Mr. DREWRY. Mr. Murray, in the 1936 act, this problem was recognized. It was designed, as Senator Magnuson says, to allow the original Maritime Commission, and its successors, to carry out the program on an orderly, planned basis. One of the methods used in the original act was to provide that all moneys received under the act would be deposited in a construction fund, which would be a revolving fund, always available for desirable purposes under the act.

Are you giving any thought, in your review of the existing laws, to consideration of possibly asking for return to the revolving-fund concept?

Mr. MURRAY. I think we are going to look into all aspects of this, Mr. Drewry. I don't want to comment on what we are for or what we are against, at this point. That is certainly one of the items that will be examined and will be part of the overall picture.

Mr. DREWRY. It was taken away, as I recall, by appropriations committees in the past, making annual appropriations instead of the use of the flexible fund.

Senator POTTER. Thank you kindly, Mr. Secretary.

Senator MAGNUSON. Do we have any figures, now, as to what the subsidy cost as of last year was, the total, including recapture? Mr. MURRAY. You are talking about the operating?

Mr. GATOV. I think it runs about $50 million a year. I think last year it was $50 million.

Mr. MURRAY. Between $50 million and $55 million, I think. Senator MAGNUSON. I just wanted a general figure, Mr. Secretary, because it is something we should use in our public approach. Mr. MURRAY. That is about what it is.

Senator MAGNUSON. That is how little, in comparison to other subsidies, it costs us to run the merchant marine?

Mr. MURRAY. This additional amount we had asked for this year just represented some of the back bills that have been accumulated, in which the administration, just during the last year and a half, had been working out. As soon as we get out from under that, we will be down at a lower figure than we are asking for this year. That $65 million can be confusing. That is not on an annual basis. That represents back bills.

Senator POTTER. It always amazes me that when you stop and realize the merchant marine is considered the fourth arm of our national defense, that we only spend about one-half of 1 percent for the merchant marine. It gets all the bad publicity.

Senator MAGNUSON. Do you have a public relations staff to help on this?

Mr. MURRAY. We have abolished some of it.

Senator BUTLER. Before this is over, Mr. Secretary, I will undoubtedly get a chance to get an answer to this question. I am as green as grass about maritime and merchant marine matters. This is the first real committee meeting I have had, from the standpoint of the Commerce Committee. I have always wondered-I know you will answer the question before the hearing is over-how some companies can operate successfully without subsidies in the world market, and the others need subsidies. Is it because they have the best route staked out and nobody else can get in on them? What is the general picture on that? What can you look for when you hear testimony on that?

One of

Mr. MURRAY. Mr. Gatov can answer that in more detail. the main problems that you run across is that your subsidized lines have to maintain regular routes, regular sailings, and regular stops throughout the year. The unsubsidized carriers and your tramps are able to move where they wish, as they wish; is that not correct? Mr. GATOV. Yes.

"

Mr. MURRAY. Waiting, if they desire, for additional cargo before they sail. And under those circumstances, they are able to do about as they please.

Senator BUTLER. Regular runs part of the year, and cruise another part of the year?

Mr. MURRAY. Your unsubsidized lines have a freedom that your subsidized ones do not. It is to our advantage to maintain regular routes and sailings. An unsubsidized ship could put in at a port that it never stopped at before, if it heard there was cargo waiting at that particular port.

Senator MAGNUSON. And they can take what they want. That is the difference, really.

Mr. MURRAY. A comparable situation is in your airline situation between your skeds and nonskeds.

Senator BUTLER. They are not really common carriers within the normally accepted definition of that term; they can take or leave what they want?

Mr. MURRAY. They can stick around at a port, if they hear about a cargo that may be coming up in a couple of weeks, if it pays them to do so; they can stick around as long as they want to.

Senator BUTLER. Simply because it is offered to them, they don't have to take it? They can sail out and leave it?

Mr. GATOV. May I make a prediction at this time? In the long run, it is going to be extremely difficult for anyone to operate in the offshore trade without a subsidy, even though, at the moment, and since the end of the war, there have been circumstances that made it possible for some of these lines to do fairly well without subsidy.

Secretary Murray explained many of them, that they had complete flexibility of operation, that they could add to their fleet by chartering foreign tonnage, that they could haul tramp cargoes. Many of them were tied to a commodity. They had the protection of the 50 percent United States cargo sponsored by MSA and the military cargo.

