But I have never understood why the American operator, subsidized or not, cannot build abroad for American Flag registry and operation, in either the domestic or offshore trades, if his business needs and judgment so indicate, and if the subsidy funds are not available at home.

I have alreay written you in dissent as to the quota system for U.S. imports suggested in the majority report. It may seem tempting, but it leads to a bottomless pit of retaliation, niggling complexity and argument around the maritime world that in the long run makes a bitter joke of the very words commerce and trade. On this, out of the experience of my Grace Line days, 'I speak with some knowledge.

In short, I concur in Mr. White's report.
Yours most faithfully,

LEWIS LAPHAM.

The CHAIRMAN. Mr. Secretary, on several occasions you have indicated that you would oppose a change in national policy to have our ships built in foreign countries, because of the balance-of-payments problem.

Do you still hold this view? Is it a personal view, or is it the result of the policy discussions up and down the line within the Department of Commerce, and within the administration?

Secretary CONNOR. There are strong differences of opinion within the administration on this particular question.

My view, whether it is personal or official as Secretary of Commerce, is a firmly held view, that ships that are constructed using the taxpayers' money should be built in American shipyards.

So I have opposed recommendations from various sources to the contrary.

I think that this is important, not only for balance-of-payments reasons, which is a very important element, in my thinking, but also because of the fact that I think our shipyards constitute an important national asset, and even in time of peace they should be kept busy enough, and the industry and its skilled labor associations should be kept in being, and active, and healthy, so that it is available in time of emergency for expansion.

In other words, I think a cadre of the shipbuilding industry is an essential national asset, and must be preserved and kept healthy.

The CHAIRMAN. Mr. Secretary, what savings in dollars, if any, would you expect to result through the establishment of a massive Department of Transportation, and to what extent do you believe that organizational structure, rather than effectively implemented and strong administrative leadership would cure our Nation's present maritime problems?

Secretary CONNOR. Mr. Chairman, cost savings is not a major reason for the proposed Department of Transportation.

As we look at the Federal Government's present responsibilities in the entire field of transportation, it seems to us that better management of the existing responsibilities should be probably the most important consideration.

But as we look ahead, and we try to contemplate the tremendous expansion in the transportation situation generally, and in the Federal Government's role in transportation, we think that there will be important cost savings possible through a Department of Transportation over what would otherwise be spent by the Federal Government in this entire field.

But we think more importantly, that through this kind of commmon management of the entire transportation situation, the Federal Gov

ernment will be in a better position to contribute to the growth and development of transportation as it will be needed to fit the Nation's complete economic needs and the needs of the people generally in the field of transportation.

With respect to the maritime situation, I think it is difficult to predict at the present time just what the cost and the expenditure picture will be, if maritime is a component part of the Department of Transportation, say, 10 years out.

I think that the changing technology will certainly play a very important role, and I think that the maritime industry, particularly the subsidized part, must be in a position to respond to these changes, so that through the use of technology this Nation can regain its rightful place as a leader in the merchant marine picture in the world.

I think that we have receded from that position of leadership through many forces, but one of them is that we are not now in the position to take advantage of the technological possibilities that are available to the future development of our merchant marine.

However, I think that the 1936 act has worked extremely well. The number of ships that have been constructed is not as large as was originally contemplated. On the other hand, the ships that have been constructed are the best ships that are sailing the oceans today under any flag, and I think that we have every right to be proud of those ships, and I think that Congress in particular should feel proud of its contribution to the entire program.

In the Vietnam situation, for example, the subsidized merchant marine has played a very important role, as the ships have been made available for the necessary carriage of military cargo, and personnel, into the Vietnam and related areas.

In addition, of course, for Vietnam we have had available the reserve fleet, and I think this is something that is lost sight of in looking at the merchant marine situation, as it has developed in the last several years.

