which is dependent upon annual appropriation; secondly, that which goes into the maritime credit field, which is not necessarily an out-ofpocket contribution. In order further to clarify these groupings, I believe we can consider them in five general subjects. These do not, by any means, cover all the technical types of subsidies, but they serve to condense the many kinds of special subsidies into broad groupings which will probably meet the requirements of this discussion. Under the general grouping of annual contributions, I have set up four subheadings. The first of these is subsidies to regular shipping lines; the second is subsidies to tramp or charter tonnage, which does not operate on definite lines; the third is subsidies granted for ship scrapping; the fourth is interest contributions to ship construction loan funds or to public credit granted through the underwriting of maritime securities, and a fifth segregation consists of the loan funds and credit institutions themselves. With these in mind, I will proceed to give a synopsis of the current situation in the principal maritime countries which today give subsidies. Mr. SIROVICH. Would that be confined to direct subsidies and indirect subsidies? Mr. SAUGSTAD. Yes, sir; although I do not so classify them. Mr. SAUGSTAD. They can be so considered; yes, sir. The CHAIRMAN. Except for brief explanatory questions, I believe it is better-and that was the purpose of the doctor's question-to let the witness proceed without interruption. FRANCE Mr. SAUGSTAD. The first country under consideration alphabetically is France. It is also first under consideration usually as having been the leader in experimental policies in subsidizing ships. France, for 1935, has appropriated 405,650,000 francs for its four subsidized contract services. Mr. Chairman, do you want me to read into the record the gold conversions and current exchange conversions of these figures? The CHAIRMAN. I think it would be very interesting to do so. Mr. SAUGSTAD. It possibly leads to confusion, but, in one sense, it might clear the record if we do. The CHAIRMAN. Yes. I think, if you would give the francs and the equivalent in dollars, it would probably be better. I notice in one of your reports that has been done very graphically. Mr. SAUGSTAD. Yes. As a matter of policy, we have usually carried conversions of foreign currencies at stabilized rates in equivalents of American dollars until this past year, when the current exchange situation has made it somewhat confusing to accept any figure to cover an extended period. The CHAIRMAN. I noticed in one of your former reports you gave the francs and then the dollars, and you gave the rate of exchange. Mr. SAUGSTAD. Yes, sir. The CHAIRMAN. So that, with those facts, if a man had the current rate of exchange, he could raise or lower it. Mr. SAUGSTAD. All right. The CHAIRMAN. What is the present rate of exchange? Mr. SAUGSTAD. The present rate of exchange is 0.0664 cents per franc. That is the average exchange rate as of February 24 to March 2. The gold franc value is 0.0392 cents. Mr. SIROVICH. You mean about 16 francs to the dollar? Mr. SAUGSTAD. Yes, sir. Now, returning to the original figure of 405,650,000 francs, that means a gold franc value of $15,800,000. It means at current exchange about $26,800,000. The greatest amount given to any line under that system is that paid to the Far East services from Marseilles, and that, for 1935, is 202,500,000 francs, equivalent to a gold par value of $7,900,000, or a current exchange value of $13,400,000. That figure represents 80 percent of the loss in the operation of that line during the preceding year, which is the liability of the French Government under the contract. And I may say in passing that that amount has increased since 1923, when it was 45,000,000 francs. In other words, it has increased fourfold in a period of about 12 years, due to the increasing losses in that operation. The next amount in size is that given to the so-called "French line." Is there any reason for encumbering the record with the French titles of these companies? The CHAIRMAN. I do not think so. I might just ask for my own information and probably that of the committee, if that is what is known as the C. G. T.? Mr. SAUGSTAD. That is the C. G. T.-the Compagnie Générale Transatlantique. The CHAIRMAN. That is the line that has the Normandie? Mr. SAUGSTAD. Yes, sir. The CHAIRMAN. And operates these big ships? Mr. SAUGSTAD. Yes, sir. The CHAIRMAN. And C. G. T. is the common designation? Mr. SAUGSTAD. Yes, sir. I will refer to it as the C. G. T. in this discussion. The amount granted to the French line is 150,000,000 francs annually. The CHAIRMAN. That is commonly known as the "French line", is it? Mr. SAUGSTAD. Yes, sir; in shipping circles we usually speak of it as such. This at gold par amounts to $5,900,000 and, at current exchange, to about $10,000,000 annually. That amount represents, first, any operating losses that may have taken place over the line during the preceding year; secondly, it represents an additional