Mr. HAAG. I am familiar with the President's message delivered to Congress on the merchant marine policy and, in my judgment, the way this part of the bill is drafted conforms to the ideas of the President.

The CHAIRMAN. That is the draft which you are going to present to us now?

Mr. HAAG. Yes.

Mr. WEARIN. You are familiar with the fact that the President recommended that Congress should terminate the practice of loaning money for shipbuilding, are you not?

Mr. HAAG. I am thoroughly familiar with that.

Mr. WEARIN. Does this amendment you have here proposed do that?

Mr. HAAG. It does.

Mr. WEARIN. It does away with construction subsidies?

Mr. HAAG. What this plan accomplishes, if I may just read for a minute

Mr. LEHLBACH. Just a moment, for the record: The President did not suggest doing away with construction subsidies; he affirmatively recommended that the differential for construction differences in cost be paid. What he did in a general statement recommend was the doing away with the loaning to shipowners or prospective shipowners of that part of the money which they must themselves

furnish.

Mr. WEARIN. As I remember the words, they are these-I am quoting now from his statement

In setting up adequate provisions for subsidies for American shipping the Congress should provide for the termination of existing ocean-mail contracts as rapidly as possible and it should terminate the practice of lending Government money for shipbuilding.

Mr. LEHLBACH. Yes; but then he goes on and recommends the payment of the differential in the cost of construction and the payment of a construction subsidy.

The CHAIRMAN. Yes.

Mr. LEHLBACH. And what that relates to, the thing you have just read, in my opinion, deals with lending a ship operators that portion of the money which he himself is supposed to furnish.

Mr. WALLGREN. What percent does that amount to of the total cost of construction, approximately?

Mr. LEHLBACH. Well, whatever the difference of the foreign cost of the ship is.

Mr. SIROVICH. And even if the President said that, I think the President has been misadvised; and had he taken our hearings and read our hearings I think he would readily have realized he could not leave it to the shipowners, or otherwise the shipowners could not build at all; they would be demoralized completely.

The CHAIRMAN. You mean they could not get the money. Mr. SIROVICH. They could not get the money. And if the President made such a statement and meant it, it would be instrumental in destroying what little merchant marine we have left; and, even if the President has said it, I would vote against it; because from my reading I am convinced the only way to build up a merchant.

marine is to have a construction differential and an operating differer tral; otherwise it cannot be run. And I came here just the same as you, Mr. Wearin; I was just tired of helping to build up individual operators, but I have realized from the testimony that has been given here-which I have taken in faithfully every morning until 4. 5, and 6 o'clock in the afternoon-it is absolutely impossible for the United States to have any kind of a merchant marie if we are gong to depend upon that kind of a policy that you have been talking about. It is impossible. We have to have a construction differential to help build a merchant marine and we have to give them an operating differential in order to operate.

The CHAIRMAN. I was just going to add that one thing to be taken into consideration is the fact, unless some aid of that kind is granted, we may find ourselves in the position of granting aid to monopolies ard to the big men who can finance it and would be leaving out of it the smaller ports and less competent financial interests that could develop a marine in the smaller ports and so equitably take care of the whole United States.

Mr. SIROVICH. Mr. Chairman, I do not think they could even do that; because, from my study of the figures, I want to say this, that we have 5,100,000 tons of ships, excluding the Lakes carriers and tankers, that are over 10 years old. That is 96 percent of our available tonnage. And we only have 300,000 tons, or 4 percent of the ship, that are under 10 years old. And how you can run a merchant marine on that basis is beyond me: I cannot see it. And the only thing we can do is to run the merchant marine by having a construction differential and an operating differential and to see that it is honestly administered by honorable men who run it for the benefit of the people of the United States.

The CHAIRMAN. Now, let us hear Mr. Haag.

Mr. HAAG. In answer to the question, I would like to show what the plan accomplishes.

