impossible for the American tanker fleet to transport that level of imports.

In fact, based on current shipyard capabilities, we will not have enough capacity to meet the 30 percent level before early in the next decade. In order to carry 30 percent by 1980, we would require immediate construction of a new shipyard producing four VLCC's a year by 1977. By the early 1980's, however, present shipbuilding capacity could produce enough tankers to carry 30 percent of our imports. Therefore, this new shipyard would quickly lead to capacity in excess of that required by the bill. After reviewing these fundamental facts regarding shipyard capacity, it seems clear to me that the goals of the proposed cargo preference legislation cannot be met and could have objectionable consequences.

As I previously mentioned, the Merchant Marine program extended subsidies to the bulk carrier segment of our merchant fleet for the first time. Through the President's program, many contracts for tankers have been signed. Currently, there are 49 tankers on order in our Nation's shipyards, totaling 4.5 million dwt. If this entire tonnage had been in existence and operating in the U.S.foreign commerce in 1972, and if there were no port constraints, then about 45 percent of our petroleum imports would have been carried in American-flag vessels. This is a considerable increase, needless to say, over the approximately 5 percent actually carried. Of course, with the level of imports rapidly increasing and the Sources of supply growing more distant, particularly in the Persian Gulf, it is very difficult to make dramatic increases in trade penetration immediately.

With the contracts that have been signed and with the strong demand that exists for additional U.S.-flag tanker construction, I am confident that the administration can carry out a program to provide substantial U.S.-flag participation in our oil imports. We are committed to revitalizing the tanker portion of the U.S.-flag fleet, and have received outstanding support from both the President, this committee, and the Congress.

I oppose H.R. 8913 because it would be an undesirable, inefficient, and inequitable way of achieving our goal of U.S.-flag participation in oil imports.

There has been a considerable amount of information requested of the Maritime Administration by the members of the committee, and the committee staff, and I would like now to turn to those questions, if I may.

The committee requested that I provide information concerning current U.S. imports of crude oil and refined products and to estimate the levels of these imports for 1975, 1980, and 1985. According to data published by the Department of the Interior, U.S. imports averaged 5.9 million barrels per day for the first 6 months of this year. These imports were divided approximately equally between crude oil and refined products. Sources in the Western Hemisphere, principally Canada and Venezuela, supplied just under half of our crude oil imports during the first half of this year. The remainder came largely from Africa, the Middle East, and relatively small amounts from the Far East. We do not, unfortunately, have de

tailed current data on the geographic distribution of imports of refined petroleum products, but Western Hemisphere suppliers account for most of these shipments.

A number of forecasts of U.S. oil imports are available. While these forecasts vary, they generally agree on certain key points. First, imports will continue to grow for some years to come. Second, crude oil will account for a larger share of total imports relative to refined products as time passes. And, third, the Persian Gulf area will supply an increasing share of future imports. This latter point is, of course, of key importance in determining demand for tanker services because of the great shipping distances involved in serving the Persian Gulf.

The Department of Commerce estimates that by 1975 the United States will import approximately 8 million barrels of crude oil and products per day, and that crude oil will amount for a little more than half of these imports. By 1980, total imports are expected to grow to about 12 million barrels per day, of which some 7.5 million barrels, or nearly two-thirds, will be crude oil. Imports in 1985 will total about 15 million barrels per day, of which just over 10 million barrels a little over two-thirds-will be crude oil.

The sources of these supplies will also change in relative importance. Whereas somewhat over half of our total petroleum imports now originate in the Western Hemisphere, with the Middle Eastern. countries supplying less than 20 percent, by 1985 the share of total imports supplied by the Middle East will approach 50 percent, while that of Western Hemisphere suppliers will decline to about 20 percent.

The committee requested that we calculate the shipping capacity necessary to transport these oil imports. As I mentioned earlier, the shift in imports from relatively short-haul sources in the Western Hemisphere to the Middle East sources greatly magnifies shipping requirements per barrel of oil imported. This trend, together with the overall increase in imports, will result in dramatic increases in tanker capacity required during the next decade.

Using two national ship sizes, 90,000 dwt, for short-haul voyages, and 265,000 dwt for the longer voyages, and employing the Commerce Department's estimate of future imports, we estimate the total demand for tanker tonnage to carry U.S. imports as follows: for 1975, 39.5 million dwt; for 1980, 73.2 million dwt; and for 1985, 99.9 or 100 million dwt.

A related question concerns the present size of the U.S. tanker fleet and the anticipated additions to that fleet in the coming years. As of June 30 this year, the U.S.-flag tanker fleet consisted of 316 ships totaling 9.6 million dwt.

