In encouragement of ship construction in Italy, there was placed in effect a plan in 1934, authorized by royal decree, which provides for first and second prizes of 120,000 and 30,000 lire, respectively, for the preparation of plans of typical cargo ships by Italian naval architects. The subsidy is allotted from the general shipbuilding subsidy funds; and the contest is to be conducted under rules to be laid down by the Minister of Merchant Marine and is generally restricted to design for "a cargo vessel which shall combine all modern technical prerequisites and also fulfill the ideal conditions for meeting present traffic conditions."

That is in the nature of development of naval architects, training, technical schools, and so on.

This morning we referred to the provision for ship scrapping; and I said that provisions had been made under the extension of the subsidy law in 1931 to provide for the scrapping of 800,000 gross tons. There has since come to my notice a schedule showing some of the results of that plan in reducing the world tonnage on the Italian registry as follows

Mr. SIROVICH. Over how long a period is this 800,000 tons to be scrapped?

Mr. SAUGSTAD. During 1931, 1932, and 1933, a ship-scrapping program was n effect in Italy, covering 600,000 gross tons and a public expenditure of 15,000,000 lire at 25 lire per gross ton-200,000 tons to be scrapped each year. By royal decree of December 21, 1933, a further contingent of 200,000 tons was authorized scrapped for a subsidy of 4,400,000 lire. This brings the authorization for ship scrapping in Italy up to 800,000 tons, against an authorized expenditure of 19,400,000 lire. The fourth contingent is effective until June 30, 1935. The results as at the end of 1933 show that 155 vessels have been demolished, of which 104 were Italian and 51 were foreign. That is, about one-third of the vessels demolished have been ships which were originally built in Italian yards; and the gross tonnage up to the end of 1933 was reported to be 353,169 gross tons. Mr. SIROVICH. Of that, what percentage would come from the indispensable type and what percentage from the useful type? Mr. SAUGSTAD. I have not the slightest idea on that.

I cannot say whether the foreign grouping in this category is tonnage that is imported for the purpose of breaking up or whether it is tonnage that had originally been built in foreign yards and purchased by Italian operators for Italian operation and I know of no way of segregating particular vessels that are included in this break-up program.

Mr. Chairman, there are a few, one or two, preferential arrangements in connection with Italian subsidies that I would like to state at this time.

The CHAIRMAN. Go ahead.

Mr. SAUGSTAD. The first refers to depreciation allowances on Italian vessels. As we know, depreciation allowances play a considerable part in the financing of vessel tonnage by operators and is usually quite restrictive usually to 4 percent or 5 percent annually. The Italian depreciation allowances are 8 percent on vessels of 17,000 to 35,000 gross tons; and 7 percent on vessels of 10,000 to 17,000 gross tons; and 6 percent on vessels below 10,000 gross tons; and a special

depreciation allowance of 7 percent is allowed on vessels of special types, such as tankers and refrigerators.

There is a condition in Italy which makes the basic allowance on some Italian lines dependent somewhat upon the price of coal. Italy has no coal and is therefore totally dependent on imported supplies; and certain of the indispensible contracts depend upon the variation in the fuel prices for allowances.

It follows that Italy is in a position to do some trading on the basis of coal; and during the last 2 years there has been a very interesting development in that respect.

On November 29, 1933, the Polish Transatlantic Steamship Co. signed a contract with the Italian shipyards Cantieri Riuniti di Monfalcone, near Trieste, for the construction of two vessels for the Gdynia-America Line, to be delivered in July and December 1935, and to cost 30,000,000 zlote, $2,670,000 at par of exchange.

In return for the order placed with the Trieste firm, the Italian Government agreed to buy, in addition to the import contingent, 1,600,000 metric tons of Polish coal during a period of 4 years, at the rate of 400,000 tons per annum. In addition, the builders undertake to purchase certain quantities of iron in Poland, to be used for the construction of vessels, as well as other raw materials and industrial products. The agreement with the builders provides for payment in six annual installments.

This arrangement, which was made in 1933, has been an important factor in the increase of Italian imports of Polish coal. The total Italian coal imports in recent years and the proportion imported from Poland, have been as follows:

In 1927, the total imports of coal into Italy was 14,058,721 tons, of which 1,157,702 tons were from Poland.

In 1932, the total coal imports into Italy amounted to 8,017,862 tons of which 487,173 tons were from Poland.

In 1933, at the time the agreement was signed, the total imports of coal into Italy were 8,790,509 tons and of that amount 649,175 tons were from Poland; in 1934, for the 11-month period from January to November, inclusive, the total imports of coal into Italy were 10,415,639 tons of which 993,596 tons were imported from Poland, or practically double the amount of the 1932 importations from Poland.

