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chance to look over or has your staff been able to keep you reasonably well informed as to the testimony in these hearings up until now! Secretary BOYD. Yes, sir. I have had general summaries.

Mr. MAILLIARD. I must say that I come out with the impression that your opponents may not be vociferous nor your supporters so univer sally enthusiastic as press reports would have had us believe.

Secretary BOYD. That is entirely possible. That is usually the case, Mr. Mailliard. Few things are as good or as bad as they seem. I don't think that I know anybody who looks on this program as perfection.

Mr. MAILLIARD. That is why I am a little disturbed at your response to Mrs. Sullivan, because I don't believe anybody on this committee has a closed mind. However, I think that we do rear back a little bit at the notion that we are presented with an "all-or-nothing" proposition. so that there is no opportunity for you to submit a program to which. the Congress still has the privilege of at least making some contribution.

Secretary BOYD. I have no intention, Mr. Mailliard, of dealing ir an ultimatum. And there are many aspects of this program which are not inflexible, to use a word which has recently been coined. However. there are elements which are inflexible insofar as the administration is concerned, and Charlie Schultze indicated those pretty clearly the other day. Level of funds, an element of foreign construction, the shif in the operating subsidies, and the direct subsidies to the shipyards I think are generally the fairly rigid items in this program. There are many other items obviously.

Mr. MAILLIARD. I think we ought to be sure we understand wha we are talking about. I can accept without any offense the idea that there are certain essential policy ingredients that the administration. would stick to pretty vigorously. However, even within those policy determinations there are details which are not spelled out here, and it might have a lot to do with whether some of them are acceptable to some of us depending upon exactly how they are going to be carried

out.

Secretary BOYD. I understand that.

Mr. MAILLIARD. I would hate to think that we are foreclosed from further discussions as to how some of these things might be done.

Secretary BOYD. Well, despite the different political faiths whi are represented in our colloquy, I hope that you would feel that the administration is made up of reasonable men, Mr. Mailliard. Certainly I know the administration feels that way about the members of your committee who are of your political faith, so that I think that there are many of these things that could be worked out in some reasonable way with the basic policies being adhered to.

Mr. MAILLIARD. I understand that we have come a long way fro the original report which unfortunately bore your name, and we have even come a little way since you testified before the Senate, which ind cates to me, as you suggested, that the charges of "inflexibility" dot. appear to be valid. You have changed quite a few and some quite significant items in your program.

Secretary BoYD. We are interested in improving the situation of th merchant marine and I think that the record should reflect that our bona fides are just as great as those of anybody else. We are not inflexible. We are concerned about the merchant marine.

Mr. MAILLIARD. Can you give us a rough figure and I don't think it in your statement but maybe it is-as to what the total annual fundg during this 5-year period, not just for construction but for the hole maritime program, might look like?

Secretary BOYD. About $600 million a year on an annual basis.

Mr. MAILLIARD. How much of that do you anticipate would be contruction subsidy?

Secretary BOYD. That would run from $220 million a year up to 255 million a year, reducing again to $220 million, so that there would e 3 years at approximately $222 million and 2 years at $255 million. These are both obviously approximate figures.

Mr. MAILLIARD. Well, that raises a question in my mind concerning our statement on pages 3 and 4 of your prepared testimony that subsidy would be paid directly to shipyards to help them compete for customers on the world market." You mentioned this as one of he things you feel is extremely significant.

Secretary BoYD. Yes; I do, not only for the subsidy itself but we feel-and I think there is a fair modicum of agreement, I can't say that even the majority of the shipyards agree on this, but I think they do if they understand it-that this will give the shipyards an opportunity to plan their investments to operate on a larger flight construcprogram and it will eliminate a measure of what I consider to be an administrative burden which is now imposed on the shipyards by the system whereby the operator obtains authority to build a ship and goes out on contract.

tion

It will also give the shipyards the opportunity to put their thinking into ship design and construction.

Mr. MAILLIARD. In other words, your objective is to get away from this business of having somebody completely unrelated to the shipyard do all the preliminary design work and put out the bids which results in the shipyard really having very little to say?

