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TO DEVELOP AN AMERICAN MERCHANT MARINE

PART I. MERCHANT MARINE POLICY

TUESDAY, MARCH 26, 1935

HOUSE OF REPRESENTATIVES,
COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D. C. The committee met at 10 a. m., Hon. Schuyler 0. Bland (chairman) presiding.

The CHAIRMAN. You are going to take up Italy this morning, are you not?

STATEMENT OF MR. J. E. SAUGSTAD-Resumed

ITALY

Mr. SAUGSTAD. Yes, sir; this morning we will discuss the subsidy program of Italy.

The present policy which governs the system of subsidies to shipping in Italy was put in effect on January 1, 1926. Under that policy the Italian Government is committed to a contract and subsidy program including provisions for construction of ships amounting to practically 4,500,000,000 lire, equivalent to $202,500,000 at 1926-27 exchange, or to an amount of $236,700,000 at the stabilized rate of the lira, which is 0.0526 cents, covering the entire program over a 21-year period.

Mr. Sirovich. That would be over $10,000,000 a year?
Mr. SAUGSTAD. Yes, sir. The system embraces subsidies-
The CHAIRMAN. 236,000,000 lire for 21 years?
Mr. SAUGSTAD. For 21 years.
Mr. SIROVICH. That would be over $10,000,000 a year.
Mr. SAUGSTAD. Yes, sir.

The system embraces (1) contract services, (2) subsidies to tramp shipping, (3) subsidies for scrapping old vessels, (4) construction bounties and interest contributions, and (5) advances of public credit for construction of new ships.

Mr. Sirovich. The subsidy is therefore given for how many purposes?

Mr. Saugstad. Five purposes regularly.
Mr. SIROVICH. Tramp ships

Mr. SAUGSTAD. Tramp ships, ship scrapping, contract services, interest contributions, and the advances of public credit for loans for construction purposes.

Mr. Sirovich. And for mail, none at all?

Mr. SAUGSTAD. The mails are carried under the contracts without charge.

CONTRACT SYSTEM

The contract-service system is defined under two general heads, which the Italian Government calls the "indispensable" system and the “useful” system.

The "indispensable” system is defined as lines connecting by the shortest route and with adequate speed the islands with the Italian mainland. The second group is known as "useful" lines and is defined as lines connecting the Italian ports with foreign ports with a view (1) to increase the traffic and to aid the introduction of Italian products, (2) to encourage the establishment abroad of branches of Italian firms, (3) to facilitate the importation into Italy of necessary raw materials, and (4) to open outlets for immigration with a view to strengthening the economic, agricultural, and sentimental ties between Italy and its colonies.

To this system the Italian Government for the year 1934-35 has appropriated a total of 297,912,000 lire, equal to $15,300,000 at the gold par value of the lira, and to approximately $25,000,000 at the current exchange.

Contracts between the Government and the "indispensable” lines are for 20 years, while those with the “useful” lines are for 5 to 10 years, the original contracts dating from January 1, 1926.

The total annual subsidy originally authorized to the two groups was 125,000,000 lire for the "indispensable” lines and 57,000,000 lire for the useful" lines, and the latter class were subject to a 4 percent annual reduction under the original contracts.

Mr. SIROVICH. Will you tell us about how much tonnage you have for both the “indispensable" and "useful” lines?

Mr. SAUGSTAD. I can a little later, when I have an opportunity to compile it. I have not the amount before me.

The personnel, that is officers and crews, of all subsidized ships must be approved by the Government and the principal representatives of the subsidized companies in foreign ports must be Italian citizens unless the Government permits exceptions. Sixty percent of the stock of the companies must at all times be owned by Italians. The subsidized ships must be built in Italian yards, unless, on account of high prices by the builders, the Government may waive this requirement, and the ships must be built in part at least of materials produced in Italian plants. That is a general provision that covers all the contract services of Italy.

Perhaps the most prominent characteristic of all the contractservice system of Italy is that of flexibility; hence many changes have been made in the entire system since its 1926 reorganization. Not only have contract specifications, itineraries, and the public services been altered, but operating structures have been consolidated, thereby eliminating a number of contracts, conserving tonnage and operations, and placing operating units in a stronger position in the trade-penetration program.

