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sible, our products should be carried in American bottoms? Mr. JOHNSON. Yes, sir.

The CHAIRMAN. To give employment to American labor?

Mr. JOHNSON. And also, sir, if you built auxiliary ships and let them stand idle and then if a war came you would have nobody to operate them. I went abroad on the Covington and the crew got seasick. We were going to France in the war with a seasick crew. They had never been to sea before.

The CHAIRMAN. Go ahead, Senator Guffey.

Senator GUFFEY. Under section 502, page 34, do you understand that the private applicant is to find all the money for the vessel except the construction subsidy?

Mr. JOHNSON. What is that?

Senator GUFFEY. The private applicant, or the corporate applicant, is to find all the money except the subsidy, the construction subsidy?

The CHAIRMAN. You refer to page 34 of the bill here specifically? Let us have the right page.

Mr. JOHNSON. You are on tankers again.

The CHAIRMAN. Suppose we leave the tankers for the moment, Senator, until we have the naval expert here.

Senator GUFFEY. All right. Page 48, section 506, we find "semidomestic" and "semiforeign" used in this section. Does that mean the same thing?

Mr. JOHNSON. Yes. That is an error. It should be "semidomestic."

Senator GUFFEY. In section 521, page 51, it provides for an operating subsidy to meet direct or indirect foreign competition. What do you understand is meant by "indirect foreign competition"?

Mr. JOHNSON. I understand this about it, that a ship sailing from New York to South America might be in competition with a ship sailing from England to South America. A ship sailing from New York to South America has an English ship sailing from England to South America in competition with it, and there is also an English ship sailing from New York to South America. The latter only interferes with us as it is carrying our commerce and it is not available for national defense, but the ship sailing indirectly in competition from England to South America is depriving us of a ship for national defense and also is carrying English commerce, and out of the two it is more essential to be subsidized against that, because it militates against both our national defense and commerce/

Senator GUFFEY. Colonel, don't you think that this provision as drawn leaves the door wide open to the allowance of all kinds of favoritism and subsidies not justied by facts?

Mr. JOHNSON. If you think the Authority is going to do that then don't pass the bill. If you think they are going to be fair you could not pass a better bill at this time.

Senator GUFFEY. Section 522, paragraph (b), provides:

The amount of the operating differential subsidy shall not exceed the excess of the fair and reasonable cost of American operation as compared with competing foreign operation.

How would the Authority obtain the necessary evidence to deter

Mr. JOHNSON. Just like they determine the foreign cost of building the ship and therefore arrive at the difference between the foreign construction, and American construction costs, they will determine what is foreign operation cost as compared to American operation cost.

Senator GUFFEY. Don't you know some definite and reasonable limitation should be placed on the Authority in reaching its determination of the amount of operating subsidy?

Mr. JOHNSON. It is in there.

Senator GUFFEY. What is the amount?

Mr. JOHNSON. It is not an amount because it will vary with every ship.

Senator GUFFEY. There is no maximum amount, there is no limit on it, is there, in the bill?

Mr. JOHNSON. Yes.

It is the difference between domestic and

foreign, that is the limit.

Senator GUFFEY. There is no direct limit in percentage?

Mr. JOHNSON. It could not be, because you do not know what is foreign and what is domestic. There are very many more important and expensive items left to the Authority than that.

Senator GUFFEY. Section 522 (b), on page 58, provides for an operating differential subsidy to industrial carriage when the industrial private cargo is less than 50 percent. Are you aware of the fact that, as shown in the report of the Postmaster General, page 321, paragraphs 1, 2, and 3, that it appears that the United Fruit use its crew interchangeably on both the foreign-owned and Americanowned vessels and whether they did not claim that they were entitled to an operating subsidy?

Mr. JOHNSON. I presume after this bill they would not be able to do that.

you

Senator GUFFEY. Am I correct then, Colonel, in assuming that believe this bill should attempt to carry out all the recommendations made by the President in his message to Congress? Mr. JOHNSON. Yes; I think it does.

Senator GUFFEY. The President's message on March 4 recommended that all quasijudicial and quasilegislative duties of the Shipping Board should be transferred to the Interstate Commerce Commission, but this bill does not do that.

Mr. JOHNSON. The provisions provides that within 2 years of regulation the intercoastal and domestic rates may be transferred to the Interstate Commerce Department, in direct response to the President's message.

