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requirements, ability to carry a substantial part of our foreign trade, and ability to maintain a U.S. presence abroad? Do you have suggestions for legislative changes which will assist the State Department in meeting its objectives?

6. Would you provide the Subcommittee with the State Department's analysis of the reasons for the growth of the Soviet merchant marine? Please also indicate what potential danger this presents to the national security and international commerce of the United States. What specific steps should the United States be taking to reach to this threat?

7. On page 2 of your estimony, you state "An equally important objective is the continuation of efficient and competitive shipping services in the foreign trade of the United States." In your opinion, are shipping services really competitive under current situations? Do you see the trend in world shipping as being toward freer competition, or more toward restrictive bilateral or multilateral shipping agreements? Would you provide the Committee with a list of all known pooling agreements or bilateral trade agreements for shipuing services presently in existence? Would you also comment on the cargo sharing provisions contained in the Code of Conduct for Liner Conferences Treaty? Though this treaty has not been ratified by any significant number of countries, in your view is this because of the cargo-sharing provisions, or is it because of other reasons? If it is other, what are they?

8. You also state that one of the objectives of the Department of State is the promotion and protection of U.S.-flag shipping worldwide. Is this a statutory mandate?

9. How has the State Department reacted to pooling arrangements or cargo preference schemes of other nations? Could you cite examples of specific cases where effective action has been accomplished?

10. On page 2 of your testimony, you state: "The Department of State employs necessary economic and diplomatic efforts to prevent or eliminate discriminatory practices engaged in by foreign governments against U.S.-flag vessels." Would you provide a list describing the types of discriminatory practices engaged in by the foreign governments and the economic and diplomatic efforts State has taken to combat them. Could you provide a statistical analysis, a scorecard, if you will, to measure the State Department's successes in combating discriminatory practices?

On page 3, you also state: "We allude to certain countervailing measures that U.S. agencies would take against the shipping entities of the nation taking diseriminatory action." Could you cite specific examples of such countervailing measures that could be taken?

11. On page 6 of your testimony, you say: "We cannot encourage these discriminatory trends abroad by agreeing to close trades to independent carriers or arbitrarily limit shares of trade which our vessels may carry." Do you have any evidence to indicate that discriminatory trends abroad have lessened in recent years as a result of the United States' failure to enact cargo preference laws of its own?

12. On page 5, of your testimony, you state: "Nevertheless, operators to whom we granted such privileges should not be permitted to act in a predatory fashion by charging less than it costs to operate, thereby undercutting traditional rates and undermining the stability of existing trades." Would you provide a list of specific instances where this predatory action has occurred? What action is needed to remedy the situation? Is additional statutory authority required to deal with the problem? If so, what should the proposed statute provide?

13. Would you provide a list of world shipping conferences and indicate to what extent each is open or closed?

14. Would you provide a list of instances in the past five years where the United States has not maintained "consistent and credible shipping policies"?

15. What are your suggestions for better co-ordinating shipping policies among the Departments of State, Treasury, and Commerce and the Federal Maritime Commission?

Your continued cooperation in this matter will be appreciated.

Sincerely,

PHILIP E. RUPPE,

Ranking Minority Member,

Merchant Marine and Fisheries Committee.

PAUL N. MCCLOSKEY,

Ranking Minority Member,

Merchant Marine Subcommittee.

DEPARTMENT OF STATE, Washington, D.C., September 3, 1975.

Hon. PAUL N. MCCLOSKEY,

Hon. PHILIP E. RUPPE,

Merchant Marine Subcommittee,

House of Representatives,

Washington, D.C.

DEAR MESSRS, MCCLOSKEY AND RUPPE: In your letter of June 23, 1975, you asked in your first question for minutes and working documents of the President's Interagency Committee on Export Expansion. That Committee is chaired by the Secretary of Commerce and requests for its documents should be made to Mr. Frederich R. Crupe, Executive Secretary, President's Interagency Committee on Export Expansion, Room 3064, Bureau of International Commerce, Department of Commerce, Washington, D.C. 20230. As this question came up directly during my testimony on June 19, I have also provided the same information to Chairman Downing.

