class B, out of the profits of the merger company shall be ascertained. If it shall be found that the amount received by the Treasury before January 1, 1940, is not less than 3 percent per annum on class A stock, and not less than 5 percent on class B, and after that time not less than 5 percent per annum on the whole of both classes A and B, then any excess that has been received by the Treasury out of such profits beyond those average rates of interest shall be applied by the Treasury in redemption of part of the outstanding incomedebenture stock of the merger company, and the stock shall be canceled.

If the merger company should go into liquidation while in debt to the Treasury in respect of the principal advanced against stock classes A and B, the Treasury shall be entitled to rank first among shareholders of the merger company for payment in full of stock class B then outstanding and shall rank equally with other shareholders in proportional amounts of class A.

The three series of stock mature for payment on December 31, 1975, with an option to the merger company of redemption in sums of not less than £10,000 or multiples thereof at any time on 1 month's notice. The debenture stock in the first and second series shall bear interest until January 1, 1940, at one-half of 1 percent below the Bank of England discount rate from time to time in force. After January 1, 1940, the interest rate shall be that which the Treasury certifies to be the appropriate rate for interest on loans guaranteed by the Government.

It is the intention of all parties to the agreement that the three series of advances shall, as nearly as possible, be of equal amount, and that in the event the amount required to complete no. 534 is less than £3,000,000, such adjustments as may be necessary to secure equality shall be made in respect of the three series. The advances are made by degrees upon the joint certification of a director of the merger company and a director of John Brown & Co., Ltd., stating that the money has been expended upon the construction of the ship. Working-capital advances also shall be made by degrees upon certification of the chairman and two directors of the merger companies.

Mr. SIROVICH. Who takes charge of the insurance of the ship during its construction? Who pays for it?

Mr. SAUGSTAD. The insurance of the ship is carried jointly by the private market and by the Government.

Mr. SIROVICH. What is the usual interest? Do you know?
Mr. SUGSTAD. The usual charge?

Mr. SIROVICH. Yes. The reason I ask that is because, in my reading on that subject, I find that pretty nearly all ships pay a usual interest of 2 percent; whereas, the American merchant-marine men have to pay an interest of 22 percent, and this one-half of 1 percent goes to the men who do the insuring, and it is sent back to Lloyds, in England, so that the American merchant marine is at a disadvantage of one-half of 1 percent as compared with the English.

Mr. SAUGSTAD. In answer to that question, the insurance plan was as follows: First, the market absorbed all it could of the construction risk. The Government fixed the rate of premium on the re

mainder of 12 percent for 3 years, plus an additional 21⁄2 percent on that rate.

Mr. CULKIN. That is, the Government, by regulation or by statute, told the underwriters what the premium to be charged was? Mr. SAUGSTAD. No, sir.

Mr. CULKIN. What did you mean by that?

Mr. SAUGSTAD. The private insurance market was asked to take all it could take on the hull.

Mr. CULKIN. I see. They made their own rates?

Mr. SAUGSTAD. Certainly. The Government agreed to take that portion of the value of the vessel which the insurance market would not obsorb; and, moreover, in order not to enter into competition with the insurance market, the Government agreed to add an extra 22 percent, so as not to be charged with being in competition with the insurance market.

Mr. SIROVICH. That applies to the Queen Mary?
Mr. SAUGSTAD. Yes, sir.

Mr. SIROVICH. How much was she insured for?

Mr. SAUGSTAD. The total insurance on the Queen Mary was 4,500,000. Two million seven hundred and twenty thousand pounds of the coverage have been placed in the open market, leaving 1,780,000 pounds as the share taken by the Government, and for which a premium of 24,767 pounds, 11 shillings, and 9 pence were collected for the coverage, for a period of 3 years from January 31, 1931.

Mr. WELCH. What was the actual cost of the Queen Mary?

Mr. SAUGSTAD. The insurance value of the ship, as shown by the official account of the Exchequer and Audit Department of the Treasury, was $4,500.000.

Mr. WELCH. What was her actual cost?

Mr. SAUGSTAD. That is the insurance valuation; and I presume that her insurance valuation during the construction-we have no other knowledge of the actual cost of the ship-was what she will cost.

Mr. SIROVICH. On that subject of insurance, my information is that when you insure a ship, you insure it for full value, or 75 percent, 85 percent, or 100 percent.

