Mr. MOSHER. These two documents, the majority and minority reports, are not documents that have been made public. Are they documents that this committee has access to?

Secretary CONNOR. They have been made public, Mr. Mosher, and if they have not been submitted to the committee members, I will be glad to see that you obtain copies.

(The documents follow:)

MARITIME POLICY AND PROGRAM OF THE UNITED STATES

REPORT AND RECOMMENDATIONS OF THE PUBLIC MEMBERS OF THE MARITIME ADVISORY COMMITTEE, SUBMITTED TO THE FULL COMMITTEE FOR ITS CONSIDERATION

(November 22, 1965-As revised, November 27, 1965)

MARITIME ADVISORY COMMITTEE

DECEMBER 1, 1965.

The attached report "Maritime Policy and Program of the United States" was adopted by a majority vote of the MAC membership during the course of its meeting on November 30, 1965. Following is the resolution of adoption:

Resolved that the report of three of the Maritime Advisory Committee Public Members, namely Messrs. Healy, Guerin, and Kheel, be adopted suject to the following:

1. Clarification that the report in no wise recommends any form of compulsory arbitration since the procedures recommended for the settlement of the various types of disputes mentioned in the report (including the results of the WirtzMeany Presidential Committee) will provide stability of labor relations which will increase the productivity and efficiency of our Merchant Marine through full utilization of the advantages of advanced technology and automation.

2. Recognition that the reference to the procedures established by the Secretary of Commerce for review for subsidy purposes of settlements arrived at in collective bargaining was not intended as an endorsement of the procedures as such but affirmation of the Government's proper interest for subsidy purposes in such settlements as "fair and reasonable” and in the public interest.

3. Appointment of a subcommittee of the Maritime Advisory Committee to prepare recommendations regarding our domestic waterborne commerce and to submit such recommendations to the full Committee for its consideration on or before January 15, 1966. The preparation of this report shall not delay submission of the report on our foreign waterborne commerce to the President although, if possible, the two reports shall be submitted jointly.

INTRODUCTION

The basic theme of this report is the renewal and expansion of the American Merchant Marine. The report proceeds on the firm conviction that the security of the United States and the free world, the continuing development of our foreign and domestic economy and the importance of our balance of payments require a healthy expanding shipping industry under the American flag. We are also convinced that an expanded merchant fleet lies completely within the capabilities of the United States.

Before presenting proposals to accomplish these objectives, some historical review of the committee's terms of reference is appropriate.

THE TENETS ON WHICH THE MAC HAS PROCEEDED

In Section 2, under the title, "Functions of the Committee." the Executive Order directs the MAC to consider “policies and practices” of government, labor, and management for "strengthening the trade, national defense, manpower, and labor relations programs of the maritime industry.”

At the first meeting of the MAC on August 10, 1964, the Committee adopted unanimously a resolution declaring that “the public interest, with respect to the merchant marine, requires the fullest practicable development of an adequate balanced American merchant marine-American-owned, citizen-manned, and American-built—to serve as an auxiliary to our Armed Forces in any emergency— to carry a substantial portion r water-borne foreign commerce as intended

by the Merchant Marine 2

In reaffirming the policy and pledging ourselves to the development of programs designed to effectuate the "public interest in a strong American Merchant Marine" as "clearly stated in the Merchant Marine Act of 1936," we had specific reference to the preamble to that Act and to the Declaration of Policy contained in Section 101.

The preamble is a masterpiece in brevity. It states that the Act is designed "to further the development of an adequate and well-balanced Merchant Marine to promote the commerce of the United States, to aid in the national defense, to repeal certain former legislation, and for other purposes." (Italic supplied).

The Declaration of Policy in Section 101 sets forth the essential elements that must be considered in connection with the determination of the kind of a merchant marine we want. It cites two basic reasons for a national maritime policy and these are (1) national defense, and (2) development of the foreign and domestic commerce of the United States. In pursuance of these two objectives, the Declaration of Policy states that the merchant marine should be sufficient to carry our domestic water-borne commerce and a "substantial portion" of the water-borne export and import foreign commerce, and also "to provide shipping service on all routes essential for maintaining the flow of such domestic and foreign water-borne commerce at all times." In pursuance of the objective of national defense, the Declaration of Policy indicates that the merchant marine shall be "capable of serving as a naval and military auxiliary in time of war or national emergency." It also states that the merchant marine should be "owned and operated under the United States flag by citizens of the United States insofar as may be practicable." With regard to shipbuilding, it indicates that the merchant marine shall be "composed of the best-equipped, safest, and most suitable types of vessels, constructed in the United States," and as to personnel, that the merchant marine shall be "manned with a trained and efficient citizen personnel." (Italic supplied.)

