war, Defense would be almost entirely reliant on civilian shipping assets. In peacetime, the need is no less great. The American Legion shares this view. There is little question that the United States will continue to fulfill its legal and moral commitments in the years ahead, and must maintain the economic strength and national defense readiness to accomplish these objectives. The American merchant marine is inextricably bound up in our economic well being and our security, and the undeniable importance of the seas becomes increasingly apparent. The seas remain the principal highways to national strength or, if unused or unavailable, the potential highways to national disaster. Our principal adversary today, the USSR, has recognized the importance of a strong maritime fleet. Paradoxically, the Soviet Union is dependent upon external sources for only two strategic materials but yet today her merchant marine is the fastest growing in the world. Her fleet recently replaced that of the United States as the world's sixth largest. The specter of a massive, worldwide Soviet merchant marine is now a reality. Furthermore, the USSR can carry the bulk of its foreign commerce and worldwide assistance, both military and economic in Soviet bottoms. The significance of this maritime independence becomes even more meaningful when we recall that in 1973 the United States carried only 6.4% of its total foreign trade tonnage in U.S. flag ships. As state-owned enterprises, the Soviets can seriously undercut rates, select choice cargoes and absorb losses that simply could not be tolerated by privatelyowned companies. The activities of the Far East Shipping Company (FESCO) in the Pacific area in the past few years vividly demonstrates this growing economic threat, in addition to the obvious furtherance of Soviet political goals. In contrast to the Soviet strategic material independence, the United States must import all or a substantial portion of 26 of the 36 raw materials which are vital to our industrial economy. Certainly we have realized significant gains from the Merchant Marine Act of 1970. But we must also renew our will and efforts to continue this rebuilding in the next half decade. Since the passage of the Merchant Marine Act, there has been an effective beginning for the rebuilding of the U.S. flag fleet. Hopefully, the years of indifference to the indispensable importance of a strong merchant marine to our nation's economy and defense are ended. The American Legion is in your corner and applauds this Subcommittee for their collective efforts to revitalize the U.S. flag fleet. We believe the American people generally are becoming more and more cognizant of the imperative need for a strong United States merchant marine. You have our continuing support for your efforts to rebuild the U.S. flag shipping fleet to a position second to none in the world. 57TH NATIONAL CONVENTION OF THE AMERICAN LEGION MINNEAPOLIS, MINN., AUGUST 19-21, 1975 RESOLUTION No. 257 Committee: National Security. Subject: Support for a strong U.S. merchant marine. Whereas, The American Legion has long been aware of the need to rebuild and modernize the United States privately owned merchant fleet; and Whereas, the fuel shortage has demonstrated the continuing need for oil tankers and such other supply vessels; and Whereas, we are concerned by the consistent expansion of the Soviet merchant fleet which consists of modern vessels, 80% of which are less than 10 years old, and their accelerated new shipbuilding at an alarming rate; and Whereas, we have consistently urged the Congress and the Administration to take necessary action immediately to rebunld our merchant marine; and Whereas, the American Merchant Marine Act of 1970 provides the authority to revitalize our merchant fleet, if sufficient funds are provided to implement its provisions: Now, therefore, be it Resolved, by The American Legion in National Convention assembled in Minneapolis, Minn., August 19-21, 1975, That we urge the United States Government, working closely with maritime, labor and management, to fully implement the 62-989 0-76-57 Merchant Marine Act of 1970 as a minimum standard for rebuilding the U.S. flag shipping fleet to a position second to none in the world. 56TH NATIONAL CONVENTION OF THE AMERICAN LEGION HELD IN MIAMI BEACH, FLA, AUGUST 20, 21, 22, 1974 RESOLUTION No. 91 Committee: National Security. Subject: Greater utilization of U.S.-flag merchant vessels Whereas, the United States continues to have a major deficit in its international balance of payments with resultant weakening of our economic and defense posture; and Whereas, Russian and other foreign-flag ships not in international steamship conferences are drastically slashing freight rates on American commodities to the detriment of U.S.