of any act, the opportunity of negotiating for special rates on competitive business is denied us. Don't you think that creating an authority with such power is the first step in the direction of creating a monopoly in the interest of American bottoms.? May we also ask, it these bills are passed, will they limit American steamers to these fixed rates in the transportation of cargoes of American origin from the port of Montreal or any other Canadian port. If they do not, and American ships confine their major operations to the Canadian port (because the bulk of our business will be forced this way on account of this legislation) we, the taxpayers, who will have to shoulder the cost of these ship subsidies, will suffer materially in the loss of business to Canadian competitors. We feel their competition very keenly now, and for our own Government to legislate in their favor is hardly fair to American business interest. We can see no advantage to American business in the passage of these bills and strongly protest enacting them into laws, and we ask your consideration of this in your recommendations for or against their passage. Very respectfully yours, Hon. SCHUYLER OTIS BLAND, C. S. GRANT. UNITED STATES NAVIGATION CO., INC., Chairman House Committee on Merchant Marine and Fisheries, House Office Building, Washington, D. C. DEAR SIR: With reference to the bill mentioned above, which is now pending before the committee of which you are a member, we respectfully direct your attention to three (3) features which we believe are "jokers" which have nothing to do with the President's subsidy program and which, if enacted, would be highly injurious to American foreign trade and to international relations. (1) Title VII, "Regulatory Powers", section 701 (2), printed at page 32 of the bill, proposes to amend section 19 of the Merchant Marine Act, 1920, by adding a provision empowering the proposed United States Maritime Authority to prescribe minimum and maximum rates, fares, etc., of all vessels, both American and foreign, trading in or out of the ports of the United States. It fails to set up any standard of rate-making and, we believe, would violate existing treaties of commerce and friendship with foreign governments, thereby provoking resentment and retaliation which could only result in detriment to American trade and the American merchant marine. (2) Title X, "Miscellaneous", section 1006, printed at pages 46 to 47 of the bill, proposes to permit the powerful conference lines to give deferred rebates to shippers as a means of inducing or forcing shippers to patronize conference lines to the exclusion of independents and tramp ships. The granting of deferred rebates is made a crime by section 14 of the Shipping Act of 1916. It is essentially a grossly unfair method of competition and a powerful weapon of monopoly. Conference lines are predominantly foreign. If enacted, this section would enable conference monopoly to crush all independent competition and to victimize American shippers. (3) Title X, "Miscellaneous", section 1009, printed at pages 47 to 48 of the bill, would permit the employment of "fighting ships" and would authorize the use of taxpayers' money to finance the use of fighting ships by recipients of ship subsidies. In essence, a "fighting ship" is a vessel employed by a line or combined group of lines, put on the berth, not in the ordinary course of trade, at drastically cut rates for the purpose of taking cargoes away from a competitor, and the losses on the "fighting ship" are prorated among the operators in the expectation of recouping them when the competitor is forced out of business. The use of "fighting ships" is made a crime by section 14 of the Shipping Act, 1916. It is a weapon of monopoly which has been condemned by the Supreme Court of the United States. The United States Navigation Co., Inc., an American-owned New York corporation, is a common carrier of cargoes in export trade to foreign countries. We operate cargo services from New York to London, from New York to South African ports, and act as agents in the New York to Hamburg trade. We have operated our services since 1919, supplying regular dependable transportation to American exporters at reasonable rates adjusted to the needs of American producers in foreign markets. We are not a member of any "conference": (combination of ocean carriers who fix rates, arrange sailings, etc. among themselves and who are predominantly foreign lines in most trades). We believe that American exporters need to have transportation facilities on a fair competitive basis, free of monopolistic rate-fixing and other practices which are only too often attempted by conferences. Tramp ships carrying full cargoes, and independent operators carrying part cargoes of many shippers who do not ship at a given time in sufficient volume to require full cargo shipments, are an economic necessity to American exporters to enable them to compete with foreign producers in world markets. As the American exporter is necessarily obliged to compete on a price basis with unrestrained foreign producers, and as the market levels constantly fluctuate, American exporters must have a means whereby their rates can be kept at reasonable figures and can be adjusted immediately to their necessities. These means are afforded by the tramp ship and by the independent operator, whose economic value to the welfare of the export industry of this country was fully brought out in the investigation by the Committee on Merchant Marine and Fisheries of the House of Representatives in 1913 and 1914, known as the "Alexander committee", under H. R. 587, Sixty-second