There was money in the cargo available for them. When that honeymoon is over, it is my opinion it is going to be difficult, if not impossible, to compete with the foreign-flag vessels without subsidy

of some sort.

Senator MAGNUSON. They are all coming to that conclusion.
Mr. MURRAY. I think so.

Mr. GATOV. Another important element is that the nonsubsidized operator is not putting aside deposits for the replacement of their fleet. Some of these nonsubsidized operators may find it impossible, with a wornout ship, to continue in the steamship business.

Senator POTTER. Our subsidy program fits all types of trade. You stated that you would need some type of subsidy program for offshore trade. Does our present subsidy program meet that criterion?

Mr. GATOV. Most of the important world trade routes are already covered by an operator in the essential trade group. The existing operators, who are nonsubsidized in the offshore trade, are following 36174-53-pt. 1-3

the same beaten paths. They are so well-established. Nature took care of that. The riches in one part of the world are there. You don't find a line going to Greenland. The raw materials are in one area and the finished goods in another. They are almost like the old camel trails. They are pretty well defined.

Nature has, in many respects, taken care of that by the surpluses in one area, and the desire in another area for that surplus. So there are no new great pioneering trade routes to be found. I don't think we have, throughout the world, any new frontiers. You can't say, by picking up a newspaper, that upon reading about Australia, I will go there.

off.

Senator MAGNUSON. Except the Far East, which has been blocked

Mr. GATOV. That is right.

Mr. MURRAY. You have Labrador and your Venezuelan ore situation. Your other activities do come along. But, as Mr. Gatov says,

nature has pretty well taken care of that.

Senator MAGNUSON. The establishment of the trade routes

Mr. GATOV. That has been delegated to the Maritime Administration.

Senator MAGNUSON. Senator Butler will hold hearings on a few of these maritime bills.

Senator BUTLER. Starting on the 15th.

Senator MAGNUSON. Probably on the mortgage bill. There is 1 minor and 1 important one. I am sure that Senator Butler realizes, and I have constantly introduced for years, that we will require the military or the Government to use private merchant marine cargo space in sailings. It makes it mandatory. I think we would like some expression on that. It has pretty widespread approval.

Mr. MURRAY. I commented on that, I think, just prior to your coming in. We are trying, administratively, to make sure that the policy which the law contemplates is carried out. There has been a great deal of work between Maritime, the National Shipping Authority, and MSTS.

I approve of the principle and, therefore, I certainly would have no objection to having to do legislatively what we have been trying to do administratively. We think it is vital that be done.

Senator MAGNUSON. I think MSTS agrees with it. The only thing is you have to be constantly alert to the fact that if you don't watch it all the time, the trend of the cargo starts to move into the Government operation, and pretty soon it becomes a habit.

Mr. MURRAY. I might say in Commerce we have a couple of people who watch it pretty carefully.

Senator POTTER. Thank you, again, Mr. Murray. If Mr. Gatov and Mr. Clark have any statements they care to make, we will be glad to hear them.

Mr. GATOV. As I said, the Maritime Administration is an agency within the Department of Commerce. I had the pleasure of assisting Secretary Murray in the preparation of his own statement. I do not have, at this time, an independent statement; neither does Mr. Clark. We are both here and will be happy to answer any questions that you, or other members of the committee, may have.

Senator POTTER. Do you, Senator Butler or Senator Magnuson, have any questions? I think we used you freely during the prior discussion. We thank the both of you for coming up.

I want to say again that this committee is interested in the same thing that you are interested in, to try to solve some of the problems to make our merchant marine what we have said it should be. I think this afternoon we will have some representatives here from the Department of Defense. I understand they will be in a position to spell out, which is refreshing, what we consider at the present time the national defense needs for merchant marine.

With their testimony, and with the testimony that has been given here this morning, we will have the representative from the Department of State and MSA, and we will have at least a review of the problems as you see them. I know many of these questions are under consideration by the various departments. But as long as we are recognizing the same problem, we feel, as a result of that, there should be good come out of the hearings. I want to thank you kindly for your appearance. We will be in recess until 2 o'clock this afternoon. (Whereupon, at 12:25 p. m. the committee recessed, to reconvene at 2 p. m. the same day.)

AFTERNOON SESSION

(The subcommittee reconvened at 2:10 p. m., Senator Charles E. Potter, presiding.)

