million. The 50-ship figure was arrived at not only because we felt that this was what was needed at present, but because we feel that this is a realistic attainable goal within the framework of the expenditures which the Federal Government or at least the administration has already indicated that it is willing to spend on a merchant marine program.

Mr. DOWNING. Let us talk about cargoes. Are cargoes available for this fleet if we ever get it started?

Mr. MASKIN. Mr. Congressman, for the unsubsidized fleet of course the most important consideration is cargoes. Above and beyond subsidy or any other consideration, what these people must be assured of is the availability of cargoes at all times. Now, you know that the cargo preference program has been the backbone of support for the unsubsidized segment which has never had operating or construction subsidy and one of the planks in the AMA program is not only the retention of the cargo preference program, but the expansion of the cargo preferance program not only in terms of Government cargoes but also in terms of such cargoes as oil, which right now are imported in great measure by the runaway flag ships of Liberia and Panama.

We think that there ought to be a reservation of a percentage of those imports to American-flag ships. But cargo is essential to our program, the availability of cargo, and one of the things I might say, Mr. Congressman, is that the two things that the unsubsidized operators are primarily concerned about is, one, as you know, the unsubsidized fleet is now about 70 or 75 percent obsolete. However, this means that 20 to 25 percent of the unsubsidized fleet is fairly modern, that is consisting of ships built since the last Suez crisis of 1956, primarily tankers and containerships.

These ships were built without Government subsidy and represent an investment of hundreds of millions of dollars on the part of private investors. Certainly, if we are to rejuvenate our unsubsidized fleet it is these newer ships, this 20- to 25-percent segment of our unsubsidized fleet which must be the nucleus of that rejuvenation.

Now, the two things that our operators are concerned about are maintaining the value of their investment in those ships and maintaining an adequate supply of cargo for these ships to carry. These are the two major points on which we take such violent issue with Mr. Boyd. First of all because he has proposed the entrance of foreign-built ships which would drive these American-built ships out of business, and, second, because of his attitude about cargo preference.

Now, you know that Mr. Boyd lent his name to the rather infamous, if I can call it that, interagency task force report which was generally called the Boyd report. That report recommended the phasing out of cargo preference. In the interim, Mr. Boyd has apparently had some change of heart or been forced by circumstances to modify his position somewhat and stated before the Bartlett committee that cargo preference would be retained but at the same time he stated very succinctly to the committee that he was philosophically opposed to cargo preference, so that just how long it will be retained is very problematical if Mr. Boyd has his way.

I believe that Mr. Curran, in his testimony the other day when he was queried about this point, essentially said that he thought that Mr.

Boyd had had some change of heart about this thing and possibly about some of his other proposals, but I have seen nothing publicly, privately, orally, or printed, to indicate that this is so. And I would really be surprised if I were to learn that this is so because I think that this is fundamental to Mr. Boyd's program.

I would like to add that in the program which the AMA presented to the Bartlett subcommittee the AMA not only called for an independent maritime administration, but also asked that administration of the cargo preference laws be placed in the hands of the Maritime Administrator and it is very difficult to understand how those laws could be effectively administered if the Maritime Administrator were under the jurisdiction of a secretary who had stated that he is philosophically opposed to cargo preference.

Mr. DOWNING. To what percentage do you think the Cargo Preference Act should be expanded?

Mr. MASKIN. We made a suggestion to the Bartlett subcommittee, sir, which I would also like to make here. Reference has been made to the Maritime Advisory Committee. I might point out that the Maritime Advisory Committee was broken down into subcommittees to study various problems, and the first subcommittee that was created was a subcommittee under the chairmanship of Mr. Theodore Kheel, who was a public member of the Maritime Advisory Committee, and they were charged with the responsibility of studying the carriage of bulk cargoes by the merchant ships of this country and making recommendations.