My staff and I are currently developing the answers to the remaining questions in your letter and will provide them to you as soon as possible.

Sincerely,

RAYMOND J. WALDMANN,
Deputy Assistant Secretary,
Bureau om Economic and Business Affairs.

DEPARTMENT OF STATE, Washington, D.C., September 10, 1975.

Hon. PAUL N. MCCLOSKEY,

Hon. PHILIP E. RUPPE,

Merchant Marine Subcommittee,
House of Representatives,

Washington, D.C.

DEAR MESSRS. MCCLOSKEY AND RUPPE: In your letter of June 23, 1975, you asked in your fifth question for "current State Department document which define and explain the Department's shipping policies and objectives". I am enclosing excerpts from the International Economic Report of the President, transmitted to the Congress March 1975 and from the report of the Secretary of State on United States Foreign Policy presented to the Congress on April 19, 1973. I believe you will find these consistent with my testimony of June 19 and that they and my testimony are clear statements of the shipping policies of the Department of State. As a similar request came up directly during my testimony on June 19, I am also sending these excerpts to Chairman Downing.

In answer to the remainder of your fifth question, we concur with the Department of Defense that the size and composition of the U.S. merchant fleet is not completely adequate to meet our national security requirements in time of war. Although our fleet carries a substantial part of our foreign trade when measured in value, we encourage further expansion of the U.S. merchant fleet based on increased competitiveness.

Finally, at this time, we do not propose any particular legislation to assist the State Department in meeting its objectives.

Sincerely,

Hon. THOMAS N. DOWNING,

RAYMOND J.WALDMANN,
Deputy Assistant Secretary.
Bureau of Economic and Business Affairs.

DEPARTMENT OF STATE, Washington, D.C., September 10, 1975.

Chairman, Subcommittee on Merchant Marine,
House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: During my testimony of June 19, 1975, the Subcommittee asked me to cite the shipping policies of the Department of State. As you may remember, I drew the attention of the Subcommittee to the statements of our policies in my prepared testimony and offered to provide the Subcommittee with excerpts of other documents containing our policies.

To that end, I enclose excerpts from the International Economic Report of the President, transmitted to the Congress March 1975 and from the report of the Secretary of State on United States Foreign Policy presented to the Congress on April 19, 1973. I believe you will find these consistent with my testimony of June 19, and that they and my testimony are clear statements of the shipping policies of the Department of State.

In the fifth question of their letter of June 23, 1975, Congressman McCloskey and Ruppe asked for similar documentation and I am also sending them these excerpts.

I hope to be able to respond to the balance of your requests and questions shortly.

Sincerely,

RAYMOND J. WALDMANN,
Deputy Assistant Secretary,
Bureau of Economic and Business Affairs.

[Excerpt from International Economic Report of the President together with the Annual Report of the Council of Economic Policy]

CHAPTER 5-OCEAN SHIPPING

The United States has traditionally favored free competition among ocean freight carriers to assure the most efficient and economic flow of traffic. However, early in this century it was recognized that competition might become so intense as to be counterproductive. To provide stability within a competitive system, U.S. legislation was adopted permitting ocean cariers in the U.S. trades to combine in liner conferences, otherwise prohibited by U.S. antitrust laws, for the purpose of establishing common tariffs and service arrangements. The Federal Maritime Commission was established to regulate the carrier conferences in the interest of preserving for shippers a fundamentally competitive environment.

Even with this assistance, however, U.S. carriers were losing business to foreign-operated vessels. U.S. labor costs and shipbuilding costs were not competitive. But national security argues against the complete loss of the Nation's merchant marine and shipbuilding capability. U.S. military history has confirmed the need for a major sea-lift capability in times of national emergency. It is doubtful that reserve fleets, U.S.-owned ships under flags of convenience, or reliance on allies provide acceptable alternatives.