Senator PoTTER. The subcommittee will be in order. The other members of the subcommittee, I believe, will be here a little later. Before Admiral Wilson presents his statement, I would like to state that this morning we had quite an intensive discussion with representatives of the Department of Commerce. We hope this afternoon we can continue that with the Department of Defense, and possibly the Department of State and MSA.

I think in order to again have an idea of the purpose of this hearing, it would be best if I present this little statement presenting the problems that the committee is confronted with.

Under date of April 24, I wrote to the Honorable Charles E. Wilson, Secretary of Defense, advising him of the formation of this subcommittee to make a study and analysis of construction-differential and operating-differential subsidies in the maritime field, together with other forms of Government aid to shipping. I stated that we should like to have the benefit of the views of the Department of Defense in connection with such studies. Of course, we do not expect you gentlemen to attempt to comment on the details of the subsidy problem. However, we have asked you to appear at this executive hearing in order to discuss with you the problem of arriving at an answer to what we deem to be the $64 question. That is, what is the size, composition, and character of the oceangoing American merchant marine which we should have as an active operating nucleus fleet in the interest of our national defense. It seems to me that that, in its simplest terms, is the No. 1 question to which we must have an answer before we can intelligently reach conclusions as to how much and what kind of Government aid is required to develop and maintain an adequate merchant marine, in accordance with our national policy.

(The letter referred to follows:)

Hon. CHARLES E. WILSON,

APRIL 24, 1953.

Secretary of Defense, Department of Defense,

Washington, D. C.

MY DEAR MR. SECRETARY: Pursuant to Senate Resolution 41, January 30, 1953, I have been appointed chairman of a subcommittee of the Interstate and Foreign Commerce Committee to make a study and analysis of construction-differential and operating differential subsidies in the maritime field, together with other forms of Government aid to American shipping. In addition to myself, the other members of the subcommittee are Hon. John M. Butler, of Maryland; and Hon. Warren G. Magnuson, of Washington.

To conduct such studies, the subcommittee will have to review the policy declared in the Merchant Marine Act of 1936 and other basic shipping acts, and the effectiveness of existing legislation in the implementation of that policy in the light of existing domestic and international conditions.

In pursuance of its studies, the subcommittee will look to the Department of Defense as well as to the Department of Commerce for the size and composition of the American merchant marine potentially required for present and foreseeable use in time of war or national emergency. Such a quantitative and qualitative appraisal of merchant_marine requirements for the national defense, as well as for the development of the commerce of the United States, is essential as a guide to the Congress in planning and evaluating legislative proposals for Government aid for the merchant marine.

It is my intention that the subcommittee will begin its studies immediately. Accordingly, I hope you will be able to have prompt consideration given to the above matters in order to be prepared to give the subcommittee the benefit of your views in hearings to be held at an early date. The subcommittee will wish to discuss these problems with you or your designated representatives informally in closed session before proceeding to the consideration of the more detailed aspects thereof.

Sincerely yours,

CHARLES E. POTTER,

Chairman, Special Subcommittee on Maritime Subsidies. Senator POTTER. That question has many other aspects to it in regard to which your Department can be of invaluable assistance to the subcommittee. For instance, we should like to arrive at a practicable method of establishing a continuing program for additions and replacements so the target fleet can be adjusted as requirements change from time to time; and many other questions which will come out in the course of our discussion today and subsequent hearings.

We obviously do not expect to have you tell us in detail the type of fleet which would be necessary under all variations as to requirements during the many assumptions of possible armed conflict or national emergency. But I feel that we must attempt to establish as realistic a target as possible in order to know the basis for a fleet in being to provide an available pool of ships, management, seagoing personnel, and a shipbuilding industry to meet emergencies and to provide a nucleus which can be expanded in the event of all-out conflict.

Admiral Wilson, you have a statement, I believe, on this question on which we have asked you to present your views. You may proceed. STATEMENT OF REAR ADM. R. E. WILSON, DEPUTY COMMANDER AND CHIEF OF STAFF, MILITARY SEA TRANSPORT SERVICE Admiral WILSON. Senator, I am here representing the Department of Defense as to the size and composition of the national-defense fleet. The strategic importance of ocean transportation in a future war supports the concept that the United States-controlled merchant fleet should be of such a composition as to adequately meet the planned requirements of the Department of Defense by providing modern,