative determinations "in this delicate and complex phase od reven‚e administration would be subjected to review by a large number of arta, none of which have ready access to the information necessary to enable er, to arrive at a proper conclusion in revising his decisions." While that case tu ataxi to a tax statute and the proposed bill relates to subsidies, both involve the same sort of comparison of facts and figures, and the reiterated and ve expressionis just quoted from the opinion of the Supreme Court in the i kad mapori case are significant and very much in point. The whole trend of recent argislation has been to relieve the Supreme Court of cases not involving 4 general or widespread effect; and the present proposal would seem to be taturet step backward

• Oud Colony case, however, is even more directly in point. There the reme Court on its own initiative expressiv raised the question as to whether *e was power in Congress to confer jurisdiction upon the courts to review the ✅ an administrative agency such as the Board of Tax Appeals and set the rar i wn for reargument on that precise question. The Constitution in effect the jurisdiction of the Supreme Court and the lower Federal courts to prowhich involve a “case or controversy”. Section 507 (e) relates rather a proposed revision of a contract, which revision is contemplated from the tan to a case or controversy as to the effect of an existing contract. in the Old Colony case the Supreme Court sustained its jurisdiction to review of the Board of Tax Appeals its opinion suggests very grave doubt as hether it would sustain the jurisdiction now sought to be conferred.

e it is recogi tred that an operator who enters into a subsidy agreement is *** tend to some assurance of permanence and stability vet after all the subsidy sanoatrig ́t bounty which cannot be successfully administered without the

est exercise of discretion on the part of those administering it. If the Aurty can be trusted to make the entire contract at the outset, it would seem that is the same token it should be trusted to make such adjustments as may be necesary from time to time. If it grossly abuses it discretion, the regular procesars of inw would ordinarily afford suthcient protection.

It is recommended therefore that section 507 (c) be omitted entirely. Section 509: There should be no ambiguity as to whether the prohibition of this section extends to agreements, etc., for management. It is suggested that in lines 9, 15, and 21 on page 22 (lines 5, 11, and 17 on p. 24) the word "management" be added in commas after word "maintenance".

Section 511. It is suggested that in order to more effectually accomplish its obvious purpose this section should be amended to read substantially as follows: "No contractor under a contract in force under this part shall suffer or permit any insurance, stevedoring, terminal, ship repairing, towboat, management, operating, or other services of like character to be supplied vessels operated under such contract by any affiliate subsidiary or holding company connected with or directly or indirectly controlling or controlled by such contractor except with the written consent of the Authority and upon such terms as the Authority may prescribe.'

Management and operating services are among the commonest types of services handled in this way and it is most essential that there should be no ambiguity as to their inclusion within the scope of this provision. Such services are also at times rendered by affiliates or holding companies as well as by subsidiaries and it is most desirable that the phraseology in this respect should be made as broad as that used in section 515 (a) (1).

Considerable dissipation of indirect subsidy payments in the past has occurred through such practices as are here sought to be controlled. On the other hand it is often entirely legitimate for services to be rendered in this manner. It is therefore desirable to give the Authority a sufficiently flexible degree of control such as is permitted by the words which it is suggested be added at the end of the section.

There are, of course, many instances in which the existence of a group of affiliated companies is proper and perhaps even necessary. On the other hand, it should not be overlooked that such set-ups have in the past been perhaps more responsible than any other single contributing cause for the seeping away of Government aid to shipping and the failure of each dollar of such aid to yield a full dollar's worth of results. The mere requirement of uniform accounting is not in itself sufficient to prevent continuance or repetition of such conditions. It is impractical, however, to prescribe in legislation the exact extent to which a corporate set-up of this sort would be permissible in any particular case. A single dollar of subsidy money, however, leavens the recipient's entire income from all sources, and every effort should be made to insure that in such cases any group of affiliated corporations is compact enough to permit quick and convenient audit of income and expenses. It is suggested, therefore, that after the word "consent" on page 24, line 7 (p. 25, line 24) there be inserted the words "and upon such conditions as may from time to time be prescribed by".

Section 513: Attention is directed to the fact that this section relates to the development of the merchant marine only as that is incidental to the development of the foreign commerce of the United States. It is possible that this may expand the functions of and the demands upon the Authority to an extent which may embarrass or conflict with the work of other agencies of the Government which are directly charged with the promotion of foreign commerce. The implied guaranty of a return upon capital up to 6 percent if an operator can bring himself within this provision may also have certain undesirable results. This Bureau is not prepared to make a final recommendation with regard to this sec tion but feels that it should note that there exists a very wide degree of difference of opinion as to the advisability of certain of its provisions.

Section 514: It is believed that the form of the corresponding provision in the Securities Act is preferable. It is therefore suggested that in line 18 on page 26 (line 11 on p. 28) there be inserted after the word "financial" the words "and other"; that in line 20 (line 13) there be inserted after the words "shall be" the words "under oath or affirmation and"; and that lines 21 through line 2 on page 27 (lines 14 to 19) be amended to read:

"Any person who willfully in an application for financial aid under this title or in any statement required to be filed therewith, makes any untrue statement of a material fact or omits to state any material fact necessary to make the statements not misleading, shall upon conviction be fined not more than $5,000 or imprisoned not more than five years or both."

Sections 515-516: One of the most important reasons for requiring uniform accounting, etc., is as an essential safeguard to the administration of subsidies. But that is not the only need or reason for such a provision. It is also needed in connection with the investigation and promotion duties imposed by the bill and