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In those amendments, I think we may have gone to the other extreme.

In other words, we may have provided too much flexibility to the shippers to avoid their contractual commitment to the conference lines. I think it would be appropriate at this time to look at those mutual covenants that the conference carriers and the shippers made.

Mr. Kyros. Now, making those changes, any possible changes to the dual rate contract, do you think that would strengthen shipper loyalty to the conferences, is that the basic idea?

Mr. BLACKWELL. Yes.
Mr. KYROS. So you want to strengthen the conference system?

Mr. BLACKWELL. Yes; I think what should be done is that the covenants that have been signed, which are basically designed to strengthen shipper loyalty to the conference, should be effectively enforced.

Mr. KYROS. But, your other recommendations, namely the right of independent pricing to provide flexibility, within the conference, does that not weaken the conference?

On one hand you strengthen it with a dual rate contract system, and what would you do with the right of independent pricing ?

Mr. BLACKWELL. Mr. Kyros, if you recall, I made that suggestion only for those situations where you might consider the condition of the trade completely chaotic, possibly based on the findings by the Federal Maritime Commission that that was the state of the trade, and also where the carrier itself was nearly in a state of extremis.

I mentioned to the Chair during my earlier appearance, the difficulty that an American carrier has as a conference member in the conference. In a situation where it is losing cargo, either to other conference members, because of rebating, or to independents in the trade, because of rate cutting or rebating, the American carrier is faced with a considerable dilemma. It is not able, in many cases, to get the conference to open the rate on particular commodities, so it is bound to continue its tariff and ship the commodities according to its regular tariff practices.

If it does that, the other carriers, whether in or out of the conference, are able to rebate. This is particularly so for the foreignflag carriers, which are generally, but not exclusively, immune from the reach of the Federal Maritime Commission because their books and records are kept overseas. Despite the valiant efforts of the Maritime Commission, it simply has not been able to reach those documents.

The CHAIRMAN. Did not Mr. Bank, on Friday, state that it was relatively simple for them to get those records from foreign interests?

Mr. BLACKWELL. I do not think Mr. Bank stated that. I believe he stated that no formal request had been made, to him, from the Maritime Commission; but if a request were made, the State Department, through his office, would make every reasonable attempt to get cooperation.

But the point is that

The CHAIRMAN. From your experience, which is considerable in this area, what type of cooperation do you think you would get?

Mr. BLACKWELL. From my own experience, none. However, the Justice Department, and the State Department have testified that in some recent, formal exchanges between foreign governments and our own executive branch, the foreign governments have indicated a willingness to discuss this problem. I think this might constitute a significant opening, which I think should be pursued. It may indicate a change of heart and a change of position.

I do not believe that the foreign governments, especially those in Europe, particularly support rebating. I think those foreign governments are trying to avoid this confrontation, this clash of sovereigns that is likely to occur if the United States vigorously pursues in the courts, or through the administrative process, its attempt to get these documents.

I think you might be able to reach some type of an accommodation that does not give you everything you want, but gives you a great deal more to prosecute these cases than you have now.

I simply do not think we should reject that as an alternative, Mr. Chairman.

Mr. KYROS. Mr. Blackwell, we have talked now about independent pricing and dual rate contracts. Let me draw your attention to another area.

The prevailing concern in the trade seems to be overcapacity and overtonnaging as one of the direct causes of rebating, and malpractices, is that not correct?

Mr. BLACKWELL. I would think so.

Mr. KYROS. In 1972 the United States and the Soviet Union entered into the U.S.S.R.-U.S. Maritime Agreement, on the carriage of grain; reservation of liner cargoes between our nations; and the opening of 40 American ports, giving the Soviets access to 40 American ports.

We would have access to 40 of their ports. IIeretofore, prior to 1972, they had to have required 14 days before coming into our ports.

I daresay that such a request would probably inhibit direct liner carriage considerably.

Since 1972, through 1976, Soviet trade, Soviet portion of the U.S. liner trades, has increased 8 times in tonnage, and 45 times in value. Whatever it is, 2 or 3 percent, it has had significant impact in putting pressure on our own trades.

