time Administration has implemented the Congress' Maritime Program in the years since 1970. The purpose of that program, as set forth in the preamble of the Merchant Marine Act, 1936, is "To further the development and maintenance of an adequate and well-balanced American merchant marine, to promote the commerce of the Untied States, [and] to aid in the national defense. . ." Title I of the Act states that: "... the United States shall have a merchant marine (a) sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and import foreign commerce of the United States and to provide shipping service essential for maintaining the flow of such domestic and water-borne commerce at all times, (b) 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 United States insofar as may be practicable, (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, and (e) supplemented by efficient facilities for shipbuilding and ship repair."

The Congress reviewed and substantially amended this Act in 1970. It saw fit not to change that declaration of policy except for the reference to shipbuilding and ship repair.

In our stewardship of the maritime program we have attempted to follow this Congressional policy guidance. Before I summarize the results of our efforts, however, I will address your question regarding the definitions of "national security," "national defense" and "national interest."

National defense has purely military significance. Thus, the national defense role of the maritime industry covers the direct support of military forces in the deployment and resupply of land based forces, the support of fleet elements, and the construction and repair of naval and militarily useful merchant vessels. National security includes all the concepts of defense, plus the support of the economy in wartime. In peacetime, the merchant marine also contributes to the national security to the extent that it minimizes political and economic pressures that the nation could be subjected to if it were dependent on foreign maritime powers for shipping services.

Finally, the "national interest" contributions of the merchant marine embraces both national security, with its defense component, and the general economic benefits that the industry provides in terms of commerce, employment, and balance-of-payments.

The objectives of the maritime program are pursued largely through a system of subsidies to private industry. These subsidies are designed to cover no more than the differences between U.S. and foreign ship operating and construction costs so that the U.S. ships and shipyards can compete on an equal footing with their lower cost foreign competition. We interfere as little as possible in the shipbuilding and ship operating decisions the industry must make in responding to the forces of the market place. At the same time, there is a need to provide for national defense and national security requirements. These requirements are not always totally consistent with the imperatives of the market place.

How well have we done in reconciling these sometimes divergent interests in providing the well-balanced merchant marine called for in the Act? Under the 1970 Act, there have been contracts for 58 ships with construction subsidy. Of these, 37, or 64 percent, can be used in direct support of military forces and the Department of Defense has certified that six of the LNG's in the program can be used as military oilers. DOD has also stated that the larger tankers now under contract can be used for military support when offshore deepwater ports are available. When the six LNG's and the 12 large tankers are included, the total rises to 55 and the percentage to 95. Furthermore, all the ships contracted for under the 1970 Act will contribute to the national security by reducing our dependence on less reliable foreign-flag shipping resources for moving essential imports in peace and war.

Moreover, 132 of the 187 ships covered by operating subsidy are ideally suited for immediate support of military forces in wartime under Department of Defense criteria. Of these, 129 are breakbulk carriers, including barge carriers, and ro/ros. Three are handy-size tankers. In addition, there are 45 containerships efficient for the movement of military supplies in wartime and 5 tankers and OBO's in the 80,000-90,000 deadweight ton category, potentially useful for military support and immediately valuable for the importation of strategic raw materials.

We believe that the program under the 1970 Act has done reasonably well in

reconciling the interests of commerce with national defense and security. Moreover, to increase their usefulness and survivability in wartime, all ships built with construction subsidy have been fitted with certain national defense features as requested by the Navy.

Our concern for the national defense and national security also extends to the U.S. shipbuilding industry. Indeed, this is mandated under the terms of the Act's Declaration of Policy, more explicitly, under the terms of Section 210, which calls for "the creation and maintenance of efficient shipyards and repair capacity in the United States with adequate numbers of skilled personnel to provide an adequate mobilization base."

The shipbuilding program under the 1970 Act has stimulated the investment of over 500 million dollars in private capital to increase the efficiency of the shipbuilding industry. We are also working with the Navy to assist the industry with training programs to offset the effects of debilitating high labor turnover.

For the maintenance of the shipbuilding mobilization base, however, the critical element is the shipbuilding program itself. Under modern defense planning assumptions there will be little or no time to mobilize for war. In-being, active shipyards must be available. With the Navy, we are now studying the wartime shipyard requirement, and there are preliminary indications that adequacy of the present base would be marginal. Yet without the shipbuilding that is supported by CDS we estimate that five to six of the 13 major, active U.S. yards might well be forced out of the shipbuilding business. It is highly doubtful that the remaining capacity would be adequate for mobilization.