The United States has adopted measures to sustain a national maritime industry of reasonable size and expansion potential. They call for an appropriate balance between a viable American merchant marine and the best interests of U.S. consumers in ocean shipping. Subsidies have been used to cover the difference between domestic and foreign costs in the construction and operation of merchant ships. These subsidies now run at about $0.5 billion per year. Laws reserve to U.S. flag vessels all or a portion of certain shipments involving government cargo or cargoes financed by government funds. The Merchant Marine Act of 1970 is stimulating a gradual expansion of the U.S. merchant fleet. About 90 modern vessels are under construction or on order. U.S. shipbuilding activity has reached its highest peacetime level in recent times. (See figure 41 for a breakdown of ships in operation and shipbuilding activity.)

As of October 31, 1973, the U.S. Merchant Marine consisted of 562 active oceangoing ships, of which 183 were receiving operating subsidies. In 1973, the total U.S. flag carriage of our foreign trade represented only 6.4 percent of tonnage and 18.9 percent of value-the highest levels of participation since 1957. (See fig. 42.)

TECHNOLOGICAL DEVELOPMENTS

Recent technical developments in ocean shipping have had major, if not revolutionary, impact on the industry. Foremost have been unitized cargo systems, the most common being containerization. New techniques also have been introduced such as roll-on-roll-off ships and barge-carrying ships. These new developments are causing pressures for changes in the organization and practices of carrier conferences.

Since container ports can serve the deep hinterlands, established competitive relationships among ports and carrier conferences are being altered. All along our coasts, including the Great Lakes, container terminals have either been

developed or are planned as ports strive to maintain a competitive position. Enormous investments are involved in container handling facilities and, therefore, high levels of utilization are required to provide an adequate return. It appears most unlikely that all the U.S. ports which may be fitted out for container services can prove economically viable. On the contrary, it is more probable that the economies of scale permitted by the new technology can be realized only by concentrating container terminals at optimum locations. The question arises whether the Federal Government should assume a more active role with regard to port development planning than historically has been the case. Another major development has been the supertanker. Sixty percent of the cargo carried on the oceans of the world is petroleum. Already, one-quarter of this tonnage is carried in vessels of such enormous size as to constitute a new maritime family. These vessels raise special problems of structural integrity, navigation and traffic separation, pollution potential, and adequacy of port facilities.

ORGANIZATION OF THE MARKET

There are many pressures throughout the world to reduce competition in ocean transportation. At both the carrier and intergovernmental levels there is a strong tendency to create cargo pooling and allocation systems that subject shipping increasingly to cartel arrangements and administrative direction.

The underlying motivations in favor of reduced competition are apparent. They include the search by maritime labor throughout the world for greater economic opportunities, the increasing aggressiveness of developing countries seeking to build their own merchant fleets, and industry efforts to reduce what it considers to be excess shipping capacity.

Certain elements of the U.S. shipping industry now take the position that Government should negotiate bilateral agreements whereby trade between two nations is assigned by formula to each party's national merchant fleet. Proponents of this view argue that because shipping worldwide is moving in this direction, U.S. flag operators should strive to get their share.

Widespread use of this bilateral approach would pose a serious threat to certain merchant fleets which provide extensive shipping capacity outside their national trade. In a few countries these merchant fleets are relied upon as a major source of foreign exchange earnings. Often they provide excellent service, creating competitive pressures benefiting shippers that would be lost under bilateral arrangements.

The tendency toward bilateralism has probably been enhanced by the recent U.N. Code of Conduct for Liner Conferences. Approved by a heavy margin over the opposition of the United States and some other nations, it is the product of the efforts of the developing countries. Their objective was twofold: guaranteeing better conditions of carriage from liner conferences for their exports, and providing a certain amount of protection for their young merchant fleets. The greatest significance of the Code may be that it confers international respectability on protectionist and anticompetitive practices. At this time, the U.S. Government is not taking steps to ratify the Code.