amount which the company by contract is compelled to pay to its old creditors before it was reorganized. The third line in the French system is that to South America. The CHAIRMAN. Is that a part of the same French line? Mr. SAUGSTAD. That is not a part of the French line, although I understand the French line has an interest in the operation. The CHAIRMAN. Just for clarification at this time, how many reorganizations have there been of the French line? There was one in 1932, in which the Government assumed certain obligations, and one in 1933, was there not? Mr. SAUGSTAD. How many reorganizations? The CHAIRMAN. Yes." Mr. SAUGSTAD. There has been but one reorganization. In 1932 the French Parliament voted a temporary loan of 110,000,000 francs ($4,290,000) to cover operating deficits. This loan was a debt to the French Treasury which must be refunded. Another loan of 68,748,000 francs ($2,681,172) was made for completion of construction under way, against mortgages and real-estate security. But the line itself was reorganized in 1933. The CHAIRMAN. You may proceed. I am going to ask you a little later about that line. Mr. SAUGSTAD. The operating company to Brazil and River Plate is the South Atlantic Navigation Co. of Paris. The amount paid that company for 1935 is forty million francs which, at gold par is $1.560,000 or, at current exchange, about $2,650,000. The fourth operation is that between France in the Mediterranean and Corsica, which is part of the metropolitan French area. The operating company is the Marseilles Navigation Co. of Marseilles, and the amount of subsidy is 13,150,000 francs which, at gold par, amounts to $515,000 or a current exchange value of about $870,000. That covers the contract service system of France in a broad way. Now. Mr. Chairman, shall I go into the contracts of that system or shall we save that for subject discussion later on? The CHAIRMAN. I am inclined to think if you cover the one country at a time it will probably be more understandable. You are going to speak of the contract system of France now? Mr. SAUGSTAD. Yes, sir. The CHAIRMAN. I rather think it would better to present everything to members of the committee dealing with the particular country in consecutive pages so they could read it a little more intelligently than would be possible by having to jump about. Mr. SAUGSTAD. The contract term, that is, the duration of these contracts, is as follows: The Far East contract is for 25 years beginning July 28, 1921. The contract to South America is for 24 years, beginning December 31, 1929. The contract to Corsica is for 20 years from July 23, 1927, with a revision every 5 years. The contract to North America, Mexico, the Antilles, and Central America which, by the way, is the total contract operation of the C. G. T., is for 14 years beginning January 1, 1933. These contracts are all under a representative and strict control. There are three authorities that deal with their management on behalf of the Government. The operative features are in charge of the Minister of Merchant Marine. All questions as to loans, credits, bond issues, are passed upon by the Ministery of Finance. The CHAIRMAN. Which would be equivalent to our Treasury Department? Mr. SAUGSTAD. Equivalent to our Treasury Department. The accounts themselves are audited by an official commission which is known as the Audit Commission for Subsidized Navigation Companies. Thus there is a three-way control over the operation of the contracts themselves. The CHAIRMAN. And if we had had the last during our last regime, many of the things that are now complained of would never have happened? Mr. SAUGSTAD. Probably not. The French Government, in some instances, is a partner in the contract through joint profit and liability clauses. Thus, in the Far East contract, the Government assumes 80 percent of the liability for losses and takes 80 percent of any possible profits, making first allowances for repair funds and normal depreciation, and even some allowances for dividends to stockholders. In the Brazil and River Plate contract the same conditions exist, with the difference that the French Government in that contract has a 90-percent element of profit and loss risk. In the Corsica service, the contracting company owns the ships, charters them to the French Government, and the French Government in turn hires the owners to manage the ships. The fourth line, that is, the C. G. T., is to all practical purposes presently under Government control. The supervision over the line's operation is exercised by the Minister of Merchant Marine through a Government commissioner, and, in this case, the audit commission which audits the account reports directly to the Minister of Merchant Marine, who reports his recommendations once a year to the French Parliament. Not less than one-third of the administrative board of the French line must be Government representatives and the financial control within the line, so far as its liabilities, its liquidation of old ac'counts, payment of old creditors, is an elaborate