The CHAIRMAN. Transportation. Does that answer the question? We will have Mr. Haag later.

Senator BACHMAN. Yes. I will be glad to ask him.

Mr. PEACOCK. Might I just finish that other comment I was making?

The CHAIRMAN. Go ahead.

Mr. PEACOCK. As to the reports that have been regularly made by the Postmaster General to the Congress every year since 1916, they show that there are certain railroad situations where, because of various conditions, such as there being a short road in a congested district, or the volume of traffic is very great, or another case because it runs over mountains where the snow situation is a very real one, the Post Office has regularly, for years, found it necessary, in some cases, to allow from a few percent up to 200 percent additional over and above the regular established mail pay. I am just mentioning that figure to show the need for flexibility in almost any situation.

Senator WHITE. I do not know whether you have discussed this subparagraph (d), which begins on page 17 and ends up on page 18. I notice in lines 18 and 19 on page 18 this language, starting back in line 15:

In any such suit the United States shall have the right to urge any defense of collusion or fraud in the obtaining of any such contract sued upon or the failure to award any such contract as a result of actual competitive bidding as required by the Merchant Marine Act of 1928.

I wanted to state that the Merchant Marine Act of 1928 does not require actual competitive bidding. It did not intend to require actual competitive bidding, and every one familiar with the shipping situation knows that actual competitive bidding at the time that act passed would have been a physical impossibility. That is an utterly erroneous statement of law, and it suggests a state of fact which does not exist. I wanted to say that much about it.

The CHAIRMAN. I might say to you, Senator White, that yesterday we quizzed Judge Crowley a little bit along that same line, but the record will show now what you said, and that will give us the basis, in the committee hearings, to argue the matter. I want to say for myself, Senator White, that I am in full agreement with the position you take.

Senator WHITE. No one who had anything to do with the 1928 act ever had any idea, and this language does not justify the belief that actual competitive bidding was necessary, because there were not the ships which could make possible actual competitive bidding, and everybody knew it.

The CHAIRMAN. I want to say for myself that while I would question the good taste of some of the contracts that were made in the last minutes of the dying administration, that even so I share the view that Senator White puts forth, that they were not unlawful, they were not illegal. They might have been unethical, but that is a different question. Do you have any other question, Senator?

Senator WHITE. No. I was just looking at this. I really had paid no attention to this bill until last night. That caught my eye and aroused my ire.

The CHAIRMAN. We will continue with page 58. You have inserted a paragraph here begining with line 17.

No operating differential subsidy shall be paid under this act to any contractor on any voyage upon which the said contractor, its owner, associate, affiliate, or subsidiary has any financial interest of any kind or character, directly or indirectly, in the cargo carried when such interest or ownership shall exceed in tonnage or value 50 percent of the whole cargo carried on the voyage.

Now, the construction subsidy which Mr. Haag so well defined yesterday is not a subsidy but simply an attempt at parity; and that construction subsidy, if we use that word now, is not received by the ship operator, is it?

Mr. PEACOCK. No; I do not believe it is even under this bill. I think it is paid directly to the shipbuilder, as I recall.

The CHAIRMAN. It is received by the shipbuilder and not the ship operator, and the operating subsidy is a repayment to the ship operator of that part of the expenses which he has already incurred, representing the excess cost to him of operating the ship under the American flag instead of the foreign flag. That is true, is it not?

Mr. PEACOCK. I believe so. That is certainly the theory of the bill. The CHAIRMAN. Well, now, then, how can an operating subsidy be regarded as a subsidy to an industrial carrier for carrying its own cargo?

Mr. PEACOCK. I cannot answer that question any more than was answered yesterday.

The CHAIRMAN. If the cargo carried by a so-called industrial carrier belonged to someone else, even an alien, this bill would provide a subsidy for it, but if it happened to be some of his own stuff representing American commerce, then he would be denied that subsidy. I think that is correct. Of course, you cannot explain, I suppose, why the ownership of the cargo is important in one case and not important in another case?

Mr. PEACOCK. I cannot; no.

The CHAIRMAN. By this provision you force the industrial carrier to build the ships abroad and operate them under a foreign flag. Now, can there be any question that that is a true statement?

