It is recognized that successful commercial operation must include an element of flexibility. To prevent competition between subsidized lines and free commercial Italian lines, there is this provision in the "useful" contract:

The Minister of Communications will have the option to modify the above routes when, in his absolute judgment, they may constitute an unlawful competition with preexisting national regular lines, whether private or subsidized.

The different agreements have a life of 5 or 10 years. A more recent one indicates a period of 13 years. The original fleet provided for the "useful" group under the original agreements consisted of 131 vessels of 597,735 gross tons. That is an answer to your question. Mr. SIROVICH. That is for the whole world?

Mr. SAUGSTAD. Yes, sir; that is the original agreement. I think I may say that that has now been increased, but I have not compiled the tonnage figures to show.

Under the contracts, the original contractors agreed to buy or to construct additional fast steamers. These were invariably of higher speed and usually of larger size than those that had been in the service previously.

Referring again to the postal provisions; the postal provisions of the "useful" system provide that all contractors must carry mails, whether originating in Italy or destined thereto, or whether originating in foreign countries or destined thereto. Such mail includes parcel-post packages and the handling of empty mail bags, the packages being limited to 22 pounds in weight. No additional compensation is granted the contractor for this service unless the space Occupied by the parcels sent from Italy exceeds 3 percent of the capacity of the ship's hold. You are now dealing with the large ocean-going ships.

Mr. SIROVICH. So the 30 percent does not apply to the "useful" lines?

Mr. SAUGSTAD. No, sir.

Mr. SIROVICH. It is only 3 percent there?

Mr. SAUGSTAD. Yes, sir-in which case the extra compensation will be determined by the Ministry of Communications. All contracts concluded by the contractor with foreign powers for the handling of foreign mail must be approved by the Italian Postal Adminis

tration.

Mr. SIROVICH. Why this divergence between the "indispensable" lines and the "useful" lines of from 30 percent to 3 percent without any compensation?

Mr. SAUGSTAD. I should say, sir, that the "indispensable" lines include a considerable number of very small vessels, passenger ships and with

Mr. SIROVICH. Very little cargo?

Mr. SAUGSTAD. Very little cargo space; whereas the "useful" system includes cargo ships of six, seven, and eight thousand tons, where obviously there would be no possibility of that amount of space of that kind being taken up by mail.

CONTROL OF THE ITALIAN LINES

Article 10 of all "useful" contracts specifies that the Ministry of Communication has the right to control the operation of the service in whatever manner may be considered most expedient. To that end

the contractor compiles statistics covering the movement of passengers and cargo for each line and the various revenues received, which data he submits to the Ministry of Communications four times each year, together with any other documents required. Within 6 months. of the closing of each fiscal year, the contractor also submits to the Ministry of Communications, along with the balance sheets, a technical and economic report showing the distribution of revenues, as well as the expenses for each line. Final payment of the amounts due the contractor is not made until all such documentary evidence is transmitted.

Expenses incurred by the personnel detailed by the Ministry of Communications for supervision of the operations of the services and of the audit of the required statements are for the account of the contractor. On the "useful" contracts the basic annual subsidy is reduced by 4 percent. This reduction, however, may be offset by increased service, extension of lines, or by the establishment of new lines, and under such circumstances the 4 percent deduction will not be made.

NATIONAL-DEFENSE REQUIREMENTS

As to the national-defense requirements, the contract steamers on all "useful" routes, and on those "indispensable" routes where a foreign port is served, are required to carry an extra certified captain and an extra certified engineer as students. Each is bound to serve 1 year on the ship, and the company is required to provide a similar substitute in case the designated officer fails to report.

The subsidized steamers to Italian colonial ports and to foreign ports are alike required, when Italy mobilizes its forces, to give preference at embarkation to Italians called to the colors, and such Italians are entitled to transportation at a reduction of 30 percent of the regular fare. This reduced fare is also allowed to Italians en route to perform their periodical military duties or returning to their homes after such service has been rendered..

I understand it is customary on the large express ships of Italy to have what might be termed a dual command; that is, at no time are those vessels under the authority of any but fully qualified masters and chief engineers, even if the master and chief engineer of the ship should be ashore. They maintain an extremely large and efficient official personnel on the larger vessels.