The degree to which the merchant marine achieves the objectives of the Act is the measure of the fleet's stature and status. Therefore, some observations with respect to the two principal objectives are essential.

(1) NATIONAL DEFENSE

In a statement to the MAC at the meeting on May 17, 1965, the Secretary of Commerce said that "existing ships under the American flag are adequate to meet presently established requirements for services by the Military." He also said that the 1,000 priority ships in our reserve fleets, the approximately 450 ships owned by Americans under foreign flags, and the ships under the NATO alliance must be taken into account for defense and commercial purposes. We recognize that our national defense needs are of a classified nature. Therefore, we cannot be aware of the merchant tonnage requirements projected by Defense for emergencies of varying magnitudes.

Despite the reassurances given to the Committee, it has grave misgivings about the adequacy of the present fleet. The current emergency in Vietnam has created justifiable doubts. Well over 90 percent of the supplies transported to South Vietnam are carried in ships' bottoms, and as of now the demand for ships is so great that there are not enough American flag vessels available to fill the security and commercial needs.

Some vessels have been activated from the reserve fleet, and substantial numbers of fast cargo liners have been placed on this run to bolster the supply capability of Government vessels. Still more are needed and an urgent call has gone out from the Military Sea Transportation Service to shipowners to provide more vessels to meet the rising demands of the Vietnam theater. On the one hand, we find the government chartering, in addition to those U.S. flag vessels directed to Vietnam service, foreign flag ships for Vietnam supply purposes. On the other hand, we see the Federal Maritime Administration granting permission upon a yet indeterminate scale for U.S. flag subsidized lines to charter foreign bottoms in one case of a 22 year old Liberty in order to maintain cargo service upon regular runs. We find instances also of foreign charters, in at least two cases already loaded with U.S. Vietnam supply cargo, refusing to sail to this destination.

Although the basic justification of the maintenance of a reserve fleet is that it is for defense purposes, the role of this fleet in the present limited crisis is far from clear. One is entitled to ask why the reserve fleet vessels are not broken out to a greater extent to serve the military needs, particularly when they are some 120 Victory type vessels available in that fleet. Undoubtedly the cost of 07-225-667

effective reactivation or adaptation of these ships is considerable, and, as the Secretary of Commerce pointed out at a MAC meeting, over time the ships in the reserve fleet become less adequate to meet emergency requirements. A careful study of the composition of this fleet and its adequacy for cargo handling is needed.

In determining capacity of our fleet to meet the defense needs of the country, the government includes the 450 ships owned by Americans under foreign flags. These ships, known variously as "flags of convenience", "flags of necessity", "Panlibhon flags", or "runaway flags", are registered with other governments. They will be referred to in this report as "flags of convenience." The Committee appreciates that the owners of these ships are committed to making them available to the United States in the event of a national emergency; the ships have been committed to the "effective control of the United States." But these ships are manned by foreign seamen, and the allegiance of these crews, particularly in the event of a major conflict, might lie elsewhere. To the extent that this situation might develop, such ships could well be lost to this country. Indeed, Admiral Wilfred A. Hearn acknowledged at the MAC meeting on June 21, 1965, that the Department of Defense considered only the usefulness of the ships and not the seamen aboard. Thus, the concept of "effective control", if valid at all, is highly questionable. The United States can ill afford to base a major part of its defense on well-intentioned commitments with a marked absence of any assurance that they are capable of fulfillment at a time of crisis.

The MAC has been told by Secretary of Commerce that the requirements for essential civilian shipping needs in the event of an emergency were in the process of development but were not yet available. Therefore, we are not able to judge the adequacy of existing fleet for this purpose. It is relevant to note, however,

that in World War II, coastwise shipping alone increased fourfold.

Recommendation:

Insofar as military or essential civilian requirements are concerned in times of national emergency, we have made no estimate of the size necessary to support adequately our Nation's military and civilian establishment. We are united in the conviction, however, that reliance cannot be placed on foreign flag vessels, whether under so-called effective United States control or not, to meet these requirements in time of war or emergency.

(2) FOREIGN AND DOMESTIC COMMERCE

Title I of the 1936 Act states that the merchant marine shall be "sufficient to carry its domestic water-borne commerce and a substantial portion of the waterborne export and import foreign commerce of the United States and to provide shipping service on all routes essential for maintaining the flow of such domestic and foreign water-borne commerce at all times." (Italic supplied.)

