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building Navy combat ships. It supports national security through energy-developing equipment production; i.e., offshore drilling rigs. It supports the broader national interest in terms of providing investment and employment opportunities, as well as gold-flow conservation.

The foregoing illustrations are not intended to advocate any specific maritime aid program. The U.S.-flag merchant marine and shipbuilding does support the interests as illustrated, but we recognize there is a question as to the margin of effectiveness of maritime support programs vis-a-vis other programs in furthering the total body of national interests. It is our understanding that this question is the substance of these hearings.

Question: Would you say that planning and preparedness to meet essential national needs in times of crises as well as in peacetime come within the scope of each of these definitions. If so, what procedures or analyses does the Defense Department employ to quantify DoD requirements for shipping and shipbuilding capabilities?

Answer: Yes, very definitely. Within the DoD, we have continuous planning cycles, as mentioned earlier. While these focus on national defense, there are national interest considerations involved. DoD shipping requirements are developed by the Joint Chiefs of Staff (JCS) through periodic review provided by the Joint Strategic Capabilities Plan (JSCP). This plan addresses, among many items, the capabilities of U.S. sealift and airlift to meet military requirements. in the current time frame. The Joint Strategic Objectives Plan (JSOP) addresses these capabilities over succeeding seven-year periods. The JSOP, being a "futures": plan, addresses shortfalls and steps required to meet them.

With respect to shipbuilding requirements and capability, the question should be addressed in two parts. First, those procedures and analyses that determine shipbuilding capabilities as adequate for current merchant marine and navy shipbuilding requirements expected to be authorized and funded by the Congress, and second, those methods for determining the adequacy of the industry in times of mobilization.

From the Navy viewpoint, "current" shipbuilding capabilities embrace ships set forth in Navy's Five-Year Defense Plan (FYDP) and thus measure the industry's capabilities over several years in the future. This estimated timepbased adequacy of the industry is one of the determinant factors in proposing the FYDP and is a constantly iterative process in Navy planning as ships are proposed, authorized, and actually placed under construction.

Of necessity, all other expected demands on the shipbuilding industry must be an essential part of the evaluation, and cover such elements as subsidized and unsubsidized merchant shipbuilding, Coast Guard requirements, drilling rigs, and non-ship type workloads that affect the industry. In this area, the Navy works very closely with the Maritime Administration. Almost daily-exchange of workloading and status information is carried out between the production divi. sions of both agencies, including computerized data. Such data is used jointly in the MARAD-developed “Shipyard Production and Mobilization Model" industry simulation model that can point out major effects of various potential workloading combinations on the industry. MARAD publishes for the use of itself and the Navy its quarterly “Status of Major Shipbuilding in U.S. Commercial Shipyards” embracing both Navy and commercial shipbuilding. The Navy prepares for limited distribution (including MARAD), because of its companysensitive information, projected workload and manning curves for the major shipyards covering both merchant and Navy ships also. There is also established the Joint MARAD/Navy Shipbuilding and Repair Committee to consider mutual problems at a higher level as well as to periodically assess adequacy of the industry. Finally, DoD Directive 5030.9 of 19 January 1972 established the Coordinator of Shipbuilding, Conversion and Repair for the Department of Defense, and among other things, requires an annual analysis and report to the Secretary of Defense on "Status of the Shipbuilding Industry the United States." This report is made available to the Congress and to other pertinent Executive Departments of the Government. In summary, it is believed that substantial strides have been made in the past five years in the cooperation and understanding between the executive departments of the government in its relationship to and fostering of the shipbuilding and repair industry.

The question of sufficiency of the shipbuilding and repair industry base for mobilization purposes is much more difficult to answer. There is no precise formula, the answer will vary over time, and depends on the type and timing

of the threat envisioned in the mobilization. Measured on a scale from no U.S. shipbuilding and repair facilities to a standing industry of the size that existed at the end of World War II, the tentative answer must be an evaluation of that which is prudent under the circumstances as exercised by the Navy/MARAD experts in this field, by the Secretaries of Defense and Commerce, by the Congress and by the National Security Council. Again, that which is deemed prudent from the mobilization viewpoint must be tailored by that which is feasible from a budgetary point of view under current circumstances. Also, the character of the industry is of great importance. A relatively smaller stable, healthy, viable, competitive and innovative industry provides a sounder mobilization base than would a larger emaciated industry.

