APPENDIX F.-EXAMPLE OF HOW BILATERALISM WOULD FUNCTION IN A SPECIFIC TRADE CONTEXT

Trade. Crude oil and petroleum products from Mexico to the United States. Background. Oil production in Mexico is expanding rapidly with announced target exports by 1982 of 1.1. million barrels per day. In the absence of a complete breakdown in U.S. foreign policy, 65 percent of these exports could reasonably be expected to reach the United States. Mexico's exportable surplus could easily exceed 2.5 million barrels per day by the mid-1980's. Mexico has also announced intention to export refined products as well as crude, and will shortly be in a postion to move either crude or product from both the East and West Coasts of Mexico. The Mexican tanker fleet is small and fully committed, and it is reasonable to expect that the nationalized oil structure will wish to expand the Mexican-flay carriage of expanding exports, either through government action or encouragement of private interests.

Suitability of bilateral maritime approach

commerce.

1. Both countries have a mutual national interest in expanding fleets for foreign 2. Centralized decision-making in Mexico should facilitate implementation on that end.

3. Proposed tax rules revisions (see recommendation No. 4) should permit U.S. vessels to compete at, or very close to, long-term world market rates for tonnage in the class suitable for Mexico/U.S. trading. The fact that Mexican crewing is more expensive than typical flags of convenience crewing may, from the Mexican point of view, justify slight premium rates in the bilateral shares of the trade.

4. The envisioned bilateral agreement should be targeted at the growth in the trade in which event no existing third-flag tonnage would be displaced.

Ancillary benefits

1. Vessels suitable for the Mexico/U.S. trade would primarily be handy-size product tankers, capable also of carrying crude. This is the most valuable type of tanker tonnage from a defense viewpoint.

2. Such vessels, built to the new Tanker Safety Act standards, are likewise ideal for service in the U.S. domestic coastal market. The proposed revised method for providing both capital and operating subsidy on a per diem basis (see recommendation No. 3) would allow vessels in this and other short haul subsidized tanker trades to forego subsidy and move quickly to supplement the base domestic fleet in times of market strain or strategic crisis (such as a call-out of the Strategic Petroleum Reserve).

Demand created by bilateral agreement

Assumptions.—(1) Mexican exports to the United States (derived from recent staff report of Senate Committee on Energy and Natural Resources): 715,000 barrels per day in 1982 and 1,625,000 barrels per day in 1985; (2) Transportation share to each trading partner under bilateral target proposal (see recommendation No. 1): 20 percent; and (3) Destination distribution: 50 percent to U.S. Gulf Coast, 25 percent to U.S. East Coast and 25 percent to U.S. West Coast.

Under these assumptions, tanker tonnage demand would equate to 205,000 dwt (about 4-6 ships) in 1982 and 470,000 dwt (about 10-12 ships) in 1985.

Summary. Many U.S./foreign trades with characteristics similar to the Mexico/ U.S. petroleum trade can be readily identified. These potentials are especially fertile among U.S. developing trading partner is moving to develop its own merchant marine, and vessels to be constructed are of high defense value. Detailed trade analyses (performed by Temple, Barker and Sloane, Inc.) indicate that conforming the initial bilateral thrust to situations selected with such parameters in mind should provide timely opportunity for a satisfactory beginning to a reversal of the Nation's presently moribund shipping and shipbuilding policies.

Mr. HOOD. I have a feeling, however, just on the basis of my limited exposure to the inner workings of the group, that the report to which Secretary Adams referred earlier, will not address the shipbuilding problem

Mr. SNYDER. That was my next question. Quite often industry can get a better feel for what is going to come out of debates downtown. That is not reflective of this administration or any

other administration, but, industry can often get a better feel than we can of what the administration is going to do.

Do you have any advice as to what they are going to recommend?

Mr. HOOD. My understanding, and I get this obviously third or fourth hand, is that the task group will devote primary attention to the regulatory aspects of ocean commerce, putting aside the promotional aspects for later consideration. I gathered from one comment by Secretary Adams it looks like that consideration could be some time after June of this year.

Mr. SNYDER. When I asked about the 10 recommendations and asked the chairman to put them in the record, he indicated interest and he said to the clerk "Get me a copy also." That brings me to ask you this: Have you not brought these recommendations to the attention of the Congressional Shipyard Coalition, on which the chairman serves?

Mr. HOOD. Yes, we have, and Mr. Trible, to your left, is cochairman of the Congressional Shipyard Coalition. He has been briefed on the nature of these recommendations, the centerpiece of which, Mr. Snyder, is more bilateral shipping agreements.

