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with the administration of the regulatory powers. The bill, as it stands, does not provide adequate powers over accounting of all persons subject to the jurisdiction of the proposed act. These powers should extend to all persons under the jurisdiction of the new agency, including all American-flag common carriers and possibly other persons (American) subject to the Shipping Act of 1916.
Furthermore, the power to prescribe methods of accounting and to require statements in the case of contractors should not be limited to the contract transactions, as without complete statements or exami ion of the complete accounts the correctness of such statements, etc., cannot be ascertained. The need for a single dollar of subsidy cannot be verified without examination of the entire income and expense accounts. In this connection it is suggested that on page 27, lines 8-10 (p. 28, line 25 to p. 29, line 2) the words “relating to such contract and the maintenance and operations of the vessels, services, routes and lines covered by the contract" be omitted, and that in line 15 (line 7) after the word “Authority" there be inserted the words "balance sheets, profit and loss and surplus statements covering all of the transactions of the contractor and such other.”
It is also suggested that the description of affiliater, etc., companies in section 515 (a) (1) be made to correspond exactly with that suggested with respect to section 511.
In order that the Authority may be in a position to properly carry out even the limited list of duties hereinafter proposed, it would appear that should also have the power and duty of prescribing the uniform accounting requirements even though much of the auditing, etc. might continue for the time being to be performed under the Department of Commerce. The exact dividing line between the functions of the two agencies in this respect had not been fully developed at the time of the preparation of this memorandum. It might perhaps be well to include a provision that the Secretary of Commerce is authorized and directed to furnish the Authority with such accounting and other information as it may call for.
Section 517 (c): In its original form this section would probably have to be construed to require that these funds be kept on deposit in cash. The revision of this section found in Senate Committee Print No. 2 is believed to be much more practical. Investment should at least be permitted in Government bonds.
Section 517 (d). It is suggested that this section be amended to provide substantially as follows:
"It shall be unlawful for any contractor, its subsidiary, holding company, or affiliate, or the officers or directors thereof to own, operate, charter, or act as agent for foreign vessels or foreign interests, unless and until permission is first obtained from the Authority in accordance with regulations and orders prescribed by the Authority.”
Section 517 (e) (New): While section 11 (g) of the Merchant Marine Act, 1920, as amended, provides for insurance protection for amounts advanced as construction loans it is doubtful if that provision would extend to the construction differential subsidy. It is suggested therefore that at the end of section 517 there be added a new subdivision to the following effect:
"(e) The owner of any vessel constructed under the provisions of this title shall be required to carry insurance payable to the United States in addition to insurance required to be carried by section 11 (g), of the Merchant Marine Act of 1920, in an amount equal to the amount of any construction differential subsidy paid on such vessel.”
In this connection, the question also arises whether the performance of the obligations incurred by a recipient of a construction subsidy, e. g., agreement to operate the vessel in a certain service for a certain period, etc., are sufficiently secured. A reference to this matter found in the first sentence of section 503 of the bill as originally introduced has been omitted in Senate Committee Print No. 2. The bond provided for in section 504 is apparently for a limited purpose. It is suggested that a provision be included authorizing and directing the Authority to require proper security, in the form of a bond, lien, etc., to be given to protect the Government's interest in this matter.
Section 601. The new construction subsidy provided for in this bill is expressly limited to ships for foreign trade, but there exists considerable doubt under the present law as to whether a construction loan should be granted in aid of service op a line engaged in domestic commerce. This doubt is one of policy rather than as to legal power and it may be desirable to remove it in connection with the Teenactment of section 11 of the Merchant Marine Act, 1920, On the one hand it is frequently argued that all domestic commerce is a protected trade, and within that trade our operation should not be favored over another by additional Government aid. On the other hand a deep sea coastwise ship is just as valuable as any other in time of national emergency and in the interests of both safety and of replacements there is much to be said for the policy of making the construction loan fund available in the domestic trade.
Section 602: While section 302 of the Merchant Marine Act, 1928, authorized enlargement of the constrction loan fund to a total amount of $250,000,000, the amount actually in the fund at present is only $150,500,000, of which $39,392,150.35 is now available in cash and the balance is represented by unpaid construction loans. This blance may well prove inadequate for the increased demands which will be made upon the fund under the terms of the present bill. It is suggested therefore that proceeds from sales of ships and surplus property and/or interest on construction loans be authorized to be added to the construction loan fund subject to the total limitation provided in section 302.