Secretary BOYD. As I understand the situation now, Mr. Mailliard, it is very much as if I took a bolt of cloth and a pattern into a tailor and said, "Make me a suit on this pattern," and he would have no opportunity to say, "Do you want a flap in the back, do you want side vents, do you want a vest, do you want three or two buttons on your suit, and what about your cuffs?" It is just handed to him and there it is and if any changes are made you have this very healthy flow of paper which goes from shipyard to operator to Maritime Administration, probably to some bank somewhere, and back and forth and all around and, in order to get a faucet which runs hot water instead of cold, you spend 6 months and who knows how much money, which is completely unnecessary.

Mr. MAILLIARD. When you talk about helping them to compete for customers on world market, are you anticipating that somehow they might sell some of these ships abroad?

Secretary BOYD. Yes.

Mr. MAILLIARD. Well, then, I am a little at sea as to how you determine the subsidy.

Secretary BOYD. How you determine the subsidy? It will be determined on the basis of productivity with the subsidy being the difference between the United States and the world market price so that

when the shipyard, when XYZ shipyard offers a ship for sale. offer it for sale at roughly world market prices.

I understand that world market prices are different things: that y pay a different price in Japan, for example, than you do in West Ge many. There is a percentage difference, but then you have also d ferent financing and different delivery dates and this is never going: be a mathematical thing like adding up 2 and 2 to make 4, but gr averages can be developed.

Mr. MAILLIARD. I understand that but I presume that if you got average that you would have to apply it per ship or per group ships.

Secretary BOYD. Per group of ships.

Mr. MAILLIARD. If you applied it per group of ships, do you th mean that there would be a possibility that a shipyard might sell o of those ships abroad with the subsidy?

Secretary BOYD. Oh, I think ultimately, yes. It may not even necessary to have a subsidy, as I pointed out, for a sale abroad. If y get a long enough run, and we think there is a major future in sh building for bulk operations, your costs will come down with the lear ing curve and greater productivity, so that the 17th ship, for examp of a flight might not require subsidy. But I think that it is irreleva whether or not subsidy is required in order to permit a foreign sa One of the things we have to keep separate in our minds as I see it that we want a shipbuilding industry which is strong and viable. Th is one thing we want. We want a merchant marine which is strong at viable. This is another thing we want.

These are not the same thing. We are subsidizing the shipbuild industry because of the shipbuilding industry. We are not subsiding shipbuilding industry because of the merchant marine, if I can mas that distinction.

Mr. MAILLIARD. I understand that. I understand exactly why y are trying to separate these, but I am not quite clear in my own m as to what opportunties would result. I wonder if the charges madeI think by you as well as others--that we have a somewhat antiquate shipbuilding industry

Secretary BoYD. I have only quoted others. I have no persoa knowledge on that score.

Mr. BYRNE. Will the gentleman yield?

Mr. MAILLIARD. Just a half second. If that is so, then I wonder abo something that I understand is under consideration in Britain t may even go into operation providing some tax deferment or ot "incentive"-a word you used several places-to make this large ca tal investment required to really get them to compete for customers the world market. I can't quite see how you could expect a subs program, especially at the level we were just talking about, to pr duce this infusion of capital without some additional tax incent It is going to be an enormous investment if we can see ahead to wh you are talking about and that is

Secretary Born. This is why we are talking about a 5-year progr with a follow-on 5-year program, so that there will be some stabil in the industry. I have very great sympathy for our own shipyar They have had a feast-and-famine operation. One of the things

re trying to do is to put an underlay of stability in the industry ith as much of a guarantee forward as can be reasonably and legally

one.

I am inclined to think that this would provide the necessary footngs on which to build a stable operation. I don't know how germane t is but I understand that some of our major shipyards buy some of heir major equipment abroad and we don't have any problem with hat. They are buying at world market prices which, if the costs tre relatively the same per ship as they are for a way or graving lock, then we are putting subsidy money into building ships on those locks.

Mr. MAILLIARD. I am not trying to raise the issue. The reason I am spending as much time as I am is that I think that the one item in your program which has caused the most political difficulty is this question of building abroad. This is a complete departure from what we have done in the past. I am just trying to lay out a record here to see what you really have in mind. You brush it off with three or four lines and this is a very important, vital thing, I think, as to whether your proposals have a prospect of being adopted.