In direct contradiction to some theories now being advanced, the Act predicates the need for ships directly upon the commerce of the country. The framers of the Act entertained a most accurate concept of the true nature of commerce. Commerce is the flow of goods from one point to another. It may be created by any number of factors, from the buying and selling in the normal marts of trade to the movement of cargoes under Public Law 480 to the demands of the military in normal times for the transport of supplies. All of these constitute the commerce that the Act seeks to serve.

In the current public discussions about merchant marine policy there is a tendency on the part of some people to reduce the issue simply to the quantitative number of ships. This concept is erroneous. The objective of the Act is not and never was merely to create a certain number of ships in vacuo. Rather it is to provide sufficient U.S. flag vessels to insure that our people can trade competitively in the markets of the world and to carry a substantial portion of the resulting commerce.

In his statement on May 17, 1965, the Secretary of Commerce affirmed that we want to carry a “substantial portion" of our trade in American ships and said this was necessary "to assure the availability and utilization of United Statesflag ships, and to assure that American business has availble to it the kinds and qualities of service necessary for trade expansion, and to assist in our balance of payments program." He also said that. "we must have an amount of United States-flag shipping sufficient to assure that those foreign flag ships upon which we must rely will provi

There is likewise the

d service to American shippers at reasonable rates." "ry government generated cargoes. At times he

also emphasized the need for Amrican ships for national prestige as well as full employment.

These remarks aptly summarize the goals we take into account in determining our trade needs. In brief, we want to carry a "substantial portion" of our trade for the benefit of the American economy. This will provide the kinds and qualities of service necessary for trade expansion and assure that those foreign ships we use will provide good service at reasonable rates. We likewise need American ships for government generated cargoes. A strong merchant marine will also help our balance of payments. It will provide employment. It will add to American prestige. We have always been a sea-going nation. This is hardly the time to stop. This is why the Merchant Marine Act of 1936 specifically stated a "substantial portion" of our cargo should be carried in American ships.

Although our commercial need for American-flag merchant ships is impossible of precise definition, it is evident that:

A. The continuing decline of the American Merchant Marine is inimical to the interests of the United States.

B. The American Merchant Marine is required by law to carry a "substantial portion" of our export-import commerce. This is a sound requirement. While the term "substantial" is not susceptible of exact determination, it is clear that our merchant marine is not now carrying a sufficient portion of our exportimport commerce.

The dictionary defines "substantial" as "considerable" or "large." It would seem, moreover, that "substantial" must mean more than half. When the Merchant Marine Act of 1936 was passed, we were carrying 29.7 percent of our export-import cargoes in American ships. The act was passed for three primary reasons: (1) The so-called incentive subsidies, given by indirect methods, had failed, (2) new ships were not being built, and (3) we were dissatisfied by this low percentage of cargo participation. After the post-war boom, the decline began. The last year for which figures are available, namely, 1964, show that we carried a low 9.9 percent of our water-borne off-shore foreign trade or 34,319,000 long tons out of a total of 347,715,000 tons. The only segment of the American Merchant Marine that managed to improve its relative position in 1964 was dry cargo liner shipping engaged in regular service on fixed trade routes. The subsidized liners can, because of this performance, be considered very suc cessful. The other two major segments-dry cargo tramp shipping transporting bulk shipments in irregular service and tanker shipping-registered proportional declines. Dry cargo liners, which in 1963 carried 32.3 percent of the nation's general cargo trade, transported 32.5 percent in 1964. Dry cargo tramps carried 5.2 percent in 1963 and 6.5 percent in 1964. This slight increase was attributable to government cargo. American tankers handled 4.4 percent of international oil movements in 1963 and 5.4 percent in 1964.

Even though it may be difficult as a matter of statutory construction to define the term "substantial," we believe that it is useful and necessary to set some reasonable national goal to seek in the immediate future. From the record, we conclude that anything less than 30 percent of our foreign commerce is clearly insubstantial. From there we must move up. But we cannot raise our percentage above 30 until we have at least attained that goal. As indicated above, only our dry cargo or berth liners come anywhere near 30 percent. This seems to suggest that despite any deficiencies in our dry cargo liner programs and policies, we must be doing something right. In contrast, our tramps, which carry only 6 percent of the bulk tonnage (accounting for about 85 percent of our exports and imports), obviously need help. The proposals which follow are designed to achieve that objective as well as to secure what we have and to build thereon through increased efficiency and productivity.