Mr. SAUGSTAD. Sometimes for more than its value. I want to say that the premium collected by the treasury, of £24,767, was converted into treasury bills at a discount, which, offset by the underwriter's commission which the treasury paid to those who handled the insurance account for them, left a net profit to the British Government of £43 12s. 7d., for the first year of the operation. The next is the North Atlantic Shipping Act of 1934.

The CHAIRMAN. I may say to the members of the committee that are particularly interested, that they can get the documents in this Trade Promotion Series, in which a great deal of this matter is

contained.

Mr. SAUGSTAD. Yes, sir; I will be very glad to supply the members of the committee with all the public and released documents.

Mr. CULKIN. I would like to get them, of course, if you will send me all three files.

Mr. SAUGSTAD. There are four volumes, and there is a fifth volume in preparation, which the Department has not yet released.

Mr. CULKIN. Those are Government publications?

Mr. SAUGSTAD. Yes, sir.

The North Atlantic Shipping Act of 1934. The enabling act for the Cunard-White Star merger, known as the "North Atlantic Shipping Act of 1934 ", is an interesting piece of legislation. Beyond the general provisions of transfer of insurance coverage, it is entirely discretionary.

The North Atlantic Shipping Act, 1934, empowers the treasury to make advances, exempts from stamp duty and fees the various agreements and mortgages under the contract arrangement, and authorizes the board of trade to transfer the insurance coverage provided by the Government on the Queen Mary from the Cunard Co. to the merger company. The authority for advances to cover the financial provisions of the contract is stated in section 1, as follows:

(1) The treasury may from time to time on such terms as they think fit advance out of the consolidated fund or the growing produce thereof to the Cunard Steamship Co., Ltd., or to any company (hereinafter referred to as the "merger company ") formed to take over the interests of that company in the North Atlantic shipping trade and all or any of the interests in that trade belonging or formerly belonging to the Oceanic Steam Navigation Co., Ltd., such sums, not exceeding in all £9,500,000, as it may appear to the treasury, after consultation with the board of trade, to be expedient to advance for the purposes of constructing one or more large vessels for the North Atlantic shipping trade, and of providing working capital for the merger company.

(2) For the purpose of providing for the issue of sums out of the consolidated fund under the last foregoing subsection or for the repayment to that fund of all or any part of any sum so issued, the treasury may raise money in any manner in which they are authorized to raise money under and for the purpose of subsection (1) of section 1 of the War Loan Act, 1919, and any securities created and issued to raise money under this subsection shall for all purposes be deemed to have been created and issued under the said subsection (1).

(3) All sums received by way of interest on advances made under subsection (1) of this section shall be paid into the exchequer, and all sums received in repayment of such advances shall be applied in such manner as the treasury may direct, to the redemption of debt.

Mr. SIROVICH. That authorization of £9,500,000 to complete the Queen Mary and for other purposes is more money than has been given to the whole shipping interests of our whole country, isn't itI mean from year to year? Nine million five hundred thousand pounds is almost $40,000,000, isn't it?

Mr. SAUGSTAD. It is almost $45,000,000.

There is provided, first, £3,000,000 for the completion of the ship Queen Mary; next, £1,500,000 as working capital to the Cunard Co. and the merger company; and, third, an amount of £5,000,000 with which to complete a sister ship to the Queen Mary.

The CHAIRMAN. That is earmarked for that purpose?
Mr. SAUGSTAD. That is earmarked for that purpose.

Mr. SIROVICH. Is there any legislation during the whole history of the Shipping Board's activities, up to the present time, in all our governmental activities, where our Government has been so munificent to any one company?

Mr. SAUGSTAD. I have no record of it.

Mr. SIROVICH. And, if we did that, what would be the attitude of the propagandists throughout the United States?

The CHAIRMAN. I think that is an unfair question to ask the witness to answer.

Mr. SIROVICH. I am not asking that as a question for the witness to answer; but I want the record to show that our attitude has been niggardly, as compared with what the British Government can do for the business of one company.

The CHAIRMAN. I think that is a matter that will likely come up on the floor.

Mr. CULKIN. He is covering the entire field. Why is it not competent to ask him to answer the question?

The CHAIRMAN. I think it is a proper comment; but no witness here is competent to undertake to say what the propagandists throughout the whole country will do.

Mr. CULKIN. I think it is proper for us to undertake to ask him to state, as a result of his studies throughout the world, if he can form an opinion as to which is the best and most efficient type of subsidy. That is my opinion-when the time comes, when he gets down to that.