With the above caveats expressed, the Department of Defense and the Department of Commerce have and are working together to quantify shipbuilding and repair requirements in mobilization as required by Section 502 (f) of the Merchant Marine Act of 1970. Currently, springing from a recommendation made by the Deputy Secretary of Defense Clements to the Seapower Subcommittee last fall, the Vary Department and the Maritime Administration, with the participation of the Joint Chiefs of Staff, are carrying out the most intensive review of this problem that has been made in several years. Results of this study should be available the latter part of this year, and can be made arzilable to the Subcommittee if desired.

Question: Are these DoD quantifications referred to and refined by the National Security Council? Preliminarily, are they coordinated with other agencies of the government in a formalized way? Describe the exact process whereby a quantification of shipping and shipbuilding needs by your department reaches the top level of national decision making.

Answer: The process for getting quantified DoD shipping and shipbuilding requirements to other concerned agencies, and to higher administration levels is not a single precise, formulized process. The results of the JCS planning studies mentioned earlier are evaluated by the Secretary of Defense and his staff and are incorporated in planning and programming guidance to the services, and this brings the planning and guidance to the services, and this brings the planning and budget process together. As this process materializes, the Office of Management and Budget (OMB) becomes involved as the action office at the national interest level. To the extent that requirements are translated into budgetary terms, they become a part of the President's budget. This, of course, is a formalized process; it is also informal in that OMB representatives work closely with Defense and military service staff members during formulation of the Defense budget. In peacetime, this is the usual approach, with the administration national priority judgments reflected in the budget rather than a material priority decision. These matters then become matters of Congressional decision through the authorization and appropriation process.

In the resource preparedness planning area, the submission of requirements is not so formalized, although this is done. Shipping requirements, for instance, are submitted on an intermittent basis to the Office of Emergency Transportation in the Department of Transportation, and there is continuous informal contact between the MARAD and DoD as the shipbuilding coordination mentioned earlier.

Question: With U.S.-flag shipping carrying a decreasing share of all U.S. trade and commerce, by volume, and with the increasing expenditures for new ships to keep the sea lanes open. are not we faced with a contradiction in national objectives. On the one hand, we appear unconcerned by the low level (only six percent, by volume) of U.S. imports and exports transported by American-flag shipping. On the other hand, we spend billions to keep the seala nes open for the ships of other countries, many of whose governments spend little or nothing to maintain freedom of the seas. Do you see this as a contradiction?

Answer: Not necessarily so. In terms of national interest, national security and national defense, we would be better off to some degree if U.S.-flag ships could carry a greater part of our foreign trade, and we would be considerably better off if these ships could penetrate the market with less government assistance. Be that as it may, however, the sealanes that we keep open are the lanes of our own foreign trade and national security. Further, the ships of some of our allies are of far greater significance to their national interest than similar number of U.S.-flag ships would be to ours. I would see this, then, as a difficult, but proper, ordering of national priorities.

Question: Sixty-nine of seventy-one critical materials, including petroleum, without which the U.S. military and industrial structure would be inoperative, must be imported, and nearly 95 percent of these essential items, by volume, now are brought to this country by foreign-flag shipping. Does the Department of Defense consider this percentage favoring ships of other nations as reasonable. Bearing in mind your definitions of “national interest," "national security," and “national defense.” What would be the Defense Department's view of the possibility of both source of supply and transportation being under hostile control?

Answer: Obviously, the Defense Department would not, and indeed, does not, view this possibility with equanimity. There would, undoubtedly, be a higher degree of security of transport in having a greater number of U.S.-flag tankers available. We believe, however, there are considerations which off-sets this risk. The government controlling the source would appear to be more important than that controlling the transport. If the government controling the source is willing to sell to the U.S., that government would probably not look with disfavor upon a third party nation providing the transport. It is possible that the source nation may invoke sanctions against some ships, for calling at unfriendly thirdnation ports, but these sanctions could also be invoked against U.S.-flag ships, and, in any event, the source nation would probably gain no benefit from carrying this sanction so far as to kill the sale. Finally, if the source nation would be willing to sell, given the cosmopolitan nature of the world tanker fleet, there is the probability that at least one, if not several, tanker-registry nations would welcome the opportunity to keep their tankers busy in what would be an otherwise depressed market.