Mr. SNYDER. As you probably know, I am interested in the ones relating to the shipbuilding industry, but not necessarily, as my ranking colleague wants, to go overseas to buy. Anyway, that is the impression I got. However, he is not here, so I do not want to put words in his mouth.

Mr. HOOD. Yes, sir.

Mr. SNYDER. I want you to understand that I believe what is sauce for the goose is sauce for the gander. In that connection, I would like you to give me some insight into why the largest drydock on the west coast was built in Japan?

Mr. HOOD. Good question. You are referring to the drydock for the Port of Portland, Oreg.?

Mr. SNYDER. I thought it was in Tacoma, or wherever.

Mr. HOOD. I am familiar with that project. A number of bids were solicited worldwide and the domestic price was too high. Mr. SNYDER. That is the same argument that the people who want to buy ships overseas will give for buying ships overseas. You have got to be more consistent.

Mr. HOOD. You are quite right.

But, on the other hand, there is a duty and that dry dock is subject to a duty as well.

Mr. SNYDER. What Federal subsidies are available for drydock construction?

Mr. HOOD. Title XI Mortgage Guarantee is available for drydocks-no CDS.

Mr. SNYDER. I knew there was no CDS for drydocks. In other words, the loan guarantees are the only Federal subsidies available.

Mr. HOOD. That is correct. Yes, sir.

Mr. SNYDER. Would you favor a modification of the CDS program to allow lump-sum or direct subsidy payment to shipyards to allow them to make capital improvements instead of tying construction subsidy to a specific vessel?

Mr. HOOD. I don't know that I would want to give an absolute answer to that, Mr. Snyder, without studying a specific proposal. I tend to resist that kind of idea. I think capital improvements should be a function of private investment. You, of course, know that $1.7 billion has been invested in new facilities in this country, new facilities or improvements to existing facilities and, if you wish, I would be glad to provide a detailed listing of what is involved.

Mr. SNYDER. Any help you can give me will be helpful to understand the problem and what the answer to our shipyard problems should be.

Mr. HOOD. I would be glad to do it.

[The following was received for the record:]

CAPITAL IMPROVEMENTS IN U.S. PRIVATE SHIPYARDS

(Since Merchant Marine Act of 1970 to Jan. 1, 1979)

Alabama Dry Dock & Shipbuilding Co., Mobile, Ala.-For some time, this yard has been predominantly a repair and conversion facility. During the past year, the company continued its improvement program, mainly the upgrading and modernization of existing drydocks, piers, shops, and equipment.

The American Ship Building Co., Lorain, Ohio.-In 1971, AmShip completed an extensive modernization and improvement program at its Lorain shipyard, including new computer control programs and management information systems.

Avondale Shipyards, Inc., New Orleans, La.-In later 1975, Avondale completed a major improvement program primarily to "tool up" for the construction of LNG ships. The shipbuilding area previously used for series production of U.S. Navy destroyer escorts was restructured and expanded into two large positions to accommodate vessels up to 1,050 feet in length by 174 feet in beam. The new floating drydock, one of the nation's largest, is 900 feet long, 260 feet wide, and 78 feet high, with a lifting capacity of 81,000 long tons. In addition to its use as a launching platform for new construction, this drydock has given the shipyard the capability of performing a variety of conversion and major repair work. Additional buildings and equipment to supplement the yard's mechanized material-handling, fabrication, and blasting/painting systems are also part of Avondale's recent facilities improvement program.

Bath Iron Works Corp., Bath, Maine.-In 1974, Bath completed a major expansion and modernization program. The upgrading of facilities included the reconstruction of two shipways to accommodate ships of 700 feet in length between perpendiculars (LBP) with a maximum beam of 130 feet, or two ships per way with a beam of 54 feet each; the installation of a 220-ton level luffing crane with sufficient outreach to erect units on all shipways; and new steel fabrication shops and equipment that have increased steel throughput capacity by 50 percent. Bath also purchased a fiveunit 9,600-ton floating drydock in 1976.

Bethlehem Steel Corp., Beaumont, Tex.-This facility is highly mechanized. In 1973, the company completed a multimillion-dollar modernization program, including a new panel line and new materials-handling facilities.

Bethlehem Steel Corp., Sparrows Point, Md.-To provide the capability for construction of larger vessels, facilities improvements have included: establishing new production and materials-handling methods, installing new and sophisticated systems and equipment, and developing new design concepts and engineering techniques. The major components of this program, which was completed in 1974, are the new building basin for construction of ships as large as 1,200 feet by 192 feet and a 68,000-square-foot panel shop for fabrication of steel. This fabrication shop is capable of constructing panels up to 60 feet square, four feet in depth, and weighing up to 200 tons. Other improvements include the structural stengthening of pier No. 1 to accommodate larger vessels, a numerically-controlled gas plate-cutting machine and automated plate and shape blasting-painting equipment.