REGULATION Section 701: Subdivision (1) gives the Authority specific power to prescribe minimum rates in interstate commerce. Subdivision (3) gives it specific power to prescribe minimum rates in intercoastal commerce but only in connection with suspension proceedings. The proposed change in section 18 of the Shipping Act, 1916, fails to require the filing of actual rates and the change in the Intercoastal Shipping Act fails to specifically say that minimum rate power can be exercised in complaint proceedings as well as in suspension proceedings. Great confusion will result if these two additional provisions are not specifically enacted and it is highly improbable that failure to put such provisions in the bill is intentional. The simplest way to accomplish this appears to be the following: On page 32, line 3, (p. 33, line 18) strike out the words "the last paragraph of” and strike out all of lines 5 to 11 (p. 33, line 20, to p. 34, line 2)." In lieu thereof insert the first paragraph of section 18 of the present Shipping Act, 1916, omit the remaining paragraphs, and add a new paragraph to read as follows:
“The provisions of the Intercoastal Shipping Act, 1933, as amended, shall also apply to all interstate transportation engaged in by any common carrier by water in interstate commerce as defined in section 1 of the Shipping Act, 1916, and every such carrier is hereby made subject to the provisions of said Intercoastal Shipping Act, 1933, as amended."
On page 33, line 18 (p. 35, line 9) the words "and may prescribe" should be struck out and on the same page in line 23 (line 14) the word "and" should be changed to "or." In lieu of the words "and may prescribe" in line 18 (line 9) put a period after "effective" and insert “Such orders, whether issued in suspension proceedings or under section 22 of the Shipping Act, 1916, as amended, may in appropriate cases prescribe.”
Some question has arisen under section 19 of the Merchant Marine Act, 1920, as it reads today, as to our power to enforce obedience to any rules and regulations. Section 29 of the Shipping Act, 1916, provides a method of enforcing orders and it therefore seems best to have section 19 provide for the fixing of rates, regulations, rules, etc., by orders. This can be done by making the following changes on page 32: In line 14 (line 5) strike out the word "make" and insert in lieu thereof "prescribe and order enforced” and in line 22 (line 13) after the word "prescribe" insert "and order enforced the.”
A number of apparent typographical errors appear in this section 19 as amended on page 32 (page 34). These can be corrected by the following: In line 14 (line 5) change the word “a” to “the”. In line 18 (line 9) insert the word "in" after the word “or”. In line 23 (line 14) strike out the words "rules and practices." In line 24 (line 15) strike out the words "and enforced” and insert in lieu thereof "and rules and practices to be observed”.
Section 702 (c): The question arises whether purely advisory powers conferred upon the Joint Transportation Board are sufficient, or whether that Board should have authority to make a controlling decision in the event of conflict between rail and water policies or between decisions of the two agencies. It is difficult to answer such a question a priori. Under all the conditions it is perhaps unnecessary to do so because if a few months' experience shows the desirability of giving the Board greater power that can readily be done by subsequent legislation.
Section 1005: It is recommended, be rewritten to give the Authority discretion as to when it should participate in conference discussions and negotiations, for the reason, among other things, that it would be practically impossible to have sufficient personnel to sit in on every such meeting held. This section should also be amended so that such representatives would not be voting upon conference decisions. The actions taken as a result of such decisions will frequently come before the Authority in its regulatory duties to decide whether or not such action violates the law. It is believed that a proper penalty for the refusal by a conference to permit representatives of the Authority to sit in on discussions would be disapproval of the agreement. The first change has already been made in Senate Committee Print No. 2 and can be effected in H. R. 7521 by striking out the words and directed" (page 48, lines 16–17). The other change can be effected by substituting the word “negotiations" for the word “decisions” in two places on page 46, lines 14 and 20 (page 48, lines 18 and 24), and by striking out lines 21 and 22 on page 46 (lines 1 and 2 on page 49) and substituting in lieu thereof the words " be deemed sufficient reason for the disapproval of such pool, conference, or association agreement”.
Section 1006: This section should be amended to cover receivers of freight as well as shippers. In view of the use of the word “contract” in section 1009 it may prove confusing to use the word "contract” in section 1006. It is also believed that this section should be limited to conferences in foreign trade.
These changes can be effected by striking out in line 24, page 46 (line 4, p. 49), the words “enter into contracts” and substituting "agree in writing”, by striking out the words in line 25 (line 5) "providing for a” and inserting
in lieu thereof "or receivers of freight in foreign trade to”, by striking out the first word “of” in line 24 (line 5), and by inserting the words “or receiver of freight” twice in line 12 (line 6), each time after the word "shipper.” As so amended the section would read as follows:
"The Authority shall have the power to permit members of conferences to agree in writing with shippers or receivers of freight in foreign trade to return a stipulated part of freight moneys to the shipper or receiver of freight in consideration of the shipper or receiver of freight confining his shipments to lines and vessels which are members of the conference."