Question. Am I correct in my information that the Defense Department opposes any cargo preference mechanism to assure that a U.S. shipping capability, par. ticularly a tanker capability, is appropriately maintained. If so, what alternatives are available, in your judgment, to accomplish this purpose?

Answer. The Defense Department could not take a position on petroleum cargo preference legislation based on defense interests and, therefore, our negative position was based on policy preference. We did express a general concern with respect to the application of cargo preference to U.S. foreign trade under any circumstance. As we have stated previously, the U.S.-flag merchant et would best serve the national interest by adequate penetration of the foreign trade market wholly on the basis of market-place economic considerations. Having failed to wholly achieve this utopian objective, the next best approach would be the removal of competitive inequities. Thus, we believe, is the purpose of the Merchant Marine Act, and, in the case of tanker trades, is still a relatively untried feature. The removal of inequities promotes a healthy competition. Conversely, the application of cargo preference removes a segment of the trade from full competition. The United States has opposed this principle in United Nations proceedings dealing with berth liner cargo.

In the instance of petroleum cargo preference legislation, it was our belief that, given the relative freedom of the movement of tankers of many flags on the oceans today, we could find cargo preference non-productive in the ability to freely match lift with cargo. Further, the more desirable remedy of removal of competitive inequity should be given an opportunity to function.

This does not mean that we would be unalterably opposed to any cargo preference legislation under any circumstance. There are many different national interests, national security interests and national defense interests, often in opposition with each other, and they must be carefully weighted and balanced in each circumstance. Certainly, any proposed application of cargo preference would require very careful consideration in this respect.

Question. On page 7 of your statement for the record, you say: "Thus, we are reliant on our allies to help support U.S. deployments.” To what extent do we rely on our NATO Allies in this regard?

Answer. A proper response entails a discussion of classified information. We can provide that for you separately if you wish.

Question. On page 22 of your statement for the record, you say that the use of foreign-flag vessels for the Viet Nam lift cannot be characterized as being satisfactory. Could you be more specific in this regard ?

Answer. In consummating the 80-odd foreign flag transactions, three actual failures of ships to make the lift after commitment were encountered, and MSC had to resort to special precautions to prevent further incidents of this nature. These failures are disruptive and would not be expected to happen with a secure merchant marine, nor would you have to take special efforts to preclude these situations. To the extent that we suffered these disruptions and had to go to the added effort that would not be expected in a secure merchant marine, the service was not satisfactory.

Question. Would you please elaborate on your statement (Page 5) that: “There are plans to support the Maritime Administration in upgrading some of the vessels of the NDRF to provide their rapid availability."

Answer. This plan has yet to be worked out in detail, but the general plan is, over 5-year period, to overhaul a total of 30 ships so that all equipment will be in an operable condition, and then continue a high state of maintenance so the ships will be continuously at maximum readiness. The objective is to be able to put these ships at the loading berth five to ten days after call-up. The Navy plans to budget $5 million annually for 5 years commencing with FY 77. To the extent that more modern ships become available for the NDRF during this period, they can be placed in this high readiness state in lieu of the older Victory ships.

Question. With respect to Russian merchant ships, how do they generally compare with United States flag merchant vessel as a military auxiliary?

Answer. The Russian merchant fleet is generally composed of smaller vessels than other shipping powers since their ships are designed primarily to support intra-coastal trade.

Dry cargo ships are predominant and one military advantage they have is in the number of general cargo ships available for the carriage of a wide range of military cargoes as opposed to the active U.S. merchant fleet composed to a large extent of non-self-sustaining container ships.

There are basically eleven standard types of Russian merchane ships, permitting better shipyard production.

Lately, the Russians have been moving toward larger specialized ships, i.e. Container and RO/RO which have been seen more and more in international trade.

Mr. DOWNING. Again, on behalf of the committee, I want to thank you, each and every one, for your presentation here this morning.