Bay Shipbuilding Corp., Sturgeon Bay, Wis.-Bay Shipbuilding, in early 1977, completed the final phase of a major facilities expansion program that has enabled the company to build 1,000-foot Great Lakes bulk carriers. The new graving dock can accommodate a vessel as large as 1,146 feet by 136 feet and is the largest such dock on the Lakes. The steel erection capacity for ships to be built in the basin is

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estimated to be 12,000 to 15,000 tons per year. Also included was a $2 million plate fabrication and burning shop, completed in 1975.

General Dynamics, Electric Boat Div., Groton, Conn. and Quonset Point, R.I.—A new 10-acre $150 million land-level submarine construction facility was built to construct Trident submarines (includes a 60,000-square-foot pontoon graving dock) at Groton, Conn.

At Quonset Point, R.I., a new multimillion-dollar automated submarine frame and cylinder manufacturing facility for the fabrication of submarine hull sections has been added.

General Dynamics, Quincy Shipbuilding Div., Quincy, Mass.-To provide the tools and facilities to efficiently build LNG tankers in series production, GD Quincy in 1975 completed a major improvement and modernization program. In addition to the conversion of two conventional sliding ways to large building basins, other improvements included: a steel fabrication facility, materials-handling equipment, a 200-ton transporter, a plate cleaning and blasting facility, a double bed flame planner, a double-bed flat bar stripper, a web cutter with 19 torches in tandem, an angle fabricator, two web stiffener weilding gantries, a T-beam fabricator, two plate stiffeners, a butt welding gantry, a panel turnover fixture, and two 40-ton cranes. In addition, a 1,200-ton Goliath crane was installed for transferring 120-foot-diameter spherical LNG tanks from barges on which they are delivered one at a time to LNG ships under construction.

The company, in 1975, also invested in tools, machinery, and buildings at its newly-acquired Charleston, SC facility for fabrication of the 800-ton spherical aluminum tanks for the LNG carriers constructed at Quincy.

Litton-Ingalls Shipbuilding, Pascagoula, Mass.-This shipbuilder has two shipyards referred to as the East Bank and West Bank yards. The East Bank is older. The West Bank yard, completed in 1970, was designed and equipped for series production using modular construction methods. The West Bank does not have conventional inclined shipbuilding, but the production concept is based on assemblyline construction of large Navy and merchant ships.

Lockheed Shipbuilding & Construction Co., Seattle, Wash.—To improve shipbuilding technology to meet requirements for construction of the submarine tenders, Lockheed has upgraded its production facilities and has accomplished system changes. To handle increased production, a modernized, numerically-controlled steel cutting system was installed. The automated panel line is another new facility developed following the award of the a sub tender contract.

Maryland Shipbuilding & Drydock Co., Baltimore, Md.-During the year, Maryland completed the final phase of a major modernization and expansion program, the main features of which are:

Installation of a new floating drydock 827 feet long by 150 feet between wingwalls with a lifting capacity of 36,000 long tons. This dock, which can handle ships up to about 125,000 dwt., will be used for launching newly constructed vessels, as well as for ship repair and conversion work;

Lengthening of the yard's one building way to permit construction of ships up to 850 feet by 110 feet, compared to the previous maximum of 630 feet by 96 feet; Modernization of the panel fabrication shop;

Automatic pre-blast equipment and a new building for blasting and painting, and a totally enclosed final-blast building; and

Computer lofting and a new tape-controlled, automatic burning machine.

National Steel & Shipbuilding Co., San Diego, Calif.-In early 1976, NASSCO completed a major facilities expansion and modernization program. In a new building dock, ships up to 980 feet by 170 feet, can now by built, compared to a previous maximum of 900 feet by 106 feet. Also included in the program was a new semiautomatic panel line that welds steel plate into 40-foot by 40-foot panel sections, additional heavy-duty whirley cranes, land development, and an advanced production control systems.

Newport News Shipbuilding, Newport News, Va.-The new commercial yard, completed in early 1977, is adjacent to the existing South yard on 150 acres of land reclaimed from the James River. This new facility was designed for high productivity and flexibility, with the capability to handle large components from fabricating areas to final erection. Data storage and retrieval systems control material storage and work flow. The new building basin is 1,600 feet long, 250 feet wide and 44 feet deep. In this graving dock, one ULCC or large LNG and part of a second can be built simultaneously. The new all-weather steel production plant, which includes automated panel lines and supporting equipment has an annual steel capacity of 200,000 tons. A 900-ton, 23 story Goliath gantry crane can handle complete subassemblies. This crane services the new graving dock and the 8-acre final assembly

platen and has a height of 234 feet overall, a girder clearance of 200 feet and a span between rail centers of 540 feet. The new North yard has one 1,670-foot outfitting berth and one 1,000-feet mooring berth.

