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Do you have any proposal to make in regard to conferences ! ?
As I mentioned the last time, I testified regarding the question of closing conferences per se, we don't have any specific recommendation. We don't necessarily see that as the answer to reducing or routing out the problem of rebating.
As we and Mr. Blackwell have pointed out in previous testimony, we do feel that, in cooperation with the FMC, certain negotiative activity with foreign governments to obtain these documents and to operate under the law as it now exists Blackwell pointed out, can possibly work to eliminate or reduce, to a large degree, rebating.
We have looked at other proposals by other witnesses or other potential witnesses; and the Department, in fact, considers the independent action by conference members to be an excellent proposal. And even though the proposal might appear to encourage destabilization, we think that with proper technical work by capable persons, both here on the committe and in various segments of the maritime industry, that this problem can be avoided.
Mr. Kyros. How about requiring all flag carriers to join conferences ?
Mr. BANK. Then it is something that must be considered further.
Unbridled competition resulting in chaos in the trade is not the particular desire of anyone, nor is it specifically the desire of the Department of State, and I think to indicate that pure competition without any guard against chaos would be incorrect.
Mr. KYROS. So you don't agree with the proposition that “ the more competition the better” in regard to control of entry into the United States trade?
Mr. Bank. This is exactly what I said earlier. It is a general statement and I will stand with that general statement.
However, in the followup question which you gave Mr. Blackwell in that same regard, I would answer it almost in the same way as Mr. Blackwell. You have to look at each specific situation.
Mr. KYROS. Take the transatlantic trade. Do you say we have always felt that the more competition the better?
Mr. BANK. Competition in trade is generally better for the trade.
Mr. KYROS. And we are talking about the right of controlling entry, not in the abstract.
Mr. Bank. That is just one possible answer to resolving the problems in that trade.
Mr. Kyros. You have already talked about the right of independent pricing and strengthening the conference system.
Now we are talking about unbridled competition. Anyone entering the trade, even if you have a conference system. Recently HapagLloyd indicated that they are going into transpacific trade in the United States because that trade is ripe. They have that right, the trades are open.
I understand those trades have problems now and then with overcapacity. This is the kind of competition I am talking about and that kind of entry.
Do you have any suggestions about controlling entry into trade, because Mr. Zeferetti, when you testified on Friday, asked you to come back with some specific recommendations if you could.
Mr. BANK. Yes.
The specific recommendation dealt, I believe, with this specific legislation which is before the committee.
In regard to the discussion on that particular trade, which you had indicated would have unbridled competition, far from saying 't'he more the better”-regardless of the type of vessel, the number of vessels and the rates charged I would agree that there has to be control. You cannot have predatory rates, and unbridled competition from inept and incapable operators who do not serve properly.
But when you have capable carriers who operate in the traditional way, yes, the more competition, the better.
Mr. KYROS. How about a state-controlled carrier in relation to the existing independent and the conference members? Is that the kind of competition that you think is favorable?
Mr. Bank. There may be a requirement and there may be a necessity, and I have spoken on this many times in the past, for certain restrictions regarding vessels which are state-owned or state-controlled. We are working in that regard with operators who operate under a different economic philosophy.
We have had a history of certain predatory rate practitioners. They have lowered their rates far below those of their competitors in seeking to obtain a percentage of the trade, gain membership in the conference, or perhaps eliminate their competition.
However, everybody in the trade has always been aware that after a certain period of time, 6 months or 9 months, that the market operator would soon have to raise his rates. There would have to be a return to the old situation. However, we have seen, since the Second World War, the appearance on the scene of state-owned operators, whether they be bloc operators or state-owned operators from other countries. Where the entire resources of the State can and do stand behind the operator and he comes into a trade and cuts the price significantly, we are faced with a different problem. That rate may be cut and may be subsidized for longer than that 6 months or 9 months or 1 year for whatever strategic or political reason that State might have.
Mr. Kyros. Now can you give a specific instance where you have seen that happen.
Mr. BANK. We have had evidence of that in Soviet operations in the Pacific and Atlantic.
Mr. KYROS. What have you done about it?
Mr. Bank. We have worked with the Federal Maritime Commission and this committe and other committees in trying to formulate a third-flag bill. During the last Congress, we were very close to having a bill which was acceptable, not only to the administration, but also to various shipping interests in the United States.
Mr. Kyros. Have you been receiving complaints on various trade routes in the United States that there is predatory pricing that exists?
Mr. BANK. Yes. We have.
Of course, it varies. We have had situations where we have discussed this with the Federal Maritime Commission in order to follow up and as certain whether those rates which we are told are being charged are actually being filed. We have found this to be correct in some cases and not correct in other cases. I think in cases where there has been pressure on the state operator who has been accused of charging these low rates, that such rates have subsequently gone up.
Mr. KYROS. Do you tell the Soviet counterparts that they are doing this and they should stop and desist and cease the predatory pricing ? Just yes or no.
Mr. Bank. I raised it several times, I told them they must operate within the traditional practice of U.S. trade or other things might happen.
The CHAIRMAN. What would happen?
Mr. BANK. Congress would support certain legislation which could affect their operation in the U.S. trade.
The CHAIRMAN. What legislation would you support to stop Soviet rate cutting?
