the assurance of national security to a Nation whose reliance on ships for defense is historic and monumental.

It needs to be stressed that placement of additional shipbuilding contracts today-if that were possible-will not obviate the unemployment and idle facilities now foreseen. The duration of the inescapable slump in activity and the timing of recovery will be contingent on factors beyond the control of shipbuilders individually and collectively; market demands, economic influences, governmental policies, and world conditions.

Worldwide, an increasing number of shipbuilders are chasing a decreasing number of ship construction opportunities. Amid international discussions of ways to reduce overcapacity, below-cost prices are being offered by many foreign shipbuilders, in many cases, with the approval and financial indemnifications of their governments. A demoralizing subsidy war is rapidly evolving. Some nations, previously openly critical of maritime assistance programs, have now added direct subsidy to a subtle array of indirect credit and tax mechanisms.

Acknowledgment of the continuing strategic and economic importance of shipping and shipbuilding has been the underlying motivation. Shipyards in one country are thus not competing with shipyards in another country. Governments are competing with governments to capture ship construction opportunities-wherever, whenever, and at whatever price-to serve what is considered to be their self-interests.

Some shipbuilders abroad are reportedly offering prices at 10 to 40 percent below costs. This "false" pricing has two immediate consequences: First, the statutory CDS ceiling of 50 percent is breached and does not facilitate contract awards in the United States, and, second, U.S. owners look longingly at cheap prices for ship construction-and conversions-in foreign lands.

The allure of such "bargain" prices becomes more intriguing with the realization that foreign-built ships can be documented under the American flag without payment of any import duty with entitlement to a 10-percent investment tax credit. Given the purpose and scope of governmental encouragement and support abroad today, some foreign shipbuilders are quick to exploit this situation as well as the absence of a strong, coherent, coordinated and responsive U.S. maritime policy.

In this sense, while there is currently much emphasis on the virtues of the latest Multilateral Trade Negotiations, "dumping" by foreign shipbuilders, which forecloses subtantial contracts for U.S. shipbuilders and many thousands of man-years of employment for skilled American shipyard workers, continue to escape official response. In effect, the United States offers a 10-percent investment tax credit bonus for the acquisition of a foreign-built vessel: the economic and national security consequences as they may apply to domestic shipbuilding are rarely considered

It might be interesting to recall that roughly 700 vessels of 1,000 gross tons and over were built abroad for U.S. based companies or their affiliates in the years 1958-78. Only a few were registered under the American flag for the reason that the existing Internal Revenue Code permits deferral of current taxation on foreign-flag shipping income by U.S.-owned foreign corporations to the extent

that these earnings are reinvested in qualified shipping assets, including construction of vessels by foreign shipbuilders. This tax privilege can hardly be regarded as encouraging shipbuilding in the United States.

In the same 1958-78 timespan, U.S. shipbuilders delivered 447 merchant ships of 1,000 gross tons and over to U.S. owner/operators. Of this total, 234 involved CDS construction, 8 were built for Government account, and 205 were constructed for unsubsidized U.S.-flag operation (see attachment E).

From all of the foregoing statements, a number of conclusions can be reasonably drawn: (1) U.S. merchant shipbuilding requirements, contrary to general belief, are and have been shared with other shipbuilding nations, (2) a major segment of the industrial resource base is sustained by both subsidized and unsubsidized contruction, in nearly equal proportions, (3) some contraction of that base is certain, (4) in this country, inflation and domestic regulatory requirements restrain the kind of price/cost maneuvering which today benefits foreign shipbuilders, and (5) shipbuilding worldwide is in the doldrums. A return to normalcy can only be shaped by Government policy—more appropriately by more than one Government policy-and the shipbuilders of the United States sincerely hope this distinguished subcommittee will assume a role of positive leadership in insuring, as in other countries, the preservation of an essential core of shipyard facilities and manpower to support national interests.

Thank you very much, Mr. Chairman.

[The following was received for the record.]

Analogous to five-year naval shipbuilding program outlined in Jan. 11 SHIPYARD WEEKLY (confirmed by Defense Secretary Harold Brown's Jan. 25 report to Congress), it is understood Maritime Administration (MarAd) tentatively anticipates following merchant ship construction contract awards to U.S. shipbuilders in same time frame:

sources,

include

Secondary prospects, according to Mar Ad construction of 125,000 cubic meter liquefied natural gas (LNG) carriers 8 in FY '80, 2 in FY '81 and 2 in FY '82 plus five 35,000 dwt bulk carriers each in FY '81, FY '82, FY '83 and FY 84. LNG newbuildings are contingent upon clarification of Carter Administration's intentions with respect to LNG imports two projects involving as many as 10 U.S.-built LNG carriers have already been squelched (see 1/11 SW). Bulk carriers are contingent upon Administration approval of MarAd's proposed program (see 2/23/78 SW).