restrictions which limit the right of ships built with construction. subsidy to serve the domestic trades.

After receiving preliminary comments from MarAd, I believed it would be appropriate to add one more condition: That an operator who elects to suspend its subsidy must maintain its financial condition at a level acceptable to the Secretary of Commerce. I believe this condition is appropriate to protect substantial financial interests that this Government has in most subsidized steamship companies.

I do not know how many operators will take advantage of the program; however, I believe it is important that we try something new. It is clear that something has to be changed.

I would also like to add at this point, Mr. Chairman, that I am proud to work with you on a new maritime policy, and I want here to publicly commend you for the initiative which you are taking. I am glad that you have quit waiting for the White House to deliver on their promises to produce a new maritime policy, and have taken the initiative to begin the process without them.

Tomorrow will be exactly 3 years since Jimmy Carter promised action, and I quote from a letter to Jessie Calhoon from then candidate Carter, dated May 25, 1976:

Our national maritime program has become clouded with uncertainty and confusion. My approach is to achieve a maritime program which will return us to the seapower status we deserve and need. I intend to work for the following objectives: One, assure continuing Presidential attention to the objectives of having our Nation achieve and maintain the desired U.S. flag merchant marine; and two, dedicate ourselves to a program which will result in a U.S. flag merchant marine with ships that are competitive with foreign flag ships in original cost, operating cost, and productivity.

In the months ahead, I hope to issue a comprehensive paper on our overall program for returning our Nation to its number one status as a maritime nation.

I am tired of waiting for that comprehensive paper, and it is apparent, Mr. Chairman, that you are too. I am tired of waiting for the Interagency Task Force paper, and it is apparent, Mr. Chairman, that you are, too. So I am glad that you have taken the initiative and, as I said before, I want to publicly commend you for it.

Let me say, too, that in offering this amendment, I want you to know, Mr. Chairman, that it does not indicate any lack of support for your efforts to formulate a new maritime policy. I hope this amendment will give us some information to go on, and is a first step in reducing subsidy requirements and developing a more competitive fleet.

Mr. Chairman, thank you.

The CHAIRMAN. I want to thank the gentleman from Kentucky, but remind him that we also serve who sit and wait. That letter that you are referring to, of course, was not from President Carter; it was from candidate Carter. We are looking forward, I think, in the very near future, to a very definitive and strong message from the executive branch as far as maritime policy is concerned.

I think that if we compared the initiatives proposed by the subsidized carriers with those of the administration, we might have a very, very close race, and we would still be at the starting line. We are looking forward, however, to testimony this morning on a positive initiative. I think it was April 25 when you had proposed

this amendment during the markup, and that certainly has given people an opportunity to get their act together. But I note with some disappointment that witnesses representing the segment of the maritime community which would probably most benefit from the enactment of this amendment, subsidized carriers, through their organizations, were invited to testify and I guess they are going to be noticeably and conspicuously absent today.

I think it probably puts us back to the same square that we were at 4, 8, 10, maybe 15 years ago: that the initiatives are going to have to come from the Congress. We certainly look forward to the cooperation of both sides. I am trying to rectify a glaring problem in America's economic picture as well as its security picture.

Mr. SNYDER. If the chairman would yield, I, too, am disappointed, as I am sure you are, that the subsidized carriers have elected not to appear today. Quite frankly, as they have discussed their problems with me in recent months, as they came by the office to discuss the subsidy program and so forth, their main arguments were that they had to have subsidies, because they were burdened with all of government restrictions and the unsubsidized carriers were out skimming the cream of the crop. And, here, we want to give them an opportunity to not have the restrictions and skim some of that cream themselves, and it makes me wonder whether or not they were at all sincere in their arguments that they were making at that time. I think, Mr. Chairman, we have called their bluff.

The CHAIRMAN. Well, I really think we are probably going into uncharted waters, and that many people are reluctant to take initiatives in areas where the outcome may not be apparent. I think we will approach it on that basis and have our testimony today and take it from there.

Our first witness today is Mr. C. G. Caras, General Counsel of the Maritime Administration, Department of Commerce. Mr. Caras, we are happy to have you with us today, and welcome to the committee.