Mr. Bank. To stop rate cutting by state-owned ships, one would have to pass a bill which defined the category of state-owned operators which have not operated in traditional fashion and indicate that, once this category is set forth, when a certain trigger is actuated, whether it be that rates fall below a certain average level or a certain percentage below conference rates, then action is taken by the Maritime Commission and those rates would have to be shown to be based on a profit or cost basis. We were at the point of working out this bill with the various parties about whom I spoke when consideration was stopped following Mr. Bakke's trip to Leningrad last year.
The CHAIRMAN. What would you do?
Mr. Bank. The rates would not be filed with the Maritime Commission and they couldn't operate under those rates which were predatory.
The CHAIRMAN. You would suspend them?
The State Department opposed the third-flag bill the last time it came up. Why do you say this is the way it would go?
Mr. BANK. Mr. Kyros, the State Department prefers S. 878.
Mr. Bank. And which was far broader than the parameters I discussed.
Mr. KYROS. What if the bill were narrowed down to the latest version?
Mr. Bank. There was a problem with that. That was the bill proposed by the Federal Maritime Commission, I believe, and we were very close to not only compromise but a decision. The one problem we had was where the burden of proof was located, and the second area was the exact definition of controlled carrier.
Mr. Kyros. Does predatory pricing affect overtonnaging on trades?
Mr. Bank. Yes; it very strongly affects rebating. Without predatory price situations, we would not find as much rebating.
Mr. Kyros. Predatory pricing by cross traders, a nation trang between the United States and another flag is discrimination against our carriage, is it not?
Mr. BANK. I would not say that. It is broadening discrimination. Mr. Kyros. It is within your province ?
Mr. Bank. The activities of foreign operators, especially those that are government-controlled; yes.
Mr. Kyros. Have you been consulting with the Federal Maritime Commission about this?
Mr. Bank. Yes; and for a long time.
Mr. Kyros. Have you been talking possibly about controlled carrier legislation ?
Mr. BANK. Yes; we have.
Mr. McCloskey. How many foreign countries have some form of cargo preference law or have a government policy requiring that portions of their exports or imports be carried on their own vessels?
Mr. BANK. I would guess the number is somewhere around 20 to 30, but I can go a little deeper on that by saving that cargo preference for commercial cargo does not exist as a governmental or legislative policy in any major country,
Mr. McCLOSKEY. I appreciate that most of those are smaller countries; but at what point does the State Department get involved ?
As I understand, Kuwait, Venezuela, and Saudi Arabia now require a portion of their oil to be carried on their own ships; is that correct?
Mr. Bank. They have such legislation or regulations.
Mr. McClosKEY. When that occurs, does the State Department get actively involved in trying to reserve some portion of that cargo to be carried in U.S. ships?
Mr. BANK. Yes; there is a two-stage view of this M.r. McCloskey. The first is upon pasage of such legislation, which is either reported to us by the embassy or interested parties, and usually it is by the embassies which first report.
We look at the effect upon U.S. interests in that particular trade. You will find in the majority of countries where such legislation erists, and most of these are small, developing countries, that such legislation has not been implemented as an active law. They may have it on the books, but it doesn't have a real effect. Once there is an effect and there is a complaint, we will initate discussions with our own industry people to see how that is affecting them and then begin discussions with the foreign government and be sure that the U.S. operator has the ability to compete for significant portions of
Mr. McCLOSKEY. With respect to those Latin American countries that have such laws, take Brazil, what portion of their exports and imports do they require to be carried on their ships?
Nr. Bank. It depends again on whether the-
It depends on whether they consider the cargo as governmentcontrolled or commercial. It comes to 40 or 50 percent as it works out. Through their government cargo—and they have a much larger definition than our own-it comes to about 90 percent. They create equal access agreements to this government cargo.
We have similar requirements for most government-generated cargo in the United States.
Mr. McCLOSKEY. But on those trade routes which have that kind of law, are you the chief protector of the American-flag merchant marine?
Mr. BANK. With the assistance of the other agencies.
Mr. BANK. The Maritime Administration and the Federal Maritime Commission. We have other weapons in our arensals. There is section 19 of the Shipping Act and General Order 33 which, if implemented, can provide certain retaliation and counterveiling action by the Federal Maritime Commission.
In certain situations where the nation in question is a recipient of certain aid, or if that nation does import Eximbank cargoes from the United States, there has been and is a requirement that the Federal Maritime Commission waive the 100 percent requirement in favor of a 50-percent share for that operator so long as he doesn't discriminate.
Mr. McCLOSKEY. What about the situation of countries that don't have that?
Let us say we are faced with predatory pricing practices by either Japanese or Dutch companies.
What is the State Department's position there?
Mr. Bank. If the predatory rate practices by lines from those countries that you mention affect or adversely affect U.S. operators, there is no doubt we will negotiate with those countries with the assistance of the lines in question and the other agencies involved in trying to resolve this problem. I do not think that is a realistic example of a Dutch or Japanese operator operating in bilateral or in cross trade. Usually they are operators in conferences or have operated in a traditional way.
Mr. McCLOSKEY. There is a difference, then, betwen countries with whom we have negotiated treaties, the developing countries, and countries with whom we have not?
Mr. BANK. No.
The treaties of friendship, commerce and, navigation do give one a starting-off point. However, regarding those countries with whom we do not have treaties of commerce, friendship, and navigation, the lack of such treaties does not affect our negotiation.