considerations which must be analyzed and resolved before sound recommendations can be given to the five problems specifically raised in Senator Potter's letter to Secretary Weeks of April 24, 1953. I will, if I may, summarize where we now stand in our staff work, which is the necessary antecedent to our recommendations.

First, with respect to the size, composition, and quality of the American-flag merchant marine that we need today, a joint Maritime Administration-Defense working group has been established. I might also say that we have had very recent contact with the Bureau of the Budget and they are also going to join in on the studies which we now have under way. That is vitally necessary to bring them in at the very beginning of this picture because of the interrelation of the various departments as well as the fact that they have a final responsibility on those activities also.

Members of the Maritime Administration staff are currently meeting with representatives of the Department of the Navy to develop the size and character of a merchant marine capable of expansion to the needs of full mobilization. As the committee can appreciate, this is a complex, time-consuming task, and, of course, the end product must be subject to adjustment to meet changes in full mobilization requirements growing out of any revisions of strategic planning.

The

I am happy to report that the joint study group has already reached tentative conclusion as to the overall size of the operating merchant fleet needed for national defense. I understand that Admiral Wilson, Deputy Commander of the Military Sea Transportation Service, will furnish testimony on this subject at some subsequent date. joint group will continue to address itself to the national defense requirements for shipbuilding and ship operations, including the maintenance of an adequate national defense reserve, and we are confident that their conclusions will be of great value in assisting in the formulation of long-range shipbuilding and ship-operating programs.

Senator BUTLER. Mr. Secretary, at that point, doesn't that primary study depend a great deal on the type of policy that we are going to adopt with respect to the defense of Europe and the other outlying bastions of the free world?

Mr. MURRAY. I think so.

Senator BUTLER. Are we calling in all of the various departments? Senator POTTER. Yes. The Department of Defense will testify this afternoon, and also the Department of State.

Mr. MURRAY. That is absolutely essential. That is why we have already started this work between Defense and the Maritime Administration. That will necessitate perhaps, as I have just said, making adjustments from time to time in the program as their own strategic plans change.

Senator POTTER. Do you plan on having a continuing study? The world situation changes rapidly, and our policy many times changes quite rapidly. Do you plan on having a continuing liaison between the Department of Defense, Department of State

Mr. MURRAY. We will have to do that. At the same time I am sure everyone appreciates the fact that we have to make rather basic, sweeping assumptions in any program of this sort. It is a program that takes many years from the time you make a decision until the ship is operative.

You have to have some basic assumptions of a long-range nature. We will have to do that.

Senator BUTLER. I ask what appears to be an obvious question, but the ramifications of it are such that it may not be so obvious as it appears at first glance.

Mr. MURRAY. It is a serious consideration that we have to have. From any long-range point of view, the only situation that could upset some of the basic assumptions would be a major change.

Senator BUTLER. This is an executive session. For instance, suppose the incoming Joint Chiefs should decide that a land army in Europe is not the way to defend America. That would drastically change our whole program and our whole point of view on this subject. It would seem to me they must have time to consider what their overall strategic plan is going to be.

Mr. MURRAY. That is right. I am sure we will maintain very close liaison between the various departments, closer than I think perhaps we might have had at times in the past. All the problems are intertwined. The State Department comes into the situation because our merchant marine is really an instrument of our foreign policy. That must also be considered.

Mr. DREWRY. It is your thought, Mr. Murray, that you will set up this program between Defense and Commerce so that it can be subject to constant adjustment as changes dictate; is that right?

Mr. MURRAY. Yes; realizing again that you can't be up one day and down the next.

Senator BUTLER. It will never be below a definite floor? A floor will be set that will be a safe minimum?

Mr. MURRAY. That is right.

Senator BUTLER. It seems it is quite a problem, one that would be subject to change every day. I wouldn't be surprised at all if the Joint Chiefs didn't revise their thinking of how we will defend the

country.

Mr. MURRAY. That is the major reason why the attempt to give any quick answer to this problem is a great mistake. It is going to take, I think, the best thinking of all of our various groups to come up with the kind of answer that we need to come up with. I know of no problem facing the Commerce Department that is more complex than this subject which we are discussing now.

Second, with respect to a review of existing maritime legislation, my office is reviewing the report of the Maritime Administration, The American Merchant Marine and the Federal Tax Policy, and the related report on the same subject of the Treasury Department dated November 1, 1952, in the light of the former President's message to Congress of January 16, 1953.

I understand also that the Treasury Department, as we all know, on its own is reexamining the entire Federal tax policy. That will also, as soon as that is announced, be a basic part of any study that we make, the various tax deferments that may be either allowed or disallowed.