But the Maritime Administration responsibilities in the area of national defense and national security are not limited to ships and shipyards. The maritime program also encompasses training, maintenance of the National Defense Reserve Fleet, emergency planning, and readiness to assume control of wartime maritime activity. The United States Merchant Marine Academy, under MarAd control, and the six state maritime academies that receive Federal support, provide military as well as technical professional instruction, and many of their graduates receive commissions in the United States Naval Reserve. The National Defense Reserve Fleet, which we have carefully husbanded, is now. despite its age, the only reservoir of dry cargo shipping available to this country to meet the surge demands of military contingency operations without significant interruption of our commerce.

Further, we maintain an extensive emergency planning operation in anticipation of national defense and security needs in time of war. This operation is coordinated with the Department of Defense, the Navy, and the Federal Preparedness Agency. Like the Department of Defense, we are now updating our plans to meet the pressing demands of war-without-warning. This is essential, because under existing laws and executive orders we must be prepared to assume operational control of the U.S. merchant fleet and ports as well as other aspects of maritime activity in wartime.

What is the capability of the U.S. merchant fleet in wartime? We have rigorously analyzed the wartime requirement for shipping and determined, with the Department of Defense, that the U.S. flag fleet is only marginally adequate, with the foreign flag shipping expected to be available, to meet United States military and economic shipping requirements in a major war. Some 900 to 1.000 ships would be needed, depending on operational circumstances, including several hundred NATO-flag general cargo ships and a small number of EUSC tankers.

Our analyses show that without the US-flag ships that are supported by ODS, there would be a significant shortfall in wartime deliveries even with full utilization of foreign flag assets expected to be available. It should also be noted that we could not automatically depend on shipping assistance from our NATO allies except in a NATO war.

Mr. Chairman, I do not wish to belabor the subject of national defense and security. However, I feel it is important to make it clear that we have these responsibilities under the law. The Merchant Marine Act of 1970, which was passed with only two dissenting votes, explicitly extended these responsibilities and the Maritime Administration, with considerable success, I believe, has endeavored to meet them.

The relationship between our merchant fleet and national defense and security is not a new subject. In the United States it has been studied and debated since the early days of the Republic, with consistent emphasis on the linkage between commerce and defense. In 1793 Thomas Jefferson wrote to the House of Representatives:

"As a branch of industry [our navigation] is valuable, but as a resource of defense essential. Its value as a branch of industry is enhanced by the dependence of so many other branches on it. In times of general peace it multiplies competitors for employment in transportation, and so keeps that at its proper level, and in times of war-that is to say, when those nations, who may be our principal carriers, shall be at war with each other-if we have not within ourselves the means of transportation, our produce must be exported in belligerent vessels, at the increased expense of war freight and insurance, and the articles which will not bear that must perish on our hands.

But it is as a resource of defense that our navigation will admit neither neglect nor forbearance. The position and circumstances of the United States leave them nothing to fear on their land board, and nothing to desire beyond their present rights. But on their seaboard they are open to injury, and they have there, too, a commerce which must be protected. This can only be done by possessing a respectable body of citizen seamen and of artisians and establishments in readiness for shipbuilding."

Since Jefferson's time we have become, in effect, an i̇sland nation, so today we would place greater emphasis on imports than exports in the context of war. Otherwise, little has changed.

Jefferson did not address in these paragraphs the means by which to secure the needed U.S.-flag capability, and the subsidy system as we know it today was not established until 1936. However, in 1922 Senator Joseph E. Ransdell of Louisiana stated effectively the case for subsidy :

"Whatever our prejudices may be against the word 'subsidy' and the policy it stands for, is there any alternative? I know of none. The United States is the only maritime country in which the question of subsidy is ever debated. It is the only maritime country that has ever hesitated to employ a subsidy policy commensurate with this means and opportunities.

Every nation in the world that has a merchant marine worth considering has in some way or another included subsidy with other forms of national aid. This is the fully established practice of all of the seatrading peoples."

It is sometimes thought that ours is the only merchant marine that is subsidized. This is simply not true. What Senator Ransdell said on that subject is as valid today as it was 53 years ago. However, if the fact of the U.S. maritime subsidy is not unique, the U.S. method of subsidy is.

