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In addition, the appropriate congressional committees should review

Maritime Administration's concept of the need to reconstitute the merchant fleet after a war as a justification for continuous peacetime support of the shipbuilding industry.

iv

CHAPTER 1

INTRODUCTION

OBJECTIVES OF GOVERNMENT SUPPORT

OF SHIPBUILDING INDUSTRY

that

The Merchant Marine Act of 1936 (46 U.S.C 1101) states

"It is necessary for the national defense and develop-
ment of its foreign and domestic commerce that the
United States shall have a merchant marine * * * sup-
plemented by efficient facilities for shipbuilding
and ship repair."

This generalized language is expanded in a later section of the act that sets forth the objectives of a long-range maritime program and states that the program should accomplish "the creation and maintenance of efficient shipbuilding and repair capacity in the United States with adequate numbers of skilled personnel to provide an adequate mobilization base." This quote, according to the House of Representatives report on the bill that became the Merchant Marine Act of 1970, Public Law 91-469, was added by that act to recognize the need for maintaining efficient shipbuilding and repair facilities.

Judging by the policy statement, developing and maintaining a merchant marine was deemed necessary to

--provide capabilities deemed necessary for national
defense and

--aid in developing our foreign and domestic com

merce.

The section of the act quoted above explains that the national defense objective is for mobilization purposes, but the "development of its foreign and domestic commerce" objective as it pertains to the shipbuilding industry is less clear from the act. In hearings and speeches, support of the industry has been sanctioned citing various economic benefits that may be related to commercial objectives for shipbuilding. (See ch. 3.)

The Maritime Administration (MA) has two general objectives for support of shipbuilding: (1) maintaining an adequate mobilization base and (2) improving the efficiency of the industry.

MEANS OF GOVERNMENT SUPPORT

The Government has sought to insure an adequate shipbuilding industry through several types of direct and indirect assistance. The three major direct sources of demand for ship construction by U.S. yards have been (1) Navy construction, (2) merchant ships for use in foreign commerce built through the MA construction subsidy program, and (3) unsubsidized merchant ships for use in domestic trade built under the Jones Act (see p. 5). Figure 1 shows the shipbuilding demand between fiscal years 1964-73 from these three

sources.

Navy shipbuilding

The most important source of demand for the shipbuilding industry, in terms of dollars, has been the Navy. For more than 20 years most Navy ships have been built by private yards, and since 1968 all Navy ship orders have been placed with private yards.

Since passage of the Merchant Marine Act of 1970 the Navy share of total shipbuilding demand has declined from 73 percent in fiscal year 1970 to 52 percent in 1972, although total Navy awards increased from $886 million in 1970 to $1,189 million in 1972. The Navy share of total awards declined to 21 percent in fiscal year 1973 with a reduction to $371 million in awards.

Navy ship construction is expected to continue to play a major role in demands placed on the U.S. shipbuilding industry. One industry source estimates naval construction will contribute from 52 percent to 57 percent of U.S. private shipyard fleet construction revenues for 1973 through 1977.

Construction differential subsidy

Section 501 of title V of the Merchant Marine Act of 1936, as amended, authorizes U.S. ship purchasers or ship

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