The subcommittee will adjourn subject to the call of the Chair. [The following was submitted for inclusion in the hearing :)

ADMIRAL MOORE'S RESPONSE TO QUESTIONS FROM THE COMMITTEE Question: I have information that Military Sealift Command is presently considering the use of two and possibly three of their time chartered vessels to carry cargoes from the U.S. Gulf to the Mid-East, Far East, and Europe that would normally be carried by the privately-owned U.S. flag carriers servicing these trades. Is this correct?

If so, I don't see how you can justify the Department of Defense competing with U.S. private industry !

Answer: MSC is considering the use of two and possibly three time chartered vessels which are arriving in the U.S. Gulf the latter part of June for the movement of cargo to Far East and Mideast destinations. DOD/MSC through the use of these and other time chartered vessels does not compete with U.S. private industry. Dollars paid to owners/operators of privately-owned, union-manned time chartered vessels supports the private sector of the Maritime Industry just as dollars paid to U.S. flag berth carriers who own/operate privately-owned, union-manned U.S. flag vessels.

Question: If the Department of Defense does not have sufficient cargoes in excess of the cargo that can be lifted by private carriers to utilize the time chartered vessels, why aren't these carriers redelivered to their owners or placed in some type of stand-by status at reduced cost to the government?

Answer: Prudent management dictates that, to the maximum extent possible, vessels in the MSC controlled fleet must be operated in an economical and effective manner. Therefore, as cargo develops which can be used to economically employ these vessels, they are utilized. During periods when economical emplorment does not exist, it is normal procedure to place vessels in a reduced operating status (stand-by status).

The DOD maintains a minimum sized MSC controlled fleet in order to be able to respond effectively to military requirements. The size and composition of the fleet has varied to meet changing military cargo requirements which have changed in volume and character over the years. MSC believes that the current fleet is below the minimum required to adequately respond to contingency situations and to support DOD in those areas of the world where adequate commercial service is not available. The MSC dry cargo fleet is made up primarily of break bulk type vessels which have an ever-increasing higher strategic value for meeting contingency needs. The break bulk type vessel portion of the total U.S. merchant marine inventory is continually decreasing with no known replacement vessels of a similiar type being planned. If break bulk vessels are redelivered to their owners, there is considerable doubt that they will be readily available for charter to MSC on short notice to meet nonroutine peacetime cargo movements of the DOD or to meet contingency requirements.

The attached table summarizes MSC cargo movements expressed in thousands of measurement tons exported from the continental U.S. and worldwide during FY 1974, the estimated amount to be moved during FY 1975, and current projections for FY 1976.

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1 Includes cargo lifted by berth carriers under MSC shipping argreements, container agreements, berth term arrangements and time chartered vessels.

Question: Doesn't the Department of Defense have a policy against competing with private industry with government-owned facilities?

Answer: The Department of Defense adheres to the policy enunciated in OMB circular A-76 relative to the reliance upon private enterprise systems to supply its needs. This policy explicitly recognizes that the private system must be both responsive to DOD needs and cost effective. As indicated by the statistical data prorided above, Government-owned ships carry an insignificant portion of the total cargo moved by DOD. Cargo transported in time chartered ships constitutes as much a reliance upon the private sector as does cargo transported by berth operators and is in full compliance with OMB circular A-76.

Question: Would you please explain the purpose, size and nature of the merchant marine maintained by the military Sealift Command and in that connection please state if these vessels are owned or time chartered?

Answer: The mission and purpose of the MSC Fleet is to provide:

a. An initial source of assured sealift to meet military contingency or emergenç requirements.

b. For peacetime cargo movements in support of the military services. The primary support provided by the MSC Fleet is in the movement of cargo to areas not served by commercial shipping companies and in the movement of difficult commodities such as ammunition and oversized cargo which cannot be accommodated in berth line shipping.

c. Direct logistics support to U.S. Navy fleet ships.

d. Ships for non-transportation services required by DOD and other government agencies, such as hydrographic research and ocean science projects.

(urrently the MSC Fleet contains 108 ships. Fifty of these are government owned and 58 are chartered from private industry. The inventory of ships by

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