Mr. SMITH. Well, you are faced with what always does happen under Government handling, I think, and our opinion is that unquestionably the costs would increase from 10 to maybe 20 percent. Mr. LEHLBACH. Is not this the fact, Mr. Smith, that in work for the Government you find a greater unwillingness to assume responsibility on the part of the architects, superintendents, and so forth, in respect to the construction of vessels, the specifications, and so forth?

Mr. SMITH. Yes, sir; that is right; with the result that the inspection becomes much more severe, and much more severe than we believe is necessary in connection with any commercial job.

Mr. LEHLBACH. Not necessarily more severe with respect to the work done and the materials, but more delayed by constant reference for approval of this and that. Buck-passing is notorious in all Government work of that sort, is it not?

Mr. SMITH. Well, it inevitably results in delays and very great delays.

The CHAIRMAN. Is not the situation just simply this, that as between a private contractor and operator you can go up in the office and settle the thing and have it over with and settle a thousand questions or a dozen questions in an hour?

Mr. SMITH. Yes, sir; that is absolutely right.

The CHAIRMAN. But if it has to be constantly referred to Washington-I am not expressing an opinion one way or the other, but does not that situation have to be referred to Washington and gotten back, and it takes some time to go there and some time to get back, and something that they could settle in 15 minutes between private individuals would take a week when you are handling work for the Government?

Mr. SMITH. That is absolutely right.

The CHAIRMAN. I have no criticism and am not saying that is the fault of the official, because the Government official always has somebody over him to jump him for his decisions.

Mr. SMITH. That is no criticism of him at all; it is a condition which has to be met.

The CHAIRMAN. Mr. Smith, of course, we will be glad to hear everything you have to say, but I suggest you touch the high spots and supplement that with your amendments, as much as possible. I thought yesterday that we would be able to devote the entire day to the hearings; but, unless the members are willing to go on tonight, I am advised general debate has closed on the banking bill and the reading of the bill will begin under the 5-minute rule at 12 o'clock, and we have orders to be on the floor.

Mr. SMITH. I do not believe I will be over 15 minutes in finishing it. There is one point in connection with this specific problem that is not reflected in the bill, and which is very serious in this connection that general plans and specifications are subject to the approval of the Authority, but it is not clear how detailed plans and specifications under the second proposed set-up would be handled. And they are the ones on which the delay is occasioned, because the detail plans in one of these ships may be 500 in number, or may be more than that. And getting each and every one of them developed and approved and who is responsible for that is the real problem

that has to be taken into account as between building by an owner and building for the Authority.

It is also noted, in connection with what I believe is understood as Mr. Haag's alternative plan, that that is omitted in reference to the reconditioning. Well, now, I can conceive of cases where it might be very desirable that the Authority should have some leeway in that respect. Some of those ships are comparatively modern. Conditions might arise where it would be very desirable if there is a change in the trade or change in the conditions; but it would seem to me it might be desirable that the Authority should have some leeway in that respect, as well as on new construction, which was provided for in the first draft.

I assume, Mr. Chairman, that this bill would not affect section 25 of the act of 1920, which relates to classification and specifies the American Bureau of Shipping in the classification of our vessels. I just want to mention that. It does not seem as though it would be affected by any provisions of this act, and I presume, if not specifically referred to, it will remain in force.

Mr. LEHLBACH. Classifications?

Mr. SMITH. The classification provision of the act.

Mr. LEHLBACH. I believe that act now provides for the American Bureau of Shipping classification.

Mr. SMITH. It does; yes.

Mr. LEHLBACH. And I do not think that is repealed or changed at all by any of the provisions of the proposed bill.

Mr. SMITH. That is my understanding; but I have raised that simply to bring it to your attention.

The American Steamship Owners in a revised stateme: which they presented yesterday, I believe, have a paragraph relating to the building of tankers if it is found, after consultation with the Navy Department, that the construction of tankers of high speed is desirable. The shipbuilders are favorable to that paragraph; it seems as though it was desirable it be incorporated in the proposed bill.

Mr. LEHLBACH. With a provision against increasing the tonnage? Mr. SMITH. Yes, sir; as provided for-for the cancelation of old tonnage in the event of aid being given for the construction of new tonnage. It is a little difficult to follow the bill because of the recent revise made by Mr. Haag, which again splits the construction and differential subsidy, but both of the proposed sections 501 contain this statement:

In case the specifications shall be satisfactory to and approved by the Authority and the Navy Department, the Authority is authorized to enter into a contract with a shipbuilder for (1) the construction, outfiting

And so forth.

We would like to insert after the word "shipbuilder " the following words:

Who possess the ability, experience, financial resources, and character necessary successfully to build the vessel.