structure. If there is any reason why the committee would like to study the contract, I have the entire contract in translation. The CHAIRMAN. I would be very glad if you would just simply file that to be made a part of the record. (The paper above referred to will be found on page 147.) Mr. SAUGSTAD. Now, we come to the operative conditions. First is the element of speed. The speed in the Far East contract is fixed by an allowance of days and hours in passage from France to Far East terminal points. At the beginning of the contract in 1921, the managing company had 16 vessels of 13 to 1411⁄2 knot speeds. Since 1921, the following vessels as to speed groups and size groups have been added by the company. I cannot say that all these vessels are actually covered by the contract itself, but some of them obviously have replaced other vessels that have come off of the services. The vessels are 1, 912 knots; 1, 10 knots; 1, 111⁄2 knots; 1, 121⁄2 knots; 5, 13 knots; 4, 14 knots; 5, 15 knots; and 1, 1612 knots. The size groups are 4 vessels ranging from 5 to 8 thousand gross tons; 6 at about 10,000 gross tons; 4 at about 12,000 gross tons; and 4 at from 15,000 to 17,000 gross tons. On the line to Brazil and River Plate the speed requirements call for a reduction of 18- to 21-day passages to 15- and 18-day passages, respectively. The new ship l'Atlantique was built under that contract. That ship, as you know, was 39,000 gross tons and of 23 knots speed and completely burned in the early part of 1933. The CHAIRMAN. Was that the ship that burned in the English Channel? Mr. SAUGSTAD. Yes. The CHAIRMAN. How many lives were lost; do you know? Mr. SAUGSTAD. No lives of passengers. She was out of commission and under reconditioning. The point is the ship was built under the contract. On the system to Corsica the contract provided for replacement of 3 ships by 4 ships, 3 of which were to have a speed of 15 knots. On the C. G. T. system on all lines the speed is to be determined by an annual average performance. A tolerance or an allowance of one-tenth of 1 knot per year is allowed on all passenger ships of the C. G. T. that were in the service when the contract was signed or that may be added to the line as new vessels. The CHAIRMAN. What is that tolerance? Mr. SAUGSTAD. One-tenth of 1 knot per year. The CHAIRMAN. I mean what is the purpose of it? Mr. SAUGSTAD. The purpose is to recognize the age of a vessel, her loss of efficiency with years, and the French Government recognizes that by a tolerance of one-tenth of a knot per year on all passenger ressels under this contract. The contract of the C. G. T. on the New York line requires the company to own at least three passenger vessels of 20 knots and the average speeds which must be made by those vessels under the contract are as follows: The T-6, which is the official contract title of the Normandie, must make an average annual speed in service of 23 knots. The Ile de France must make an average speed of 20 knots annually; the Paris must make good a speed annually of 20 knots, and the France, which I believe now is out of service, must make good a speed of 18 knots. While the Normandie is being completed, the Champlain and the Lafayette are in the service. Any vessel built to replace any vessel in the New York run must be of at least 22,000 gross tons. On the Mexico, Antilles, and Central America Line of C. G. T., line no. 1 must have vessels of 14 knots; lines nos. 2, 3, and 4 must have vessels of 11 knots, with a reduction allowance for certain old vessels that were in the service when the contract was signed. POSTAL PROVISIONS IN THE FRENCH CONTRACT SYSTEM All contract lines carry the mails for account of the French Postal Administration at rates which are equivalent to the rates of the Universal Postal Union, and may be made lower according to the contract and law provisions. The compensation for the mails, accordingly, may be fixed and is to be fixed once a year jointly by the Postal Administration and the Merchant Marine Ministry. The parcel post is carried under the same regulations. Now we come to certain concessions made by the contractors to the French Government. On the line to the Far East, the French Government has the first refusal on 25 percent of the passenger and cargo space of all ships up to 14 days before the day set for sailing. There are certain reductions in tariffs on several categories of public business, and preference, all things being equal, for French goods over the lines and a nondiscrimination clause which prohibits the contractor from discriminating against French goods as against foreign goods. All ships entered in the contract service must have gun mountings and must include 111⁄2 knots, reserve speed as a military requirement. On the lines to South America, the contractor agrees to fix freight and passenger rates according to the competitive tariffs and agrees by contract to enter all agreements and conferences in that trade. There are certain limited space reservations and some reduction in rates on government business. |