37

In addition to the subsidies mentioned, other aids to shipping have been granted by the Government since the founding of the Republic. Legislation enacted in 1789 provided that only ships built in the United States and belonging to American citizens could register under the American flag. Following World War I, private ship operators were allowed to acquire vessels from the Government at a fraction of their original value and shipbuilders were granted loans on unusually favorable terms.

CURRENT PROGRAMS

As previously noted, the maritime ship operating-differential subsidies are the only Federal subsidy programs where the word "subsidy” appears in the appropriations title. The word “subsidy” also appears in the language of the appropriation for ship construction and in the basic legislation authorizing ship construction-differential subsidies and the 1960 legislation authorizing subsidies for construction of fishing vessels. Similarly, the only program listed in the index of the Budget of the United States under the heading of “Subsidies" (beginning with the budget for the fiscal year 1953) is that of "operaing-differential subsidies, maritime activities, Commerce."

Although these programs are thus unequivocally subsidies by eren the narrowest of definitions, it is difficult to set forth simply the total volume of these maritime subsidies. This is due in part to the fact that payments for the construction of a given vessel extend over sereral years; in part because of provisions for recapture and cancellation of subsidies for several years after the subsidy has actually been provided; and partly because of necessary adjustments and revisions made by the Maritime Administration and others in the subsidy data.

In addition, these subsidies are supplemented by numerous other Federal programs designed to assist the American merchant marine. The more important will be noted below. Incidentally, we hear no criticism of the fact that virtually all of these payments are to relatively large operators. So one has suggested that the subsidy should be paid only to small shipping lines or construction firms.

Both the construction-differential and the operating-differential subsidies are specifically designed to carry out the Federal merchant marine policy, as stated in title I of the Vierchant Varine Act of 1936 (49 Stat. 1985) as follows:

It is necessary for the national defense and development of its foreign and domestic commerce that the Cnited States shall have a merchant marine (a) sufficient to carry its domestic waterborne coinmerce and a substantial portion of the waterborne export and import foreign commerce of the United States and to provide shipping service on all routes essential for maintaining the flow of such domestic and foreign waterborne commerce at all times, (h) capable of serving as a naval and military auxiliary in time of war or national emergency, (c) owned and operated under the United States flag by citizens of the Cnited States insofar as may be practicable, and (d) composed of the best equipped, safest, and most suitable types of vessels, constructed in the United States and manned with a trained and efficient citizen personnel. It is hereby declared to be the policy of the United States to foster the development and encourage the maintenance of such a merchant marine. Construction differential subsidy

The construction-differential subsidy is intended to aid the shipbuilding industry by absorbing the excess in cost of construction in a U.S. shipyard over that in foreign shipyards. It is authorized under

title V', sections 501 and 502, of the Verchant Marine Acto Stat. 1995, (52 Stat. 955). Under this title, ils amended, the Subsidy Board is empowered to aid a U.S. citizen in the col of a neiv vessel to be used in the foreign commerce of the Unit The Board is empowered to have such a vessel constructed yard in the United States, to pay such construction cost, ai sell the vessel to the applicant, a U.S. citizen, for an amoun the estimated cost of the construction of the vessel if it had structed in a foreign shipbuilding center which is deemed by to furnish a fair and representative cost of construction of su The difference between the cost of constructing the vessel in t States and the estimated cost of constructing the vessel in shipyard is termed a construction-differential subsidy. U no such subsidy could exceed 50 percent of the cost of the ves that Public Law 85-521, approved July 15, 1958, authorized ernment to construct two superliners and sell one euch to t States Lines Co., and American President Lines, Ltd., at a would represent certain national defense allowances and a tion-differential subsidy allowance in excess of the 50-perce ance, permitted under the 1936 act. However, thus far there no appropriation by the Congress of funds for the construct superliners under the 1958 act, nor is such action cont

By Public Law 607, Soth Congress, approved July 7, 196 percent limit was raised to 55 percent for a period of 2 years laid after June 30, 1959. The following year, under Pu 87-222, approred September 30, 1961, the construction-d subsidy rate of 55 percent on new construction was made upi the reconstruction or reconditioning of passenger ships where yard contract was entered into after June 30, 1959.