Mr. SIROVICH. Is that in spite of the development of hydroelectric power in Italy?

Mr. SAUGSTAD. Yes, sir. I explained just before you came in that this is a barter arrangement, whereby the Polish Gdynia-America Line agreed to have two ships built for its New York service in Italian yards, in return for which the Italian Government agreed to buy 1,600,000 tons of Polish coal, at the rate of 400,000 tons annually; and the net result of the barter had been that the coal imports from Poland into Italy has doubled in 2 years.

Mr. SIROVICH. Where does Italy get its main supply of coal from, England?

Mr. SAUGSTAD. I presume so; yes, sir; there is an increasing amount, of course, from Poland; and there is quite a substantial amount coming in from Turkey. Turkish coal is moving into Italy.

Mr. SIROVICH. Is that under a barter trade arrangement?

Mr. SAUGSTAD. I am not familiar with the arrangements at all. It may be that the general operations of Italian tonnage into the Near East has something to do with it.

Mr. SIROVICH. And do the Polish people use these ships in Danzig? Mr. SAUGSTAD. These ships run to New York.

Mr. SIROVICH. Where do they run from?

Mr. SAUGSTAD. Gdynia.

This morning you made inquiry as to the amortization of the Rer and the Conte di Savoia. I am unable to add much to that; but one development took place last year that might have some bearing on that point, although this is largely a matter of finance, reduction of capital and so on, so far as the owning company is concerned, and there is no way of pointing to the two vessels as such; but I am making a statement on the subject generally.

The financial reconstruction plans of the Italia merger were adopted in the early part of 1934, under the auspices of the Italian Government and the Institute for Industrial Reconstruction, to which we referred this forenoon.

The increase of the company's capital from 158,400,000 lire to 576,000,000 lire, was provided by the issue of 4,176,000 new shares, of a nominal value of 100 lire each, to be offered at par to all stockholders, in the ratio of 29 new shares for 11 old shares of 100 lire each. All shares not disposed of are to be taken up by the Industrial Reconstruction Institute. The Institute also took over certain other securities, to be used for the payment of other unsettled debts.

The Italia merger was granted a loan of 170,000,000 lire by the official Maritime Credit Institute, while the Cosulich Co., a member of the combine, was granted a loan of 30,000,000 lire by the same institution. The combine previously borrowed 100,000,000 lire from the Maritime Credit Institute for 15 years at 5.3 percent annual interest rate in October 1933, and borrowed 50,000,000 lire from the Consorzio per Sovvenzioni su Valori Industriali.

That is all I can tell you or say to you about the financial operations of the company that owns the Rex and the Conte di Savoia.

Mr. SIROVICH. Are they selling their stock on the market here? Mr. SAUGSTAD. I do not know that they are selling stock on the American market. I have no knowledge of that.

Now, I will take up the Japanese data.

Mr. SIROVICH. Would you say, before going on to the Japanese situation, that the tonnage of Italy has been gradually increasing, year after year, since the adoption of their principles in 1926, by the building of new tonnage and the reconditioning of old ships? In other words, does Italy have more tonnage today, in 1935, than they had in 1926?

Mr. SAUGSTAD. I cannot answer that comparatively.

I might say that the record I have here shows that in 1925 the total Italian registered tonnage, 100 gross tons and over, was 3,028,661 gross tons. In 1930, it had increased to 3,331,226 gross tons. In 1931, it remained practically static at 3,335,673 gross tons.

Mr. SIROVICH. What year was that?

Mr. SAUGSTAD. 1931.

In 1932, the tonnage amounted to 3,390,572 gross tons. In 1933 it had declined to 3,149,807 gross tons.

Now, as of July 1, 1934, it had declined to 2,928,396 gross tons, or a decline of 221,411 gross tons from 1933 to 1934.

Mr. SIROVICH. Are you taking the total over 100 tons?

Mr. SAUGSTAD. Yes, sir.

Mr. SIROVICH. I have got a statement here of Mr. Haag that when we reduce the world's tonnage to ocean-going types competing in the international carrying trade, we have a world total of about 36 million tons, of which Great Britain has about 13,500,000; Japan slightly over 3,000,000; the United States slightly less than 3,000,000; Germany, 2,700,000; France about 2,250,000; and Italy about 2,100,000. Mr. SAUGSTAD. That is a fair statement.

Mr. SIROVICH. That refers to the international trade.

Mr. SAUGSTAD. Mr. Haag was, of course, referring there to the larger ocean-going types. I do not recall whether he used the 1,500 gross tons or the 2,000 gross tons base.