First. It makes possible a direct subsidy plan whereby no funds are paid by the Government to the shipowner where the credit of the Government is used.

Second. Construction loans are abolished for shipowners operating in the foreign trade.

Third. It makes posible a prompt, orderly, and continuous shipreplacement program which will result in increased activities of mines, forests, factories, and transportation facilities, thereby providing employment for American labor throughout the entire country. Fourth. It provides the United States with a highly competitive and economically operated American built and owned merchant marine which will meet adequately the commercial, naval, and military requirements of the Nation.

Fifth. It reduces the cost of building ships in the United States. reduces the cost of operating ships under the American flag, stimuLates patronage of American ships, and contributes toward permanent national recovery.

All this can be accomplished without an increase in the present cost of aiding American shipping operating in the foreign trade. Now, the redraft I have submitted provides [reading]:

TITLE V.--FINANCIAL AID TO THE MERCHANT MARINE

PART 1. CONSTRUCTION DIFFERENTIAL SUBSIDY

SECTION 501 (a). 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, to be used on an essential service, route, or line in the foreign commerce of the United States. If the Authority determines that (1) the service, route, or line requires a new vessel of modern and economical design to meet competitive conditions or to further promote the foreign commerce of the United States, or if it is found after consultation with the Navy Department that the construction of such vessel is advisable for national-defense purposes; (2) the plans and specifications of the proposed vessel as prepared and submitted by the applicant meet the requirements of commerce; and (3) the applicant possesses the ability, experience, financial resources, and character necessary successfully to operate and maintain such vessel in the proposed service, the Authority shall then, pursuant to the provisions of this act, determine the difference between the fair and reasonable domestic and foreign construction cost of a vessel of the type proposed to be built.

(b) (1) The said plans and specifications shall be submitted to the Navy Department, who shall have the right to suggest such changes therein as it may deem proper or necessary in order that the proposed vessel may be adequate as a naval or military auxiliary and otherwise suitable for the use of the Government in case of national emergency or for the national defense. (2) In case the said plans and specifications shall be satisfactory to the Authority and shall be approyed by the Authority and the Navy Department, the Authority may grant a subsidy of such amount as will equal but not exceed the difference between the fair and reasonable cost of construction of the said vessel in an American shipyard and in a foreign shipyard, such difference to include any added construction cost incurred solely by reason of the incorporation in the plans and specifications of national-defeuse requirements.

SEC. 502. The Authority is authorized to (1) enter into a contract with a shipbuilder for the construction, outfitting, and equipment of the proposed vessel and for the payment by the Authority to the shipbuilder, on terms to be agreed upon in the contract, of the cost of the vessel, out of the construction-loan fund created by section 11 of the Merchant Marine Act, 1920, as amended (U. S. C., title 46, sec. 870, Supp. VII, title 46, sec. 870), or out of other available funds; and (2) concurrently with entering into such contract with the shipbuilder, the Authority is authorized to enter into a contract with the applicant for the purchase by him of such vessel upon its completion, at a price corresponding to the cost, as determined by the Authority pursuant to the provisions of this act, of building such vessel in a foreign shipyard.

The difference between the construction cost of such vessel and the purchase price by the applicant shall be deemed to be the construction subsidy authorized by section 501 hereof. In such contract between the applicant and the Authority, the applicant shall be required to pay the Authority a sum equal to 20 percent of the purchase price of the vessel, said payment to be made at the time and in the same proportion as provided for the payment of the construction cost in the contract between the shipbuilder and the Authority; and the balance of such purchase price shall be paid by the applicant in not to exceed 20 equal annual installments, the first of which shall be payable 1 year after the delivery of the vessel by the Authority to the applicant. Interest at the rate of 31⁄2 percent per annum shall be paid on all installments remaining unpaid.