There has been emphasis on the fact that some of the appropriations for construction of new ships have been reduced, and this reduction has taken place because of the absolute necessity of keeping the expenditures of Government to an absolute minimum in order to provide the necessary funds for carrying on the Vietnam situation directly, but as part of that Vietnam total expenditure, we have taken out of the reserve fleet so far a total of 109 ships, an additional 10 ships are in the process of being reconditioned, and we expect that additional ships will be taken from the reserve fleet for active service in the near future. This has involved in the last year or so an additional expenditure of approximately $50 million, in addition to the amounts appropriated to the Department of Commerce for the construction of new ships, so that the total picture of the Federal Government's support of the merchant fleet particularly in an emergency period such as we have in Vietnam, I think, is a commendable picture, and one that shows the tremendous national interest in a strong merchant marine.

The CHAIRMAN. I cannot agree with you on this wonderful picture that you paint, but that is your feeling.

One more question: Mr. Secretary, within the framework of your own past references to the American merchant marine as an instrument of our foreign trade, and its relationship to our balance of pay

ments and foreign commerce policy, the nature of its competition from foreign sources, do you not think that this industry could properly be considered apart from most, if not all, of the parts of our transportation system?

Secretary CONNOR. Well, I think that the merchant marine is an important part of our entire transportation system, Mr. Chairman, and I think that it will have a very important continuing role.

I think that international trade is to be considered just in its infancy. I think that there will be a tremendous expansion in our exports and imports in the next 10 or 20 years, and I think that a large share of this expanded trade will be carried in mechant ships.

I personally think that an appreciable percentage should be carried in U.S.-flag ships, and I think that we have to have a national policy that will make this possible.

The CHAIRMAN. I don't think that quite answers my question, Mr. Secretary.

I am trying to bring out this point: Do you not think that this industry could properly be considered apart from most, if not all, of our transportation system?

Secretary CONNOR. No, sir, Mr. Chairman: I do not. I think that it is an integral part of the entire transportation system, and should not be administered separately.

The CHAIRMAN. Mr. Clark?

Mr. CLARK. Mr. Secretary, yesterday I stated at the Rules Committee that we have had to draw since World War II, and especially just in the last couple of years, World War II ships out of, you might say, mothballs, at the cost of over $400,000 apiece per ship.

That is almost a half million dollars, and probably by the time they get on the seas, it would be a half million dollars.

Now, this is why so many of us have been very much interested in seeing that the merchant shipping is a separate agency, that the merchant marine is a separate agency, because we have not been able to see what this administration is doing at the present time to alleviate the situation in replacement of ships.

Right now, we are behind over 90 ships in the replacement of World War II vessels.

The administration has not come up with anything, as far as I can see, to make the merchant marine a first-class merchant marine shipping agency, and so, unless you can show us that the administration will get a topnotch man that knows something about merchant marine administration. I cannot see how this committee at any time would ever be able to say that we are for the bill that you are talking about, now or ever, because we feel that there is one time in the history of this country that we have got to stand together as a Merchant Marine Committee, and that is to try to make a strong merchant fleet.

We are not going to do it if they are No. 3 or No. 4 in the giving out of funds from the budget, or from the administration saying, "We are going to give so much to transportation, and merchant shipping would get 15 or 20 percent.

I would like to have you comment on what you feel you can do as an agency of one of four or five in your transportation agener.

Secretary CoxNOR, Mr. Clark, I don't think an apology is needed for the fact that over a hundred ships have been bròng of ent of the reserve fleet, and have b nditioned, and are now in active servof various kinds to Vietnam.

ice, carrying goods a

I think that was the purpose of the reserve fleet, and it is the reason why this Government has spent millions of dollars through the years, since the end of World War II to keep those ships in being and available for this kind of emergency service.

So I think what has been done in the last 18 months is completely consistent with the policies of Congress in making this possible.

I think it has been a very sensible thing, very effective and I think that it has met the need, and, with the additions to the active fleet that are now in contemplation and planning, this provides the kind of service that was contemplated at the time the legislation was adopted.

Now, it is true that the number of new ships constructed in the last year or so has not been as large as was authorized, but in an emergency situation like Vietnam, this Government is not able to provide the funds for everything that might be desirable, and this is one of the areas where there has been an accommodation.