Now, in retrospect, what value did we gain exclusively of the grain agreement, by allowing the Soviets access for exchange of liner cargoes? We do not trade as independents between the Soviet Union and other nations.

Mr. BLACKWELL. We do not cross trade from Soviet Union ports, but we have had a rather significant number of regular liner sailings since 1972 into the Black Sea, particularly Odessa, and to Leningrad. Lykes Bros. serves that trade, Waterman serves that trade, American Export has put calls in, and I know that American Mail and American President Lines have called at Houtskar.

I am not suggesting that that is a quid pro quo for the Soviet penetration of our own liner trades, particularly on the third flag basis.

Mr. KYROS. Let me ask you this, Mr. Secretary.

There have been discussions about controlled carrier legislation, the so-called third flag legislation was filed in the last Congress and considered.

Would a possible method of controlling Soviet entry into the U.S. liner trades be via the U.S.-U.S.S.R. Maritime Agreements!

Mr. BLACKWELL. You are talking now about cargo moving between the two countries. We have no operators that are part of that agreement.

Mr. Kyros. What about the opening of the ports, Mr. Secretary?

Mr. BLACKWELL. The opening of the ports is a general arrangement with the Soviets. But it is not part of the cargo sharing arrangement. It is essentially a distinct and separate portion. In fact, it was negotiated separately from the cargo carriage requirements.

Mr. Kyros. That is right, and I am directing my attention to port access.

Now, prior to their having 40 ports that they could have access to, when they operate as independents in our trades, or cross trades, they were much less able to operate efficiently, is that a fact?

Mr. BLACKWELL. It is a proposition that, on the surface, appears to be reasonably attractive.

On the other hand, if you follow that and provide that tool in terms of port closing, what I imagine you are suggesting is that either some ports be eliminated, or we have specific requirements imposed in terms of allowing Soviet vessels to call at certain U.S. ports in terms of cargo capacity limitations, perhaps.

I think it would be a very dangerous thing, not only for the U.S. merchant marine, but for trade in general, because if that doctrine were accepted throughout the world, particularly in the so-called lesser developed countries, our trade could be thrown into absolute havoc.

Mr. Kyros. But specifically with the Soviets, where we have only constructed bilateral agreements with them, the Soviets required a 14-day notice.

Mr. BLACKWELL. I have to mention, Mr. Kyros, that before the longshoremen stopped working Soviet ships, during I believe, the early part of the administration of Jack Kennedy, there were no such requirements, and such requirements are not ordinary in terms of trading relations between states.

Mr. Kyros. Let me switch to another line of questioning.

Recently, the Maritime Administration commissioned a comprehensive study of the ocean conference system. What was the compelling need for such a study at this time?

Mr. BLACKWELL. We wanted to determine the impact on the U.S. merchant marine generally, and the impact on the subsidy system particularly, as a result of varying environments in which our fleet could possibly be working in.

In other words, we wanted to know what impact a totally open nonconference free competition system would have on our fleet. That was one parameter. The other was what would he the impact on our fleet if all trades were subject to conferences, where subsidized lines were members, and those conference structures were rather significant.

In addition to that, we wanted to analyze the impact on the need for subsidy, if in certain trades we had bilateral arrangements of 40-40-20.

In other words, there had been suggestions over the decade for different environments affecting our U.S. foreign trade, particularly the merchant marine. We wanted to test the water, to see what the likelihood would be of major changes in the composition of the U.S. fleet, what the need for Government support, would be, and basically how the U.S. fleet would survive in those different environments.

Mr. KYROS. So you are studying the conference system presently and how it would survive if you made it more closed, and less competitive, or made it more open and more competitive, and what would emerge as future trends for our liner carriers, is that true, sir?

Mr. BLACKWELL. Yes, sir.

Mr. KYROS. That is an area that would seem, on the surface, to be within the province and jurisdiction and expertise of the Fed. eral Maritime Commission.