PART 2. EMERGENCY REPLACEMENT AID

SEC. 503. During a period of 7 years from the date of approval of this act, the Authority is authorized and directed to consider the application of any citizen of the United States, who operates in the foreign trade of the United States, as hereinafter defined, a vessel or vessel which shall have reached 13 or more years of age on July 1, 1935, for financial aid, pursuant to part 1 hereof, in the construction, outfitting, and equipment of a new vessel or vessels to replace in such foreign trade such vessel or vessels which shall have reached 13 or more years of age on July 1, 1935.

If the Authority shall deem it desirable and he essary to grant financial nid form, h regiscement of a vessel or vessels, it may do so, in accordance with part 1 hereof, but the contract between the Authority end the applicant for the purchase of such vessel or vessels, pursuant to section 502 hereof, thay provide for the payment of the purchase price in not to exceed 20 equal annual irst llments, the first of which shall be payable upon signing of the contract between the applic int and the Authority, and the remainder of which shell be payable commencing 1 year after the delivery of the vessel or vessels by the Authority to the applicant.

Sre 504. Upon completion of the construction of any vessel and its delivery by the shipbuilder to the Authority, the vessel shall be documented under the laws of the United States, and concurrently therewith or as soon thereafter as fir cricnble the vessel shall be delivered to the applicant with warranty against Few pursuant to the contract of purchase between the applicant and the Authority hereinbefore provided for The vessel shall remain documented under the laws of the United States for not less than 20 years, and so long as there remains due the Authority any principal or interest on account of the purchase price, whichever shall be the longer period.

SC 35 The Authority shall require the proposed construction, outfitting, auf equipment to be done in a shipyard within the continental limits of the United States as the result of competitive bidding between the shipyards desig nated by agreement between the Authority and the applicant, with the right of the Authority and the applicant to reject any or all bids. The Authority is authorized and directed, so far as it may be practicable, to secure an equitable division of shipyard work amongst the shipyards situated on the several coastal regions of the United States

Sre 306 No vessel in respect of which a construction subsidy has been granted pursuant to parts 1 and 2 hereof shall be operated exclusively in any trade other than the foreign trade as hereinafter defined, unless the owner shall have received the prior consent of the Authority: Provided. That as a condition to granting such consent, the Authority shall require the owner to agree to the payment to the United States during the period of operations covered by such Consent, and to furnish bond or other acceptable security guaranteeing such pay ment, in manner and on terms and conditions to be prescribed by the Authority, of an amount additional to the agreed purchase price, which bears the same proportion to the amount of the construction subsidy as the period of operations covered by such consent bears to the entire assumed economie life of the ship, with interest on all installments and payments during such period at the rate of 5 percent per annum

Turing any period as determined by the Authority any vessel is operated jointly in the domestic and foreign trade, the owner shall be required to pes to the United States, in manner and on terms and conditions to be presentbed by the Authority, so much of the amount additional to the agreed pure gse price, ext ulated in accordance with the section, as is determined by the propostion which reventies derived from domestic trade bears to all revenues derived from operations during such period

PART 3 OPERATING DIFFERENTIAL SUTSIDY

She 507 (3) The Authority is authorized and directed to consider the opp!l. ention of any citizen of the United States as defit ed it, section of the Merchant Marine Act 1920, as amended (U. 8 C, title 16, see s02), for final aid in the operation of a vessel or vessels constructed or to be constructed within the er," teintal linets of the United States, and to be used in the foreign commerce of the United States If the Authority determines that the operation of STL Temaer or vessels is required to meet comne?]',ve conditions or to further pr. m. te the foret,n commerce of the United States, (2) the applicant poops es Bal factory ability, experience, fir ancial resources, and character, an already s, or can and wil build or pure imp g vessel or vessels of the win, type. 1 and number required, and has the pt per equipment and other charteristics to enable him to operate and tanittun f service, route, bine, vessel › *me's in such mat for as may be necessary to meet competitive eɔnd''i ns; and (3 the payment of an operating differential subsidy is necessary to place the operation of such vessel or vessels on a parity with foreign competitors, it still then determine the amount of fair and reasonable operating differential as hereinafter provided

On The Authority is authorized to enter into a contract with the applicant for the operation and maintenance in the foreign trade of the United States, as

hereinafter defined, and not otherwise without the prior approval and consent of the Authority, of a service, route, line, vessel, or vessels determined to be necessary for a period not exceeding 20 years.