Mr. PEACOCK. No; I do not think there can be any question that that is a true statement as to any carrier which either now or at any time fears it may come within the terms of this provision. Just how many such carriers there are I am not sure, but it is a potential limitation. It goes into this whole question of whether they are going to get parity or not, and if it may be taken away by restrictive provisions of this sort it may have just the result which you indicate. The CHAIRMAN. That is exactly what I am afraid of. I have no interest in it except the interest of the welfare of the country; but I cannot for the life of me see what difference it makes, because Mr. Haag yesterday used language that provoked thought. This thing we are proposing is not to give the ship operator some money, it is merely to pay the difference between his operation under a foreign flag, if he chose to so operate, and under the American flag. That is the purpose of it. I think we ought to give emphasis to that whenever we can, because as I see this bill-and I haven't thought about much else for a couple of years we are not doing something for the American operator; we are doing it for the American people.

Now, then, turn to page 62.

Senator GIBSON. May I ask a question?

The CHAIRMAN. Of course. I would be glad if the members of the committee would ask some questions.

Senator GIBSON. Subsection (h), section 522.

The CHAIRMAN. What page is that on?

Senator GIBSON. Page 58. The United States Steel Co. own certain ships, do they not?

Mr. PEACOCK. One of their subsidiaries does; yes.

Senator GIBSON. And the United Fruit Co. comes in the same category?

Mr. PEACOCK. I think so; yes.

Senator GIBSON. Is there anything contained in the language of this subsection (h) that would exclude them from this operating subsidy?

Mr. PEACOCK. Speaking just generally, my impression is that the Isthmian Line, subsidiary of the United States Steel, does not carry 50 percent of its own property as cargo on any voyage in foreign commerce. That is my impression.

The CHAIRMAN. What is the fact, Mr. McAuliffe ?

Mr. MCAULIFFE. The Isthmian Line carries, in foreign commerce, about 20 percent.

The CHAIRMAN. Of its own?

Mr. MCAULIFFE. Of the product of the manufacturing companies of the Steel Corporation.

The CHAIRMAN. Does that answer your question?

Senator GIBSON. Then your answer is they would be excluded unless they carry 50 percent?

Mr. PEACOCK. My impression is that they, therefore, would not be affected by this as it stands now, but you are looking forward, you are going to build a ship. Are you going to build an American ship or are you going to build a foreign ship? That ship is going to run for a good many years. If you are going to have parity, you have got to have parity during the whole life of the ship. If you anticipate that your business might change, say, during the course of a few years what is 20 percent now might be 50 or 60 percent later on, and you might lose your parity under this provision, and you would say, "Why worry about that? Let us build a foreign-flag ship and be safe."

Senator GIBSON. You lose your parity because of your subsidy? Mr. PEACOCK. Yes; because you are not sure that you have your parity, that you have your subsidy to make your parity.

Senator GIBSON. So there is language contained in here that might affect that situation?

Mr. PEACOCK. Potentially, yes.

Senator GIBSON. That is all.

The CHAIRMAN. Any other questions, Senator?

Senator GIBSON. No.

The CHAIRMAN. Now, we come to the bottom of page 62 and page 63, and I have the same questions that I asked Judge Crowley yesterday. These questions that I asked him were, in effect, why a contractor or wholly owned subsidiary should have to apply to the Authority in order to do its own stevedoring? Why a contractor could not be allowed to have his own paint shop. What is the difference between permitting a contractor to do these various things and

permitting a railroad to have a roundhouse or repair shop? How about the ownership by motor carriers of their repair shops and service garages? Why is it necessary to apply to the Authority for permission to do all this?

Mr. PEACOCK. That answer, of course, is that each one of those things was the subject of some abuse in the past, which has been revealed through Senate hearings and departmental hearings, and it is just a question of how much weight the Congress, which is just as familiar with that as we are, wants to give to that.

The CHAIRMAN. Am I right in saying that this service is like the service that a railroad gives its engines and motor carriers give their busses, and so forth?

Mr. PEACOCK. I think I might say that we got some figures a short time ago which add up to something over 4,000 ports. Now, I do not say we go into 4,000 ports every year, but almost that number. During the past 15 years our records show shipments in American commerce moved through 1,356 ports in continental United States, 448 ports in their outlying possessions, and 2,933 ports in foreign countries. Now, the conditions in those ports all over the world vary from one extreme to the other, and there may be in any one of those ports circumstances which call for doing just the thing that you ask about.