Despite some indirect government support, ours is the only maritime program that is founded upon a visible direct Government subsidy to ship operators and shipbuilders. This entails both advantages, and, to a lesser extent, disadvantages. The primary advantage of this approach is that of public review by responsible elected officials, which I strongly endorse. It is there for all the world to see. On the other hand, the very fact of its visibility makes the maritime subsidy program a tempting target for criticism. We welcome responsible criticism, even when it is unflattering, because it can help us to do our job better. We are disturbed by purely negative criticism.

As I have pointed out, we see it as our responsibility under the law to administer the maritime program in such a way as to provide for a strong U.S.flag merchant marine to meet the needs of national defense and security. Although progress has been good, it would not be right to say that the objectives set forth in the Act have been fully achieved. Much remains to be done. If more new merchant ships of the types most useful in military and essential economic support are to be added to the fleet to increase our shipping independence, expanded trades and new trades must be promoted that will sustain such ships economically. This is not a simple matter. If subsidy requirements are to be reduced without reduction in capability needed for defense and commerce, efficiency and productivity in ship and shipyard operations must be increased. There has been progress in this area, but gains do not come easily. Work is also needed to increase the defense usefulness of the existing fleet, and we must find a way to renew the aging National Defense Reserve Fleet.

These are our real problems in meeting our responsibilities under the law. Yet the maritime program has been criticised on the ground that its contribution to the balance of payments, if it could be measured, would not offset its cost. Similar criticisms have been leveled at the employment and trade benefits of the program, taken separately. Unless we have misinterpreted the intent of the law, there is no connection between the focus of these criticisms and the real problems that face us.

However, I did not intend to dismiss these criticisms on the ground that they are misdirected, because I believe that, aside from their misdirection, they are in error. In fact, the program does entail a significant economic benefit to the country. This benefit represents the sum of its contributions to trade, to employment, and to the balance of payments.

With respect to trade, the U.S.-flag fleet offers efficient service on routes that connect this country with its trading partners worldwide. Without this fleet, we could be subjected to rate discrimination, a possibility that grows more imminent as many countries move in the direction of restrictive practices that would limit the competitive participation of third-flag carriers in our trades. Given the rapid growth of the Soviet merchant fleet, this is a matter of particular concern with respect to our expanding trade with the USSR. The U.S. maritime program stands as an effective counter to ambitious Soviet moves in the area of international shipping.

We are also concerned with the possibility that increasing OPEC control over tanker tonnage could culminate in a capability to reinforce the effectiveness of future oil embargoes. To appreciate the real significance of the U.S. maritime industry it is necessary to consider how vulnerable this country would be to economic and political pressures, particularly in times of unrest, if it were wholly dependent on others for maritime services.

In the employment area, U.S.-flag merchant ships provided employment for more than 55,000 seagoing workers in 1974 plus 16.000 ashore, and the primary and secondary effects of subsidized ship construction since 1970 are placed at about 200,000 man-years. This benefit is amplified in the high-unemployment areas where many of the shipyards are located. Further, minority employment in the shipbuilding industry, which has been actively encouraged by MarAd, is now over 28 percent, up from 18 percent in 1968.

The current balance of payments contribution of the U.S. merchant marine has been placed at about $700 million, which is nearly 20 percent of the 1974 balance of payments deficit. Given the volatility of international exchange rates and their sensitivity to other factors, the precise economic significance of this, or any other contribution to the U.S. balance of payments would be difficult to measure, but it would be incorrect to discount it in a period of chronic deficits. Further, relative to the spectrum of other potential subsidy investments, we believe that the maritime subsidy is reasonably efficient in generating balance of payments credits.

The fact that these various economic contributions of the merchant marine are individually difficult, and collectively impossible, to measure does not, in our view, constitute a reason for dismissing them.

Mr. Chairman, this concludes the summary part of my statement. I would like to briefly recapitulate. First, the Maritime Administration endorses, and has done its best to follow, the policies stated in the Merchant Marine Act, 1936, as amended in 1970. Second, the CDS program since 1970 has produced, and the ODS program supported, high percentages of ships useful for defense, and all of the ships supported by subsidy contribute to the national security. Third, the U.S.flag fleet, with expected foreign-flag augmentation, is marginally adequate to meet major war shipping needs. Fourth, we believe that there is need for further maritime industry progress in the areas of national defense and competitiveness. Finally, we believe that the totality of the maritime industry's economic contribution is highly significant.