-flag liner vessels and essential rate stability in the ocean liner trades; and Whereas, the use of U.S.-flag ships constitutes the export of a service and results in the earnings or conservation of foreign exchange; and Whereas, additional cargoes are necessary if U.S.-flag shipping is to meet the new vessel construction goals fixed as national objectives by the President and the Congress under the Merchant Marine Act fo 1970; and Whereas, under the 1970 Act some government assistance is provided to U.S. ships to insure that they can charge comparable to those of low cost foreign competitors; and Whereas, a unique organization, the National Maritime Council, comprised of top officials of shipping lines and shipyards, sea-going and shore-side maritime labor and Maritime Administration, was formed to unite the industry and to hold regional meetings with exporters to urge greater use of U.S.-flag vessels; Now, therefore, be it Resolved, by The American Legion in National Convention assembled in Miami Beach, Fla., August 20, 21, 22, 1974, That we urge our members to encourage the use of American flag-ships for the shipment of all cargoes and to use their influence to persuade manufacturers and exporters of farm commodities engaged in foreign trade in their respective areas to utilize U.S. merchant ships to the fullest extent whenever possible. 56TH NATIONAL CONVENTION OF THE AMERICAN LEGION HELD IN MIAMI BEACH, FLA., AUGUST 20, 21, 22, 1974 RESOLUTION No. 534 Committee: National Security. Subject: Cargo Sharing Essential to Rebirth of American Merchant Marine. Whereas, it is in the national interest to increase world trade between the United States and friendly foreign nations; and Whereas, it is in the national interest that a strong U.S.-flag merchant marine be available to carry a substantial portion of the nation's foreign trade in times of peace and to serve as an arm of defense in times of international crisis; and Whereas, the relatively small percentage of our nation's foreign commerce now carried in the U.S.-flag merchant marine must be substantially increased if we are to maintain an economically viable fleet of efficient vessels for use in peace and war; and Whereas, cargo sharing agreements with our nation's major trading partners are essential to assure the carriage of a substantial portion of the nation's liner trade: Now, therefore, be it Resolved, by The American Legion in National Convention assembled in Miami Beach, Fla., August 20, 21, 22, 1974, that we urge our members to support wholeheartedly the government and U.S.-flag shipping industry goals to develop and implement essential cargo sharing agreements with our nation's trading partners to the benefit of the country and the American Merchant Marine. [Whereupon, at 12:08 p.m., the subcommittee adjourned, to reconvene on October 7, 1975.] CONSTRUCTION SUBSIDY PROGRAM WEDNESDAY, NOVEMBER 5, 1975 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MERCHANT MARINE OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES, Washington, D.C. The subcommittee met at 10:10 a.m., in room 1334 of the Longworth House Office Building, Hon. Thomas N. Downing (subcommittee chairman) presiding. Mr. DOWNING. This morning we continue with merchant marine oversight hearings. Our witness this morning, Mr. Edwin M. Hood, president of the Shipbuilders Council of America, was originally scheduled to appear about a month ago. Due to the pressure of other business it was necessary to postpone Mr. Hood's appearance until today. Mr. Hood, we want to thank you for your patience and welcome you to the committee. I note that you have a rather lengthy statement. Do you believe it would be beneficial to read it in its entirety or would the summation suffice for the purpose of these hearings? I will leave this to your discretion as we know you are knowledgeable in this very important area and also cooperated with the committee. I regret there are not more of my colleagues present, but perhaps they will filter in as they finish their other duties. So take your seat and proceed as you wish, Mr. Hood. STATEMENT OF EDWIN M. HOOD, PRESIDENT, SHIPBUILDERS COUNCIL OF AMERICA Mr. HOOD. Thank you, Mr. Chairman. As you indicated, the statement you have before you was prepared many weeks ago. It is a long statement, but I will try to abbreviate it as I go along. Also in the interest of timeliness and accuracy, I will update certain figures and facts. Mr. Chairman, members of the subcommittee, I am Edwin M. Hood, president and chairman of the board of directors of the Shipbuilders Council of America-an industry trade association composed of major shipbuilders, ship repairers and ship component manufacturers located in all sections of the country as shown