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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. Í 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, you?

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

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

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 in. volved, 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 a report to me from the Postmaster General on ocean-mail contracts prepared pursuant to an Executive order of July 11, 1934.

Reports which have been made to me by appropriate authorities in the executive branch of the Government have shown that some American shipping companies have engaged in practices and abuses which should and must be ended. Some of these have to do with the improper operating of subsidiary companies, the payment of excessive salaries, the engaging in businesses not directly a part of shipping, and other abuses which have made for poor management, improper use of profits, and scattered efforts.

Legislation providing for adequate aid to the American merchant marine should include not only adequate appropriation for such purposes and appropriate safeguards for its expenditure, but a reorganization of the machinery for its administration. The quasi-judicial and quasi-legislative duties of the present Shipping Board Bureau of the Department of Commerce should be transferred for the present to the Interstate Commerce Commission. Purely administrative functions, however, such as information and planning, ship inspection, and the maintenance of aids to navigation should, of course, remain in the Department of Commerce.

An American merchant marine is one of our most firmly established traditions. It was, during the first half of our national existence, a great and growing asset. Since then it has declined in value and importance. The time has come to square this traditional ideal with effective performance.

Free competition among the nations in the building of modern shipping facilities is a manifestation of wholly desirable and wholesome national ambition. In such free competition the American people want us to be properly represented. The American people want to use American ships. Their Government owes it to them to make certain that such ships are in keeping with our national pride and national needs.


March 4, 1935. The CHAIRMAN. We would like to hear from the Post Office Department. General Howes, will you make a statement ?



Mr. Howes. Mr. Chairman and members of the committee: The Post Office Department does not claim to be expert in matters of shipping and we do not presume we would have been called upon for an opinion as to this bill except that we have the mail contracts, the ocean-mail contracts, in our Department.

This proposed bill, no. 3500, having come up, we presumed it was naturally referred to us like any other bills that come up in committee pertaining to our Department, and we have met, a committee of officials of the Post Office Department and a like committee from the Commerce Department, and have numerous discussions on this bill, with the thought that the bill, having been up in the previous session and having been introduced early in this session, that there was a necessity for some kind of a bill, and we did not want to have the thing held up in our conference in our Department, so we joined in a report as to the bill itself, which is now before you.

The CHAIRMAN. General Howes, as First Assistant Postmaster General, you have been familiar with all the conferences between the Post Office Department and the Commerce Department, and the Post Office Department has participated in the formulation of all these amendment, is that true?

Mr. Howes. Yes, sir.

The CHAIRMAN. I take it from the statement that General Farley made, that the Post Office Department is in favor of a merchant marine and intends to assist, so far as it can properly assist?

Mr. Howes. Yes.

The CHAIRMAN. Is it your feeling that this bill, as formulated with the amendments suggested by joint conference, is a fairly satisfactory bill?

Mr. Howes. Speaking for the Post Office Department I think, and we think, that the question of a United States merchant marine is a question that is way beyond the province of the Post Office Department. Our interest is primarily in the handling and the carriage of mails. We would not undertake to say that this is the best bill that could be arrived it. We do not think we are competent to say that. We think that this is something that brings the matter before a legislative body and that you gentlemen, and the President, are much more able to arrive at a satisfactory merchant-marine bill than we would be from our knowledge on the subject.

The CHAIRMAN. On the part of my committee I am much obliged to you. Of course, the President will speak for himself. Have you any suggestions to make about amendments or changes from the bill as printed? I assume that the suggestion made by Senator Guffey about the failure of a definite repeal should be given some consideration.

Mr. Howes. We understood that it was being repealed.

The CHAIRMAN. There is no difference of opinion then on your part on the idea which I presented here a moment ago regarding that?

Mr. Howes. No. We considered that it was an oversight.

The CHAIRMAN. Well now, will somebody from your department help us in going over these amendments to make clear to the committee exactly what they are intended to do?

Mr. Howes. Yes, sir. Mr. Crowley, our solicitor, is here for that purpose.

The CHAIRMAN. Have you anything to add then?
Mr. Howes. I have not.
The CHAIRMAN. Do you have any questions to ask?
Senator GUFFEY. No.
The CHAIRMAN. We will proceed with Mr. Crowley then.



The CHAIRMAN. Will you state your name?
Mr. CROWLEY, Karl A. Crowley.
The CHAIRMAN. Solicitor of the Post Office Department ?
Mr. CROWLEY. Yes, sir.

The CHAIRMAN. Well now, suppose we start with the bill. On the first page is the change from "At least one-half” to “A substantial portion of the water-borne export and import foreign commerce." What was the reason for using that language ?

Mr. CROWLEY. That was a suggestion, Senator, made by the State Department, as being a little more appropriate.

The CHAIRMAN. A little more diplomatic?

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