Section 533 (b): This section authorizes the Authority to examine and audit the books referred to in the previous subsection, which is no doubt intended to limit the audit to the same extent that the right to prescribe the accounting records have been limited.

Section 353 (a): Under this subsection, it would seem possible to grant construction and operating subsidies to two or more lines engaged in the same foreign trade. There should be no monopolies controlling the service as a whole, but it does appear inadvisable to subsidize two or more lines to compete with each other in the same service. The object of the subsidy is to provide satisfactory foreign services under American-flag operation, that could not be maintained without aid, by reason of competition of foreign lines. this section was intended to prevent monopolies, it fails of its purpose.

TITLE VII-TRANSFER OF POWERS

If

Section 701: The message of the President of March 4, 1935, states that the quasi-judicial powers (control over rates, etc.) should be lodged in the Interstate Commerce Commission. This section lodges these powers in the Authority, permitting transfer by the President of only part of these powers to the Interstate Commerce Commission after 2 years, and this does not conform with the message. Then, too, it will be noted that the Wheeler bill, S. 1632, provides for the transfer of all regulatory powers over shipping to the Interstate Commerce Commission.

TITLE IX-MISCELLANEOUS

Section 903 (b): This subsection provides for the taking over of vessels, in which the Government has an equity or on which it has paid a subsidy, in time of national emergency at a fair actual value, but does not limit the sales price by the owner to cost less depreciation. It also gives the owner the right to sue the Government in the event he is not satisfied with the compensation allowed by the President of the United States. Considering the equity the Government would have in the vessels and the amount of subsidies paid, it would appear inequitable to permit the owner to retain the right to sue after settlement has been made.

Section 903 (c): This subsection outlines what shall be included in all contracts under this proposed bill, where vessels are requisitioned in case of national emergency. It specifically states that "in computing the value of such vessel depreciation shall be based on the schedule adopted by the Bureau of Internal Revenue for income-tax purposes."

Most steamship companies have accepted the theory that a vessel is practically useless after 20 years' service and have depreciated the same accordingly. The Internal Revenue Bureau has taken a different position in arriving at taxes due from various steamship owners and calculates depreciation on a 25-year basis, and in some cases a longer service life. The adoption in this bill of the Internal Revenue's basis of calculating depreciation works decidedly to the advantage of the owner as compared to the accepted shipping practice in calculating the life of vessels. In any event, it would be unwise to hold the Authority to the procedure prescribed by some bureau unrelated to the business and practices to be controlled by the Authority.

General comment on S. 4110, the Guffey bill.-This bill creates a new commission, to be composed of five members, under which will be placed all of the administrative functions of developing an adequate merchant marine, under the American flag, to carry a large percentage of our foreign commerce, and one that is commensurate with our requirements as a naval auxiliary. The regulatory functions, as they relate to coastwise, intercoastal, and foreign commerce, are transferred to the Interstate Commerce Commission. This transfer is sound because it would be unwise for the administrative agency to regulate companies in which it has an equity and also companies in which it has no equity. In creating one new agency, it eliminates two shipping agencies-the United States Shipping Board Bureau of the Department of Commerce (it was the United States Shipping Board before transfer to the Department of Commerce) and the United States Shipping Board Merchant Fleet Corporation.

The mail contracts are definitely canceled as at December 31, 1936. Each contractor is given the right to negotiate, with certain restrictions, a settlement

the enactment of this proposed bill and December 31, 1936. If a settlement is not negotiated and the contract is canceled as at December 31, 1936, the contractor will have the right to sue the Government in the Court of Claims within 1 years from the date of cancelation, under the same restrictions imposed on the commission in the settlement of these same contracts. Any contractor is eligible for a subsidy contract under this bill.

The governmental policy outlined in the bill provides for a long-range program of construction, under private ownership and operation, if possible, but under Government ownership in whole or in part, if necessary.

The aim of the bill is to develop all essential lines engaged in foreign service, under the American flag, to a high state of efficient. Where private capital can develop and perpetuate any foreign-service line by contributing 33% percent of the construction cost of such new vessels as are required, the new Commission will pay the owner both an operating and construction subsidy--the amount of which, in both instances, will necessarily have to be estimated, after studies have been made of foreign operating and construction costs. Where private capital cannot do its part, the Government may purchase such vessels as are engaged in a particular service and build such new vessels as are required, and then charter the vessels of the line to a substantial and reputable operator.