(c) Such contract shall provide that the operating differential subsidy shall be an amount per annum for the operation and maintenance of said service, route, line, vessel, or vessels, based on the fair and reasonable difference in cost of insurance, maintenance repairs, and the wages and subsistence of officers and crews, in the operation of comparable vessels under the laws, rules, and regulations of the United States as compared with those of the foreign countries whose vessels are principal competitors of such service, route, line, vessel or vessels, including the effect of governmental aid or subsidies in such foreign countries, as determined by the Authority.

(d) The Authority shall require such security, in such manner and form as it may determine to be reasonable and necessary to insure the performance of the contract by the owner.

SEC. 508 (a) In case the Authority shall determine that a change in the service, route, or line is necessary in the accomplishment of the purposes of this act, it is authorized to agree with the owner to make such change upon such readjustment of operating differential subsidy as shall be arrived at by the method prescribed in (b) of section 510.

(b) Every such contract shall provide that the amount of operating differential subsidy shall be reduced, under such terms and in such amounts as the Authority shall determine, for any periods in which the vessel or vessels are laid up without a reason satisfactory to the Authority, or are used in domestic trade, either wholly or in conjunction with foreign trade.

(c) If at any time the owner having a contract for an operating differential subsidy finds that he cannot maintain and operate his vessels on such service, route, or line with a reasonable profit upon his investment, then he may, after 60 days' notice in writing to the Authority, withdraw such vessels from such service, route, or line and thereupon the further payment of the operating differential subsidy shall cease and the owner be discharged from any further obligation under such contract.

SEC. 509. (a) When a new route is established, the Authority shall endeavor to permit full and fair competition, as far as possible consistent with the purposes of this act, by requiring the inauguration of the service on such route sufficiently in the future as to enable prospective contractors to provide for the construction or acquisition of the vessels required.

(b) No such contract for operating differential subsidy shall be granted with respect to a vessel or vessels to be operated either on an outward or homeward voyage providing for additional service on a service, route, or line already served by citizens of the United States, unless the Authority shall determine that the service already provided upon such route or line by American vessels is inadequate and that in the accomplishment of the purposes of this act additional vessels should be operated thereon.

SEC. 510. (a) Every contract executed under this part shall provide that the amount of the operating differential subsidy shall be credited to the shipowner at stated intervals, but not in advance. Such credit for operating differential subsidy shall in the case of shipowners indebted to the United States for aid in the construction of vessels, be applied on account of the installments due by reason of such indebtedness, and in the case of shipowners not indebted to the United States, or of shipowners indebted to the United States, but whose periodical installments are less than the credit determined by the Authority to be due for operating differential subsidy, then the operat ing differential subsidy shall be paid to the shipowner in manner and form as provided for in a contract entered into between the shipowner and the Authority, as authorized by section 507 hereof.

(b) Every such contract shall provide that the amount of the operating differential subsidy shall be subject to review and readjustment from time to time, but not more frequently than once a year, at the instance of the Authority or of the owner. If any such readjustment cannot be agreed to between the Authority and the owner, the Authority, on its own motion or on the application of the owner, shall determine the facts, and after a proper hearing it is authorized to make such adjustment in the amount of such operating differential subsidy as it may determine to be fair and reasonable and in the aid of the accomplishment of the purposes of this act. Its decision shall be based upon and governed by the changes which may have occurred since the date of the said contract with respect to wages, operating costs, foreign subsidies, or other conditions affecting shipping and shall be promulgated in a formal order.