1. National Security

I shall turn now to some of the details of the national security issue, covering, first, the functions and contributions of the ship operating industry, and, secondly, the role of the shipbuilding industry.

A. The National Security Contribution of the Ship Operating Industry

1. OPERATIONS IN MAJOR WAR

Under mobilization conditions the entire United States flag merchant fleet is subject to requisitioning by the Secretary of Commerce under authority delegated to him in Executive Order 11490. Operational control of the fleet after requisitioning lies with the National Shipping Authority, an agency of the Maritime Administration whose functions in this area essentially parallel those of the World War II Shipping Administration. Specific ocean shipping resources are allocated by the National Shipping Authority to meet national requirements, both military

and economic, under guidelines established by the Office of Emergency Transportation in the Department of Transportation, which in turn receives broad policy guidance from the Federal Preparedness Agency in the General Services Administration.

The Maritime Administration is charged, under the terms of Executive Order 11490, with the development of plans and procedures for the wartime operation of the merchant fleet after it is requisitioned. Consonant with that responsibility, we work closely in our planning operations with the Department of Defense, which, of course, has exclusive responsibility for the planning of military operations and movements. We also work with other government agencies in developing projections of the requirement for essential economic shipping support in wartime. This is the subject of a current MarAd study.

Projections of shipping requirements and capabilities in major wars are developed with the assistance of computerized simulations of actual wartime transportation operations. These incorporate DOD projections of detailed military transportation requirements, to which we have added projections of non-military needs, which are dominated by domestic off-shore requirements for support of Hawaii, Puerto Rico, and Alaska. The simulations depict the post-mobilization time-phased availability of ships, the speed and carrying capacity of the ships, load and off load delays plus delays for convey assembly, and probable ship losses, based on Navy submarine warfare analyses. Airlift capabilities are also accounted for. These analyses cannot yield exact forecasts because wartime operations are subject to wide ranges of uncertainty. We are confident, however, that they do provide reasonable estimates of the general magnitude of wartime ship requirements.

Current planning guidelines envision U.S. involvement in major war in one combat theater, with possible simultaneous involvement in a minor contingency operation elsewhere. Given the spectrum of possible wars, it is a short intensive war in Europe between the NATO and Warsaw Pact nations, involving conventional weapons, that would impose the greatest burden on U.S. transportation resources. We are presently considering with DOD the implications of a short intensive war followed by a long period of stalemate and worldwide unrest. While this new scenario has significant implications respecting shipbuilding requirements and long term raw material import needs affecting requirements for bulk carriers, it is not expected to lead to significant changes in estimates of peak dry cargo and tanker shipping requirements for military and economic support. Recent studies of the problem include the 1972 multi-agency Sealift Procurement and National Security (SPANS) study plus a number of subsequent DOD and MarAd analyses. In every case, the projected movement requirements, when compared with expected U.S. and NATO-flag ship availability, show the dry cargo shipping capability to be marginally adequate to meet the military and economic support objectives under expected conditions of high ship attrition. Although it was explicitly considered in all of the noted studies, the Effective U.S. Control (EUSC) fleet of U.S.-owned foreign flag ships makes essentially no contribution to the general cargo delivery capability because that fleet consists almost exclusively of bulk carriers.

It is of interest, that an excursion in one of the MarAd analyses, designed to test the defense utility of the ships that are supported by operating differential subsidy, showed that without them there was a significant shortfall in deliveries to the combat theater despite full utilization of the NATO-flag assets expected to be available. In this connection, it should be noted that we could not automatically depend on shipping assistance from our NATO allies except in a NATO war.

I will now address the various sources and types of shipping that would be available to assist in the accomplishment of U.S. national security shipping objectives in a major war. All of these sources and types are explicitly taken into account in the studies I have just discussed, including:

a. General Dry Cargo Ships in the U.S. Merchant Fleet

The studies I have referred to have concentrated primarily upon the general cargo ship types that can be used for the movement of military equipment and supplies, with explicit representation of the projected numbers and types of ships, including freighters, containerships, Ro/Ros, and barge carriers.

At present this element of the U.S.-flag fleet includes 138 general freighters, and 23 barge carriers plus 12 roll-on/roll-off ships, or ro/ros. All three of these types, totalling 173 are breakbulk carriers. In addition there are, in the intermodal category, 14-self-sustaining, 99 non-self-sustaining, and 22 partial containerships, for a total of 135.