Norfolk Shipbuilding & Drydock Corp., Berkley, Va.-A multimillion-dollar expansion project is underway at the Berkley Plant, the company's main facility. The centerpiece of this program is construction of a steel floating drydock, scheduled to go into operation in April 1979, which will be 950 feet long with 160 feet between wingwalls and will have a lifting capacity of 54,250 long tons.

A new 1,030-foot-long concrete pier, to be used for repair and servicing of ships as long as 1,200 feet, was completed in 1977. This new pier will also be used for mooring the new floating drydock. A giant hammerhead jib trolley crane will be located on the new pier and will span the entire width of floating drydock and will also be able to reach the outboard side of the new pier.

Port of Portland, Portland, Oreg.-A floating drydock, 982 feet in length overall and 192 feet between wingwall, with lifting capacity of approximately 81,000 tons, is scheduled to become operational by mid-March 1979.

Seatrain Shipbuilding Corp., Brooklyn, N.Y.—Although the facilities that existed in 1962 included three large fabricating buildings and two massive graving docks to accommodate a maximum ship size of 1,094 feet by 143 feet, Seatrain has engaged in considerable facility improvements and modernization. Automation, including AUTOKON 71, is widely used in steel processing.

Seatrain is also expanding its operations to include repair, conversion, and overhaul of ocean-going ships. In 1977, the company leased an additional 1,400 feet of berthing space at the former Brooklyn Navy Yard.

Sun Shipbuilding & Dry Dock Co., Chester, Pa.-In 1976, Sun Ship completed the final phase of a major capital improvement program which enhanced the shipyard's ability to fabricate larger, more sophisticated ships. This expansion and modernization program has provided a new level "shipbuilding platform", a two-section floating drydock capable of lifting 75,000 long tons, a 1,100-feet outfitting pier, a new plate burning shop, and other shipbuilding support facilities. The new two-section drydock is capable of handling vessels up to 400,000 dwt.

Tampa Ship Repair & Dry Dock Co., Inc., Tampa, Fla.-A graving dock 900 feet by 150 feet, which will accommodate tankers up to 125,000 dwt. was completed in July 1978.

Todd Pacific Shipyards Corp., Los Angeles, Calif. Division.-This yard has undergone a major upgrading and expansion of its facilities in recent years. New equipment includes two 175-ton whirley cranes, totally-contained sandblasting facilities, automated cutting and burning operations, and a sophisticated production line for fabrication and movement of modules from automatic welding units to the building ways area. There were also improvements to the existing building ways, drydocks, piers, and shops.

Todd Pacific Shipyards Corp., Seattle, Wash. Division.-Overall modernization at this yard has resulted in vastly improved capabilities. Recent improvements include a numerically-controlled plasma arc burning system that cuts steel plate at five times the speed of gas. A new facility for non-destructive testing was finished in 1976. Other capital improvements include a panel line, new steel shop, and a missile launcher erection building.

Source: Maritime Administration, Office of Ship Construction.

CAPITAL IMPROVEMENTS PLANNED FOR FISCAL YEAR 1979 ($190 MILLION) Avondale Shipyards, Inc., New Orleans, La.-(1) A new pipe fabrication plant; (2) automating door plant facility which includes installation of robots and automatic forming equipment; (3) expansion of fabrication areas by approximately 60,000 square feet; and (4) expansion of blasting and painting building.

Bath Iron Works Corp. Bath, Maine.-To accommodate construction of guided missle frigates for U.S. Navy, the Bath yard in early 1978 announced a $3.2 million expansion of its main assembly building, doubling the capacity of that shop.

General Dynamics, Electric Boat Division, Groton, Conn.-Completion of facilities for construction of Trident subs.

Levingston Shipbuilding Co., Orange, Tex.-A long-range expansion and modernization program is underway which will lead to an increased steel through-put from about 25,000 tons/year to 50,000 tons/year. Improvements include a new flat panel fabrication line, numerically controlled cutting equipment, an automatic blasting and paint shop, a new subassembly construction area, and a new gantry crane. Litton/Ingalls Shipbuilding, Pascagoula, Miss.-Numerically-controlled production equipment, new buildings, and land improvement.