Because of changes wrought in the system since the publication of the original subsidy study and in view of the currently apparent results I want to state at this time a summary of the number of changes made in the system since its inception.

In 1926, at the time the policy went into effect, the number of contract companies was 20. In 1932-33, it had been reduced to seven groups of 16 companies.

In 1926, the budget estimates for the system for the year 1933-34 amounted to 207,485,000 lire. By 1933, the budget estimate for the same system for 1933–34 had been increased to 260,035,000 lire-an increase of 52,550,000 lire.

For the past 4 years—and I cite this to show the flexibility of the Italian system-the number of decrees issued by the Ministry of Communications, and laws enacted by the Parliament of Italy, relating to shipping and shipbuilding for 4 years, for the period of 1930 to 1933, inclusive, is about 250, and the approximate number of decrees and laws relating to changes in contract services for the 4-year period is about 65. I may add that during the calendar year 1934 we have had 10 changes in the contract system of Italy and among these changes is the organization of a new express service between Italy and South Africa by the Italia Co. at an annual subsidy of 18,750,000 lire.

Mr. CULKIN. How much is a lira now?

Mr. SAUGSTAD. The current exchange as of this period we have under consideration was 8.5 cents.

Mr. SIROVICH. About 12 lire for a dollar?
Mr. SAUGSTAD. Yes. The stabilized rate is $0.0526.
Mr. SIROVICH. Originally you had about 20 lire for a dollar?
Mr. SAUGSTAD. About 20.

As stated among the changes made in 1934 was the organization of a new express service between Italy and South Africa by the Italia Co. at an annual subsidy of 18,750,000 lire for 5 years, with 20,000ton, 18-knot vessels; a revision of the African and Pacific North American services of the Triestina Co. of Trieste for 5 years, at an annual subsidy of 19,450,000 lire, and a revision of the Sicilian and North Europe services of the Adria Co. for a 14-year term at an annual subsidy of 10,150,000 Jire.

This covers the broader aspects of the contract system as a whole.

Mr. CULKIN. Have you testified as to that line between Bombay and Genoa; do you know anything about that?

Mr. SAUGSTAD. Under the Italian system? Mr. CULKIN. Yes. The CHAIRMAN. You are going to take up the lines separately? Mr. SAUGSTAD. I was going to take up that line particularly. Mr. CULKIN. All right. Mr. SIROVICH. Is that called an "indispensable" line? Mr. SAUGSTAD. That is a "useful" line. Any line that connects an Italian port with a foreign port is known as a “useful” line.

The CHAIRMAN. There seem to be two systems, the "indispensable” and the “useful” lines, and Mr. Saugstad is going to take up each one.

Mr. Sirovich. An "indispensable” line would then be defined as a line operating between various sections of Italy itself?

Mr. SAUGSTAD. Yes, sir.
Mr. SIROVICH. And the islands and the mainland?
Mr. SAUGSTAD. Yes, sir.

Mr. SIROVICH. A “useful” line is one operating to any foreign ports?

Mr. SAUGSTAD. Yes, sir. The "indispensable" system consisted originally of 14 groups. Besides many provisions contained in their contracts, rules, and regulations, there was an elaborate regulatory provision containing 36 articles which covered the services of all the lines. Among the most interesting provisions of these regulations, I will cite the following: (1) Contracts may be entered into by bids or by private negotiation. I emphasize this, because in many cases the question of restricted bidding has been considered by foreign governments and under those circumstances the administration in charge goes before the legislative body concerned and explains the reason for setting aside the general principle of public bidding, and it is usually based on the lack of competition in the prospective service.

Mr. SIROVICH. Is that what brings about private negotiations, then?

Mr. SAUGSTAD. Yes, sir.
Mr. Sirovich. Where there is a lack of competitive bidding?

Mr. SAUGSTAD. The French Government repeatedly has gone before the Parliament and explained the setting aside of the principle of public bidding because of the certain knowledge there was only one competent bidder.

Mr. SIROVICH. What would they do in the event of tremendous prices asked for transportation and so on, by virtue of a monopoly in the particular line? I notice in construction they have protected themselves, according to your statement, so that when it reaches beyond a certain limit they have the privilege of going to a foreign country to build their ships?