This ties in with another section where you are talking about domestic shipping. Am I correct in assuming that you would envisage that the domestic lines would have the same opportunity to buy at world market prices either as a result of the shipyard subsidy or by buying abroad?

Secretary BoYD. Subject to the hearing process which I also include. Mr. MAILLIARD. To protect the people who have already invested in the higher cost ship?

Secretary BOYD. Yes, sir.

Mr. MAILLIARD. I think it is an intriguing prospect but what I am very unclear in my own mind about is whether the economics of it will really work out. Do you have any feeling from your discussions with the shipbuilders that they really think this approach is feasible?

Secretary BOYD. Well, I have all sorts of reactions, Mr. Mailliard, including one which is that "We can compete now with foreigners if they have to build to U.S. specifications"-which, of course, they would "we can compete now." Others in the industry say this fellow doesn't know what he is talking about, which I am in no position to judge, although I gather that there is a profitable operation in this particular yard. He is not competing now as far as I know with foreign construction.

Others say that "There is no way in the world we can ever compete, because 50 percent of the cost of a ship is in components, and our component costs are higher than the same components abroad, so that there is just no give in here anywhere."

There are some of them who would be interested in taking a whack at this. Many of them, however, are deeply concerned that this is the old camel's nose under the tent. There is no reason in the world why we can't work out something in the way of authorization both for subsidy in the U.S. yards and authority to purchase in foreign yards to a fixed period and at the end of that time review the whole thing. Mr. MAILLIARD. Well, there are a lot of ways we could go at this. We can limit it by numbers. We can limit it by proportions. We can limit it by time. There are many protections that can be put on.

Secretary BOYD. That is right.

Mr. MAILLIARD. But the guts of the question is: Is this, from an economics point of view, an overoptimistic prospect or does it fall within the realm of reality? That is the thing that I am very uncertain about, myself.

Secretary BOYD. Well, we are clear on this. It will be difficult to determine the economics of the proposal unless we can view the total operation over a period of 5 years. We are not going to know much at the end of 1 year. We are going to know a little more at the end of 2 years. It is a gamble but don't forget it is a gamble which involves boosting our construction subsidy very substantially.

Mr. MAILLIARD. Yes; but if the picture you paint really is possible. then this investment could be returned to us many times over if we get a competitive industry.

Secretary BOYD. That is right.

Mr. MAILLIARD. Does the gentleman from Pennsylvania want me to yield?

Mr. BYRNE. No.

Mr. MAILLIARD. I don't want to take too much time.

In every one of your paragraphs we could discuss details and I don't think that is feasible at this point. One other thing I did want to ask about because I think this a another sticky point, is: Let's for the moment assume that the Congress would accept your suggestion. contrary to the bills we are now considering, that the Maritime Administration be in the Department of Transportation. You say the "Maritime Subsidy Board would be reconstituted to exercise greater degree of independence than presently afforded in Maritime Adminis tration." This doesn't say very much. I would like to get on the record here whether the proposals that were made in the Senate bill last year are somewhere within the ball park of what you are talking about. Secretary BOYD. They are within the ball park, yes, sir; definitely Mr. MAILLIARD. So at least this is not one of those things that is not negotiable?

Secretary BOYD. That is right.

Mr. MAILLIARD. Well, Mr. Chairman, I want to give others an oppor tunity. Thank you very much.

The CHAIRMAN. Mr. Downing.

Mr. DOWNING. Thank you, Mr. Chairman. You have a most interesting statement here, Mr. Secretary. As my colleague just said, you could spend much time on every paragraph. I, too, am glad to see that you are flexible in your proposals. You were kind enough to talk to me earlier in the year and I believe at that time the maximum limit on ships was 15.

Secretary BOYD. That is correct, sir.

Mr. DOWNING. It is now 30. Also in your statement which you were prepared to give on July 13 but which you could not give because of the schedule you mentioned, some rehabilitation of Victory ships! Secretary BOYD. AP-5's.

Mr. DOWNING. Yes, sir. I don't see a strong statement about that phase of your program in your present testimony.

Secretary Bord. Well, I am sorry. I made the statement. Maybe I didn't give it enough emphasis.

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