In its present form, this section may prove ambiguous as to whether it goes to the extent of authorizing deferred rebates as prohibited in section 14 of the Shipping Act of 1916. This Bureau is not prepared to recommend such a relaxation of the prohibition now found in section 14. It is also suggested that it might be well to clarify this section and remove possible ambiguity by adding an appropriate proviso.
Section 1009: In view of the prohibition in section 14 against fighting ships and that to permit American-flag fighting, ships to operate while prohibiting foreign flagships to so operate might be in violation of treaties, it is believed that this section should be substantially modified. It is suggested that this be done by striking out all of the section appearing after the word "vessel” in line 3, page 48 (line 6, page 50), and by inserting in line 1 (line 4) between the words "give" and "aid" the following: “in such manner as it deems advisable". Section
(new): A new section should be written prohibiting false billing by shippers. This is something which carriers are unanimous in desiring and which no shipper or anyone else can properly oppose. False billing by shippers is a vicious practice widely used today. It is suggested that a section similar to that contained in the Eastman bill introduced by Mr. Wheeler (S. 1632) should be added. This provision is found on page 47 of that bill, section 221 (c).
Section (new): One of the weaknesses of the present situation is the fact that there is no specific penalty for a violation of an order issued by the Shipping Board. It is suggested that section 32 of the Shipping Act of 1916 should be amended to read as follows:
"That whoever violates any provision of this Act or any order promulgated by the United States Maritime Authority, except where a different penalty is provided, shall be guilty of a misdemeanor, punishable by a fine not to exceed $5,000.”,
ORGANIZATION AND ADMINISTRATION
Up to this point the comments have related to the proposed new substantive provisions. The bill provides also for major changes in organization and administration, most important of which is the creation of a United States Maritime Authority. Our comments on this phase of the bill are prefaced with a brief statement as to the widely varying nature of the functions to be administered.
This Bureau (which is now at the same time charged with administration of regulatory matters, with administration of some but not all of the existing subsidies, and with administration of the Government's business interests as owner, operator, mortgagee, and/or insurer, etc., of vessels) feels that it should briefly refer to some of the considerations bearing on the question whether all of these several classes of functions should be exercised by the same agency. This guestion becomes even more important if the new direct subsidies proposed in the pending bill are enacted.
The exercise of the sovereign power of regulation should ordinarily be separated as completely as possible from all conflicting influences. There is an incongruity in a Government agency in its regulatory capacity passing in a quasi-judicial manner on the possibly conflicting interests of several lines, one of which may be independent or foreign whereas another may be Government owned and operated, or subsidized by, mortaged to, and/or insured by that same agency.
But the regulation of deep-sea carriers by water is a very different matter from regulation of domestic carriers and public utilities with which we are so familiar in this country. Its occasion and purpose are not merely the protection of shippers and users, but, especially with the addition of the minimum rate provisions now proposed, extend also to the protection of carriers (both Americanflag and foreign) against each other, to the protection of American-flag carriers against lower cost foreign carriers, and finally to the protection of the taxpaver who, in the last analysis, pays the subsidy. There is an inevitable relation between subsidy and regulation which cannot be ignored, whether the two functions are in the same or in different agencies.
There is little question that the same agency should not administer regulation and also administer the Government's business interests us owner, operator, mortgagee, and/or insurer, etc. The experience of the former Shipping Board also indicates that one would almost inevitabley be subordinated to the other. On the other hand, as has just been seen, there is a relation between regulation and subsidies which from one standpoint would justify the administration of thie one and the granting of the other being handled by the same quasi-judicial agency. This was recognized in the report of the Interdepartinental Committee on Shipping Policy transmitted to Congress with the President's message of March 4, 1935. That report contemplated the merging of these two functions in a single agency and the retention in the Department of Commerce of the administratiop of all the Government's business interests as well as the day-by-lay detail of administering the subsidy contracts.
This Bureau questions the advisability of merging all three of these classes of functions in the same agency, as is proposed to a greater or less extent by the pending bill. Concretely, it believes that the proposed Maritime Authority should in any event not be burdened with the latter group of what may for want of a better term be referred to as the Government's business interests. It is recognized that there are arguments both ways as to whether the first two groups should be united in the same agency.
Probably the best immediate solution would be to transfer to the Maritime Authority at this time a limited list of functions, viz:
1. Administration of the regulatory powers;
2. Authority to adjust and settle all existing contracts between shipping companies and the Government (including Shipping Board as well as postal contracts);
3. Award of new subsidies (including construction loans) and possibly
4. Conducting all or some of the studies and investigations called for in sections 202 and 203 of the bill.
The seemingly short list of functions just mentioned can well employ the full time and attention for the first 10 or 12 months of the highest-caliber Maritime Authority that could be assembled.
