A study by the Planning and Development Department of the Port Authority of New York and New Jersey recently concluded that each dollar of sales by the U.S. Merchant Marine produces $1.80 in sales throughout the economy while shipyard sales produce an overall output of $2.10. It also concluded that, up to one-half of the subsidy granted returns approximately one-half of its value to the U.S. Treasury in tax accruals. Research and development A figure of $16,360,000 is requested by the Administration for Research and Development expenditures. This is $1,140,000 less than appropriated in 1979 due, in part, to eliminating the Exploratory Research program at the National Maritime Research Center at King's Point. Reductions in certain expenses connected with research on advanced ship systems also accounts for part of the reduction. We assume the necessary work planned in Research and Development can proceed adequately under the reduced funds requested. We do know that a program has been worked out between CASO and Marad for the development and operation of a prototype International Data Communication System whereby participating companies' home offices can be linked with their major overseas offices. Maritime education and training An increase for this item of $3,241,000 above 1979 appropriations for a total of $25,874,000 reflects anticipated expenses at both the King's Point Academy and the six state marine academies, and, to some extent, supplementary training courses. The Administration has already described these increases to the committee and they are deemed required to meet increased needs in the Education and Training program. In the category of supplementary training, the fire fighting training establishments are, of course, involved. For the first time, such training is being developed for the Gulf in the construction of facilities on land formerly belonging to NASA and now given over to Del Gado College, which, in turn, has dedicated over 3 acres for a fire fighting establishment there under a 25-year lease. Proposals are also under way for a new fire fighting establishment on the West Coast to supplant the work now performed at naval facilities on Treasure Island. The fire fighting_program at Earle, New Jersey, will, of course, continue. Plans are also under way for a fire fighting establishment on the Great Lakes. We believe the funds requested are proper. Maritime Administration operating expenses We have no particular comment on Marad's request of $35,598,000 for operating expenses and have no basis for judgment since these deal with operating needs within the administrative organization itself. We would hope, however, that adequate provision has been made for promoting in the best possible terms, the development and maintenance of the National Defense Reserve Fleet, for which $6,377,000 has been included. Title XI Guaranteed construction loans and mortgages under title XI of the 1936 Act have provided for the financing of the construction of virtually 100 percent of liner vessels in the existing U.S. merchant fleet built in U.S. shipyards. This support, normally at no cost to the government, is provided through the Federal Ship Financing Fund for vessels engaged in the foreign commerce of the United States. In addition, it is available for vessels employed in the domestic trades, as well as in research, on inland waterways, in fishing and for offshore drilling. It is the general practice that some overall limitations on guarantees and commitments to guarantee has been established as a ceiling. This overall ceiling has been raised from $7 billion to $10 billion in 1978. The current budget authority request, however, includes an annual provision to limit new guarantee commitments to $1 billion during fiscal year 1980. We believe this to be too restrictive and that it would inhibit new construction at the very time when our shipyards need new contracts to support their existence. As has been indicated by prior witnesses, the flexibility of the current program to meet the needs of the wide variety of vessel operators utilizing the title XI program should not be constrained by an artificial annual limitation. We support that view. General We would hope that the maritime industry, coupled with the good work of this distinguished committee, can resolve many of the impediments to achieving a stronger U.S. flag merchant marine and we are prepared to cooperate in any way within our sphere of effort to achieve that end. Meanwhile, we believe that the authorization request submitted by the Administration is a modest one in terms of total needs for a stronger American Merchant Marine. We thank the committee for this opportunity to express our views. STATEMENT OF EARL W. CLARK and TalmagE E. SIMPKINS, CO-DIRECTORS, THE LABORMANAGEMENT Maritime COMMITTEE ON THE SNYDER AMENDMENT TO H.R. 2462 This statement is made on behalf of the Tanker segment of the Labor-Management Maritime Committee, a maritime association composed of major steamship lines and maritime labor. We have certain comments and suggested modifications with respect to the presently drafted Snyder Amendment to H.R. 2462, the maritime authorization bill. Our comments and recommendations in no way relate to vessels in the liner trade, but only to ships engaged in the bulk trade. The Snyder Amendment would permit a subsidized operator to suspend its operating-differential subsidy contract for all or a portion of the operator's vessels if the vessel or vessels in question have not received operating-differential subsidy for more than ten years. The suspension