Senator GUFFEY. Senate bill 3500, section 701, page 77, provides for the regulatory powers to the Authority, is that right? The CHAIRMAN. Yes; that is right.

Senator GUFFEY. Then why do you favor the departure from the President's recommendation?

Mr. JOHNSON. That provision has been discussed. You cannot very well transfer foreign rates to the Interstate Commerce Commission. That carries out the will of the President, as far as we are able to do it.

Senator GUFFEY. Well, the bill provides that after 2 years the President may transfer authority only over the coastwise and inter

coastal commerce, that is correct, but no authority is given to transfer regulatory powers over foreign shipping. Why are you opposed to giving control over foreign commerce to the Interstate Commerce Commission as the President recommended?

The CHAIRMAN. Let me answer that, Senator.
Senator GUFFEY. All right.

The CHAIRMAN. I am very much opposed to the section which proposes to transfer any of this matter to the Interstate Commerce Commission. I am opposed to it. I certainly believe until the Interstate Commerce Commission is enlarged as provided by a companion bill that I would be opposed to it. In that event there would be new men brought into the Commission. It provides for an enlargement of the Commission and there would be new men brought in, and some of them perhaps would be rather sympathetic to shipping. At the present time the Interstate Commerce Commission is naturally railroad-minded. If there were a contest between the intercoastal rate, the rate from California to the Atlantic seaboard, and a protest was made to the Interstate Commerce Commission on the part of the railroads that they could not compete with that rate, and the railroads saying they must have increased rates, if they are to be put upon a parity there would be but one thing to do and that would be to raise the intercoastal rate, which would mean the destruction of the American merchant marine. Ships can carry freight cheaper than railroads although they are slower, and it is only because of that fact that they are able to exist.

So far as I am concerned, I take full responsibility for writing this matter of the transfer of authority to the Interstate Commerce Commission, in order that these other matters which relate to the reorganization of the Interstate Commerce Commission may be settled and adjusted.

Senator GUFFEY. Colonel, did you participate in the conference between the Department of Commerce and the Post Office Department which resulted in the proposed amendments to Senate bill 3500, the committee print dated March 3?

Mr. JOHNSON. Yes, sir.

Senator GUFFEY. Are you satisfied with the bill as it is amended and now proposed?

Mr. JOHNSON. Yes, sir.

Senator GUFFEY. You have no further amendments to suggest to make it a better bill?

Mr. JOHNSON. Well, Senator Copeland, in his opening remarks said of course that this bill is not going to entirely satisfy every participant, but I have no suggestions to make that would make it a better bill and that would not at the same time make it harder to pass.

Senator GUFFEY. I suppose that you and your conferees really tried to carry out all the recommendations made by the President in his message?

Mr. JOHNSON. Yes, sir.

Senator GUFFEY. I am wondering why this bill, as amended, failed to repeal those provisions of the Merchant Marine Act of 1928 which authorize the mail subsidies. Perhaps you will tell me why the bill, as introduced by Senator Copeland and as provided in section 301, that the the mail-subsidy sections are hereby repealed,

but that this draft makes no provision for the repeal of those sections.

The CHAIRMAN. Well, there may possibly be an oversight there. Mr. JOHNSON. I think there is an oversight right there.

Senator GUFFEY. Then the bill can be improved on.

Mr. JOHNSON. Well, there are two or three places that I called attention to.

The CHAIRMAN. They are purely technical?

Mr. JOHNSON. Yes.

Senator GUFFEY. I guess you, like myself, are not a lawyer, are you?

Mr. JOHNSON. No, sir; I am an engineer.

Senator GUFFEY. We have some good lawyers in this committee. I would like to ask you what this bill means here in section 301, "No contracts heretofore made by the Postmaster General."

The CHAIRMAN. Where is the page? Let us get the page first. Is that page 12?

Senator GUFFEY. That is page 14, I think.

The CHAIRMAN. If the Senator has in mind the idea that those who participated in formulating this bill slipped a joker in to continue the mail contracts, of course the Senator knows that that is not the fact.

Senator GUFFEY. I would like to get this in the record.

The CHAIRMAN. What is the point that you want to get in the record?

Senator GUFFEY. Here in this section 301 it is provided:

No contract heretofore made by the Postmaster General pursuant to the provisions of the Merchant Marine Act of 1928, for the carriage of mail, shall be continued in effect after 1 year from the date of the passage of this act, and after that date it shall be unlawful for any officer of the United States to pay from any public funds any compensation to the holder of such contract for services thereunder.

