"The contemplated procedures, to be effective, must provide the fullest practicable assurance that manning and related issues be settled without interruption of operations.

"Such procedures must be based on the concurrence and participation of all private parties whose interests are affected, and must achieve a parity of procedures insofar as interrelated interests are affected.

"I have asked Secretary Wirtz and Mr. Meany to report the results of their undertaking to me, with accompanying recommendation of this is appropriate, at the earliest possible time. I will then take or propose such action as appears appropriate in the light of their report.

"I propose to see to it that this problem, which involves public and private interest alike, is met fully and effectively."

We believe that such procedures can and will be devised. They must be devised to enable the industry to use maximum automation at as fast a rate as technology will permit. With regard to ships to be designed, the problem is readily solved. An agreement on manning from all of the unions can be procured in advance. With regard to ships in service and those in the shipyard being readied for service, a system of voluntary arbitration should be evolved. This would require a common arbitration mechanism with either a single arbitrator or a board of arbitration. A conference to evolve such procedures will undoubtedly be called shortly by Messrs. Wirtz and Meany and we are confident that their efforts will be successful.

We also believe that disputes involving representation and jurisdiction can also readily be resolved. There are already the procedures of the National Labor Relations Board and the AFL-CIO. With the aid of Messrs. Wirtz and Meany, these procedures can be adopted to the special needs of the maritime industry.

Other types of overlapping disputes, which are very infrequent though painful, can be covered by the same procedures developed for manning disputes. Recommendation

We recommend the establishment of a permanent labor-management council in the Department of Labor.

The procedures outlined above should cover all of the various types of disputes which might arise in maritime. But the industry is dynamic. It has keen competition. Automation is changing work requirements and work assignments and complicating union jurisdiction while reducing job availability. These problems are difficult enough to solve by themselves. They become all the more difficult in a declining industry.

Under these circumstances, we believe that an overall Permanent LaborManagement Council should be created in the Department of Labor. It should be composed of 15 members, five public, five industry, and five labor. The public members should include the Secretaries of Labor and Commerce and three others familiar with the problems of the industry. It should have general supervisory authority to make sure that the procedures outlined above work. It would be available to help modify these procedures as circumstances warrant and to devise new procedures for new problems. It should have general responsibility for the welfare of the industry and it should help promote its growth and expansion.

H. FLAGS OF CONVENIENCE

It has been noted earlier that the approximately 450 ships owned by U.S. corporations through foreign subsidiaries and operated under Panamanian, Honduran, or Liberian registry are regarded by the U.S. Navy as being under effective U.S. control. The status of these ships for defense purposes has been discussed.

Essentially these ships are bulk carriers: tankers and dry cargo vessels. Of the 456 vessels owned by American citizens as of January 1, 1961, about twothirds were owned by independent operators, and one-third were owned by major oil, steel, aluminum and other industrial corporations. Tankers accounted for well over half (282) of the total, and, in fact, the overwhelming majority of all the tanker capacity available to the United States is on Panlibhon vessels. Nearly all the ocean-going ore carriers were under the Panlibhon flags. It is also relevant that about 50% of these vessels were built after 1956 and are modern, efficient ships.

The flags of convenience antedated World War II, but their growth has been principally after the War. Some other maritime nations of the world have also

experienced the phenomenon of flags of convenience. For example, the President of the Chamber of Shipping of the United Kingdom, in an address before the Chamber on March 5, 1958, said "some may think that the most important (problem) is taxation. I beg to differ. Our Public Enemy No. 1 is the flag of convenience."

An appreciation of the role of the Panlibhon vessels vis-a-vis American flag vessels can be established by the following table showing their relative participation in United States foreign trade during 1960:

This table confirms what has been stated above: That where operating and construction subsidies are available, the American flag liners have been able to withstand the competition of the Panlibhon fleet. The American flag tramp fleet (dry cargo and tankers), without benefit of the subsidies provided by the 1939 Act, has suffered considerably from this competition.