They prepared a subcommittee report which recommended that we establish a bulk carrying fleet of dry and liquid bulk carriers that would be able to carry 30 percent of this country's bulk cargoes. Thereupon, the Interagency Maritime Task Force took it upon itself to prepare a document which they called Analysis of the Economic Implications of the Kheel subcommittee report, and what theyattempted to do was to take the Kheel recommendations and translate them into concrete terms of ships and costs. And, interestingly enough, they stated in their presentation that they estimated that in order for us to have a bulk fleet which would carry 30 percent of our bulk cargoes it would be necessary for us to build something like 250 bulk carriers over the next 20 years, or roughly about 12 a year. But they also estimated that, because of the greater size and efficiency of these bulk carriers, cargo preference costs could be substantially reduced and they estimated that if we were to follow the recommendations of the Kheel committee and build this number of bulk carriers annually, cargo preference costs could be reduced by about $10 million a year. That is the freight rate differentials, which means that since our cargo preference program now costs us between $80 and $100 million a year, even if we take the higher figure the cargo preference freight rate differentials could be reduced to zero in a matter of about 10 years. And certainly if they were reduced to zero, then there would be no valid reason why American-flag ships should not carry 100 percent of the cargoes which are sponsored by this Government and paid for by the taxpayers.

So we suggested to the Bartlett committee that possibly some consideration be given in to the establishment of a sliding scale whereby,

if the ships were built and if cargo freight rate differentials could be reduced, the volume of cargo that would be reserved to American-flag ships would be proportionately increased so that hopefully in a period of about 10 years, with the freight differential reduced to zero, we would then be carrying 100 percent of our Government cargoes.

Mr. DOWNING. In other words, you advocate that we should carry at least 30 percent of our own cargo and that the Cargo Preference Act be increased proportionately with the need of the new fleet.

Mr. MASKIN. Right; not only with the need of the new fleet, but with the ability of the new fleet to carry his cargo at reduced costs. Mr. DOWNING. I apologize for taking so much time, but you are in interesting witness and you have made a vital contribution.

Mr. MASKIN. Thank you, sir.

The CHAIRMAN. Mr. Morton?

Mr. MORTON. Mr. Maskin, on these 15 ships a year on the unsubsidized lines are you thinking in terms of a ship-for-ship replacement, or are you thinking in terms of larger ships with greater capacity? Mr. MASKIN. Well, there has been some discussion, Mr. Congressman, as to whether we should think in terms of replacing ships on a ship-for-ship basis or in terms of their cargo carrying capacity. There are at present about 80 unsubsidized liners operating on regular trade routes being operated by four major unsubsidized companies in this country, and the suggestion has been made by Mr. Boyd that operating subsidy be advanced to these four companies whose fleets are on the verge of obsolescence.

The 15-ship program that we have advocated would mean the replacement of the 80 ships, as I say, in a period of about 51⁄2 years on a ship-for-ship basis. However, I think that looking at the overall picture, we hear discussions as to whether we should strive to replace the cargo carrying capacity of our fleet or should try to replace ships on a ship-for-ship basis. And I think that our efforts looking at the entire picture should be directed toward trying to replace the ships on a ship-for-ship basis eventually, over a long period of time.

I might say that the AMA program is a 10-year program. However, we believe that it will take 5 years anyway to replace the present cargo carrying capacity of our ships. In other words, 5 years is not a long enough period probably to replace the entire fleet. We have 600 ships in the unsubsidized fleet, on a ship-by-ship basis, so that we will have to concentrate our efforts in the early years of the program to replacing the cargo carrying capacity, which we can do because each new ship is going to give you somewhere between three and four times the cargo carrying capacity of the present ships.

But we think that our eventual goal should be the replacement of ships on a ship-by-ship basis for a number of reasons. First of all, as all of us know, our total volume of our foreign commerce is expanding exceedingly rapidly, I understand according to a Department of Commerce estimate at the rate of about 14 percent a year. So that, if we are only going to replace our fleet on the basis of total cargo carrying capacity and meanwhile the total volume of cargo is going to increase so rapidly, obviously our 7 percent is going to go to 312 percent of something, whereas, if our goal is to replace the present fleet ship by ship and we end up with 900 new ships each of three times the present

capacity, we are at least going to hold our own in terms of cargo carrying capacity and not go backward.

Also, there is this to be considered. That we now have approximately 900 ships in our fleet and, while this is not too factual, just say for the sake of argument that we intend to replace all 900 ships but on a cargocarrying basis. This would mean if the 900 ships at present could be replaced, say, by 300 new ships what would this do to employment opportunities for seamen? What would it do for employment opportunities for shipbuilders? So that I think that our goal should be the replacement of the present fleet at least in terms of numbers of ships, which would then give us a fleet of about three times the present size in terms of cargo-carrying capacity.

Mr. MORTON. I think that is good reasoning. Let me ask you this question. What capital costs are you using in the projections for ships? Are you using current capital costs on today's market, or are you using world prices?

