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the members of the association. The Haag proposal has never been before our association because we saw it first when we arrived in Washington yesterday morning. I am prepared to talk to you a little bit about it, with the provision, as we have arranged with the Senate committee, that we go back and call our association together again on Monday to take up this Haag bill and see just what the shipping industry does feel about it; and then be prepared, if it is humanly possible, to be back on Tuesday morning next, when we may be in position to show
what the steamship owners have to say about the Haag proposal. But I think I can say a little bit about it as I did today over in the Senate committee.
Mr. Sirovich. Is this Haag proposal a radical departure from the
Mr. CAMPBELL. In one particular, in one section. In the great bulk of its written provisions in financial effect it is substantially the same with a slight difference in the percentage. It reduces the amount which the owner must pay down from 40 to 20 percent of the European construction cost.
The CHAIRMAN. I may say one thought about that is that the original bill might have required too much of a down payment, and for that reason may have been rather favorable to the establishment of monopolies; that by the requirement of a smaller cash payment it might favor smaller operators who wanted to operate.
Mr. CAMPBELL. We were told that was the conception that underlay it.
The CHAIRMAN. It would prevent monopolies?
The Authority is authorized and directed to consider the application of any citizen of the United States as defined in section 38 of the Merchant Marine Act, 1920 (U. S. C., title 46, sec. 802), for financial aid in the construction, outfitting, and equipment of new vessels or any vessels obligated to be built under a contract with the United States or the reconditioning of vessels already to be built, to be used on an essential service, route or line in the foreign commerce of the l'nited States.
Our association suggests the insertion of "any vessels obligated to be built under a contract with the United States", with a view to taking care of the situation which now exists with the United States lines in connection with what has been called the "New Washington. As you know, they have made a contract with the Government by which the Leviathan was surrendered to the Government and provision made for the construction of a new ship to form a team of three, with the Manhattan and the Washington, so as to bring that service up as near as possible on a parity with the foreign services with which it is in competition.
The CHAIRMAN. That arises from the high cost of operating the Leviathan?
Mr. CAMPBELL. Yes. We suggest the insertion of this because, though nothing has been done on that new ship at all, the Government may find it desirable to bring that new ship in under this differential. Therefore it ought to be broad enough so that the Government has authority to do it if it sees fit. That is the purpose of that.
There may be other contracts, but if there are any they have not been presented to our association, that we know of.
We have no further suggestions with reference to section 501.
That goes on to provide if the authority determines that the service requires a new vessel to meet competitive conditions, if the plans and specifications meet the requirements of commerce, and if the applicant possesses the ability, experience, financial resources, and character, and so forth, successfully to operate, then the authority shall pursuant to the provisions of this act determine the difference between the domestic and foreign construction cost of a vessel of the type proposed to be built, or the difference between the domestic and foreign reconditioning cost of a vessel of the type proposed to be reconditioned.
The specifications are to be delivered to the Navy Department in order that the vessel "may be adequate as a naval or military auxiliary - we suggest changing "and” to “or” on line 2, page 10--"or otherwise suitable for the use of the Government in case of national ererçency or for the national defense."
Mr. Sirovich. Do you think there ought to be a limitation of time regarding the reconditioning of ships after they have had a certain mortality table?
Mr. CAMPBELL. No; I think that is something which should be left to the discretion of the owner and the Authority. They can best judge of that. There is a wide difference of opinion on the part of people about reconditioning ships.
Mr. Sirovich. I mean, if you wanted to keep abreast of economic conditions, invention, and perfection of scientific development, there ought to be a limitation in there as to the time beyond which we should not subject a ship to reconditioning.
Mr. CAMPBELL. Yes; but I think it would be safe to say, by and large, under the conception of this bill you are going to see new construction rather than reconditioning, and especially in view of the Haag proposals which are coming in.
Mr. Sirovich. That is the same thing we run into in slum clearance. If you are going to recondition the old, obsolete buildings you are simply perpetuating the system you want to get rid of. if we are in favor of developing the finest merchant marine, which I am in favor of, and giving every aid and assistance we can, I would like to see the development of new ships, meeting new conditions with new scientific perfections that will make them the leaders of the sea. That is what you are accomplishing under this bill if the Haag proposals are carried through. If you do not put in any limitations for reconditioning, on the basis that you want to squeeze all the money you can out of an old ship, you will keep on reconditioning it.