The motivation of American owners to transfer ships or to build new ships under foreign registry is very understandable. There are two principal reasons: (a) to take advantage of the lower labor costs involved in the employment of foreign seamen, (b) the lower taxes to be paid under the applicable laws of the registry countries. Additionally, of course, is the important fact that most of the more recently built Panlibhon vessels have been constructed abroad at much lower cost.

In the deliberations of the Maritime Advisory Committee there were many allegations that the flags of convenience were chiefly responsible for the plight of the American merchant marine. These allegations are valid in the sense that American owners are providing almost ruinous competition to their compatriots by operating under a foreign registry.

But outlawing of these ships in any abrupt manner would not necessarily mean the absorption of their business by American flag vessels. Almost certainly this business would go to foreign vessels, many of which would be able to continue under the Panlibhon flags. As a consequence, the American-owned Panlibhon vessels would probably be sold to foreign interests. Thus, the United States would lose the indirect taxable income (when dividends are paid by the subsidiary to the parent corporation) and the dubious advantage of having these ships under the "effective control of the United States." The view that a drastic change in rules would create no more American vessels, no more jobs for American seamen, or for American shipyard workers is undoubtedly valid. One cannot legitimately castigate American businessmen for their pursuit of private enterprise, when such enterprise has been countenanced and even encouraged by government policy. The answer instead is in a gradual revision of government policy to accommodate two needs: (a) a reasonable opportunity for the owners of "flags of convenience" vessels to make adjustments in their business arrangements and (b) a restoration of these vessels or their replacements over a period of time to the American flag. These considerations are consistent with the view of an MAC member who recommended that "this Committee proceed with the development of a realistic program which will lead towards the development of an expanded American flag merchant marine." (Mr. Lee White, Minority Report, Subcommittee Re Flags of Necessity Vessels). It is also relevant that the Final Report of the Maritime Evaluation Committee to the Secretary of Commerce (October 31, 1963), contained the following comment: "A long-range approach whereby the EUSC (Effective United States Control) ships and jobs involved can be brough under U.S. flag is. desirable, in view of the security requirements for vessels." At the very least, government policy should be redesigned so as not to encourage the exodus of the American shipping operator or investor to the umbrage of a foreign flag.

The recommendations set forth under Section B (Dry Bulk Carriers) are related to the flags of convenience problem. These are designed to insure a stronger

U.S. fleet in one of the two areas in which the Panlibhon fleet has made the most serious inroads. However, if these recommendations are accompanied by the proscription that no operator may avail himself of the bulk carrier operating differential and construction subsidy program unless he divests himself of all flags-of-convenience vessels, it is unlikely that a meaningful transition will Therefore, the absolute limitation recommended for the unsubsidized liner operator as a condition for subsidy is not applicable here. Our interests will be better served if the American owners of flags-of-convenience are permitted to avail themselves of a new, vigorous government maritime program, provided their application is accompanied by a commitment to withdraw gradually from flags-of-convenience operation.

occur.

Recommendation

We recommend that the American owners of flags-of-convenience dry bulk carriers to be permitted to apply or bid for the U.S. constructed bulk carriers contemplated under section B of this report and to receive operating subsidy for such U.S. constructed carriers. However, as a condition of such Government support the operator shall agree that the approximately equivalent tonnage capacity of the U.S. bulk carrier will be eliminated from his flag-of-convenience fleet and, further, that there will be no subsequent increase in his flag-of-convenience fleet.

This same recommendation should apply to the liquid bulk carrier flagof-convenience operator if the MAC concludes that the provisions of section (B) should be extended to this segment of our fleet.

In Section C (Liquid Bulk Carriers), the public members suggested three alternatives; one of which was the application of the Dry Bulk Carrier recommendations to this branch of the merchant marine fleet. The other two alternatives require discussion.

Recommendation (Alternative)

It is recommended that the President of the United States and the Secretary of Commerce confer with our principal liquid cargo importing companies to determine whether the goal of carrying 30% of our liquid cargo commerce on American bottoms can be achieved by voluntary action. Obviously it would be preferable if a 30% crude oil import quota, carried on American ships, could be secured by voluntary action of the companies involved, just as the President and Secretary of Commerce were so instrumental in securing voluntary action to reverse or stem the tide of the adverse balance-ofpayments flow. These companies that have turned to flags-of-convenience for economic reasons are not indifferent to our national defense and commerce needs.