All net profits in excess of 10 percent, realized on each vessel constructed with the aid of a subsidy, will be subject to recapture by the Government from the shipbuilder. All net profits in excess of 10 percent, after specific reserves are created, will be subject to recapture by the Government from the owner. These recapture clauses are necessary and equitable because any subsidies paid must, of necessity, be estimated to meet constantly varying conditions. They might, in the future as in the past, result, at times, in yielding excessive profits to the owner or shipbuilder, which should be recovered and returned to the Treasury.

The purpose of a shipping subsidy is to equalize operating and construction costs so that foreign-service lines may be developed under the United States flag in competition with lines operated in similar services under foreign flags. If a subsidy is paid for a specific purpose, it is important that the recipients of such subsidies should concentrate their efforts and finances upon its accomplishment. To this end safeguards against the payment of exorbitant salaries, operation of subsidiary, holding, and affiliated companies to divert funds from the parent company to finance other companies or to syphon its gross revenues into the pockets of officials or other individuals, have been provided in this bill. In other words, this bill is designed, insofar as it is legislatively possible, to prevent the many abuses so clearly in evidence in the administration of the mail-contract subsidies paid under the 1928 act.

Since there are speculative elements involved in determining the amount of subsidies that will be required to carry out this long range construction program and other elements of this shipping plan, it is difficult to estimate what the exact expenditure under the bill will total. However, it is reasonable to assume that an adequate construction and development program could be followed with the aid of such funds as are now being appropriated for the payment of accruals under the existing ocean-mail contracts. Under the present system we are steadily losing ground and the time is not very distant when we will have practically no merchant marine. Under this bill it is possible again to move forward and to definitely establish a merchant marine commensurate with our requirements as a naval auxiliary and for commercial purposes.

DETAILED COMMENTS ON S. 4110-GUFFEY BILL

TITLE I-DECLARATION OF POLICY

Section 1: This section outlines the policy of the bill and states that the United States desires a merchant marine of the best equipped and most suitable type of vessels sufficient to carry the greater portion of its commerce and to serve as a naval and military auxiliary, to be privately owned and operated under the United States flag by citizens of the United States insofar as may be practicable. It also provides for the separation of the regulatory functions of the Government over shipping from the administrative functions, which is in accordance with the President's message of March 4, 1935.

TITLE II-TRANSFER OF REGULATORY POWERS AND FUNCTIONS

Section 2: All the regulatory powers now vested in the United States Shipping Board Bureau of the Department of Commerce are transferred to the Interstate Commerce Commission, which is a regulatory agency equipped to carry on this class of work free of outside interference. Later on in this bill all of the administrative functions now vested in the United States Shipping Board Bureau and the United States Shipping Board Merchant Fleet Corporation, and such additional functions as are provided for in this bill shall be placed under a new agency known as the United States Maritime Commission. With the regulatory powers over shipping vested in the proposed United States Maritime Commission, the Commission would be regulating steamship companies in which the Government has an equity and also companies in which the Government would have no equity since the regulatory features would extend to all common carriers (intercoastal, coastwise, and foreign) whether subsidized or not. This would create an unsound position. It is reasonable to assume that the President had these facts in mind when in his message to Congress of March 4, 1935, he suggested that all regulatory functions be transferred to the Interstate Commerce Commission.

The Wheeler bill, S. 1632, dated February 4, 1935, which was introduced at the last session of Congress and which was reported to be an administration bill, provided for the transfer of all regulatory powers over shipping to the Interstate Commerce Commission. In this respect the provision of this title is in harmony with the Wheeler bill.

Sections 3 and 4: These sections are self-explanatory. No comment necessary. Section 5. This section provides for the inspection of the books and records of all common and industrial carriers by water; also the books and records of holding, subsidiary, and affiliated companies of such carriers. This authority is further extended to the allied interests of these carriers. It is, of course, necessary that the Interstate Commerce Commission be given certain authority in this respect if they are to regulate the rates, etc., of the shipping industry intelligently and effectively.

