D. Applicability of French Maritime Support Techniques The French interest rate subsidy is a type of operating subsidy that may deserve consideration in the United States. It would help to retain an advantage for U. S. operators with respect to capital costs, the element of total cost in which the U. S. market traditionally has helped U.S. business to gain a competitive edge. That competitive advantage has been substantially offset, insofar as shipping services provided by many other relatively high wage countries are concerned, by government subsidy of one sort or another. As capital costs become an increasingly important component of the total expense of providing shipping services, retaining such an advantage becomes correspondingly significant for U. S operators if they are to compete successfully. An interest rate subsidy also minimizes the need for government involvement in reviewing company costs and provides a stronger incentive for U.S. operators to acquire newer and more capital intensive ships. Highly accelerated depreciation and a low tax rate on capital gains from the sale of older vessels combined to encourage the expansion of the French fleet in order to take advantage of such tax shelters. Operators will, of course, not acquire ships unless they expect to operate them profitably, but the tax shelter significantly reduces the cost of a new ship once the depreciation charges on older vessels have been substantially exhausted. They reduce the prospective revenues that a new vessel must earn in order to make the investment attractive to the owners. The preference rules with respect to crude oil are giving a substantial impetus to the expansion of the tanker fleet. The two French companies that have constructed modern facilities for building very large tankers have acquired a substantial order book from French companies seeking to fulfill the preference requirement. Finally, some attention may be advisable to an arrangement, appropriate to the U. S. business environment, that would permit results similar to those obtained following the agreement between the French government and the shipbuilding industry. The restructuring of the industry, the modernization of its facilities, and the specialization of its yards have significantly improved the competitive pɔtential of French shipbuilders. [Whereupon, at 3:20 p.m., the hearing in the above-entitled matter was adjourned.] VII-32 CONSTRUCTION SUBSIDY PROGRAM THURSDAY, SEPTEMBER 5, 1975 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MERCHANT MARINE OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES, Washington, D.C. The subcommittee met, pursuant to call, at 10:03 a.m. in room 1334, Longworth Office Building, Hon. Thomas N. Downing (chairman of the subcommittee) presiding. Mr. DOWNING. The subcommittee will please come to order. This morning the subcommittee commences with the construction differential subsidy element of our current oversight hearings. As you know, the Merchant Marine Act of 1970 provided for a 10year shipbuilding program. It is appropriate that we review the program at this time, as almost 5 years have elapsed, and there would appear to be significant changes in circumstances since that statute was enacted. We were scheduled to hear two witnesses this morning. I regret to inform the subcommittee that due to the pressure of other business, Dr. Allen R. Ferguson of the Public Interest Economics Center is unable to be with us today. We look forward to his appearance when the subcommittee meets to consider operating subsidy. Our first and only witness this morning will be an old friend, Mr. Alfred Maskin, executive director of the American Maritime Association. Mr. Maskin, if you will please come forward, you can proceed. I see you have a lengthy statement here. STATEMENT OF ALFRED MASKIN, EXECUTIVE DIRECTOR, AMERICAN MARITIME ASSOCIATION, ACCOMPANIED BY JOSEPH A. KLAUSNER, COUNSEL Mr. MASKIN. Yes, Mr. Chairman. I would like to say first that with your permission, I would like to be accompanied this morning by Mr. Klausner, counsel of our association. Mr. DOWNING. We are delighted. Mr. MASKIN. Also, as you have indicated, I have submitted to the subcommittee a rather voluminous document with numerous attachments, and I would like that to be made a part of the hearing record in entirety. Mr. DOWNING. Without objection, it will be made a part of the record. [The document may be found on p. 708.] (687) Mr. MASKIN. However, for purposes of this oral testimony, I have prepared a shorter summary statement. I have also supplied copies of that to the subcommittee and this I would like to read. Mr. DOWNING. You may proceed. Mr. MASKIN. Mr. Chairman and members of the subcommittee, I am Alfred Maskin, the executive director in Washington for the American Maritime Association, and I thank the subcommittee for the opportunity to express the views of our association on the construction-differential subsidy. At the outset, however, I would refer to my testimony before the subcommittee on June 19, when I discussed the defense and national security aspects of our maritime policies, and set forth in that regard two fundamental propositions. First, that its defense and security value constitutes the principal justification for an American-flag merchant marine. Second, that in attempting to obtain such a merchant marine, the Nation looks primarily to the commercial marketplace to provide the ships it needs. I think it is important for the members of the subcommittee to bear these propositions in mind, for they form the backdrop against which we turn our attention today to the construction-differential subsidy, CDS. Putting into its simplest terms, the question which I believe should be the subcommittee's primary consideration, it is this: How useful has CDS been in enabling the Nation to obtain, in the commercial marketplace, a merchant fleet suitable to its defense and security needs? More important, how useful can we expect CDS to be in enabling the Nation to achieve this objective in the future? Let us consider first the question of the fleet's adequacy and in this respect I believe the subcommittee has been fortunate in having the two major agencies of the Government concerned with this subjectthe Department of Defense and the Maritime Administration-appear before it and discuss that adequacy with frankness, even to the point of presenting specific numbers which can be scrutinized and evaluated. And what have these agencies of the Government told us? Dr. Bennett, speaking for the Defense Department, conceded candidly that even speaking of the support role of the merchant marine in the narrow military sense, "the total number of (dry cargo) ships available was considered to be only marginally adequate to meet the deployment and resupply objectives" of a European war; and he went on to say that even a more limited war, on the scale of Korea or South Vietnam, would seriously deplete our shipping resources and threaten our broader security requirements. What Dr. Bennett was doing, we believe, was frankly revealing to the subcommittee a dangerous gap in our defenses which DOD evidently fears is tending to widen. Moreover, this view was supported by Assistant Secretary of Commerce Blackwell in his testimony before the subcommittee on August 1, when he, too, asserted that "our dry cargo shipping capability is marginally adequate to meet the military and economic support objectives under expected conditions of high shipping attrition” în a |