Accordingly to the GAO report, the objective of the Merchant Marine Act of 1936 as amended, that an annual assessment of the shipbuilding industry as a mobilization base be prepared, has not yet been achieved (pp. 11-12). GAO recommends that:

the Secretaries of Commerce and Defense should review with appropriate Congressional committees their views on the emergency planning assumptions which should be used in assessing the adequacy of the shipbuilding industrial base. The Secretary of Comerce should periodically assess the industry's capability to support the planned war effort (p. 15).

In addition to a general review of the Government's defense planning assumptions as they relate to the Federal maritime program, the subcommittee should examine the following specific issues:

First, what is the importance of the merchant marine in probable war scenarios? The report to the Committee on the Budget pointed out that

there is some question about the probability of an extended, non-nuclear conflict between the United States and Soviet military forces.

In a 'short-war' scenario, ocean shipping capacity would be a much less critical factor in determining the outcome (p. 140).

The GAO report noted different planning assumptions by the Maritime Administration and the Department of Defense. GAO reported:

We were unable to find a recent study anywhere in Government of the industry's capability to support a war effort as visualized by DOT for its planning purposes. (p. 13).

Second, are the subsidized ships suitable for military use? In testimony before this subcommittee on June 5, 1975, Acting Assistant Secretary of Defense John J. Bennett stated:

With respect to delivery of military cargo, the list of military cargo, the list of 55 vessels contracted for construction since 1970 includes 32 that would be suitable (p. 10).

Mr. Jantscher also raised this question (pp. 126–127). Mr. Jantscher pointed out:

If increases in spending on maritime programs were borne by the Department of Defense, if defense officials were forced to defend the national security value of the program as an item in their own budget, and if the same officials understood that giving more aid to the maritime industries would leave less money for other defense programs, it is likely that spokesmen for the department would weigh their needs more carefully and would be less prone to endorse maritime projects of dubious defense value (p. 135).

Third, what conflicts exist between the Federal maritime program and the Navy's construction program? The GAO report found: There is potential for conflict between the MA subsidy program and the Navy program in a time of expanding Navy and Jones Act construction (p 29).

The recent report prepared for the Committee on the Budget suggested as an alternative to the present system:

When Navy building is high, merchant ships could be built outside the United States. As Navy demand diminishes, subsidies for merchant shipbuilding could be renewed or expanded, perhaps on a modified basis, to keep shipyard resources effectively employed. At present the two building programs conflict; both are expanding at the same time, placing excess demand on limited shipbuilding resources. Navy demand should continue to be high for the next decade, and from $1 to $2 billion could probably be cut from the planned Maritime Administration program without reducing the shipbuilding industrial base below its present level (p. 141).

Fourth, what national defense role can be played by the U.S. effective control fleet? Philip J. Loree, chairman of the Federation of America Controlled Shipping, told the subcommittee last month:

I do not believe that anyone can seriously contend that having the U.S. effective control fleet available as a large reserve fleet for use or requisition in time of war or national emergency is not a plus factor in terms of the national security.

We endorse the president of the American Institute of Merchant Shipping's call before the subcommittee for a review of this situation to reconfirm the validity of the effective control concept.

Fifth, what national defense interests will be served by the Great Lakes regional office and Government support of the Great Lakes fleet? In testimony before this subcommittee on March 5, 1975, Assistant Secretary of Commerce for Maritime Affairs Robert J. Blackwell estimated that it will cost $235,000 annually to maintain the Great Lakes regional office. There are, of course, additional major costs in terms of subsidies for the Great Lakes fleet itself. The taxpayers deserve to know what benefit they will receive for this money and for the subsidized Great Lakes fleet.

Before I finish on the defense matter I think we ought to recognize these critical comments are not meant to be given at face value.

They are meant to be taken as serious comments, comments that ought to be weighed and analyzed and it is the committee's function to decide the validity.

It is that sort of a process that we see your subcommittee beginning at these oversight hearings and your future oversight deliberations. It is in that spirit that we set forth what we set forth on the defense matter and with your permission I would like to discuss economie objectives of the maritime program.

Mr. DOWNING. Proceed.

Mr. COHEN. In addition to the national defense justification, the declaration of policy of the Merchant Marine Act of 1936 as amended states that maintenance of a U.S. merchant marine "is necessary for the development of its foreign and domestic commerce"-46 U.S.C. 1101. The subcommittee must ask whether this should remain a basis of support.