That is the same language as is used in connection with operation, and it seems fitting that it should be applied to the shipbuilder as well.

Mr. LEHLBACH. Elsewhere in the act there is authority to reject any or all bids. I do not know whether there is any express language anywhere describing the shipbuilder, but I believe they do allow a choice of shipyards?

Mr. SMITH. Yes, sir.

Mr. LEHLBACH. The Government and the contractor can agree as to what shipyards should be invited to make bids. Not any shipyard can, of its own motion, enter a bid, but only those that are requested to bid, and then those bids are subject to rejection outright? Mr. SMITH. Yes, sir. That is the language, and we have a suggestion on that also.

Mr. LEHLBACH. Well, that is practically a direction as to what kind of a shipbuilder should be invited to submit bids?

Mr. SMITH. Yes, sir; that is exactly the same language.
Mr. LEHLBACH. I know it is the same language.

Mr. SMITH. As used for the operators-that they should possess the ability, experience, and so forth.

Mr. LEHLBACH. But, of course, that would absolutely preclude a new shipyard.

Mr. SMITH. You might have your personnel of old, experienced shipbuilders. If they were, why they would be qualified.

In connection with section 502, relating to this question of building, we suggest the following language:

The proposed construction, outfitting, and equipment to be done in a shipyard within the continental limits of the United States as a result of competitive bids from not less than three experienced and responsible shipbuilders, to be submitted in accordance with the standard Government form of invitation for bids for naval vessels and instructions to bidders for the construction of naval vessels For the purpose of determining the cost of vessels for a basis of a construction loan or construction subsidy, the Authority shall use the lowest bid received, provided the Authority is satisfied such bid is resonable and fair and in accordance with the purpose and policy of this act.

The CHAIRMAN. Do you not think you can leave that with the Authority?

Mr. SMITH. Yes, sir; I do; but we are suggesting that.

The CHAIRMAN. All right.

Mr. SMITH. The only other suggestions we have are in connection with the revised title V, submitted by the American Steamship Owners yesterday, that the cost of plans and specifications and fees of naval architects shall be included in the cost of construction, and that the wages and expenses of inspectors shall be included in the cost of construction. It seems to us they do not belong in the construction cost, as the shipbuilder has no means of knowing what those expenses are going to be at the time he submits his bid, but that they properly belong either with the Authority or owner, as the case may be.

The only other suggestion we have is an endorsement of the recommendation of the American Steamship Owners to the extent that the construction loans should be applicable for ships in the domestic trade as well as in the foreign trade, which is contained in their recommendations presented to you last week, as to section 601, where the following language was added thereto :

Provided, however, That loans under section 11, as amended, shall be made for the construction of vessels for use in domestic as well as in foreign trade: And provided further, That in said section and all amendments thereof the figures "54" relating to interest rates shall be changed to “ 4.”

I have no other suggestions, sir.

66

(Mr. Smith submitted the following for the record.)

Hon. S. O. BLAND,

NATIONAL COUNCIL OF AMERICAN SHIPBUILDERS,
New York, May 9, 1935.

House Office Building, Washington, D. C.

MY DEAR CONGRESSMAN: In connection with my statement before your committee yesterday on H. R. 7521 I stated a preference for the original draft for the constructing of ships through a contract with the applicant rather than through the Maritime Authority.

Feeling that my statement may not have been entirely clear I submit for your information the following remarks which I believe show quite fully the difference between the two proposals:

In commenting on the bill I had in mind the preamble to the Merchant Marine Act of 1920, reaffirmed by the act of 1928, which expresses the purpose of Congress to develop an American merchant marine "ultimately to be owned and operated privately by citizens of the United States."

While fully appreciative of the necessity for Government control over the expenditure of Government funds applied to the maintenance and development of an American merchant marine, I expressed a preference for draft no. 2 rather than draft no. 3, believing that the Government's control over expenditures and the essential features of design are as well protected in draft no. 2 as under draft no. 3, and that there are advantages under draft no. 2 over draft no. 3 as follows: In committee draft no. 2, the Maritime Authority, the Department of Commerce, through its Steamboat Inspection Service, the Navy Department, and the American Bureau of Shipping have control over the general features of design from the standpoint of suitability to carry out the purposes of the act, and from the further standpoint of suitability to carry out the purposes of the act, and from the further standpoint of safety, national defense and structural strength. The owner would then be free, in accordance with established practice for a great many years, to cooperate with the shipbuilder in the development and approval of the many hundreds of detail plans that are necessary for the shipbuilder to prepare in carrying out the design of a vessel to meet the general features approved by the above agencies. As the vessel in each case is to be operated by the owner and ultimately paid for by him on the basis set forth in the proposed act, and as he is responsible for the successful operation of the ship, it is only to be expected that the shipowner should work out with the shipbuilder the details of the design, subject of course in every case to their compliance with the requirements of the various agencies mentioned above.