Mr. SAUGSTAD. Yes, sir.

Mr. SIROVICH. Suppose the price asked for the transportation of products, men, or troops, or other things is excessive, what then? Do they go through private negotiations?

Mr. SAUGSTAD. I do not know.

The CHAIRMAN. I think it would be safe to say that the Government still prevails with Mr. Mussolini in charge.

Mr. SAUGSTAD. The second interesting provision is that vessels assigned to subsidized lines may be expropriated by the Government and turned over to any new operator who may undertake a service, such vessels to be priced by 5 experts, 2 representing the retiring operators, 2 representing the new operators, and the fifth to be named by the president of the Supreme Court of Italy.

The CHAIRMAN. Is that the highest court in Italy?
Mr. SAUGSTAD. I do not know; I presume so.

Third. Operators who are compelled to build new vessels for services may be authorized to issue bonds redeemable during the period of concession in amounts not to exceed three-fourths of the value of the vessel nor more than 40 percent, which was later increased to 60 percent, of the subsidy due at the time authority is granted.

Fourth. All mail up to 30 percent of the measurement capacity of the vessel is to be carried without charge. Moreover, all mail is to be collected from and delivered to post offices by the operator for his own account.

Mr. SIROVICH. Do you mean 30 percent of all mail that is carried without any governmental charge?

Mr. Saugstad. No, sir. A ship must accept all mail provided, that mail does not occupy more than 30 percent of the space of the ship.

Mr. SIROVICH. Of the net space, or the gross space?

Mr. Saugstad. Of the cargo space. Of course, this may seem fantastic, but when one considers that the system includes many small vessels plying around the Italian mainland, the result might easily be that a great deal of their space would be taken up by mail.

Mr. Sirovich. Is that large space contingent upon the indirect subsidy that a ship receives, or the company receives? You say 30 percent of the space is put away for mail, without any compensation to the carrier.

Mr. SAUGSTAD. The space is not set aside to the Government, but the company is compelled to carry mail tendered up to 30 percent of the capacity of the ship. The owner has the privilege of using the space unless it is occupied by mail.

Mr. SIROVICH. I mean he gets no compensation for it?

Mr. SAUGSTAD. He gets no extra compensation for it. All mails are carried free under the Italian system.

Fifth. All passengers, cargo, livestock, and valuables are carried at state-approved tariffs.

Sixth. The Government undertakes to provide permanent berths for the contract ships throughout the kingdom.

Mr. SIROVICH. Is that "state-approved tariffs” equivalent to our Interstate Commerce Commission regulation--that state-tariff system?

Mr. SAUGSTAD. I do not know. I do know that the tariffs must be approved by the Ministry of Communications before they become effective; but as to the competitive features that may lie in them, I am unable to say.

Seventh. In national emergencies, foodstuffs are to be carried at 50 percent of regular rates.

Eighth. The Government may increase subsidies to meet any unusual conditions.

Ninth. Reduction in passenger tariffs: Free transportation to be granted to officials of the Merchant Marine Administration on duty status as well as certain other officials and their families, including members of Parliament in going to or from sessions; missionaries; destitute nationals and shipwrecked sailors, upon consular request; 30-percent reduction to Government employees and families, to officers and enlisted personnel of the Military Establishment, to students of nautical schools, to participants in congresses, fairs, and expositions, to groups of workers or farmers and families of 30 or over, to scientific expeditions, and to the consular corps, teachers, and their families; 50-percent reduction to disabled war veterans who are going to Rome for special patriotic anniversaries; 75-percent reduction to citizens traveling to take part in political elections and to students from colonies or other foreign countries going to Italy to study.

By a subsequent decree following the 1926 provisions, some annual increases were allowed in the entire system. These were projected for a period from 1928 to 1946 and, for the current year, the extra provision is about 20,845,000 lire.

The "useful" lines under the new subsidy system agreements-
The CHAIRMAN. Those are the lines running to foreign ports?

Mr. SAUGSTAD. Yes, sir; lines running to foreign ports-the contracts or the agreements for the “useful” services are so worded as to leave the contractors free to organize each service. The contract requirements are less rigorous than those for the "indispensable” lines, because it is considered of greater importance to operate a commercial line than to assure a service that may be of but general public interest.

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