Mr. SIROVICH. I think about 1,500 gross tons, if I am not mistaken. Mr. SAUGSTAD. I do not recall, but I think that there has been a general decline during the past year or two in tonnage. In other words, the scrapping programs of the past 2 or 3 years have resulted in the doing away of documented tonnage that was of no commercial use; and you will recall discussion the other day on Germany, that the Government is fostering a general policy of making less tonnage do more work. The discussions have revolved around the proposal making 3,000,000 tons do the work of 5,000,000 tons formerly. Mr. SIROVICH. That means the elimination of unnecessary competition.

Mr. SAUGSTAD. It means the elimination of slow, unnecessary, uneconomic tonnage, I presume, and, the higher speed, greater efficiency, and general commercial possibilities of a modern ship over a slow, old type of ship.

Are there any further questions on the general subject of Italy?
The CHAIRMAN. I have none.

JAPAN

Mr. SAUGSTAD. The Japanese Government at the present time has a system of subsidized services which is known as "ordered services." The CHAIRMAN. Known as what?

Mr. SAUGSTAD. "Ordered services", under the Ministry of Communications. The term "ordered services", I presume, we could translate into "contract services," for all practical purposes here.

There is a small bounty given for ship-scrapping and the construction of new vessels; and there are some items in connection with the Japanese steel bounties which may have some effect on the general problem of the cost of construction.

In 1934 the Japanese merchant fleet was probably the most profitable national commercial fleet in the world. In Japanese shipping the year was marked by the reemployment of all sea-going Japanese tonnage, by the improvement of fleet quality through the State-aided scrap-and-build plan, by resumption of dividend payments by several companies, and by redemption of debts by leading companies.

In Japan as well as in Italy, there was a reduction in the total of registered tonnage. Whereas, on July 1, 1933, Japanese tonnage was

135956-3520

listed at 4,258,159 gross tons, according to Lloyd's Register; it had declined to 4,072,707 by July 1, 1934, a decrease of 185,452 tons.

Perhaps the most interesting development in the Japanese fleet during the year past has been the progress made toward elimination of idle tonnage. While scrapping obsolete Japanese tonnage has materially aided this condition, the general upward swing of the Japanese tonnage market has caused reemployment to a point of practical elimination of idle vessels considered in the sea-going category. According to the figures compiled in the Transportation Division of the Bureau of Foreign and Domestic Commerce, there was practically no laid-up tonnage in Japan as of July 1, 1934; that is, if no consideration is taken of the Japanese tonnage temporarily laid up at that time, due to the San Francisco strike.

According to the Ministry of Communications of Japan, as of October 1934, there were laid up in Japan 375 vessels of 63,241 gross tons. The bulk of this tonnage was made up of junks, there being not more than four or five sea-going craft of more than 1,000 gross tons included.

Mr. SIROVICH. How many?

Mr. SAUGSTAD. About four or five sea-going ships. The main tonnage that is, the 63,241-was considered almost entirely of junks.

Mr. SIROVICH. To what do you attribute this unusual and remarkable return to prosperity to Japan-to the war in Manchukuo and the utilization of her merchant marine to transport cargo and men, to the strike in San Francisco?

Mr. SAUGSTAD. Not to the strike in San Francisco. The strike caused some idleness in Japanese tonnage. But the official reportscommercial reports from Japan indicate that, certainly, the increase in prices of heavy industries and the increased activity of shipping companies is possibly very largely due to the increased operations in Asiatic waters.

Mr. SIROVICH. In China and Manchuria?

Mr. SAUGSTAD. Yes, sir. That is, according to the official reports. Mr. SIROVICH. Yes, sir; and, also, due to the tremendous industrial development that has taken place, has been going on for the last year or two, in which Japan has been throwing her goods into all the markets of the world, through the depreciation of the yen, and thus bringing Japanese goods into competition and underselling the world's markets.

Mr. SAUGSTAD. I cannot say as to that, sir.

According to the Kobe Shipping Exchange, the allocation of Japan's freighters as of January 1 of this year, throughout the world trades, was as follows:

In the Japan to Atlantic coast and Gulf ports there were 26 vessels of 243,223 gross tons.

Operating in European waters there were 32 vessels of 290,349 gross tons.

The CHAIRMAN. That has been a recent growth, that entry into the Gulf coast and around in that neighborhood, has it not?

Mr. SAUGSTAD. Why, no, sir; it is not recent. The Gulf coast business has been fairly stable for quite a number of years, due very largely, of course, to the cotton exports.

Japan to the Pacific coast of North America, 45 vessels, of 419,340 gross tons.