When it comes to the detailed inspection of the ship all of the above agencies have their part to play in the particular field for which they are responsible, but are not otherwise interested in the details as long as the specific general requirements are met.

In draft no. 3 (Mr. Haag's draft) the details throughout are precisely the same except that the Maritime Authority, being one of the contracting parties, would be directly responsible not only for a design that meets the purposes contemplated by the act, but also for all of the detailed plans and detailed inspection that under draft no. 2 would be a responsibility of the owner.

With this new responsibility under draft no. 3 resting upon the Maritime Authority it would necessitate the building up of a technical staff, duplicating those that are already established and experienced, and without any apparent benefit to be gained. If such a staff is built up the immediate tendency is toward Government specifications and Government details of design and inspection such as exist under other bureaus of the Government, with an inevitable added cost of construction which we estimate would be not less than 10 percent, and might be as much as 25 percent. Such added cost would immediately require increasedi subsidies to meet the competition of foreign vessels commercially designed and would not result in any better ship to the owner for commercial operation, and would not give the Government any better control over expenditures of Government funds and over the design of ships than is given by draft no. 2.

The only alternative to the above situation under draft no. 3 would be the delegation by the Maritime Authority of its responsibility for detailed design and inspection to some other body which would not seem practicable, and which would not eliminate the objections stated above as long as the Government is directly contracting for the construction of the vessel.

The cost of shipbuilding in the United States, which is so much higher than abroad due to our higher standards of living in this country and our wage scales, constitutes the greater part of the subsidy necessary to be paid by the Government to equalize the cost of operation of our ships in foreign trade. It is obviously

desirable to eliminate any unnecessary increased cost in a new shipping act. Believing that shipbuilding under draft no. 3 would be more costly than under draft no. 2, I am submitting this statement on behalf of the members of the National Council of American Shipbuilders, assuring you of our desire to cooperate in any way possible in the presentation of facts necessary to the enactment of legislation that will develop an adequate merchant marine for domestic trade and one that will carry the greater part of our goods in foreign trade.

Very truly yours,

H. GERRISH SMITH, President.

STATEMENT OF R. V. FLETCHER, ON BEHALF OF THE
ASSOCIATION OF AMERICAN RAILROADS

Mr. FLETCHER. My name is R. V. Fletcher; I live in Washington. I am with the Association of American Railroads. I appear to make just one single observation, that is, there is a definition of "foreign trade" here in the act-vessels in the foreign trade. I would like to suggest that be changed so as to provide that a vessel in foreign trade may not stop at an intermediate domestic port without the consent of the Authority, the whole thought being that the bill is not intended to subsidize transportation which will be competitive with existing forms of transportation, whether by rail, water, or otherwise, now engaged in domestic commerce.

We would be satisfied to leave that question with the Authority, but we think it ought to be discretionary with the Authority to exclude a vessel from the privilege of a subsidy if it is engaged in any form in domestic commerce, although it may, after making a stop at an American port, go on to the foreign port.

That is all I have to say.

The CHAIRMAN. You may supplement your statement with a brief, if you desire.

(Mr. Fletcher submitted the following for the record:)

Hon. OTIS BLAND,

ASSOCIATION OF AMERICAN RAILROADS,
Washington, D. C., May 9, 1935.

Chairman Committee on Merchant Marine and Fisheries,

House of Representatives, Washington, D. C. DEAR SIR: You will recall that on May 8 you kindly permitted me to say a word with reference to H. R. 7521, a bill to develop a strong American merchant marine, to promote the commerce of the United States, to aid national defense, and for other purposes, known as the "Merchant Marine Act, 1935.” My statement to the committee dealt only with a single feature of the bill. This was section 1010, subsection (a), which reads:

"The words foreign trade' mean trade between the United States, its territories, or possessions, or the District of Columbia, and a foreign country. The loading or unloading of cargo, mail, or passengers at any port in any territory or possession of the United States shall be deemed to be foreign trade if the stop at such territory or possession is an intermediate stop on what would otherwise be a voyage in foreign trade."

I would understand that the purpose of the bill is to encourage in the way of subsidies our foreign commerce and that it is outside the purpose of the bill to extend Government aid to vessels which are competitive with transportation agencies owned and operated by American citizens now engaged in domestic trade. In other words, I have assumed that the committee agrees with the statement made by the Postmaster General in his report to the President bearing date of January 11, 1935, where it is stated:

"It has not been the intention of Congress that operators of vessels engaged in the protected intercoastal and coastwise trade should be given aid to stifle out their other American competitors who receive no Government aid. Nevertheless, by one subterfuge or another, a very great many of the ocean-mail