It may be of interest to the committee to consider the financing of the system.

Following the war, the Italian subsidized lines were very hard pressed for funds with which to build new ships required under the revised subsidy system. Various plans were proposed and abandoned, when, about a year after the ratification of the debt settlement with Italy by the United States Government, the Italian Government negotiated a loan in London and New York through the Consortium of Credits for Public Works. This loan was arranged March 22, 1927, and 1,600,000 pounds was placed in London and $12,000,000 in New York. The bonds are of two series, $7,500,000 payable in 10 years and $12,500,000 in 20 years.

On the part of the Government of Italy, the loan was negotiated by the Consortium of Credits for Public Works, which is responsible to the British and American syndicates advancing the credits The

steamship companies have guaranteed to the consortium the payment, from their subsidies, to meet the interest and principal of the New York and London syndicates, of the amounts with interest at 7 percent.

I have a list of the companies and the amounts of money in Italian lire allowed to each company, and the equivalent in American dollars. Mr. SIROVICH. Was that supposed to be amortized every year? Mr. SAUGSTAD. Over a certain period.

Mr. SIROVICH. Over a certain period?

Mr. SAUGSTAD. Yes, sir; from the subsidies advanced to the companies.

Mr. SIROVICH. Have they been doing that, thus far?

Mr. SAUGSTAD. I have no knowledge. Mr. Chairman, would you like to have that in tabular form inserted in the record?

The CHAIRMAN. Yes.

Mr. SAUGSTAD. It involves about a dozen names of the Italian contracts and they are too complicated to read into the record, so I will insert that at this point.

Guaranties to Italian Credit Consortium by subsidized shipping companies to cover New York and London 7-percent loan of 1927

Mr. SIROVICH. Referring again to your "indispensable" lines with the concession that the Government gave to the traveling public, do you realize that that same concession is practically given to Italians who ride on the railroads owned by the Italian Government?

Mr. SAUGSTAD. Yes, sir. All connecting services of the local steamship routes, both of the French Metropolitan-Corsica service and the Italian services, work very closely with the railroads in each country.

Mr. SIROVICH. I know that, because when I was in Italy I found they gave these concessions to the people in riding on the railroads. Mr. SAUGSTAD. Yes, sir. In the Italian system, as we have heard in the British and French systems, the principal foreign contract is to the Far East and to India. This contract is made with the LloydTriestino Co. of Trieste, which is a combination of three Italian companies. The contract is for 10 years, from May 21, 1932. The

subsidy is 62,800,000 lire, or an amount of $3,303,280 at the gold par value of the lira, and approximately $5,300,000 at current exchange. The service includes 14 lines which I shall not enumerate here, but it is significant that on line no. 10, the line to Bombay, they are required to provide 19-knot round voyages and, on the express line to the Far East, 18-knot round voyages, with monthly sailings.

In this system there is included also what may be called a cargo line, known as "line no. 12", which operates from the Adriatic to Bombay with 11-knot round voyages monthly.

Mr. SIROVICH. How many days does that trip take?

Mr. SAUGSTAD. I can not say without checking it up.

The Bombay passenger liner Victoria makes the run in 11 days. There is another operating company operating into India with a 10-year contract dated from 1929 for 2,300,000 lire annually.

There is a line operating to Australia on a 5-year term from July 1932, at 500,000 lire annually, and another to South America for 5 years from 1932, at the same figure. There is a line to north Brazil, at a smaller figure.

One of the principal lines is that which belongs to the Navigazione Libera Triestina, usually referred to as the Triestina Co. The original contract for this line, which includes the service to the Pacific-North America, was signed in 1931 for a period of 5 years at an annual expenditure of 12,900,000 lire. This was increased by 100,000 lire shortly thereafter for each of three extra voyages in excess of the required number in each year. This contract was revised last year. On May 23, 1934, it was extended for another period of 5 years effective from March 1, 1934, and for an increased subsidy amounting to 19,450,000 lire, which includes also its African service and which is increased by 100,000 lire for each of the three extra voyages that may be required to be made on the North American route. The services include 4 lines, 2 around Africa, 1 to West Africa, and 1 to the Pacific coast of North America.