Mr. CAMPBELL. No, Mr. Sirovich, because most of the money which has gone into reconditioning vessels has been loaned by the Government, and will continue to be loaned under the constructionloan fund. If the Authority is constituted of the character of men we hope for, can they not be trusted to exercise a sound discretion on that? I would think so.
I do not think that any of us can say that 10 years or 12 years or any number of years from now a vessel should be reconditioned.
Mr. SIROVICH. We heard the same story when you had the Shipping Board. You saw what was going on with the Shipping Board. Everything we have now is being attributed to the sins of omission or com
mission of the Shipping Board. Ten years from now we will come back and say that the Maritime Authority did not live up to what we expected.
Mr. CAMPBELL, I will not be here then.
Mr. SIROVICH. We know human nature and human frailties. I think the membership of this committee are really earnest and sincere in their desire to help develop a great merchant marine.
Mr. CAMPBELL. I know that.
Mr. SIROVICH. When the situation is such as stated by Professor Haag here the other day, that out of the 13,000,000 tons of ships we had all except 2,000,000 tons could not be sold for junk, I think the time has come and that this is the propitious moment for the merchant marine operators to take advantage of the opportunity offered by the Government and begin to develop the finest, the newest, and the best merchant marine.
The CHAIRMAN. As to the misdeeds attributed to the old Board, we have tried by safeguards in this bill to protect against those abuses.
Mr. CAMPBELL. The difficulty I would find with that, Mr. Congressman, is fixing a term of years. Are you going to say there shall be no reconditioning?
Mr. Sirovich. Oh, yes; but I meant there ought to be a period over which there should be no reconditioning. That is the trouble with everything in our country. We have obsolescent furniture, clothing, and everything that you could think of that ought to be destroyed and something new built, to put human beings to work. If you are going to keep the old things going on the theory that it is economical, when the Government is spending hundreds of millions of dollars of the taxpayers' money to put people to work, I would rather see them built, because 90 percent of the money that is appropriated for the construction of new ships goes for labor and employment, from what we have been told by the experts.
Mr. CAMPBELL. I believe that is correct.
I think we will come back to a discussion of that very point when we come to the Haag proposals.
The CHAIRMAN. I think so.
Mr. CAMPBELL. Because it comes into it quite prominently, and we can understand the possibilities of a reconstruction situation better then.
In case the said specifications shall be satisfactory to the Authority and shall be approved by the Authority and the Navy Department, the Authority shall have the authority to grant a subsidy of such amount as will equal, but not exceed, the difference between the cost of construction or reconditioning of the said vessel in an American shipyard and the cost of constructing or reconditioning the same, or an equivalent vessel, under substantially the same specifications in a foreign shipyard of equal standing: Provided, however, That the said subsidy may be increased to the extent of the extra cost of constructing, reconditioning, or equipping said vessel as a naval auxiliary, together with the estimated present value of the increased cost of operating such vessel over its economic life by reason of such naval provisions over the cost of operating such vessel for commercial purposes.
Again, as I say, the question of reconditioning is something that will be solely and absolutely in the control of the Authority, and the Authority will have to deal with it as seems proper.
Mr. SIROVICH. You mean this bill gives them the option either to affirm or deny the right to recondition?
Mr. CAMPBELL. Yes; because all the owner can do is to apply for the constructional aid. Whether they go on with it or not is for the Authority to determine. It is absolutely within the control of the Authority.
Mr. SIROVICH. Therefore, I was thinking if it would not be right just at that point there to have the committee put in later on the sense of the House of Representatives and the Senate that it is the intention of Congress to get the newest ships they possibly can and have very little reconditioning. • The CHAIRMAN. I think that will be very clearly demonstrated in the discussion of the Haag proposals, if we will just wait.
Mr. CAMPBELL. I think the shipowners subscribe to that doctrine. We suggest the addition of a new paragraph on page 10, beginning with line 16. It is absolutely new. Before I read it I will state its purpose.
The Navy Department is asking for high-speed tankers as naval auxiliaries. I think that Mr. Haag of the Shipping Board, who is as well informed a man upon this situation as there is in the country, will tell you that there is no merchant vessel of greater value as a naval auxiliary than the tanker. He stated yesterday before the committee a fundamental fact and that is that the fighting ships can go just as far and just as fast as the tankers can accompany them, because they furnish the life blood, they furnish the fuel.