In the event that the first alternative fails of endorsement by the MAC and that the second proves unsuccessful, the public members advance the following third alternative recommendation.

Recommendation (Alternative)

That the oil import program be amended to provide that not less than 30% of all petroleum and petroleum products imported into the United States be carried by U.S. flag tankers, where such vessels are available at fair and reasonable rates for U.S. flag ships.

With respect to this recommendation there is considerable controversy. The public members have reviewed carefully the thoughtful documents submitted by Mr. Joseph Andrea and Mr. Joseph Kahn, members of the MAC, in response to this portion of the Kheel Subcommittee Report. A statement of the American Committee for Flags of Necessity (January 29, 1965) was also considered.

The concept of a 30% "American bottom" import quota is questioned on two counts: (1) that it is a discriminatory measure, absent any evidence that oil imports must depend to this degree on American bottoms or that such a measure would "help in any way to resolve the fundamental problem of the American Merchant Marine." (2) That such a limitation would be in conflict with treaties and programs of the government directed at promotion of international trade and might lead to retaliation by other nations against the United States.

Neither of these arguments is without some merit. Yet neither is persuasive enough, when considered by reference to the national interest, to be allowed to govern. The oil industry, like the shipping industry itself, has special international characteristics. This country was not reluctant, in the national interest, to adopt the 1959 program for mandatory oil import control. It did so in the belief that an excess ratio of total imports to domestic production could impair

the national security. Oil is a very special commodity that warrants this concern. It is not unreasonably "discriminatory" to require that not less than onethird of these imports be carried in American-flag tankers. The MAC meetings show that such a requirement would impose little or no additional cost on the American consumer, because the price of oil-derived fuel is based principally on considerations other than foreign import.

The sensitivity of other governments to such a moderate restriction imposed by the U.S. cannot be credited as a serious argument. We note the Department of State's report that the United States government has "consistently opposed the actions of certain foreign governments which have tended to artificially cloak commercial cargoes under the colors of government cargoes." We understand and acknowledge the State Department's constant struggle to develop "nondiscriminatory shipping clauses." At the same time, we are mindful that the maritime strength of other nations is advancing rapidly at the expense of the American Merchant Marine and oftentimes because of the over-indulgent, conciliatory attitude of the State Department to placate other nations. We are equally mindful that a treaty of "non-discrimination" in international shipping is meaningful only to the extent that it is enforced. There is some evidence to warrant a question whether governments, referred to in the State Department's report, do not subvert "friendship, commerce and navigation treaties" by exerting pressure on their nationals to secure shipment on their own vessels for import-export trade. Finally, there is some forceful legal opinion to the effect that the treaty terms, to which the Department of State refers, do not foreclose the adoption of this form of regulatory measure in the national interest.

In summary, one or more of these measures should be undertaken immediately to reverse the trend toward the flags-of-covenience concept.

I. CONCLUDING COMMENTS

President Johnson, in his Executive Order creating the Maritime Advisory Committee, said:

"The Committee shall consider such matters of policy and administration of government programs affecting the Maritime industry as it deems to be in the public interest."

The public interest will be served best by a vigorous program of government support for all segments of our merchant fleet and for our shipbuilding industry. To remain a strong nation in the free world it is essential that these vital parts of our defense and our national commerce be expanded.

In terms of national resources to be dedicated to the rejuvenation of the entire American Merchant Marine, the price is moderate. Projected against the background of a seven hundred billion dollar prospective national economy, estimates for such rejuvenation range in the order of one-tenth of 1%.

The allocation of national resources in support of the U.S. Merchant Marine, through budgetary and other means, is basically a government decision. We believe however that in consonance with the support given to other industries and areas vital to the public interest, that budgetary considerations should not stifle and retard the progress and development of our maritime establishment.