Mr. MASKIN. By and large, Mr. Congressman, the cost figures that we have cited in our presentation are cost figures which have been advanced by Government representatives themselves. For our liner replacement program, we have estimated a total cost of about $15 million per ship that would be the total cost-and for the tramp segment of the fleet, about $10 million.

Now, these figures, I might say, are a little under the figures you arrive at if you take the maritime budget request for the current fiscal year or next fiscal year and divide it out by the number of ships that have been requested. However, they are figures which represent today's market costs. They are based on estimates made by other Government officials and by our own experience in the field.

I might say that several AMA companies are now in the process of building new tankers. We have estimated that for the tanker and tramp segment of our program, that these ships would be built at an average cost of about $10 million. I understand that the actual contracts signed with Bethlehem call for a cost of about $1011⁄2 million, so that you can see we are hitting pretty close to the line, I would think. Mr. MORTON. On cargo-carrying capacity, then, these ships are being constructed without as great a differential cargowise as would appear in the difference between foreign construction costs and domestic construction costs, is this not correct?

Mr. MASKIN. I am not sure that I follow your question.

Mr. MORTON. By making the ships bigger, we offset some of the advantages of foreign construction; is this not correct?

Mr. MASKIN. Yes. I might say that the average T-2 tanker, as you know, is about 16,000 deadweight tons, and the new tankers that have been ordered by the AMA companies are all 37,000 deadweight tons, so that is a little better than 2 for 1.

I might say, incidentally, that Mr. Boyd has made a point that if we give a lot of orders to U.S. shipyards we will inflate shipyard prices. The tankers that are being built in the Bethlehem yard at a price of about $102 million is the price that they were built at in 1958 and 1957, so that there has been no inflation.

Mr. MORTON. Thank you very much.
The CHAIRMAN. Mr. Pollock?

Mr. POLLOCK. Mr. Chairman, I would like to compliment Mr. Maskin on his statement and the candor with which he has presented his. views, and express appreciation for his being here.

Perhaps this will be a good experience that when it is about 5 minutes or 7 minutes to the hour that there really isn't enough time, even though you may have an interesting statement to make. I am sorry that all of the members of the committee aren't here to be able to go into some depth with you on questioning. The admiral here yesterday representing CASL indicated a preference, which changed from a year ago, that the maritime industry be placed under the Department of Transportation.

You have expressed a view which is diametrically opposed. Would you care to comment on his views, on his change in attitude, that of CASL?

Mr. MASKIN. If I may say, Mr. Pollock, I would not care to comment. I mean, I think that the admiral's views are his views, and I would not care to comment on those.

Mr. POLLOCK. Well, let's talk about the industry, his representing one group of the industry and you representing another.

Mr. MASKIN. I will say that the problems of subsidized operators are considerably different from those of the unsubsidized operators, naturally. As you know, the subsidized operators whom Admiral James represents have, by and large, accepted the proposals of Secretary Boyd. And I might add that you can check the record and you will see that they accepted them very, very quickly.

As I pointed out in my statement, it was only a few days after we learned through the newspapers that these proposals were even in existence that we also read that the CASL group had substantially accepted them.

Mr. POLLOCK. Would you yield a minute? Is it fair to say that you have no fear of losing a subsidy?

Mr. MASKIN. That we have no fear of losing a subsidy?

Mr. POLLOCK. In your candor.

Mr. MASKIN. Well, we have no subsidy to lose.

Mr. POLLOCK. This is my point.

Mr. MASKIN. Yes. But let me say this. Now, you know, of course, that the major bone of contention here is the foreign shipbuilding issue, and CASL has not only accepted this, but promoted it. I can understand their reasoning, because, as Admiral James said, due primarily to budgetary limitations during the past years, they are now running about 90 to 100 ships behind on their replacement programs. They do need ships and I think they should have ships.

The difference is, that by building abroad the CASL operators would not jeopardize their present investment in tonnage, because these ships, by virtue of the subsidy program, have already been built at world prices. When you get to your unsubsidized operator, you have an entirely different situation, because he has a $10 million ship which now may be forced to compete with a $5 million ship. So that you can see the reasons for the split over this issue, and somehow it translates itself into the position on the Maritime Administration. Because, with that kind of a proposal emanating from Mr. Boyd, it is very plain to see why we could not accept the idea of going into a