The Navy Department finds itself in a situation where it is urging the need of 16- or 18-knot tankers. Tankers of that speed are far
beyond the requirements of commercial service, and the increased • cost of building vessels having those characteristics should be absorbed by the Government as a cost of national defense.
The CHAIRMAN. It is just as though the Government were building tankers for that purpose.
Mr. CAMPBELL. Yes. In fact, what the Navy is getting is what they would otherwise have to build themselves. But those vessels are to be used in commercial business, and the Government will bear only the cost of the naval characteristics of the vessels.
So we provide: If it is found, after consultation with the Navy Department, that the construction of oil tankers of high speed, or embodying other changes, additions, or improvements not required for commercial service, is advisable for national defense as naval auxiliaries, the Authority shall have authority to grant a subsidy hereunder of such amount as will equal, but not exceed, the extra cost of so constructing and equipping such vessels. The specifications for any such vessel shall be approved by the Navy Department and be satisfactory to the Authority. A contract for such subsidy shall be made by the Authority with the owner and the shipbuilder and shall provide for the payment of said subsidy direct to the shipbuilder, provided that the owner agrees to scrap and we want to add, “or lays up in reserve". an equivalent amount of tonnage.
It would be injurious to say that the tankers must be scrapped because they may be needed very badly in case of an emergency. So they ought to be either scrapped or laid up in reserve. .
Such vessels shall be built within the continental limits of the United States as a result of competitive bidding, with the right on the part of the owner or the Navy Department to reject any or all bids. Said subsidy shall be paid by the Authority out of the construction-loan fund created by section 11, Merchant Marine Act, 1920, as amended, or out of other available funds.
You will observe that that only puts upon the Government the cost of adding to the commercial ship the characteristics needed as a naval auxiliary. It is not even asking the Government to bear the cost of carrying those on through the operating life of the vessel. It is the cheapest way and the best way for the Navy to get what it so badly needs.
Section 502 grants the Authority power to enter into a new contract on the basis which we have just discussed.
Section (b) reads:
In case no construction loan is applied for by the applicant for financial aid, the construction subsidy shall be paid to the shipbuilder ratably with the payments made by the applicant, or otherwise as the Authority may determine. In case a construction loan is granted, such loan shall be for a sum not greater than three-fifths of the net cost of the construction, outfitting, and equipment, or reconditioning, after the deduction of the construction subsidy, and no advance shall be made on such loan until the applicant for aid has paid to the shipbuilder not less than 25 per centum of such total cost not including the construction subsidy.
The only change we suggest in there is simply for clarification, so that under that provision-it is important to bear it in mind in connection with the Haag proposals—the Government would pay the difference in the cost of building here and abroad. It would loan to the owner 80 percent of the so-called “European cost" or foreign cost, and the owner would put in 40 percent of the foreign cost.
In contrast with it the new Haag proposals are that the Government build the ship and sell it to the owner at the European cost with 20 percent down and the balance over a period of 20 years.
Mr. Sirovich. Is that the Haag proposal?
Mr. Sirovich. Let us look at it for a moment to clarify the situation so I will understand it:
The present proposal without any law whatsoever entitles the constructor of a ship to borrow 75 percent under a mortgage from the Government of the United States and he pays in cash 25 percent; and the balance of 75 percent which he receives as a loan he can amortize over a period of 20 years. That is the present law.
Mr. CAMPBELL. No, I do not think they go 20 years, do they?
Mr. Sirovich. No, that is the present law. Let us suppose an owner wants to build a ship for a million dollars. He pays in $250,000 cash. The Government takes a mortgage of $750,000, which be has a right to amortize over a period of 20 years. That is the present law.
The new law, that I read in the original bill that was presented here, the Bland bill, provided that the Government of the United States, as we originally discussed it, would find out the cost of constructing a ship in this country and the cost of constructing a ship in a foreign country, and the differential between the two would be the subsidy of the Government for construction; and the balance left over I thought ought to be left upon the old basis of 75 percent as a mortgage to be amortized over a period of 20 years, and 25 percent to be paid in cash. But this present law, as amended, as I see it, in its second amendment, provides that the owner is to get a 60-percent mortgage and pay 40-percent cash, to which I would be opposed,