We feel that the best results toward upbuilding a merchant marine will be accomplished if the Authority is not burdened from the outset with multitudinous and time-consuming administrative duties.
We therefore suggest that only the above-mentioned duties be transferred to the Authority at this time. Congress will be in session again the first of the year, and further adjustment of functions, if found advisable, can then be made.
It would appear that this suggestion substantially conforms with both the spirit and letter of Senate Committee Print No. 2, with a few exceptions, the most notable of which are the provisions of sections 602 and 603 transferring to tle Authority the administration of construction loan notes and mortgages, etc., and the administration of the insurance fund. In accordance with the suggestions just made, it would seem that these functions should for the time being remain in the Department of Commerce.
Specific changes in the bill necessary to effect these suggestions would be to omit entirely sections 602, 603, and 901. The latter section would appear to be unnecessary because all the power and authority therein referred to and not transferred to the new Authority are now already vested in the Department of Com.
merce and/or Merchant Fleet Corporation, and furthermore the concluding provision of section 901 that all such powers would be vested in the Secretary of Commerce alone might seriously and unnecessarily disarrange the present allocation of powers between that Department and the Merchant Fleet Corporation.
Conversely, it might be well to add to the bill a new general provision to the effect that.
"After any adjustment has been made or any financial aid or construction loan granted under the provisions of titles III, IV, V or VI of this Act, the entire matter and all papers relating thereto shall be transmitted by the Authority to the Secretary of Commerce for subsequent administration thereof in the same manner and through the same agencies as are now available to him in the administration of the powers and duties of the former Shipping Board.”.
It might also be well to correspondingly amend Section 601 by adding at the end of line 19, on page 30 (Committee Print No. 2) the words “insofar as they relate to applications for and the granting of and prescribing the conditions of construction loans."
Section 1: Inasmuch as there are many other provisions of law which affect the merchant marine and are still continued in effect, it is suggested that the word "law" be substituted for the words “this Act” in line 14 on page 2.
Section 202 (4): In its present form this provision seems too limited. It is suggested either that at the end of line 2 on page 7 (line 26 on page 6) there be added the words "and means by which the importers and exporters of the United States can be induced to give preference to vessels under United States registry" or that the words " by advertising and solicitation on the part of the operators": be omitted.
Section 204 (2): The words “of the United States" on page 8 line 8 (line 5) should apparently be “in the United States".
Section 205 (new): While the proposed new Maritime Authority would, like the present Shipping Board Bureau, have power to subpena witnesses, administer oaths, etc., in regulatory matters, experience has own the need for similar powers in other maiters, and the need will be even greater in connection with the duties imposed upon the Authority under sections 202, 203, 204, and titles III and V. Similar power is also given under the Securities Act. If such powers are considered necessary for the protection of investors they are equally necessary for the protection of taxpayers. It is suggested therefore that the following new section, which is substantially the same as the corresponding provision of the Securities Act, should be added as section 205:
Sec. 205. For the purpose of any investigation which, in the opinion of the Authority, is necessary and proper for the enforcement of this act, any member of the Authority or any officer or employee designated by it is empowered to administer oaths and affirmations, subpena witnesses, take evidence, and require the production of any books, papers, or other documents which the Authority deems relevant or material to the inquiry. Such attendance of witnesses and the production of such documentary evidence may be required from any place in the United States or any Territory at any designated place of hearing.
Section 401 (b): In addition to the scrapping subsidy provided in this section, provision is also made for the possible placing back in service of old vessels so acquired. If the taking back of vessels as thus authorized is desirable when a new vessel is to be constructed, it may be equally desirable where the Government already owns vessels which either in their present condition or when reconditioned would be better adapted to the service in which the old vessel or vessels are engaged. Only recently a case arose in which the interests of the merchant unarine would have been promoted if the Department of Commerce had possessed authority to take back 2 vessels previously sold to a line where as a result of changed conditions it was found that 2 other vessels in our laid-up fleet would be, when reconditioned, much better adapted to its service. It is suggested therefore that the scope of this section be enlarged to permit the Authority under proper conditions to authorize exchange of vessels previously purchased from the Government for vessels now on hand and better adapted to the present needs of the purchaser. It is also suggested that the last sentence be revised to permit scrapping of vessels now owned as well as those acquired under this section, and to make clear that the authority to scrap includes that to sell for scrapping. It is also suggested that after the words " reasonable value” on page 11, line 10, (page 13, line 10) there be added "in the world market”, and that after “suitable" in the last line there be added "provided there is a shortage of tonnage in such service or route."