Did you consult or coordinate with them on this study?

Mr. BLACKWELL. No; we did not, because this is one of the areas where I think Congress and the executive branch have made clear the dichotomy between promotional activity and regulatory activity: When I first testified here, I indicated to this committee, that I think the problem that this committee is addressing, and particularly H.R. 9518, is basically a responsibility of the Maritime Commission, as well as the Justice Department, because of the rebating, and the possibility of certain criminal implications.

Mr. Kyros. But, I thought, Mr. Secretary, that it came out at these hearings that one of the basic causes of rebating is overcapacity, overtonnaging, and that problem is common to you and the FMC.

Mr. BLACKWELL. But I have not mentioned the answer to your question.

The reason we did not consult with the FMC is that our interest here was not general. It was very, very parochial in terms of the impact on these new environments, if you will, on the U.S. merchant marine, and particularly on the subsidy program which we administer.

Mr. Kyros. To get back to this point, though. In order to do anything about overtonnaging, it would seem to me that both Marad and the FMC would have to work together, is that correct?

Mr. BLACKWELL. Yes; I am not going to try to split hairs with you, Mr. Kyros. I made the same remark to Mr. McCloskey.

If you are trying to suggest that we should work in a more coordinated fashion, I will agree with you.

Mr. Kyros. I did not say more. From what came out in the hearings, Mr. Blackwell, is that the FMC does not coordinate on maritime policy with the Maritime Administration at all.

The CHAIRMAN. Is there a regulatory, or legal bar to the coordination of an executive branch agency with an independent agency?

Mr. BLACKWELL. No; I would not think there would be. There could be a practical one though, depending on the subject matter. and what the discussion was about.

But the President and the Congress, when it adopted the Reorganization Plan 7 in 1961, made it clear, U.S. Government policy, that there should be independence, clear and clean independence between promotional activities and regulatory activities. Before that, both activities were conducted by the same agency, the Federal Maritime Board. In my opinion, and I worked there, we were not able to do either job properly.

I think we are in a better position to do our respective jobs better with this committee. It does not mean that we should not be talking to each other. It does not mean that we do not have common problems, and I am willing, and have been willing for a long period of time, to undertake whatever level of consultation that we need with the FMC.

I have to include in that, however, the need to discuss similar problems with the State Department, because as you start talking about changing the environment, changing the regulatory process, you immediately affect foreign carriers. That becomes a foreign policy issue that involves the State Department. At the same time, as you attempt to tighten up the operating framework, particularly thrnugh concerted action, you immediately invite interest and attention by the Justice Department through the Antitrust Division.

Here again, there has to be some coordination with the Justice Department. In terms of any legislative proposal, that would be sent up on a major regulatory issue, generally speaking, it would be circulated, and you would get coordination after the fact.

In other words, after someone put something down on a piece of paper as a legislative proposal, it would certainly be circulated through the ordinary Government clearing process. I think obviously that is healthy and sound, but I think, more importantly, before something is put down on paper, the concerned agencies should get together to see what is appropriate.

We have areas of common interest. We have also areas of very parochial selfish interests, which somehow have to be resolved.

Mr. Kyros. Well, one of the problems here and I think Senator Inouye had stated it at his hearing, and we see it here, is that fundamentally, although regulation is separate, nevertheless when you come to issues like overtonnaging, for example, you must make determinations about operating differential subsidies, you have to see whether the trade is serviced on a particular route by American carriers. You are making such judgments all the time, and projecting them in the future.

In the meantime, other nations have conferences, bilaterals, the UNCTAD code is down the road. It would seem to me that there would be someone who could initiate maritime policy and make recommendations to the Congress, Mr. Blackwell. Not that you and Mr. Daschbach are not fulfilling your own obligations and responsibilities, but beyond that, do you not see a need of someone coordinating maritime policy?

Mr. BLACKWELL. Well, there has been discussion of the need for a maritime coordinator in the executive branch, particularly in the White House. I think that that would be a good thing, yes. I do not think it is a panacea, however, because, if that position is created,

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