Congress. Up Except with the aid of a Government subsidy, it is impossible to operate American tonnage in competition with the foreign conference lines which dominate substantially all of the ocean trades. There is not sufficient supply of American vessels in the chartering market, having the requisite qualifications for size, speed, position, and cost, to make the use of American steamers possible. to the present time we have operated foreign vessels under charter and, by reason of our efficient operation at minimum cost we have been able to give American exporters the benefit of rates sufficiently low to enable them to sell their products abroad in competition with their foreign competitors; and we have carried thousands of tons of cargo that never would have moved from the United States except for our ability to carry cargo economically. We endorse the purpose of the subsidy provisions of the bill so that owners and operators of American ships may be placed on an equal footing with the owners and operators of foreign vessels; but the three provisions to which we respectfully direct your attention have nothing to do with such a subsidy system and could have only one result, viz, the crushing of competition, the elimination of independent lines, and the establishment of monopoly in all of the export and import ocean trades of the United States. As a guide to your consideration of these objectionable features of the bill, we take the liberty of enclosing copy of our counsel's analysis and memorandum. We earnestly beg you to give these provisions your careful consideration so that, in the upbuilding of an American merchant marine with the aid of proper subsidy provisions, honorable competitors may not be forced to the wall and American trade injured by harmful rate fixing or by the establishment of monopoly in the hands of conference lines which are predominantly foreign. Very truly yours, C. W. MENTZENDORFF, President. Memorandum on RegulatoRY PROVISIONS OF PROPOSED Merchant MARINE ACT, 1935 (SHIP SUBSIDY BILL) S. 2582, H. R. 7521 Introduced in Senate by Senator Copeland and in House of Representatives by Representative Bland, April 15, 1935, with particular reference to section 701, rate-fixing in foreign trade; section 1006, permitting "conference" lines; to give rebates to shippers; and section 1009, financing "fighting ships" DIGEST OF BILL SENATE COMMITTEE REPRINT NO. 2, REVISED APRIL 25, 1935 The objectives of the bill, as shown by its title, are (1) to develop a strong merchant marine, (2) to promote the commerce of the United States, and (3) to aid national defense. Section 1 contains the declaration of policy that it is necessary for national defense and development of its foreign and domestic commerce for the United States to have a merchant marine (1) sufficient to carry at least one-half of our foreign commerce and to provide shipping service on all essential routes at all times; (2) to serve as a naval auxiliary; (3) to be so operated and regulated as to secure American shippers adequate service and parity of rates to foreign markets; (4) composed of best equipped and most adequate vessels. Sections 201-204 propose to set up the United States Maritime Authority, to be known as the "Authority", to be composed of five members and to take over the functions and duties of the Shipping Board and Merchant Fleet Corporation and absorb their personnel so far as possible. The Authority is authorized to study maritime problems, construction costs, etc. Sections 301-302 deal with adjustment of ocean-mail contracts. Section 401 authorizes the Authority to require the construction of new vessels and to purchase old and obsolete vessels from steamship companies which obtain new construction loans, and apply the purchase price to the steamship company's portion of the new construction cost. The Authority is authorized to scrap or sell, charter or otherwise provide for the operation of the obsolete ship in some other route. Sections 501-517 provide for direct subsidies to American shipowners called "construction differential subsidy" and "operating differential subsidy" so as to equalize the cost of construction, reconditioning, and operation of American vessels with foreign costs. Such vessels must be used exclusively in foreign trade except with permission of the Authority. Details of these provisions are not analyzed here, except that it is important to note that section 513 authorizes a subsidy in any amount which the Authority may determine for a period not exceeding five years to any American shipowner in foreign commerce where the Authority considers that an operating subsidy would be inadequate. Sections 601-603 re-enact sections of the Merchant Marine Act, 1920, and Merchant Marine Act, 1928, dealing with construction loan and insurance funds and providing for Government operation of merchant vessels; and transfers to the new Authority the powers and duties formerly vested in the Shipping Board and Merchant Fleet Corporation. Section 701, under the heading of "Regulatory powers", amends the regulatory provisions of existing shipping acts: (1) Section 18 of the Shipping Act of 1916, relating to interstate commerce, is amended to authorize the Authority to prescribe minimum as well as maximum rates whenever the Authority finds that existing rates are unjust or unreasonable. (2) Section 19 of the Merchant Marine Act of 1920, relating to foreign trade, is amended by the granting of unlimited power to the Authority to prescribe all minimum and maximum rates in foreign trade to be charged by domestic vessels and foreign vessels. The proposed section 701 (2) provides as follows (new