Section 6: This section gives the Interstate Commerce Commission authority to prescribe uniform accounts for those companies referred to in the preceding section. It is difficult, if not impossible, to formulate data of value from various companies for comparative purposes, etc., unless the accounts of said companies are uniformly maintained. Provision is also made for the cooperation of the Interstate Commerce Commission and the United States Maritime Commission in prescribing records of accounts that will serve the purposes of both agencies. Section 7: This section is self-explanatory. No comment is necessary.

TITLE III-UNITED STATES MARITIME COMMISSION

Section 8 (a): This subsection provides for the creation of a new agency to be known as the United States Maritime Commission. The Commission is to be composed of five members, not more than three of which shall be from the same political party. They are to be appointed for terms of 6 years each. Salaries are to be $12,000 per annum. This arrangement seems to be sound. A larger number of members would probably make the Commission unwieldly, while at the same time five members would be sufficiently large to represent enough points of view and would perhaps be less susceptible to improper political or business influences than a smaller number.

Section 8 (b): This subsection bars from appointment men who have had direct steamship connection during the 3-year period preceding appointment. Unless some restriction as to the prior connections are incorporated in the bill the entire Commission would be appointed from the private shipping industry if divestment was made of steamship securities, etc. The history of the old Shipping Board may serve as a warning in this respect. In view of the powers to award subsidies, to make loans, to regulate lines, etc., the Commission should be as impartial as possible and without private shipping connections. The Commission should, of course, equip itself with expert subordinates. There are good men, with administrative ability and a splendid general knowledge of the steamship industry gained from governmental experience, that are available for appointment to the Commission.

Section 8 (c): This subsection is self-explanatory. No comment is necessary. Section 8 (d). This subsection is self-explanatory. No comment is necessary.

Section 9: This section provides for the transfer of all money, notes, bonds, etc., now owned by the United States and controlled by the Department of Commerce as the successor to the powers and functions of the former United States Shipping Board. There are now owned by the Government some 250 vessels, approximately 40 of which are actively operated on four governmentowned lines and the balance are in the several laid-up fleets throughout the country. These vessels are valued at some 30 odd million dollars. Seven terminals are also owned or controlled by the United States Shipping Board Fleet Corporation, with a book value of more than $9,000,000. There is also cash in the insurance, general, and special funds approximating $17,000,000, together with ship sale and miscellaneous notes receivable and accounts receivable of approximately $20,000,000 subject to transfer under this section. Section 10: The United States Shipping Board Merchant Fleet Corporation is dissolved under the provisions of this section since it is a private corporation in which the Government owns all the stock and all of its assets and functions are being transferred to the new Commission.

Section 11: This section is self-explanatory. No comment is necessary. Section 12: Under this section the President would have the power to transfer to the new Commission, by Executive order, any and all powers of any of the bureaus of any of the executive departments charged by law with or now exercising duties or functions relating to navigation and shipping. All of the duties, functions, etc., of the former United States Shipping Board and the United States Shipping Board Merchant Fleet Corporation are specifically transferred to the new Commission under the provisions of a previous section. In addition thereto this would empower the President with the right to transfer the duties and functions of the Bureau of Steamboat Inspection of the Department of Commerce and other bureaus of a like nature.

Section 13: This section provides for the transfer to the new Commission of the construction loan fund now controlled by the United States Shipping Board Bureau of the Department of Commerce. There is cash in this fund in the neighborhood of $50,000,000 and mortgage loan notes receivable approximating $100,000,000 which would be subject to transfer.

Section 14: This section empowers the Commission to make a general survey of the American Merchant Marine at the outset for the purpose of planning a systematic development of an American Merchant Marine adequate for our needs in national defense and for commercial purposes.

Sections 15 (a), (b), (c), (d), (e), and (f): The provisions of these subsections are self-explanatory, and no comment is necessary.

Sections 16 (a), (b), and (c): The provisions of these subsections are selfexplanatory, and no comment is necessary.

TITLE IV-OCEAN MAIL CONTRACTS

Section 17: This section specifically states that none of the present mail contracts shall continue in force after December 31, 1936. The present mail contracts have been found to have been illegally awarded, by the Postmaster General. The President in his message of March 4, 1935, recommended they be terminated as soon as possible. The termination date mentioned should give the new Commission ample time to make other arrangements for the maintenance of the present foreign service lines.