STATEMENT OF CONSTANTINE G. CARAS, GENERAL COUNSEL, MARITIME ADMINISTRATION, DEPARTMENT OF COMMERCE Mr. CARAS. Thank you, Mr. Chairman. Mr. Chairman and members of the subcommittee, I am Constantine G. Caras, General Counsel of the U.S. Maritime Administration. I am pleased to appear before you this morning to discuss the proposed amendment to H.R. 2462 which would allow for the suspension of operating differential subsidy.

This 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 10 years. The suspension period would be a minimum of 6 months, and the operator would be entitled to elect reinstatement of the ODSA thereafter. The provisions of this amendment would be applicable until October 1, 1982. During the suspension period, the operator would be free of all statutory and contractual restrictions, including requirements for the replacement of vessels.

As it is now written, the amendment would affect in fiscal year 1980 36 percent of the subsidized U.S.-flag fleet, excluding the vessels whose only subsidy involvement is the Soviet grain program. This figure has been determined by accounting for anticipated deliveries during fiscal year 1980 and deleting vessels that are expected to be removed from subsidized service during fiscal year 1980.

Each of the 23 vessels in the subsidized U.S.-flag bulk fleet would be eligible to be suspended from its ODSA under this amendment, while 41 of the 157 liner vessels-that is, 26 percent of this segment of the subsidized fleet-would be eligible for suspension. Of all the liner operators, only Prudential in 1980 would be able to suspend its ODSA in its entirety, under our interpretation of the amendment as discussed later. All the remaining liner operators in 1980 would have a significant number of vessels that do not meet the time test. The attachment to this statement breaks down this information on a company-by-company basis.

If the amendment is to provide subsidized operators with more operational flexibility, we support the intent of the amendment. The Maritime Administration has itself already offered subsidized operators a substantial measure of operating flexibility.

Under current law, the ODS contracts and regulations, there are several ways a subsidized operator may suspend its ODSA or remove a portion of its vessels from its ODSA. Article II-24 of an operator's ODSA, which corresponds to section 606(4) of the act, allows an operator at any time to assert that it cannot maintain and operate its subsidized vessels in an essential service with a reasonable profit on its investment, and to apply for a modification or recision of its ODSA. If it is determined that the claim of the operator is valid, this agency may modify or rescind the ODSA and permit the operator to withdraw its vessel from its ODSA and discharge the operator from any further obligation under its agree

ment.

Additionally, under current ODSA's, subsidized operators are permitted to remove a portion of their vessels from the contract, provided they can maintain essential service with the remaining vessels. The agency's regulations, 46 CFR 281.11, further provide for the chartering of vessels to a nonsubsidized operator by a subsidized operator when all of the contractual obligations of the subsidized operator are met. In such cases, the chartered vessel would be temporarily removed from the ODSA.

To date, we have found no record of any operator having requested relief under section 606(4) or article II-24. Similarly, examples of the chartering out of vessels have been extremely rare.

Finally, as to the bulk segment of the subsidized fleet, the Maritime Administration recently liberalized its rules on foreign-toforeign trading by subsidized bulk operators.

To repeat, the Maritime Administration supports the concept of maximizing the operational flexibility of its subsidized fleet, and it already provides several methods for enabling a subsidized operator to increase its operating flexibility.

Accordingly, we would have no objection to the amendment if the following changes were adopted-and after listening to Mr.

Snyder's statement, I think many of our concerns have been obviated.

First: During each such suspension period, the operator should have to abide by financial conditions and restrictions acceptable to the Secretary. In most cases, title XI financing for construction of an ODSA operator's vessels is partly premised on the fact that the operator has, among its other assets, a 20-year ODSA. Suspension of a part or all of the ODSA might threaten the operator's financial position. Moreover, during the period of suspension, the operator may take certain actions which may not be permitted under its ODSA and thereby alter its financial condition. The operator could, for example, pay more liberal dividends than it would ordinarily be permitted to pay; make substantial acquisitions or incur operating losses. Accordingly, upon reinstatement, it may be possible that the operator would not qualify for ODS if its financial condition had significantly deteriorated below acceptable levels. We understand that the subcommittee is in general agreement with our position. Second: Suspension in full or in part of an ODSA ought not be used in a manner which would destroy trades to the extent they are reserved for the unsubsidized U.S. fleet. Vessels built with CDS may not engage in the Jones Act, but for certain limited exceptions, and presumably this amendment does not affect this restriction.