By Public Law 87-877, approved October 24, 1962, this ac ther amended to provide that, in the case of reconstruction o tioning of passenger vessels, the construction differentia approved and paid shall not exceed 60 percent of reconsti reconditioning costs, except that after June 30, 1964, the con differential subsidy shall not exceed 50 percent of such co construction, reconstruction, or reconditioning of any ve law further provides, in effect, that any contract for reconst reconditioning entered into after June 30, 1959, may, with th of the parties thereto, be modified to increast the construct ential subsidy rate on passenger vessels to the actual rate as d by the Board, not to exceed 60 percent. However, effectii 1970, the maximum subsidy percentage for all purposes retur 50 percent level.

Two methods may be used for paying the construction-d subsidy. Under the first method the Government awards struction contract to the low-bid American shipyard and yard the full contract price of the ship. The ship is then si Government to the American operator at a price equal to the foreign construction cost of the ship (less cost of the nation features). Under the second method, the operator and the Go enter into a contract with the shipbuilder under which the ment pays to the shipbuilder the sum of the construction d and national defense allowances, with the operator paying tủ of the domestic construction cost of the vessel. The Go

simultaneously contracts with the operator is in the conditions under which the U.S. Payments will be made to the shipyard. The latter method is the only one which has been used since 1955.

A construction-differential subsidy may be paid to any Americanflag owner who builds a ship in a U.S. shipyard to be used in the foroign trade of the United States. The id pilicilli must possess the financial and operating ability to operaie ile ;!»pective ship in the contemplated service in the U.S. foreign trade. Detailed plans of il ship must be submitted to the Maritime Administration and the Secretary of the Navy for approval. The prospective slip should be reasonably calculated to replace wornout or obsolete tonnage, or otherwise to carry out effectively the purposes and policy of the Merchant Jarine Act.

The construction-differential subsidy contracts Warded in fiscal year 1969 are reported by the Maritime Adarinistration as follows:

ing injury from fish imports, and the subsidy was not to i percent of the cost of constructing such a vessel in it ships United States. Under the 1964 law, certain conditions necessary to obtain a subsidy were eliminated and the differential subsidy payment was raised to 50 percent of 1 cost in a U.S. shipyard. The most recent law, that passe broadens the program still further to include reconditio version, and remodeling. In aildition, the law now provide determination of subsidy shall be based on the different foreign and domestic costs of constructing a class of sim instead of a separate determination for each individual ve Operating-lifferential subsily

The operating-differential subsidy is intended to compe operators for higher operating costs than those borne by to ators. Under title VI, sections 601-603, of the Merchant of 1936 (49 Stat. 2001), the Maritime Subsidy Board is to grant an operating-lifferential subsidy to aid a citizen of States in the operation of il vessel to be used in an essent route, or line in the foreign commerce of the United S operating-differential subsidy, which is intended to place th operations of such vessels on i parity with those of foreig tors, is the excess amount of the cost of items of operating which it is found the applicant is at a substantial disad competition with foreign vessels over the estimated cost o items of expense were the vessel operated under registry o country whose lisses are subsiantial competitors of the vess by the contract.

The determination of the amount of subsidy due is a con ess. The operating-lifferential subsidy payments are deter stated as percentages of the subsidizable expense of a U.S Separare rates are determined for each type of expenso (e subsistence, maintenance and repairs, and insurance) for ea vessel on each trade route which takes into consideration cipal foreign-flag competitor. Calculating these rates requi amount of foreign-cost information which must be maini current basis. Since many foreign-flag operators are not divulge their costs, which are to be used as a basis for d subsidy payments to their subsidized U.S.-flag competitors time Administration has been compelled to obtain the il elsewhere and its al consequence has been compelled to be part of its calculations upon assumptions.

The following table provides the basic data on operatingsubsidies from January 1, 1937 to June 30, 1969.

Farrell Lines, Inc.

Litton Systems, Inc. Pascagoula,

Miss. American President Lines, ..do.