Mr. SIROVICH. And these four lines get about 19,450,000 lire?

Mr. SAUGSTAD. Yes, sir; and I might add that there is no way we can segregate the amount allowed to each line; that is, I am unable to say what might be the figure the contractor considers as compensation for his operation to the North Pacific coast.

Mr. SIROVICH. And the holding line is called the "Trieste Line?" Mr. SAUGSTAD. Yes; the Navigazione Libera Triestina of Trieste. Line no. 4, which is the North America Line, makes nine round voyages annually from Venice, Trieste, Naples, Leghorn, Genoa, Colon, San Francisco, and terminates at Vancouver, and the speed requirements of the vessels in the service are from 9 to 10 knots.

Mr. SIROVICH. Is that combination passenger and cargo, or mainly cargo?

Mr. SAUGSTAD. Cargo, sir. One of the most interesting provisions of this contract is the service to South Africa, because it is a supplementary service to another service opened by the Italia Co. during the past year and in some respects parallels the subsidized service by the Union of South Africa.

You will recall we stated that the Union of South Africa Government subsidizes an Italian line. In the African service the company operates lines nos. 1, 2, and 3. The new service to South Africa, as stated, is operated by the Italia Co., which is a combination of three

principal Italian lines. That contract was concluded on May 23, 1934, and effective for 5 years from March 1, 1934. The total subsidy annually is 18,750,000 lire.

The contract covers one line and that line is from Genoa to South Africa and return, and it provides for one 18-knot round voyage every 4 weeks.

The South African Government contract which applies to the Triestina Co., was granted during the last half of 1933 and provides a subsidy of 150,000 pounds a year-about 8,775,000 lire-to the Triestina Co. and the Italia combine for services to South Africa. The South African Government indicated that no other country was in a position to offer such shipping facilities as Italy for the distribution of South African products in Mediterranean markets. In addition to the contract services operated by the Triestina Co., the company will operate a freight line along the West Coast of Africa with small cargo steamers.

Mr. SIROVICH. Will you insert in the record when you have time the exact tonnage that goes to these various routes you have been talking of? My purpose in asking the question is to determine the total tonnage of Italy and to see how that tonnage is distributed.

Mr. SAUGSTAD. Yes, sir; that can be done. It is a piece of work that will take some time and I am afraid I cannot get it in this record, unless hearings may be continued for some time. Official Italian statistics show the names of vessels and their tonnage operating in each one of these lines, but it means searching the navigation statistics of Italy.

Mr. SIROVICH. Just rough numbers will do; it does not have to be exact.

Mr. SAUGSTAD. Yes; I will be very glad to do it as soon as I can. There is a series of services which are trans-Mediterranean, to the Adriatic, Black Sea, and to the East Coast of Africa. These services are met by smaller vessels usually, of considerable speed and, unless there is any particular interest in them here, I see no reason for reciting all of the details. I might say, in passing, that the largest amount of appropriation for any contract service line in these services is 78,575,000 lire annually.

Mr. SIROVICH. Are those the colonial possessions of Italy on the East Coast of Africa?

Mr. SAUGSTAD. Yes, sir; and also, of course, they include local services around the islands.

I might say, in a broad sense, that the Italian "indispensable” service system has now been broken down into two broad groupings, one known as the "Tyrrhenian" on the west side of Italy, and the "Adriatic," which takes care of all of the eastern side.

Mr. SIROVICH. Is this merchant marine of Trieste and that section now being utilized as transports to convey the troops to the Eastern Coast of Africa?

Mr. SAUGSTAD. I do not know. I assume so, because there are contract lines to East Africa.

The amount of annual appropriations for the Tyrrhenian side of the service, Tirrenia of Rome, is now 78,575,000 lire annually and, to the Adriatic Co., for its operations in the Adriatic and the eastern Mediterranean, an amount of 54,880,000 lire annually.

Are there any further questions on the Italian subsidized lines?