matter in italic): "To make rules and regulations affecting shipping in a foreign trade not in conflict with the law in order to adjust or meet general or special conditions unfavorable to shipping in the foreign trade, whether in any particular trade or upon any particular route or commerce generally and which arise out of or result from foreign laws, rules or regulations, or from competitive methods or practices employed by owners, operators, agents, or masters of vessels of a foreign country, and to prescribe minimum and maximum rates, fares and charges, rules, and practices which may be charged and enforced by vessels documented under the laws of the United States or foreign vessels in the foreign trade of the United States." Section 701 (3) amends the Intercoastal Shipping Act, 1933, in terms which specifically forbid the Authority affirmatively to fix rates in intercoastal trade. Section 702 proposes to create a Joint Transportation Board to interrelate rail and water traffic. Sections 801-805, under the title of American Seamen, provide for the manning of vessels with American citizens, conditions of labor, shipment and discharge of seamen. Sections 901-903, under the title of Administrative Powers, propose to transfer to the Secretary of Commerce all powers previously vested in the United States Shipping Board, the United States Shipping Board Merchant Fleet Corportation, etc. The Authority, however, would have power to make "rules and regulations" to administer its functions under the proposed act. Sections 1001-1013, under the title of Miscellaneous, contain radical and farreaching departures from the regulatory provisions of the comprehensive Shipping Act, 1916, and from accepted principles of public-utility regulation, which were not contemplated in the President's message relating to ship subsidies. Sections 1001 and 1002 authorize the appropriation of sums without specification or limit in "such sums as are necessary to carry out the provisions of this act," for expenditure by the Authority for "trade promotion purposes", operating ships taken over by the United States, "and when not inconsistent with the public interest, to insure a fair rate to shippers of American goods, to enable American ship operators to carry an equitable share of our foreign commerce or to insure vessels of American registry equitable consideration in conference agreements." Section 1003 transfers to the Authority all appropriations and unexpended balances in the hands of the Shipping Board and Merchant Fleet Corporation, and mail-contract funds. Section 1004 amends the Merchant Marine Act, 1928, in respect of the requisition of vessels for use in national defense or during emergency. Section 1005, under the heading of Conferences, requires members of conferences, pools, etc., to permit representatives of the Authority to sit in with and participate in their discussions. Section 1006 provides as follows (all new matter): "The Authority shall have the power to permit members of conferences to enter into contracts with shippers providing for a return of a stipulated part of freight moneys to the shipper in consideration of the shipper confining his shipments to lines and vessels which are members of the conference." Section 1009, under the heading Unfair Competition or Practices, provides as follows (all new matter): "The Authority shall have full power and authority to use any funds not designated for other purposes to give aid and support to the holder of any contract under this act, in meeting any unfair competition or practice by any foreign vessels or vessel, together with the power and authority to aid and support a fighting ship' as defined in paragraph 2 of section 14 of the Shipping Act of 1916, and to use said money in the aid and support of such ship." Section 1010 defines "foreign trade" as follows (all new matter): "(a) The words 'foreign trade' mean trade between the United States, its Territories or possessions, or the District of Columbia, and a foreign country. The loading or the unloading of cargo, mail, or passengers at any port in any Territory or possession of the United States shall be deemed to be foreign trade if the stop at such territory or possession is an intermediate stop on what would otherwise be a voyage in foreign trade." COMMENT SECTION 701 Under section 701 the Authority would have arbitrary and unlimited power "to prescribe minimum and maximum rates, fares and charges, rules, and praetices which may be charged and enforced by vessels documented under the laws of the United States or foreign vessels in the foreign trade of the United States." This provision would empower the Authority to "prescribe all rates of American and foreign vessels in foreign trade, including tramp ships and both liner and full-cargo services." The Authority would have the power to "fix all ocean rates of all foreign and domestic vessels for the carriage of all cargoes and passengers both into and from United States ports." No standard of rate-making is supplied or suggested. This provision is not found in the President's message or in the reports which were submitted to Congress therewith and raises far-reaching and highly complicated and controversial problems of international and domestic law and of foreign trade economics. No other country in the world attempts to fix rates in its foreign trade. The subject of rate-fixing was carefully investigated, considered, and rejected by the Democratic Congress in 1912-14. The Committee on Merchant Marine and Fisheries of the House of Representatives (commonly known as the Alexander committee) in the Sixty-second and Sixty-third Congress, after