would be of not less than six months duration and during such suspension period the operator would be free of all statutory and contractual restrictions. Any operator electing to take advantage of the provisions of the Snyder Amendment would be entitled to full reinstatement of the suspended contract upon request until October 1, 1982. During the suspension period, the operator's financial condition must be maintained at a level acceptable to the Secretary of Commerce. The Snyder Amendment also provides that the Secretary of Commerce may prescribe rules and regulations consistent with the purpose of this provision. We understand that the Amendment, by its very nature, excludes from its application ships engaged in the Russian Grain program. The form of assistance associated with that program neither falls under the heading of operating-differential subsidy nor its attendant statutory or contractual restrictions, and is of a temporary nature granted on a voyage to voyage basis. Our principal concern, and the one to which we address our chief comment, is the absence of specific language in the Snyder Amendment which would protect the Jones Act and our domestic commerce from invasion by ships operating under the Snyder Amendment subsidy suspension provisions. These provisions also suspend "all attendant statutory and contractual restrictions" which would include prohibitions against operating in the domestic commerce. We strongly urge, therefore, that the Amendment include a provision to make clear that all ships in the bulk trade operating under suspended operating-differential subsidy contracts, as provided in the Amendment, whether built with construction-differential subsidy or not, be barred from the domestic trade. During the hearings on the Snyder Amendment, the matter of barring CDS ships from the domestic commerce was aired at some length with rather apparent consensus that this be covered in the official committee report and encompassed in the legislative history. However, we would urge a language change in the Amendment, itself, as the safest course. Furthermore, there was apparent consent to the point that no ship had ever been under operating subsidy contract alone without CDS. This is not exactly factual as witness the case of the Notre Dame Victory which, while constructed for the Jones Act trade, was granted temporary operating-differential subsidy for the foreign commerce and later returned to the domestic trade. We suggest, therefore, that the Snyder Amendment language, itself, should quite clearly bar from the domestic commerce, ships in the bulk trade having either been built with CDS or having ODS contracts under suspension as provided in the Amendment, and that this is quite preferable to merely including it in the report as a part of the legislative history. Millions of dollars have been invested in ships for the domestic trade and, therefore, without subsidy. This investment was made in good faith and in the assurance that the trade would be protected from undue invasion by ships built with subsidy. There have been some few exceptions under Section 506 of the Merchant Marine Act of 1936, as amended by the Act of 1970. For example, provision has been made to allow CDS ships to participate in the Alaska Oil trade in an emergency situation, but only on a very temporary basis conditioned on the lack of enough domestic ships to move the oil to its destination. Such provision, when applied or exercised, would not involve competing with or displacing other ships or siphoning off their cargo. Rather, the purpose was to meet an emergency and temporary shipping need and limited only to requirements of such nature. By the same token, one can envision the very real need for utilizing available or laid-up U.S. flag passenger ships, built with CDS and with mostly fulfilled ODS contract obligations, in the mainland-Hawaiian non-contiguous domestic trade. Such a move would fill a vitally important gap in the passenger service which has all but become extinct. This is an entirely different matter than an on-again, off-again subsidy process provided under the Snyder Amendment, which, unless otherwise restricted, could leave our domestic commerce inadequately protected against invasion by ships whose very existence and purpose is to serve the foreign commerce of the United States. We urge the Committee to favorably consider the recommendations we have set forth herein and express our appreciation for the opportunity extended to us to submit this statement for the record. STATEMENT OF WILLIAM M. BENKERT, PRESIDENT, AMERICAN INSTITUTE OF MERCHANT SHIPPING The American Institute of Merchant Shipping (AIMS), a national trade association which represents the interests of United States-flag shipowners and operators, appreciates this opportunity to indicate its support for H.R. 2462, a bill to authorize the appropriation of funds requested by the Administration for its Fiscal Year 1980 maritime programs. AIMS has 27 member companies which own and operate tankers and other types of vessels in this nation's foreign and domestic trades. In our view, the Administration's proposed funding level of $435,040,000 is generally adequate in light of what we know about the current state of the maritime industry. Of particular interest to us, of course, are the funds programmed for construction differential subsidy (CDS) and operating differential subsidy (ODS). These amounts, in conjunction with carry-over funding from the present Fiscal Year, total $430,714,000 and will assist in a projected 1979-80 building program of 17 vessels