Mr. SIROVICH. The best way is to give it as a subsidy, without any subterfuge, and that is what the attitude of the President is in his message.

The CHAIRMAN. That is not what Mr. Saugstad is undertaking to cover here.

Mr. SAUGSTAD. Now, unless there are questions, that is all I have to say about the Cunard-White Star merger. The record will show a complete statement, as indicated in the discussion.

Mr. SIROVICH. About how many ships are there at the present time in this Cunard-White Star merger; and what is the total tonnage of all of them?

Mr. SAUGSTAD. The total tonnage included in the merger is 615,317 tons, which includes 25 ships, ranging from 15 to 25 knots. Mr. SIROVICH. Ranging in tonnage from how much?

Mr. SAUGSTAD. From the small cabin liners to the large Majestic and the Berangaria, of some 58,000 or 60,000 gross tons. Mr. CULKIN. Are there any freight boats in that list? Mr. SAUGSTAD. No, sir. These are all passenger ships. Mr. CULKIN. Those are all passenger ships?

Mr. SAUGSTAD. Yes.

I am sorry, Mr. Chairman, that in these hearings we will be unable at least I will be unable-to testify on the general effect of indirect subsidies, discriminations, preferences, and other thingsthe reason for which I may explain at some later time.

While we are dealing with Great Britain, there is one thing I would like to record and that is the Anglo-Russian commercial agreement of 1934.

Mr. CULKIN. What is that?

Mr. SAUGSTAD. That is the trade agreement between Great Britain and Russia, which was concluded on February 16, 1934, between the Government of Great Britain and the Union of Soviet Socialist Republics of Russia, and which, so far as British shipping is concerned, has some very interesting provisions.

The Soviet Government, in effect, exports goods to Great Britain and receives a trade balance credit for the money for which those goods sell.

But the interesting thing, from a shipping standpoint, is that any money that the Soviet Government pays to British ships on charter

or which the Russian Government may pay to a British shipowner for the purchase of a ship, is credited to the international balance of the Russian Government in its interchange with Great Britain.

Mr. CULKIN. But that does not take the form of a subsidy, of

course.

Mr. SAUGSTAD. No, sir. The effect of this has been that, in 1933, exclusive of time charters, the Russian Government hired 485 ships, of which 201, or 41.4 percent, were British ships; and in 1934 the Russian Government hired 432 ships, of which 314, or 70.3 percent, were British ships. In other words, the British-Russian trade agreement increased the proportional use of British tonnage from 41.4 percent, to 70.3 percent in 1 year.

Mr. SIROVICH. And is the inference to be gathered that this money that Russia pays to England for shipping in her merchant marine is credited to her in exchange for goods she exports?

Mr. SAUGSTAD. It is credited to her in the international balance of payments. Russia has a problem in obtaining sufficient credit on the English markets; but any money which is paid by the Russian Government to British ships is added to the normal international balance between the two countries as a credit item to the Russian Government.

Mr. SIROVICH. Has Russia been paying that credit item?

Mr. SAUGSTAD. I do not know. I am only discussing the effect of the agreement on the tonnage market.

Mr. SIROVICH. What do they call that form of subsidy? Is it not more or less of a commercial subsidy by Great Britain?

Mr. SAUGSTAD. It comes under the general heading of what they call "preferences." In other words, if it brings about a situation whereby national ships are employed for any purpose through the force of law or public agreement or trade agreement we may call that an indirect subsidy.

For instance, there is today a very considerable agitation in France to divert all colonial French products to French ships. It is a major problem in the French shipping position, and the question has been before the French Parliament for a long time and is under general discussion, the whole subject being the subject of elaborate reports.

Mr. CULKIN. You say there is some legislation on it, or it is just pending?

Mr. SAUGSTAD. I did not intend to state that in the record yet, but we might touch upon it.

Mr. CULKIN. I am just interested in the general situation. Do the laws require that the products of the French colonies shall be shipped in French bottoms? Is that it?

Mr. SAUGSTAD. There is only one monopoly, and that is in the traffic between metropolitan France and Algeria in the Mediter

ranean.

The CHAIRMAN. That would be somewhat similar to our coastwise?

Mr. SAUGSTAD. That is an absolute coastwise restriction and monopoly. But they have other arrangements, which I do not want to discuss at this time which are merely trade preferences given to colonial products, either production bounties or preferential transportation rates or other special aids.