U.S. shipyards currently have orders for 49 tankers totaling 4.5 million dwt. This represents an increase of about 47 percent over present U.S.-flag tanker tonnage. Of these new ships on order, 28 are being built under our subsidy program, including nine VLCC's. These ships, under Maritime Administration contract, account for 68 percent of the total deadweight tonnage on order. I commented earlier on the prospective orders for new tanker buildings.

The committee expressed interest in our views regarding the implications for our national security of relying on foreign-flag vessels to carry our oil imports. In commenting on this point, I will refer to national security in its broader context, which includes maintaining imports necessary for essential economic functions, as well as for shipping required for direct support of military activities.

Faced with the probability of having to import a much larger amount of petroleum in the future, most of which will have to come from the Persian Gulf, it is important from the perspective of the national security of the United States that availability and control of tankers be examined. Stated differently, since the amount of oil imported and the sources from which it is derived are factors affecting the national security, it certainly follows that when a large share of total supply must be imported over very long distances, the degree to which the United States exercises control over the ships carrying such imports is as much a matter of legitimate concern to the national security as is assuring the availability of the sources of oil.

Foreign-flag tankers employed in the U.S. petroleum trade can be classified into one of three groups, (a) the so-called effective U.S. controlled (EUSC) fleet; (b) other U.S.-owned foreign-flag tankers; and (c) foreign-owned, foreign-flag tankers.

In 1971, EUSC tankers carried 20.2 percent of U.S. petroleum imports as compared to 4.4 percent for U.S.-flag tankers. Although the EUSC tanker fleet clearly represents a large U.S.-owned petroleum carrying capability, there are certain factors which caution against excessive reliance upon it.

[The following information was supplied for inclusion in the record at this point:]

CAUTION OF RELIANCE ON EUSC FLEET

First, most of this fleet is not employed in U.S. foreign trade. In fact, the share of total U.S. waterborne petroleum imports carried by EUSC vessels has steadily dropped from 32.2 percent in 1963 to 20.2 percent in 1971. Almost all of the remaining EUSC tanker capacity is employed in shipping vitally needed petroleum to Western Europe and Japan. Thus, it appears unlikely that in an emergency the U.S. could exercise its option to withdraw very many of these tankers from this service without creating serious economic and political consequences. Further, any withdrawal of tankers from Europe could have an adverse impact on the petroleum supplies which would support military and civilian needs of the European countries of the NATO alliance.

A second factor suggesting caution in relying on EUSC vessels to carry U.S. imports is the physical size of many of these ships. Many of the newer EUSC tankers have drafts in excess of the channel depths of all existing U.S. Atlantic and Gulf Coast ports. This incompatibility between tanker draft and channel depth will remain a limiting factor until adequate deepwater facilities are provided.

A final consideration in determining the likely reliability of the EUSC fleet is the concept of "effective control" itself. Although owners of EUSC vessels have pledged that in an emergency their vessels will revert to the U.S. flag, this concept has never been tested. Whether these ships are "effectively U.S. controlled" is a function of where they are registered, the nationality of the crew, the nature and type of emergency, and their location at the time of the emergency. The "doctrine of effective control" is based upon contracts and agreements between the U.S. Government and the owners of vessels flying

certain "flags of convenience." These contracts or agreements are the so-called "legal" basis for effective U.S. control and have been derived solely from the domestic law of the United States, namely Section 902 of the Merchant Marine Act, 1936. This Section provides the authority to requisition or purchase any vessel for government service owned by citizens of the United States. Requisitioning can only be used to obtain ships in the event of a national emergency proclaimed by the President.

Generally recognized principles of international law dictate, however, that only the state of registry has the right to requisition and control vessels flying its own flag, unless the vessel is lying idle within the territorial waters of another requisitioning state. There is, therefore, an apparent conflict between U.S. domestic law and international practice concerning the "doctrine of effective control."

Because the Effective U.S. Controlled tanker fleet is a large and important part of the world tanker fleet and is wholly U.S.-owned, it cannot be disregarded as a transportation asset. However, since the EUSC fleet is largely committed to other trades, consists substantially of vessels too large for most existing American ports, is predicated upon domestic rather than international law, and has never been tested, the certainty of its availability and control in an emergency is less than complete.

OTHER U.S.-OWNED FOREIGN FLAG TANKERS

In addition to the EUSC fleet, there are many other foreign-flag tankers which are U.S.-owned. These "flag of convenience" vessels are, controlled by independent U.S. operators, U.S. proprietary operators, and multi-national companies in which a majority interest is controlled by U.S. citizens. For the most part, these vessels are owned by major U.S. oil companies and are used to transport petroleum to Europe, Japan and the United States. Most of the newer tankers in this group, as with those in the EUSC fleet, are too large to enter many U.S. ports. The average size of all U.S.-owned foreign tankers built in the last five years is in excess of 90.000 DWT.