Ltd. Lykes Bros. Steamship Co., General Dyanmics Corp., Quincy, Inc.

Mass. United States Lines, Inc. ... Alabama DD DD Co., Mobile, Ala

Bethlehem Steel Corp., Baltimore,

Md.
Do.

Norfolk SB DD Co., Norfolk, Va...
Do

Todd Shipyards Corp., Gaiveston,

Tex: and Brooklyn, N.Y.

430, 518

Do....

A total of $1,219,636,250 of construction-clifferential subsidies has been paid for the construction of 177 vissels, fiscal year 1936 through fiscal year 1969.

It may be noted that about 14.1 percent of the total constructiondifferential subsily paid since the end of World War II has been used in the construction of seven passenger liners. Among these is the L'nited States, the largest and fastest passenger ship over built in this country, winner of both eastbound and westbound transatlantic ship speed records in July 1952. In 1970 the ship was retired for (conomic reasons.

Similar iil has been provided for the coustruction of fishing vessels in the shipyards of the United States by Public Law S6-516, approved June 12, 1960, and continued and expanded most recently by Public Law 91-279, approved June 12, 1970. These laws are designed to assist certa'n depresseel segments of the fislıing industry and are alministered by the Secretary of the Interior. Under the 1960 law $2.5 million was authorized ammually for the program; this was increased to $10 million annually in 1964, and to $20 million annually by the 1970 law, which extended the construction-differential subsidy program to June 30, 1972. The program was originally limited to construction of fishing vessels operated in fisheries found to be suffer

41

1937-46.

$48.725, 478 $32, 695, 537 $16, 029, 941 1947

13, 438, 553 10, 066, 979 3.371, 574 1948

28,077, 303 13, 794, 768 14, 282, 535 1949.

44, 213, 377 14. 553, 310 29, 660, 067 1950

57, 874, 056 9, 265, 433 48, 608.623 1951

71, 968, 636 25. 805, 608 46, 163, 023 1952

89, 361,880 26, 108. 608 63, 253, 272 1953

106. 296, 046 13, 198, 975 93,097,071 1954

107, 357, 156 941, 175 106, 415, 981 1955

115, 145, 469 10.998, 345 104, 147, 124 1956

128, 189, 900 25, 400, 638 102, 789,262 1957

148. 309.951 25, 592, 209 122, 717, 742 1958

147,008. 266 6, 336, 805 140, 671, 461 1959.

159,885, 256 518. 437 159, 366,819 1960.

167, 950, 629 5, 197.256 162, 753, 373 1961

170, 104, 927 1.962.938 168. 141,989 1962.

178.894, 122 3, 791,964 175, 102, 158 1963.

187,924, 308 (1,886, 033) 189. 810.341 1964

204, 101, 904 1,409, 800 202, 692, 104 1965

183, 252, 618 3, 180, 590 180, 072. 028 1966.

201, 334, 913 4,619. 406 196.715, 507 1967

213, 056, 506 5,618, 781 212, 437, 788 1968.

219, 152, 864 3,326, 450 215.826, 414 1969.

111.380, 363 2,049, 570 109, 330, 793 Total...... 3, 108, 004, 481 244, 547, 486 2,863, 456, 995

$16, 029, 941

3, 371, 574 ($76,516) 14, 282, 535

6, 476 29, 660, 067 (13,996) 48. 608, 623 (119,511) 46, 163, 028 (63,410) 63, 253, 272

63, 342 93,097, 071 (98, 306) 106, 415, 981 43, 574 104. 147, 124

24,945 102. 789, 262 268,521 122.717.742 1, 309, 566 140, 671, 461

266, 614 158, 420, 487 163, 778 161, 799, 446 190,081 165. 624, 107

(38.641) 170, 423, 556 1,283, 878 182, 014.998 2, 409, 187 193, 608,344 2, 540, 388 174, 292, 146 1, 354, 139 184, 893,046

6,906, 974 197, 571, 001 137, 364, 502 190.655, 062

40,916, 984 40,916, 984 194, 702, 569 2,711, 426,859

946, 332

953, 927 2,517, 882 4,678, 602 7,795, 343 9.083,760 5.779.882 11, 822.461 14,866, 787 25, 171, 352 68, 413. 809