In addition to this general question of whether economic objectives should be used as a justification for the Federal maritime program, the subcommittee should examine the specific economic justifications now in use:

First, does the Federal maritime program have a substantial positive net effect on U.S. balance of payments? Robert Vastine, Deputy Secretary of the Treasury, told this committee:

The positive effects on the balance of payments of maritime subsidy programs are difficult to quantify precisely, but our present analyses indicate they are small relative to other transactions.

Both Jantscher-page 109-and GAO-pages 18-19-questioned the balance-of-payments justification. Clearly, in our judgment more information must be developed on this point before it can be cited as a major justification for or against continuing the maritime program in its present form.

Second, does the Federal maritime program have a substantial positive net effect on employment relative to other Federal expenditures?

Common Cause supports congressional efforts designed to achieve the critically important goal of full employment. The maritime program, however, must not be perpetuated solely because it employs people. Important questions must be answered. What is the impact of the jobs produced by the maritime program? Would investment of Federal funds in other programs be more productive in job creating?

Facts and figures are constantly bandied about. The Bureau of Labor Statistics and independent economists should be asked by the subcommittee to analyze the number of jobs produced for each Federal dollar spent on maritime subsidies as compared to other Federal expenditures.

If the subcommittee finds that the maritime subsidies should be decreased or phased out, it has the responsibility to recommend ways of finding jobs and interim assistance and training for those who would otherwise be unemployed. The right to a decent job is important and must be assured. The absence of remedies for job creation and training must not serve as an excuse to avoid the critical and tough questions posed by our Nation's maritime policies.

Common Cause appreciates the privilege of testifying before this subcommittee on the national security and economic benefits of the Federal maritime program. With your permission, Mr. Chairman, I would like to sumbit for the record a brief description of some of the areas that we think the subcommittee should focus on in future stages of these hearings-attached as "Exhibit No. 3."

Mr. DOWNING. Without objection, so ordered. [The document referred to follows:]

COMMON CAUSE EXHIBIT No. 3

SUBJECTS FOR FUTURE CONSIDERATION

In addition to the national security and economic issues raised in our testimony, Common Cause believes that future stages of these hearings should focus on the following issues:

CONSTRUCTION- AND OPERATING-DIFFERENTIAL SUBSIDIES

The Report of the Senate Committee on Commerce on the Maritime Appropriation Authorization Act of 1975 (Rep. No. 94-96) stated that in 1969, U.S.-flag ships carried 4.5% of our total foreign trade tonnage. In 1973, that share increased to 6.4% (p. 4). The Subcommittee must determine whether this increase warrants continued spending on maritime subsidies. In addition to this general question, the Subcommittee should examine the following specific questions regarding the subsidy program:

First, why can some firms compete without the operating subsidy? A recent report to the Committees on the Budget found that: "Several new, aggressive U.S. firms have shown the ability to compete very effectively in the ocean shipping market-without operating subsidy Payment of subsidy to selected U.S. ocean carriers creates an unfair competitive situation, may have dampened management innovativeness, and may be an unnecessary Federal expenditure" (p. 140).

Second, would money be saved if the Maritime Administration was given more flexibility in administering its subsidy program? GAO concluded: "the national goals for both the shipbuilding industry and the merchant fleet could be more effectively and economically achieved if MA had the authority to approve, in some circumstances: (1) subsidized construction of ships in U.S. yards for foreign-flag operation and (2) subsidized U.S.-flag operation of foreign-built ships" (p. 37).

Third, what changes in the law, its administration, or industry practices would allow the government to decrease subsidies without undermining the purpose of the maritime program? For example, Jantscher noted that the original intent

of the subsidy program appears to have been to subsidize only one operator for each "essential" trade route (pp. 19-20). What would happen if this were to become the practice? Another example: GAO noted the potential savings if standardized or similar ships were produced by repetitive production (p. 30).

TITLE XI MORTGAGE INSURANCE PROGRAM

The Subcommittee raised many important questions about the Title XI mortgage insurance program during and after the hearings on the Maritime Appropriation Authorization Act of 1975. As noted in the Committee Report (No. 94175): "The Committee was not satisfied with the responses from the Maritime Administration" (p. 15). These questions should be asked again.