The recommendations of the public members will be discussed under the following general headings: (A) United States Subsidized Liner Cargo Service, (B) Unsubsidized Liner Cargo Service, (C) Dry Bulk Carriers, (D) Liquid Bulk Carriers, (E) United States Passenger Ships, (F) Ship Construction, (G) Labor Relations, (H) Flags of Convenience, and (I) Concluding Comments.

A. UNITED STATES SUBSIDIZED LINER CARGO SERVICE

We are concerned here with our maritime policy as it relates to cargo ships in liner service; a separate section will discuss the passenger liners.

Any discussion of this branch of the American Merchant Marine must start with the clear, unequivocal finding that the subsidized liner services are as of now

approaching the objectives of the 1936 Act in carrying a substantial portion of the U.S. foreign Commerce. In so finding, however, we must add that their present share should be considered a minimum and should be increased to a goal of 50 percent.

In 1962, based on tons of general cargo, the liners carried 30.8 percent of our export-import commerce. In 1964 this figure had increased slightly, to 32.5 percent of total liner cargo. In the past decade the volume handled has ranged from 30 to 40 percent. Very often the accomplishments of this segment of the privately-owned U.S. Merchant Marine have been obscured by being combined with U. S. bulk cargo vessels, whose share of the national import-export commerce is as low as 5 to 6 percent. The very low over-all figure is simply because the nonliner dry cargo vessels and the tankers under American flag, without benefit of subsidy, have lost out badly to foreign competition.

It is evident that the relatively high success of the liner service fleet is attributable to the operating subsidies available to them pursuant to the 1936 Act. (Construction subsidies, also available, are very significant. These will be discussed under (F) below.)

The subsidy policy in effect during the past 29 years has been based on the cost-equalization parity principle. It contemplates that, by subsidizing the excess that American operators must pay above foreign costs, these operators will be enabled to compete with the low-cost foreign operators. Not all operating expenses are reimbursed under the Operating-Differential Subsidy (ODS) program. At present the expense categories covered are most wages for officers and crew, their subsistence, insurance costs, and maintenance and repair costs not covered by insurance. The ODS rate is defined by the government as follows:

"*** operating-differential subsidy rates represent the percentage by which the fair and reasonable cost to a U. S. operator of operating a U. S. flag vessel with a U. S. crew exceed the estimated fair and reasonable cost to a foreign operator of operating the same vessel with a foreign crew under the registries of the substantially competitive foreign countries." Recommendation

The public members recommend that the cost-equalization parity concept of operating subsidy payments be continued.

This recommendation is based on two reasons: (1) The concept has proved its worth in providing us with an efficient, modern liner service, and (2) no one has been able to come forth with an alternative subsidy approach that can be shown to be more effective or even equally as effective as the present system. That some form of subsidy must be continued is generally acknowledged.

With respect to the first reason, it has already been shown that the liner service has competed effectively in foreign commerce. Moreover, the American cargo liner fleet includes more fast ships than any fleet in the world, and this trend will continue as the current vessel replacement program is carried into the early 1970's. The subsidized lines are building new ships at the rate of approximately 17 per year and the production of higher speed liner ships (19 knots or more) is about 75% of the entire world production. The new ships contain many of the most advanced technical concepts of cargo handling, including containerization and unitization.

In assessing the success of the subsidized liner program under the Act, one must consider that, although the Act was passed in 1936, the subsidy provisions did not become fully operable until the mid-1950's. World War II and the post war digestion in commercial use of the war time fleets intervened to delay the full application of the subsidy program to the provision of a fully modern fleet. This fleet began essentially with the Mariner type hull in the mid-1950's. Since then we have acquired a fleet of approximately 117 new vessels. In the short span of 10-11 years, because of the operation of the subsidy program, the liner cargo service has moved rapidly toward the goal stated under Item (d), Title I of the Act: That the merchant marine shall be "composed of the best equipped, safest, and most suitable types of vesels constructed in the United States and manned with a trained and efficient citizen personnel." The construction and operating differential subsidies are found to have been very successful. The second reason the cept-is advanced after a alternatives suggested ** given to the provocati that the cost parity method of payment

absence of any demonstrably superior subsidy coneful study by the public members of the various rears. Inevitably, the greatest attention was sted in the Interagency Maritime Task Force resent system be maintained, but that the dividual operator's gross operating revenue.