152,030. 137

As of July 1, 1969, there were 14 companies operating 293 ships under operating-clifferential subsidy contracts. These 293 ships are required to make a minimum of 1,470 voyages and a maximum of 1,920 voyages a year. Other aids to shipping

There are many other aids to the shipping industry provided by the Federal Government. The following are among the more significant:

i. Federal insurance of privately financed ship construction loans and mortgages: the Government is authorized to insure construction loans equal to 75 percent of the construction or reconstruction cost of virtually all types of vessels documented under the laws of the United States. When the vessel has been completed, the Government may insure a mortgage not exceeding $72 percent of the actual cost of constructing a vessel of not less than 3,500 gross tons and 14-knot speed. On vessels not meeting these specifications or on vessels built with construction subsidy aid, the maximum mortgage insurance must not exceed 75 percent of the actual cost. As of June 30, 1969, contracts of mortgage insurance and commitments to insure mortgages amounted to approximately $751 million, covering 144 ships.

2. Direct mortgage assistance: the Government may contract for the construction of a ship, and upon completion sell it to the operator for 25 percent down (or 12 percent down if the vessel is of not less than 14-knot speed and 3,500 gross tons), taking a mortgage on the balance of the purchase price, which would be paid back in regular installments over the statutory life of the vessel. This type of aid is not being used at the present time.

3. Trade-in allowances on purchases of new ships: A maritime operator may trade in to the Government an obsolete vessel in ex

change for an allowance of credit on the purchase price of This allowance is not paid directly to the owner of the obso but is (a) applied to the cash payment required of the ov Government constructs a new vessel for sale to the owner; < for the account of the owner, to the shipbuilder construct vessel under a private financing arrangement. Tlie minim which a vessel may be considered obsolete has been reduce to 12 years, and for tankers to 10 years.

From January 28, 1958, when the current program starte June 30, 1969, 97 obsolete ships have been traded in by 11 con a gross allowance of $67.1 million on the purchase price of n constructed or to be constructed in U.S. shipyards.

Prior to October 1, 1960, the gross trade-in allowance mined to be the restricted world market value. Effective fro 1, 1960, to date, the gross trade-in allowance has been deta be the average of the restricted world market value and th market value.

Public Law 401, 87th Congress, dated October 5, 1961 section 510 of the Verchant Varine Act, 1936, to provide for in of obsolete vessels in connection with the construction o sels either at the time of executing the construction contrac time of delivery of the new ressel.

4. Tax benefits: The principal tax benefit specifically all operators is the exemption from income tax charges of ina reserve funds. Subsidized operators are required to deposi in reserve finds a profits after taxes in excess of 10 percent necessarily employed in the business." Annual depreciat ances, based on total acquisition cost, and capital gains from of a vessel must also be deposited in a reserve. Such oper also make voluntary deposits in excess of these amounts reserves when authorized by the Maritime Administration are not taxable unless withdrawn and paid into operato funds. Nonsubsidized operators may deposit in constructie funds gains from the sale or loss of a vessel capital g establishment and maintenance of these funds has been of to American ship operators in building up funds to cove placement costs.

5. Cargo preference: Half of U.S. Government-finance must be transported in U.S.-Aag ships. All U.S. exports with Government loans must be carried in U.S.-flag vessi that waivers may be granted under special circumstances. ] destined exclusively for the use of the U.S. Villitary Esta must be carried in U.S.-flag ships to the extent that such available at reasonable rates.

6. Reservation of coastwise trade: Ever since 1789 it has policy of the Federal Government to reserve the U.S. coast to ships built in the United States and owned and operated ! of the United States. This has been extended to include th tiguous parts and possessions of the United States, Alaska and Puerto Rico.

7. Sale of surplus ships: Under the Verchant Ship Sales A 843 ships, built for the Maritime Commission during W II, were sold to U.S. citizens for U.S.-flag operations at a pr fourth to one-fifth of their replacement cost. By January