Senator WHITE. As a practical matter, is it not highly essential that an American steamship company going to a foreign port should be in a position to develop its own stevedoring services and all other services that relate to the handling of that ship, or otherwise it will be in the control and under the dictation of the foreign interests? Mr. PEACOCK. I would say so; absolutely, yes.

The CHAIRMAN. The other questions I had were along the same line. Why should a steamship company not own its own terminal? Why should it not be permitted to perform a wharfage service if it owns or leases wharfage space at which otherwise ships might berth which may or may not be American ships? Why is it necessary that all of the shore operations of the shipping company on petition, public hearings, and formal order of the Authority? I have already suggested the difference as regards the railroads, why they are permitted to do all those things. At least the record shows we have given some consideration to it.

Now, on top of page 64 we have this language:

No subsidy shall be awarded or continued to any contractor under this part if such contractor or any holding company, subsidiary, affiliate, or associate of any such contractor, or any director, officer, or executive thereof, directly or indirectly, owns, charters, operates, or acts as agent for any foreign-flag vessel which competes with any service of the United States receiving any benefits under this act.

Does this word "competes" as used on the first line on page 64 mean direct competition?

Mr. PEACOCK. I do not know. I assume that it means competition, direct or indirect. Any substantial competition I assume it would be construed to mean.

The CHAIRMAN. Do you happen to remember what percentage of American-owned ships today fly foreign flags?

Mr. PEACOCK. No; I haven't any idea. I would say the majority of them were tankers; perhaps some industrial carriers.

The CHAIRMAN. Would it be safe to say that about 30 percent fly foreign flags?

Mr. PEACOCK. I haven't the least idea in percentages.
The CHAIRMAN. Who would know that? Mr. Haag?

Mr. PEACOCK. Mr. Haag would probably have a better idea, but I think any single percentage should be qualified by the fact that it would consist largely of tankers and ships of that sort; also by the fact that a great many American-operated foreign ships are chartered ships and not owned ships.

The CHAIRMAN. We will take up page 65, beginning with line 12, subsection (b).

No subsidy shall be awarded or continued to any contractor under this part if such contractor or any holding company, subsidiary, affiliate, or associate of such contractor, or any officer, director, agent, or executive thereof, directly or indirectly, shall own, operate, or charter any vessel or vessels engaged in the domestic intercoastal or coastwise service, or own any pecuniary interest, directly or indirectly, in any person or concern that owns, charters, or operates any vessel or vessels in the domestic intercoastal or coastwise service, without the express permission of the Authority.

I assume, then, it would be necessary for the Authority to determine that it is necessary and in the public interest to permit the company to perform any shore service for itself. Do you think so, Mr. Peacock?

Mr. PEACOCK. Would you mind repeating that?

The CHAIRMAN. I would judge from this language that it is necessary for the Authority to determine that it is necessary in the public interest, in order to permit a shipping company to perform such shore service for itself.

Mr. PEACOCK. Yes.

The CHAIRMAN. What interest would the public have in this determination?

Mr. PEACOCK. Well, it might have the interest of having those ships operated, or having ships for the merchant marine. That would be a public interest.

The CHAIRMAN. Well, it might be in the public interest then, in some cases certainly, to permit the shipping company to perform the shore service themselves?

Mr. PEACOCK. It might be, and that is contemplated by the bill.

The CHAIRMAN. I notice in this paragraph I just read you that you prohibit any pecuniary interest of the contractor in the coastwise business except on permission of the Authority and after public hearing. What situation is there that you know of in the shipping industry today that prompts the necessity for this provision?

Mr. PEACOCK. Well, there is this situation, and it is driven home to us quite frequently: Take the intercoastal service. There are perhaps somewhere between 12 and 15 lines, all-American lines, because that is a protected service and foreigners cannot come into it. Of those 12 or 15 lines, most of them have no subsidies; they are purely intercoastal, they have no mail contract, I mean, or any subsidy of that sort. Several of them do have mail contracts, because in addition to their strictly intercoastal service they also touch at certain foreign ports. There is a great deal of discrimination there. To what extent it really exists I do not know.

The CHAIRMAN. But it is a fact that many companies have large investments in this coastwise trade? Mr. PEACOCK. Yes.