DISSENT OF H. LEE WHITE TO THE MAJORITY REPORT OF THE PRESIDENT'S MARITIME ADVISORY COMMITTEE

On Tuesday, November 30, 1965, three of the public members of the Maritime Advisory Committee, i.e., James J. Healy, Theodore W. Kheel and Thomas P. Guerin, submitted a document containing their report and recommendations for maritime policy and program to the full Maritime Advisory Committee. Deane Malott and Lewis Lapham who are also public members of the Maritime Advisory Committee did not participate in the preparation of this report because outside demands on their time prevented them from attending the meetings held by that subcommittee. At the meeting of the full Maritime Advisory Committee, at which twelve of the fifteen members of the Committee were present, this report of the three public members was approved by a vote of 10-2, and thereby became the majority report of the Maritime Advisory Committee. As one of the two dissenting members, I asked for, and received, permission to file this dissent to the majority report.

My basic objections to the majority recommendations are as follows:

(1) They were arrived at primarily with some knowledge of liner type operations and were not made with complete enough understanding of the problems affecting the bulk carrier tramp fleets, both in foreign trade and domestic trade. (2) The recommendations of the majority will require too large an expenditure of public funds in the light of other national needs and, therefore, are not in the public interest.

(3) They rely on large yearly appropriations from the United States Congress-appropriations which may or may not be available.

(4) They limit the creation of the United States flag fleet in being and the job opportunity for our merchant seamen to that amount of money which may become available for the annual shipbuilding subsidy. No provision is made for permitting the American fleet to expand in any year when the construction subsidy for that year has been exhausted or there is none available. (5) They continue all the destructive, prohibitive restrictions on the merchant fleet (the vessels and the crews that man them) that are now in existence, restrictions which are not applicable to any other form of transportation in the United States.

(6) If these prohibitive restrictions were also continued for the domestic fleet, they would continue to impose a prohibitive cost burden on those in the United States who must, or could, use this fleet to transport the products they produce or consume.

(7) The recommendations will produce only minor additions, if any, to the tramp bulk fleet, the fleet which is stated by the majority as being in the direst straits.

(8) The recommendations fail to take advantage of the potentialities of the Cabotage Laws and the Cargo Preference laws to assist in the creation of a new modern tramp bulk fleet without subsidy.

(9) The recommendations are based on the assumption that the United States shipyards are an integral part of the active merchant marine. They fail to recognize that the shipyard industry is a separate industry which, although an important industry, is really in the nature of an industry that supports the fleet by supplying equipment to that fleet.

(10) The recommendations do not recognize that from the standpoint of our national security a fleet in being may be more important in time of extreme emergency than a shipyard capability.

(11) The recommendations assume the necessity of a one-for-one relationship between the national needs for shipyard capability and our national needs for a fleet in being.

(12) The recommendations fail to recognize that the need for maintaining a shipyard capability is a national defense need and is not a commercial requirement. The shipyard capability for national defense should be maintained by the Department of Defense on the basis of needs for that purpose projected by the Department of Defense.

The American flag shipping industry is a very sick industry. It is necessary that something must be done and soon or inevitably the United States flag fleet will disappear except for the liner segment of it. Providing temporary expedients or submitting recommendations that will not cure its basic ills postpones only for a short time its demise. We must create conditions under which the merchant fleet has a chance to grow and become competitive. I have a firm conviction that our merchant marine should expand and that the United States flag should fly over as large a fleet of fast, modern vessels as possible. I have said it is desirable to have as large a fleet as possible. However, I hasten to add that it is necessary or essential only to have a fleet large enough to meet our national needs, i.e., (i) to meet the military shipping requirements of the United States for both large and small wars, i.e, the shipping requirements developed by the Department of Defense; and (ii) to meet the urgent requirements of the civilian economy under conditions of emergency, i.e., the requirements developed by the Office of Emergency Planning and the Office of Emergency Transportation.

I part company with the majority in this distinction between what is "desirable" and what is "essential." Because it is important for many reasons for us to have as large and as modern a fleet as is feasible, it is desirable that we in the industry, management and labor alike, should do everything possible to make our fleets more economical so that offshore we can compete on a better basis with the fleets of other countries and so that in our coastal and intercoastal trade we can provide low cost transportation for American industry which must, or should,