in American shipyards and in the operation of almost 200 liners and bulk carriers in foreign commerce. Secretary Blackwell's March 1 statement to this Subcommittee provides a thorough review of MARAD's various programs, and there is certainly little that we Icould add to it. I would, however, like to express our interest in the Administration's planned release of bulk carrier initiatives, which are intended to loosen operating restrictions in hopes of stimulating such vessel construction. As this Committee is well aware, the Administration currently has the entire maritime promotional program under review by an inter-agency task force. AIMS does not at this time have any alternative to parity based subsidies and other aids offered by the Maritime Administration in support of the American Merchant Marine. We will, of course, carefully review any changes in the maritime program that may be proposed by the Task Force. One problem which we identified in the President's budget may or may not be a proper matter for discussion in connection with these authorization hearings. It is the Administration's proposal to impose for the first time a $1 billion ceiling on the annual amount of new title XI ship financing obligations to be approved. This limitation would be estimated in addition to the total $10 billion maximum on outstanding loans set last year in Public Law 95-298. AIMS contends that imposing an arbitrary limit could handicap efforts to build U.S.-flag vessels by restricting MARAD's flexibility under the Federal Ship Financing Program. In addition, this limitation is unnecessary in view of the statutory $10 billion ceiling, which I just mentioned, that controls the program level at any one time. As you know, timing is crucial to vessel financing and construction activities in our cyclical industry, so working under such an added constraint would only aggravate what is at best already a complicated process. The title XI program has for over 40 years been self-sustaining and run efficiently at no expense to the U.S. taxpayer; indeed, it is even a profitable government enterprise since each recipient of its benefits is required to pay an initial investigation fee as well as an annual guarantee fee for the life of the obligation. These fees are paid into the Federal Ship Financing Fund which, at the end of fiscal year 1977, had a balance of $117.1 million. From this Fund are deducted all of the salaries and other expenses incurred by the Government in administering the title XI program, with the balance being available to make payments in the event of default. Title XI guarantees are imperative if this capital intensive maritime industry is to accomplish the goals stated in the 1936 Merchant Marine Act. The program was established in 1938 pursuant to that Act, and it is not unreasonable, I think, for us to recommend that its level and administration remain unchanged. If this Committee can properly do something to counter the Administration's move to curb the title XI program, AIMS would urge that this be done. In conclusion, we support enactment of H.R. 2462 and appreciate this opportunity to express our views. Mr. DONNELLY. This hearing is adjourned subject to the call of the Chair. Thank you very much. [The following was received for the record:] Hon. PAUL N. MCCLOSKEY, Jr., AMERICAN INSTITUTE OF MERCHANT SHIPPING, Washington, D.C., April 4, 1979. DEAR MR. MCCLOSKEY: This letter responds to your request for our views on the suggestion that the CDS program and buy-American requirements be ended, leaving shipowners free to purchase foreign-built ships, perhaps for U.S. registry. In view of the inter-twined nature of existing maritime promotional programs, AIMS believes it would be unwise to make radical changes in one program without considering the impact on the rest. Due to the complex issues involved, it is very difficult to judge whether your suggestion would be in the long-term interests of shipowners. Also, we would want to feel comfortable that the national security need for an adequate shipbuilding base would be met. The next meeting of AIMS Principal Officials will take place in June. By that time we hope to have the benefit of the report of the President's inter-agency task force on maritime policy. I give you my assurances that all proposals which have surfaced by that time will be given a full appraisal by our organization. I appreciate your interest in the well-being of shipowners and hope that we can work together to improve promotional programs. Sincerely, W. M. BENKERT, President. U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON MERCHANT MARINE AND FISHERIES, Hon. JAMES T. MCINTYRE, Jr., Director, Office of Management and Budget, DEAR MR. MCINTYRE: The Appendix to the Budget for fiscal year 1980 proposes that an annual ceiling be placed on the Federal Ship Financing Fund, Title XI of the Merchant Marine Act, 1936 (46 USC 1271), to limit the amount of new loan guarantee commitments undertaken in FY 1980 to $1 billion. However, the Administration's proposed draft of the legislation did not contain such a limitation. I agree that such a limitation is appropriate and intend to offer the attached amendment to the Authorization bill, H.R. 2462, tomorrow, April 4, 1979. Would you please provide the Administration's comments on the attached amendment and the detailed and specific rationale and arguments supporting the ceiling proposed in the Budget. Sincerely, Enclosure. PAUL N. MCCLOSKEY, Jr. AMENDMENT TO H.R. 2462, OFFERED BY CONGRESSMAN P. N. MCCLOSKEY, Jr. On page 3, after line 9, add: "SEC. 4. During