As bilateral agreements and other restrictions are imposed on shipping throughout the world, the merchant ships of traditional maritime nations that are not engaged in the trades of their own countries will be limited in the routes they can serve. If the United States continues to make its trade available to all flags, many of these ships will enter the U.S. trade. Overcapacity and intense competition can be expected.

The policy of the Administration to maintain the present level of competition in ocean shipping was amply demonstrated in the Presidential veto of the Energy Transportation Security Act of 1974, which would have required 30 percent of oil imports to be carried in U.S.-flag tankers by 1977. The principal objections were the inflationary aspect of the proposals and the potential for retaliation by other countries. No solution to shipping problems that contains these undesirable features is acceptable. However, the worldwide tanker market, which is characterized by ships that can readily shift employment patterns, remains intensely competitive. At the same time, the problems of waning competition in certain liner trades cannot be ignored by U.S.-flag carriers. The competitive situation in the U.S. ocean trades, which is already characterized by increasing nonmarket factors, is under determined pressure. The implications of additional restraints, their impact on the trades and the economy will have to be accurately quantified and evaluated. There is specifically a need for the Federal Government to study the impact of current international arrangements and agreements with respect to the liner trade.

UNITED STATES FOREIGN POLICY, 1972

A REPORT OF THE SECRETARY OF STATE

Hon. J. WILLIAM FULBRIGHT,

Chairman, Committee on Foreign Relations,

United States Senate.

Hon. THOMAS E. MORGAN,

Chairman, Committee on Foreign Affairs,
House of Representatives.

THE SECRETARY OF STATE, Washington, D.C., April 19, 1973.

DEAR MR. CHAIRMAN: Once again I am pleased to present to the Congress my annual report on United States Foreign Policy. This report provides a comprehensive record of the events and policies of 1972. In a brief introductory comment, I set forth nine major policy objectives for 1973 and a table of key indices showing the state of the world in statistics.

Previous reports have traced the development of new policies for resolving conflict and reducing world tension. The year 1972 marked a point of high achievement in our effort to free international relations from the rigidities of confrontation and the tensions of the past. 1973 will be a year of building, a year of intensive negotiations that will move us forward into the structure of peace which President Nixon has made our foremost national goal.

In my first foreign policy report I wrote that my greatest hope was to help create among Americans a new national unity and purpose in our foreign policy. Now with the major source of division within our country behind us, there is every reason to believe we all can work together to restore that common purpose. Sincerely yours,

WILLIAM P. ROGERS.

[Excerpts]

available only through the economies inherent in full-plane charters. The Department this year concluded with Australia and Belgium the first bilateral understandings in implementation of the President's directive to regularize air charter travel by international agreement. Other discussions were conducted which promise the likelihood of further agreements in the near future. This promise was reinforced when discussions with European states and Canada, extending over 18 months, resulted in the formulation of general principles covering a new charter concept which the parties would recommend to their regulatory authorities. These principles were substantially consistent with the new travel group charter plan authorized by the Civil Aeronautics Board in September.

AIRCRAFT

American airframe and engine manufacturers, suppliers of over 80 percent of the world's large air transport needs, are girding themselves for new European and Soviet competition. Increased attention is being given to the development of quieter aircraft and less pollution from engine emissions. In some cases, the large and uncertain costs involved in the development of new aircraft has induced joint ventures between U.S. and foreign firms. As aspects of these joint ventures require U.S. Government approval, we have considered each such application on its merits with respect to the effect on American security and exports and the benefits that improved aircraft or engines would bestow upon the environment and the traveler.

INTERNATIONAL SHIPPING

At the third U.N. Conference on Trade and Development (UNCTAD) at Santiago in the spring of 1972, international agreement was reached on the need for a code of conduct for ocean liner conferences. The UNCTAD meeting revealed, however, sharp differences over the contents and form of such a code. Most of the major maritime countries favor emphasis on self-regulation by the conferences and minimum government intervention, while the developing countries seek a greater governmental role and preferential treatment for their shipping interests. Disagreement also arose as to whether the code should have a binding legal form such as that of an international convention. The United 62-989-76-11

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