With respect to the cargo preference trades, a liner operator suspending its ODSA under the amendment ought not be permitted to carry any more preference cargo at premium rates than it could prior to the suspension. As the amendment is now worded, an ODS liner operator could enter this trade to take advantage of a relatively lucrative short-term market, carrying all cargo at premium rates, and thereafter retire to the protection of subsidy until economic conditions warrant another such suspension of the ODSA. As to the bulk fleet, different economic conditions apply. The Maritime Subsidy Board and the Maritime Administration are currently considering the overall question of bulk operators with ODSA's operating in the preference trades. This issue is also of great monetary importance to this agency. Failure to give consideration to the cargo preference trade issue could seriously affect the unsubsidized fleet's ability to meet ongoing title XI debt obligations.

At present, there are outstanding approximately $1.4 billion in title XI guaranteed loans covering the construction of approximately 200 ocean-going cargo vessels built without CDS. The overwhelming majority of these vessels are nonliner vessels operated without ODS. For the most part, these vessels have not normally competed with the liner fleet in the past. Since the Jones Act and cargo preference trades are the lifeline of the unsubsidized bulk fleet, we thus recommend that the proposed amendment to H.R. 2462 be confined to liner operators. Subsidized bulk vessels, as mentioned previously, already are permitted a great deal of operating flexibility.

The above changes to the amendment are those which we believe are the most significant and necessary. In addition, there are several other points which we believe should be clarified or on which we offer the following comments:

One: Upon reinstatement, we assume that all statutory and contractual restrictions would be reimposed as though uninterrupted. Two: Suspension periods should not toll the running of the ODSA. Subsidy agreements almost always are based on a 605(c) finding that service on a given trade route will be inadequate during the next 20 years. To toll the running of the ODSA would, in effect, extend the 20-year finding.

Three: We assume that removal from the ODSA of a portion of an operator's vessels does not relieve the operator from ODS restrictions on the remainder of its vessels.

Four: The present language of the amendment suggests that the October 1, 1982, date relates only to the operator's ability to reinstate, whereas we understand that, at least for the time being, the intent is to place a cutoff date on the ability to both suspend and reinstate.

Five: We also assume the amendment is to allow suspension only with respect to vessels for which no subsidy has been paid under any ODSA prior to 10 years before the date of suspension, notwithstanding that the current ODSA may have been in force for less than 10 years. The amendment should make it clear that this is the case.

Six: To avoid doubts, we suggest that the amendment specify that only pertinent title VI conditions be suspended.

Seven: During the period of suspension, are CCF commitments with respect to earnings from the operation of the vessel also suspended? We assume the operator may choose to tax defer income, notwithstanding the suspension. To do otherwise would not be consistent with the concept of maximum operating flexibility. The views expressed above are those of the Department of Commerce. Although we cannot commit the administration to any particular position until it has had a chance to review the amendment finally worked out, the staff of the Maritime Administration will be available at your request to help the subcommittee with further drafting deemed necessary.

This concludes my prepared statement, Mr. chairman. I will be happy to address any questions you or any members of the subcommittee may have.

The CHAIRMAN. Thank you, Mr. Caras. You talk in some paragraphs about the effect on the Jones Act. Would this amendment have any effect on the Jones Act?

Mr. CARAS. I think there can be an interpretation as it is now written which would allow vessels built with CDS to engage in the Jones Act. I do not think that is the intent, but I think there is an interpretation to that effect.

The CHAIRMAN. Perhaps the minority could clarify that intent. Mr. LosCH. Thank you, Mr. Chairman. No, that was not the intention. However, if there are any vessels which were built without construction subsidy and are being operated with operating subsidy then they would be eligible for Jones Act trade if they elected to suspend their operating subsidy contracts just as other vessels built without subsidy restrictions are.

Mr. CARAS. Right, but you are talking about a vessel built without CDS which has only an ODS.

Mr. LOSCH. Yes; that is correct.