fiscal year 1980 the aggregate amount of new loan guarantees authorized by Title XI of the Merchant Marine Act, 1936, shall be limited to $1,000,000,000." LABOR-MANAGEement Maritime Committee, Washington, D.C., April 2, 1979. Congressman PAUL N. MCCLOSKEY, Jr., U.S. House of Representatives, Cannon House Office Building, Washington, D.C. DEAR CONGRESSMAN MCCLOSKEY: This is in reply to your letter of March 19, 1979, with respect to construction differential subsidy. The Labor-Management Maritime Committee is pleased to present its views on the subject of your inquiry. From 1952 through 1978, CDS was instrumental in enabling U.S. privately owned shipping companies to order from U.S. shipyards 235 merchant ships of all types totalling 5 million deadweight tons. They comprised the most innovative, productive, safest intermodal, freighters, tankers and specialty ships in the world. It is questionable whether these ships would have been built without CDS in U.S. shipyards, or if they were built in foreign yards whether they would have been registered under U.S. flag. One needs to ask the question-to what end would that latter procedure have aided the American merchant marine, American labor in maritime and supportive industries or our escalating balance of payments, especially in the decade of the 1970s? Ship construction is a direct product of cargo availability. Subsidized shipping companies are obligated by contract to replace their ships when they reach economic obsolescence (25 years). The number of ships these companies operate on a given route (for liner trades) is based essentially on cargo tonnage and the type of tonnage available for transport. It is extremely doubtful if a single additional ship would be built in a foreign yard, regardless of the low cost, if the opportunities for additional cargoes were not available or perceived to be forthcoming over an extended period. Shipping is too highly an intensive capital investment industry for operators to be lured by the gamble of a lower cost ship. Even if additional cargo could be made available for U.S.-flag ships (and approximately 50 governments give their national flag ships not only cargo preference but other forms of assistance), and if U.S. operators would consider the opportunities afforded by lower cost foreign shipyards—we must look to the pluses and minuses for the best interests of the United States. U.S. seafaring labor would be benefited if the ships were built in the U.S. or in foreign yards and registered in the U.S. If all the 235 ships built with CDS had been built instead in foreign yards, what guarantees would there have been that they would have been built in the first place, or, if built, how many would have been registered in the U.S.? Consider the following estimated comparative employment results which have an economic impact on the U.S. Merchant Marine and shipbuilding industries. For every million dollars spent in ship construction and repair, 138 people find work who, also, would otherwise not be employed-and most of them would be among the minority groups. Certainly we cannot improve our own shipbuilding capability by taking the business away from our shipyards. This is no way to increase efficiency or arrive at maximum cost effectiveness. The United States did not create the world ship surplus, nor were we in any sense a party to it. Therefore, it makes little sense to sacrifice U.S. shipyard potential for future commercial ship construction and national defense upon the altar of world surplus other nations have created. To weaken our shipyards by buying foreign in an oversupply market raises the specter of not having competent American yards to serve our needs when the overglut disappears. We cannot assume the overglut is eternal. Balance of payments In 1978, the U.S. sustained its largest deficit trade balance in history, amounting to over $34.1 billion, up from $31.1 billion in 1977. Our adverse trade balance has been chronic for at least a decade and has been escalating since the Arab embargo in 1973. Witness the fact that it will cost U.S. importers at least $14.54 a barrel of oil, exclusive of transportation charges as of April 1, 1979, and it will be much higher by the end of the year. While it is true that our rising imports at increasingly higher oil prices have caused these huge trade imbalances, nonetheless they have had a devastating impact upon the value of the dollar in relation to the major currencies of the world. The price of goods and commodities the U.S. is importing has risen as a result of our devalued dollar, thus feeding our rate of inflation. While $100 million savings in the U.S. budget might result if CDS were cut off and the ships were built overseas, it would be an added factor in increasing our already trade imbalance. As you know, our trade deficit results not only from oil imports, but from (1) our increasing imports of automobiles, television and radio sets, cameras, textiles, agricultural products, essential raw materials, steel and thousands of other items, many of which we once led the world in producing; and (2) the lesser value of our exports which the lower valued dollar should have encouraged. Each dollar of imports helped pile up, each year, the horrendous trade imbalances we had experienced and are sustaining, which, in turn, causes foreign financial markets to lose confidence in the American dollar to the point where its value is a fraction of what it was a decade ago. The falling dollar, as we noted above, in turn, is fueling our already double-digit inflation by raising U.S. import |