Because of the fact that the reserve fleet was available, and the ships have been taken out at cost, as I have indicated, of about $50 million, the administration has not proposed the construction of as many ships as would be needed to come up to the original contemplation of the legislation.

Mr. CLARK. This is true. This is why I feel so strongly about this bill.

You have not come up with anything to correct the deficiencies of our merchant marine fleet, and not only that, but we authorized many more ships than you built, and as far as I can see, when you are authorized to build so many ships, you are authorized 10, and you build one-I am not saying you, not only this administration, but the one before it, and the one before that, and the one before that-they are all the same.

They have all been doing the same thing. They have been letting our merchant fleet go down to not only a third-class merchant marine but to become almost nonexistent.

Secretary CONNOR. Well, Mr. Clark, as I have indicated, I think the merchant fleet that has been built under the subsidy program is a fine fleet. It is not large enough, in my opinion, but, even if the Maritime Administration were an independent agency of Government, it would still be subject to the appropriations procedures within the administration.

It would have to submit its budget proposals through the Budget Bureau to the President, and the President in turn to Congress, so that, in a situation where there has to be some discipline about the use of the amount of taxpayers' funds available, there is no assurance that the Maritime Administration as an independent agency would have received more appropriations than has been the case in the last several years.

Mr. CLARK. Now, Mr. Connor, you said transportation involves $15 billion of public investment per year. Of this, maritime only involves less than how many, $300 million per year, which is really 2 percent. Can we depend on the fact that this balance will change in the future if the new transportation bill goes through?

Secretary CONNOR. For the fiscal year 1966, the total appropriation requests were over $300 million, as you indicate, for the subsidy programs. I don't know what the share for the merchant marine would

be of the Government's total transportation appropriations in futureyears.

I do think that a strong merchant marine is essential, and I think that there is a feeling in the administration generally that this is so. I think that there is a feeling in Congress that it is so.

I think that if the feeling is a general as I think it is, then certainly the share of the merchant marine in the total Government transportation picture would be adequate to fulfill the policy objectives that are established.

Mr. CLARK. Could you tell this committee that the new Administrator for this program, or the Administrator for the transportation agency, would be a man that knows anything about ships, or the merchant fleet?

This is, I think, the real problem.

Secretary CONNOR. Well, Mr. Clark, I don't know who the new Secretary of Transportation is going to be, except that I am sure I am not going to be it, so that I can speak objectively.

I would certainly try to persuade that gentleman or lady that a competent Maritime Administrator should be nominated by him to the President, and I would certainly try to be persuasive with the President that the person selected should be one that is thoroughly competent in this field. I hope that such a man would be confirmed by the Senate.

Mr. CLARK. Thank you, Mr. Secretary.

The CHAIRMAN. Mr. Secretary, just one question: You say we are doing a very good job with the so-called reserve, "rust bucket" fleet in the Vietnam situation.

What position would we be in if this conflict should spread out into other territories? How would we get the men there?

Secretary CONNOR. We would have difficulties.

The CHAIRMAN. We would be in pretty bad shape, would we not? Secretary CONNOR. We would be pressed, because we have had all we could do to get out of the reserve fleet, get conditioned in the shipyards, get active and get manned the number of ships that have now been put into service.

The CHAIRMAN. We are short of ships, and we are short of men, are we not?

Secretary CONNOR. We are at the moment; yes, sir.

The CHAIRMAN. We are in bad shape?

Secretary CONNOR. I would not say we are in bad shape. We are able to take care of the needs of the country at the moment, but if those needs redoubled, then this would be a very difficult situation.

The CHAIRMAN. I agree with you 100 percent, that we would be in a very difficult situation.

Mr. Mailliard.

Mr. MAILLIARD. Thank you, Mr. Chairman.

Mr. Secretary, following on Mr. Clark's discussion, and referring to your statement, on the bottom of page 3, in a sense I think you have inadvertently pointed up the thing that so many of us find disturbing. That is that, as is the case now within the Department of Commerce, and as clearly would be the case in the Department of Transportation, the maritime part of it is so very small and very different in the nature of its problems and from the other activities administered