TAX SUBSIDIES

Jantscher found that: "The maritime industries are the beneficiaries of an extraordinary form of financial assistance given by authorities through the federal tax system. No other industry is granted similar benefits. By creating funds that are protected from tax and depositing earnings into these funds, shipowners can compel the federal government to share their expenditures for new ships and equipment" (p. 54). The Subcommittee should compare the cost to the treasury of these special tax provisions with an estimate of the volume of construction that the provisions have generated that would not otherwise have been undertaken. Deputy Assistant Secretary of Treasury Vastine recommended: "Given that the industry must be subsidized, we suggest that the subsidies take the form of explicit budgetary expenditures." This would make the process easier to understand for all concerned and would facilitate rational priority setting. Common Cause believes that the Subcommittee should collaborate with the House Ways and Means Committee in evaluating the maritime tax subsidies. Such an evaluation should be made a part of the record of these oversight proceedings. The importance of this recommendation is highlighted by the special tax provision in the Senate passed authorization bill for fiscal year 1976. This tax subsidy should not be voted upon in the House until it has been given careful study by the House Ways and Means Committee.

CARGO PREFERENCE LAWS

Jantscher described the cargo preference system as "the principal form of federal assistance to the U.S. merchant shipping industry" (p. 69). The Subcommittee should estimate the added cost that these laws cause consumers and taxpayers to pay for and re-evaluate them in terms of changing demands of commerce-for example, the potential business from the Alaska oil trade.

NUCLEAR RESEARCH AND DEVELOPMENT

In light of the lack of industry interest in nuclear ships, and the many uncertainties regarding nuclear power, the Subcommittee should reconsider the heavy commitment to nuclear research and development. We note that Department of Defense Secretary James R. Schlesinger has expressed concern about the high price of nuclear powered ships.

Mr. DOWNING. Proceed, Mr. Cohen.

Mr. COHEN. That raises in this exhibit. Mr. Chairman, various issues dealing with substantive programs that I do not think is necessary to take the time of the committee at this point but if they could be made part of the record and they could consider them we would appreciate it very much.

Mr. DOWNING. They have been made part of the record, Mr. Cohen. Mr. COHEN. Thank you, Mr. Chairman.

Again, Mr. Chairman and members of the subcommittee, I want to emphasize how important we feel your work is. I hope it serves as a model to congressional oversight. Common Cause stands ready to assist the subcommittee in its effort to develop information that will allow Members of Congress and concerned citizens to make intelligent decisions about the future course of Federal maritime policy.

Thank you.

Mr. DOWNING. Thank you, Mr. Cohen.

To my knowledge, this is the first time that Common Cause has been before the Merchant Marine Committee.

Mr. COHEN. That is right, Mr. Chairman.

Mr. DOWNING. For the purposes of the record, explain Common Cause.

Mr. COHEN. It is a voluntary citizens organization of nearly 300,000 members whose principal purpose is to try and work to make Government effective and accountable and open.

Our members voluntarily pay their dues; no one has their dues checked off in Common Cause. Our members vote on the issues we get involved in and, among the issues they have voted on relate to questions of Government accountability, such as campaign financing, labor disclosure, financial disclosure.

In addition, our members feel they would like to know more about the influence of the Federal dollar as it applies to tax expenditures and as it applies to appropriations.

From time to time we have been involved in some substantive by choice of our members, such as energy conservation recently and in earlier years, and the war legislation in Vietnam. Our members elect the governing board.

Mr. DOWNING. Administratively, what is your table of organization?

Mr. COHEN. The table of organization administratively has its chairman, as the chairman of the board, John Gardner, who is the chief policy officer of the organization. It has me as its president. I am chief operating officer of the organization.

I was elected by our national governing board for a term of 1 year. Mr. DOWNING. How many people comprise your national governing board?

Mr. COHEN. Sixty.

Mr. DOWNING. Do they meet regularly?

Mr. COHEN. They meet regularly. They meet four times a year and they will be meeting this weekend.

Mr. DOWNING. Who passes on policy matters of Common Cause? Mr. COHEN. The national governing board, based on the responses to the referendum imposed, that we do, of the membership.

Mr. DOWNING. How many paid employees do you have?

Mr. COHEN. Approximately 90.

Mr. DOWNING. What does your budget run?

Mr. COHEN. Our budget runs at about $5.5 million, and most of that money, 94 percent of it, is raised in the $15 dues and contributions of less than $100.

Mr. DOWNING. What does the 6 percent comprise?

Mr. COHEN. Contributions of over $100. I would be happy to make any of the financial documents of Common Cause available to the committee.

Mr. DOWNING. I just want to make sure that the record is complete. Mr. McCloskey?

Mr. MCCLOSKEY. Thank you, Mr. Chairman.

Mr. Cohen, I want to commend you for this statement, and I hope that Common Cause's interest in the maritime industry will continue,