The way I read this provision it seems that the existing mail contracts are all canceled or settled, but there is no restriction as to making new mail subsidy contracts the next day after the bill is passed. Is that your opinion?

Mr. JOHNSON. Mr. Peacock will answer that.

Mr. PEACOCK. Senator, may I answer your question?
Senator GUFFEY. Yes, indeed.

Mr. PEACOCK. The final agreements here were reached about an hour before the Cabinet meeting and it was desired to present this final agreement to the President that day. We were in a hurry. Those of us who were drafting accepted a certain provision that had already been drafted, and the omission of the repeal of the mailcontract system was entirely unintentional. I noticed it myself last night. I want to go on record right now as saying that it was entirely unintentional.

The CHAIRMAN. The Senator is aware of that. It is purely technical. The Senator did not doubt that.

Senator GUFFEY. I just wanted an explanation.

Senator FLETCHER. The intention of this provision is to repeal that section?

Mr. PEACOCK. Yes.

Senator GUFFEY. Yes.

The CHAIRMAN. Much obliged for your constructive suggestions, Senator.

Senator GUFFEY. As the bill now stands it still permits the making of ocean-mail contracts, in spite of the President's statement that giving aid under this disguised form is "an unsatisfactory and not an honest way to provide the aid that the Government ought to give to shipping.'

Mr. JOHNSON. We have every intention to repeal the mail contract. Senator GUFFEY. I would like to have the President's message to Congress inserted in the record.

(The message is as follows:)

To the Congress of the United States:

I present to the Congress the question of whether or not the United States should have an adequate merchant marine.

To me there are three reasons for answering this question in the affirmative. The first is that in time of peace subsidies granted by other nations, shipping combines, and other restrictive or rebating methods may well be used to the detriment of American shippers. The maintenance of fair competition alone calls for American-flag ships of sufficient tonnage to carry a reasonable portion of our foreign commerce.

Second, in the event of a major war in which the United States is not involved, our commerce, in the absence of an adequate American merchant marine, might find itself seriously crippled because of its inability to secure bottoms for neutral peaceful foreign trade.

Third, in the event of a war in which the United States itself might be engaged, American-flag ships are obviously needed not only for naval auxiliaries, but also for the maintenance of reasonable and necessary commercial intercourse with other nations. We should remember lessons learned in the last war.

In many instances, in our history, the Congress has provided for various kinds of disguised, subsidies to American shipping. In recent years the Congress has provided this aid in the form of lending money at low rates of interest to American shipping companies for the purpose of building new ships for foreign trade. It has, in addition, appropriated large annual sums under the guise of payments for ocean-mail contracts.

This lending of money for shipbuilding has in practice been a failure. Few ships have been built and many difficulties have arisen over the repayment of the loans. Similar difficulties have attended the granting of ocean-mail contracts. The Government today is paying annually about 30 million dollars for the carrying of mails which would cost, under normal ocean rates, only 3 million dollars. The difference, 27 million dollars, is a subsidy, and nothing but a subsidy. But given under this disguised form it is an unsatisfactory and not an honest way of providing the aid that Government ought to give to shipping.

I propose that we end this subterfuge. If the Congress decides that it will maintain a reasonably adequate American merchant marine I believe that it can well afford honestly to call a subsidy by its right name.

Approached in this way a subsidy amounts to a comparatively simple thing. It must be based upon providing for American shipping Government aid to make up the differential between American and foreign shipping costs. It should cover first the difference in the cost of building ships; second, the difference in the cost of operating ships; and finally, it should take into consideration the liberal subsidies that many foreign governments provide for their shipping. Only by meeting this threefold differential can we expect to maintain a reasonable place in ocean commerce for ships flying the American flag, and at the same time maintain American standards.

In setting up adequate provisions for subsidies for American shipping the Congress should provide for the termination of existing ocean-mail contracts as rapidly as possible and it should terminate the practice of lending Government money for shipbuilding. It should provide annual appropriations for subsidies sufficiently large to cover the differentials that I have described.

I am submitting to you herewith two reports dealing with American shipping: A report of an interdepartmental committee known as the Committee on Shipping Policy, appointed June 18, 1934, by the Secretary of Commerce, and

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