on appendix A. In the view of our members, your current endeavors to determine the adequacy or inadequacy of existing policies and programs affecting merchant shipping operations under the American flag and (891) the construction of American merchant ships in American shipyards come at a time when domestic moods and perceptions are sensitively interacting with rapidly changing world conditions. While the dynamics of shipping and shipbuilding can change significantly in the short span of 1 year, as evidenced by recent experiences in this country, new markets for merchant ship construction are increasingly elusive, and analysts now speak with less optimism and more pessimism about future prospects. It seems to us then that U.S. maritime/shipbuilding policies must not be predicated on the vagaries of the moment: They must instead be anchored in the bedrock of long-term U.S. interests and the realities of the world around us a world, incidentally, made up of traditional maritime powers and nouveau maritime powers-all of which support their shipping and/or shipbuilding objectives with either direct or indirect aid. We have therefore been encouraged by the pattern of the chairman's questions throughout these hearings on the relationship of ships, shipbuilding, and support services to national security, national defense, and national interests. We have also been encouraged by the apparent consensus thus far that a merchant shipping capability under the U.S. flag and a domestic shipbuilding/shiprepairing industrial base are essential in all three respects. Parenthetically, it might be recalled that a report on "The Use and Disposition of Ships and Shipyards at the End of World War II” prepared in June 1945 by the graduate school of business administration at Harvard University for the Navy Department and the Maritime Commission concluded that "future peacetime economic forces alone will not maintain ships and shipyards to enable the country to provide prudently for national security." It was further concluded: "The controlling factor in the determination of the characteristics of shipping and shipbuilding activities in the United States in peacetime as well as in wartime is the national security." In this sense, national security can be correctly defined as "the protection of the Nation from international encroachment by any means" at any time. Subsequent history, we believe, has impressively demonstrated the durability of those conclusions. Yet, in succeeding years, there has rarely been any consensus as to how many ships or as to how much shipyard capacity the Nation should have to provide national security. Even now, there does not appear to be a high degree of homogeneity of rationale, nor uniformity of purpose, within the executive agencies. There are major differences in planning criteria and implementing approaches. Most planning appears to be related exclusively to defense rather than to defense, mercantile, and industrial needs. To us, these manifestations, despite assertions of joint studies and interagency deliberations, represent an oversight of substantial proportions. Meantime, there is a tendency to consider economic aspects of martime/shipbuilding programs within the framework of marginal levels of carriage of U.S. exports and imports by American-flag shipping. There appears to be little appreciation of the correlation between national security objectives, potential economic gains, and expanded ocean transportation under U.S. jurisdiction. There is little coordinated or cohesive effort within the executive agencies directed toward increasing the present relatively low levels of U.S. trade and commerce moved by U.S.-flag ships as a means of helping the balance of payments as a means of stimulating employment for seamen, shipyard workers, and other American citizens-as a means of enhancing the long-term interests of the United States. The Merchant Marine Act of 1970-a commendable and visionary statute unfortunately does not forcefully address the question of cargo stimulation, and the posture of administration policy on this question has long seemed to be one of indifference. Even though there is recognition of the fundamental truth of the sovereign essentiality of shipping and shipbuilding capabilities to national security, natonal defense and national interests, there appears to be only a limited perception of the role which maritime subsidy programs play in the preservation of that fundamental truth. It is in this context that I respond to your invitation to discuss the construction differential subsidy— CDS-aspects of existing maritime programs as viewed by our membership. [The following was submitted:] SHIPYARDS ENGAGED IN NEW CONSTRUCTION MAJOR NAVAL, MERCHANT, OFFSHORE EXPLORATION VESSELS |