It should also be noted that the U.S. Government exercises little control over ships owned by U.S. citizens registered under the flags of traditional maritime nations. There are no agreements to effect a change of control with these countries, and the states of registry have the right by their own domestic law-just as in the United States-to requisition and control ships under their flags for their own needs. What availability and utility these vessels would have for the U.S. during an emergency is therefore uncertain.

FOREIGN-OWNED FOREIGN-FLAG TANKERS

Foreign-owned, foreign-flag vessels represent some 73 percent of the world deadweight tanker tonnage as compared to little more than 4 percent for the privately-owned U.S.-flag fleet, 9 percent for EUSC tankers and almost 14 percent for other U.S.-owned foreign flag tankers. Foreign-owned, foreign-flag vessels are beyond direct statutory control by the U.S. Government. Their employment is governed, for the most part, by the laws of the market. So long as they are able to earn as much as they could in alternate trade, these vessels, under normal conditions, will generally be available for United States trades. Unusual circumstances, such as war, strike, boycott, etc. may. however, cause these vessels to become unavailable, at least temporarily, for the carriage of U.S. cargoes.

Moreover, for the immediate future, many of these vessels are either small coastal tankers of limited use for importing petroleum, or Very Large Crude Carriers (VLCC's) which are unable to enter all but a few U.S. ports. VLCC construction so dominates current world construction that the average size of all tankers under construction or on order in foreign shipyards is in excess of 170,000 DWT.

U.S. Flag Tankers

Much of the world's tanker fleet is not of the proper size for economically importing petroleum to the U.S., is substantially commited to other trade routes, and is less than totally reliable in time of emergency. On balance, therefore, the most effective and reliable means of ensuring adequate availability and control of tankers needed to carry U.S. petroleum imports is

F

through the development of U.S.-flag tankers. I don't believe anyone would argue that all oil imports should be carried in U.S. bottoms. Our tanker construction program recognizes, from a national security consideration alone, there should be a reasonable degree of U.S.-flag capability. U.S. flag vessels may be either government of privately owned, subsidized or unsubsidized, and engaged in foreign or domestic commerce.

Government-owned tankers are, at present, unequal to the task of ensuring adequate transportation availability. Since the end of World War II, the deadweight tonnage of such vessels has steadily declined from a high of 3.721.000 DWT as of December 31, 1947 to a level of 445,000 DWT as of June 30, 1972. Of the current U.S. government-owned tankers. 366.000 DWT, or percent, are in the National Defense Reserve Fleet (NDRF) and 79,000 DWT, or 18 percent, are operated by the Military Sealift Command (MSC). Almost all of the tankers in the NDRF are obsolete and candidates for serapping. Thus, by 1980, reserve tanker capability will cease to exist unless newer tankers are acquired. Newer tankers could be acquired either by purchasing or accepting the trade-in of existing vessels, or by purchase of newly constructed vessels. Accepting trade-ins will result in some NDRF capability being maintained, although there is some question as to how much capability would actually be provided. Tankers likely to be offered as trade-in candidates will, in all probability, be small, old vessels near or at the end of their economic life, if not their physical life. The cost of necessary repairs and maintenance might, to a considerable degree, offset the potential utility of such vessels. However, in order to qualify for trade-in, existing tankers must be replaced by new tankers. Thus, in this fashion, U.S.-flag tanker capability is increased.

Construction or purchase of new tankers for the NDRF would provide greater potential sealift capability with a longer life expectancy, albeit at great cost. The acquisition of 366,000 DWT of new tankers only to replace the existing NDRF tanker fleet would cost approximately $110 million based current construction costs. I would not recommend that a program of this type be followed.

Obtaining additional government-owned tankers for military use does not appear to increase the assurance of adequate availability for critical civilian reeds Military tankers would be required and utilized by the military both in peacetime and in war. Thus, in an emergency such vessels could be expected to provide little, if any, additional capability needed to carry commercial imports. Moreover, such tankers are more expensive to operate than commercial tankers with civilian crews.

Mr. BLACKWELL. The most effective and economical means of assuring the availability and control of tankers would be, therefore, to construct additional privately-owned vessels for the U.S.-flag tanker fleet. Of the various alternatives, this program seems most likely to assure the U.S. capability to requisition, as needed, tankers manned with trained and experienced U.S. citizen crews. It should also be noted that U.S. registered and manner tankers would be the most easily protected of all ships serving in the U.S. foreign petroleum trade on the high seas.

Mrs. SULLIVAN. Mr. Chairman, would you mind if I interrupt?

Mr. CLARK. NO.

Mrs. SULLIVAN. You have been reading there for a good hour. I suggest you relax for a moment, Mr. Blackwell, and give me an opportunity to say that I think we have questions that we have all been working on and preparing, but I think there is much in your testimony that we are going to have to digest and study and discuss before we get down to the nitty-gritty questions.

So I have suggested to the chairman that when you are through with your testimony that any of those who have questions to ask