exhaustive investigation and consideration reported that rate fixing would be "particularly objectionable to American exporters, who, in competing with foreign markets, are often dependent upon an immediate and favorable rate quotation in order to close their contracts"; "that any limitation upon the freedom of ocean carriers to change their freight rates promptly to fit the changing conditions of the freight market would prove injurious to shipowners, shippers, and consignees"; that world conditions govern ocean transportation and that "it might prove injurious to both shipowners and American exporters to require the lines to file their rates and not be permitted to lower the same until after a stipulated period of notice to change rates had been given." The Shipping Act, 1916, which contains comprehensive provisions regulating ocean transportation, is modeled upon the Alexander committee's report and recommendations, and carefully preserves to carriers in foreign trade the right to adjust their rates as business conditions and their judgment require. Rate fixing in foreign trade was unsuccessfully attempted in the General Shipping Code which was disapproved by the President. Congress refused to enact rate fixing in the so-called "Johnson bill" (Shipping Act, 1932, S. 1963, 72d Cong). It was strenuously opposed when attempted in the Rules and Regulations under section 19 of the Merchant Marine Act, 1920, when recently proposed by the Shipping Board Bureau; and it was strenuously opposed in the Eastman water carrier bill (S. 1632) on which hearings have recently been concluded. In such a comparatively simple matter as rates in the intercoastal trade, the same section of the bill, 701 (3), contains provisions which carefully restrict the regulation of rates, in the manner of Interstate Commerce Commission regulation, and in explicit terms denies the Authority the power affirmatively to fix specific rates. Yet in the infinitely more important and complicated matter of foreign trade, which requires the utmost flexibility in rates, section 701 (2) sweeps away all safeguards and grants arbitrary and unlimited power to the Authority, without standard or qualification, to fix rates for every commodity in every trade on every vessel, foreign and domestic alike, in and out of every port of the United States. There is no man or group of men living who can qualify for the job of fixing rates for the entire maritime commerce of the United States without confusion, delay, favoritism or mistake, with highly injurious consequences to American exports, industry, and labor, which are compelled to meet the inexorable law of supply and demand in foreign markets. The proposed section violates International Treaties with practically every foreign nation, which guarantee the right of "free access" to our ports. It is bound to provoke resentment among foreign nations which can easily retaliate against American ships and American exports by themselves fixing the rates, but on different levels, of the same cargoes entering or leaving their ports, or otherwise exercising their sovereign powers to "regulate" American ships and American goods. An obviously chaotic condition is bound to result. Provocation and retaliation are not good medicine at this time for our crippled export trade or for the American merchant marine which the subsidy provisions of the bill are designed to build up. SECTION 1002 The provisions of section 1002 likewise have nothing to do with setting up a system of equalizing subsidies. In one sentence it proposes to put the Government back into the shipping business in competition with private enterprise and to authorize the expenditure of public funds to finance rate wars. These provisions are unnecessary. Shippers now obtain fair rates through competition, with power vested in the Department of Commerce under the Shipping Act, 1916, to correct unfair and discriminatory treatment of shippers. Likewise, the Shipping Board Bureau, Department of Commerce, has complete control over conference agreements, and exercise of its powers under section 15 of the Shipping Act, 1916, can insure equitable consideration in conference agreements without the expenditure of unlimited sums of public money. SECTION 1006 Section 1006 would authorize the Authority to "permit members of conferences to make deferred rebates to shippers" in consideration of exclusive patronage. It likewise has no relation to either a system of subsidies to American shipowners or to the promotion of American export trade. Conferences are combinations of ocean carriers whose members fix rates and arrange sailings among themselves and otherwise act in concert in order to control or crush competition. They are saved from the condemnation of the anti-trust laws only by approval of their agreements by the Shipping Board under section 15 of the Shipping Act, 1916. Conference lines are predominantly foreign in substantially all of the important ocean routes in which American export trade is moved to world markets. (The total membership of conferences operating in the United States numbers approximately 22 American lines and 70 foreign lines.) Shipping and legislative history is replete with their ceaseless attempts to obtain an absolute monopoly over all ocean trades and thereby to raise rate levels to their hearts' desire. As shown by the exhaustive investigation and report of the Alexander committee upon which the Shipping Act, 1916, was founded, the only effective barrier to conference monopoly is the competition of the tramp ships and independent lines, who, by their ability and willingness to assist shippers to obtain favorable |