Section 18 (a): Under this subsection the holder of any contract may file application within 90 days after passing of the act to adjust and settle all the rights of the parties under such contracts in accordance with the conditions prescribed.

Section 18 (b): Under this subsection the Commission has the right to settle with the contractor, thereby terminating his contract prior to December 31, 1936, referred to in previous sections.

Section 18 (c): Under this subsection the holder of any mail contract terminated under the provisions of section 17, who does not execute his settlement agreement as provided in subsection (b) of this section, may sue the United States for any just compensation which he may be entitled to in the United States Court of Claims subject to certain restrictions, one of which forbids the payment of compensation which shall include the allowance for prospective profits which might have been realized by the claimant if permitted to perform said contract. This procedure was pursued in connection with wartime contracts where there was no evidence of fraud in the awarding thereof. Since it has been shown that the majority, if not all these con

why future profits should not be considered.

Section 19: This section outlines the restrictions under which the Commission may negotiate a settlement with the holder of any mail contract and such restrictions parallel those conferred upon the court in the event a settlement cannot be negotiated between the Commission and the contractor.

Section 20 (a): This subsection deals further with settlements made under section 18 (b). One of the important provisions provides for interest rate of 32 percent on all loans even though lower rates were applied under a misinterpretation of the old shipping laws. This provision is sound for the reason that the rate mentioned is in line with the rate provided under the existing law.

Section 20 (b): This subsection provides that in the event a negotiated settlement is consummated with any mail contractor the rates to be considered on all construction loan notes shall bear the interest rate prescribed in the act, approved February 2, 1931, which stipulated 32 percent for construction loan notes applicable to vessels to be operated in the foreign service.

Section 21: This section is self-explanatory, and no comment is necessary. Section 22: This section is self-explanatory, and no comment is necessary.

TITLE V-CONSTRUCTION DIFFERENTIAL SUBSIDY

Section 23 (a): This subsection permits any citizen of the United States to make application to the Commission for a construction differential subsidy to aid in the construction of new vessels to be used in the foreign commerce of the United States. This will, of course, include present mail contractors and industrial carriers. This subsidy must be for the purpose of meeting direct foreign-flag competition and no aid will be granted under this subsection to any citizen who could not maintain continuously an adequate service on the route or line, including adequate replacement of worn-out or obsolete tonnage.

Section 23 (b): This subsection requires the submission of plans and specifications for any proposed new vessel to the Navy Department for examination and such suggestions as may be deemed necessary in order to make such new vessel suitable for economic and speedy conversion into a naval or military auxiliary.

Section 24 (a): This subsection provides for the Commission to call for bids on any vessel the prospective owner desires to have constructed for his account after the same has received the approval of the Secretary of the Navy under section 24 (b) of this act.

Section 24 (b): This subsection states that an allowance for the construction differential not to exceed 33% percent of the construction cost of the vessel paid by the Commission to the shipbuilder may be allowed the prospective

owner.

Section 24 (c): This subsection provides for the sale of the newly constructed vessel to the prospective owner and stipulates that 33% percent of the construction cost of the vessel in a United States yard shall be made as a down payment by the owner. The balance due thereon, after giving due credit for the construction differential allowed, shall be covered in mortgage loan notes not to exceed 20 annual installments, the first of which shall be payable 1 year after the delivery of the vessel by the Commission to the owner. Interest at the rate of 31⁄2 percent per annum, shall be paid on all deferred installments of purchase price. Briefty, any newly constructed vessel by the Commission may be sold to the applicant on the following terms: Allowance of a construction subsidy not to exceed 33% percent and down payment of 33 percent on the construction cost in a United States yard, the balance due on the construction cost to be represented by notes divided into 20 equal annual installments. Under this plan vessels may be privately owned and operated if private capital is in position to contribute one-third of the construction cost as a down payment, with the further understanding that a percentage of the construction cost, representing a construction differential not to exceed one-third of such cost, may be donated by the Government. Section 24 (d): This subsection is self-explanatory, but for the benefit of those who may not be familiar with the reason why a differential of 6 percent is allowed to shipbuilders on the Pacific coast, it might be stated that this proviso has been added for the purpose of equalizing freight rates on