So that we are not in active touch with the Treasury at the moment because they are not ready for us to be, but we will be soon.

Senator POTTER. They are making a study of the problem? Mr. MURRAY. Of the entire tax problem, not confined to this problem at all. Our problem here will be a part of the overall situa

tion. We are also making at least a preliminary review of existing maritime legislation. However, this review cannot get into high gear and our work cannot reach fruition until, with the aid of the Department of Defense, we have first established the primary objective of how large an American-flag merchant marine the United States should keep in active operation under present international conditions and the type and quality of ships which should compose such a merchant marine. Once this objective has been firmed up and definitely defined, the legislative means of achieving or maintaining such an Americanflag merchant marine can then, and only then, be crystallized.

Third, with respect to the cost of aid presently provided in relation to the results achieved, the starting point of the new administration on this aspect of the study is our firm conviction that no more dollars should be spent on the American-flag merchant marine than we need to spend to achieve or maintain our objective, and that the taxpayers of the United States should get full value for every dollar spent by the Government for its maintenance. Until the study now underway is complete, I am in no position to say either that the present forms of aid, principally construction subsidy, operating subsidy, and tax deferment, are or are not producing a dollar's worth of value to the United States for each dollar of cost to the taxpayer.

Senator POTTER. Was that the reason the $118 million was removed for construction subsidies from the Truman budget?

Mr. MURRAY. The reason that amount was removed, Mr. Chairman, was that, as you know, this administration set up certain criteria for the essentiality of new construction programs.

I am not completely familiar with what the whole aspects of those criteria were. However, in an overall review it was decided that the construction program did not meet that essentiality this year, that it was possible, for example, for the 2 Grace Line ships, the steamship Santa Paula and the steamship Santa Rosa would be allowed to operate another year on a waiver, and the 3 Moore-McCormack passenger vessels which were to be replaced by 2 new vessels might continue for another year under waiver.

There appeared to be in the shipyards, at least for this year, enough construction to keep the shipyards at a minimum of activity so that this matter could be postponed for consideration for another year.

Senator POTTER. I note where the Commission acted favorably on the construction subsidy application of the American-Hawaiian Line to convert C-4's to oil carriers. Do you consider that in a little different category than the replacement of the Moore-McCormack and Grace Line ships?

Mr. MURRAY. I would say

Senator BUTLER. And I have discussed this matter quite oftenthat the American-Hawaiian came to the Maritime Commission with an application for this conversion. Under the Maritime Act it was a proper application. It was considered on that basis.

We have a peculiar arrangement, however. The Maritime Board is able, if they so desire, to approve applications without at any point knowing whether funds are going to be available for the construction which is covered in such an approval. In the situation of the American-Hawaiian, as I say, the application was received. It was a proper application and came within the act, and the Board did give approval

to that application in principle, pointing out very clearly that it in no way carried any commitment whatsoever that there would be funds provided, either now or at any subsequent date.

It was simply the fact that the application was a proper one and could be approved, and it was approved on that basis for whatever good that will do American-Hawaiian, with no commitment whatsoever as far as any amount of funds whatsoever being attached to it.

It is my understanding that the administration will not ask for funds for that project during this fiscal year.

Senator MAGNUSON. I don't quite understand what you mean, "the administration will not ask." You are familiar with the 1936 act, aren't you?

Mr. MURRAY. Yes, sir.

Senator MAGNUSON. The Congress said that ship construction under the terms of that act and under the philosophy of it should go ahead. It isn't what any executive department says about it. You can't thwart the purposes of the act by merely saying that the Bureau of the Budget is not going to ask for a certain amount of money. Mr. MURRAY. Well, Senator

Senator MAGNUSON. Who made this policy ruling, do you know? Was it Mr. Weeks, yourself, or both, or the Bureau of the Budget? Mr. MURRAY. I think this was an overall-I think there were more people involved in it than Commerce.

Senator MAGNUSON. The overall policy, which might apply to public works, ship construction, and so forth, was that there should be no money asked for for anything new.

Senator MAGNUSON. It was the philosophy of no new starts for anything. That has been applied down to the Maritime Commission, whereas Congress said and directed that whoever the executive department is they should do certain things under the 1936 act. Congress can deny the funds, but the question of whether you ask for them or don't ask for them hasn't

Mr. MURRAY. Congress at the same time, of course, can also reinstate funds that have not been asked for, if they so desire. We realize that.

Senator MAGNUSON. I am not criticizing what you are doing. But you people under a general directive have now decided, "We are not going to spend any money for anything new," but you have decided then to let these acts, these directives of Congress just sit there and say, "We are just going to take a look at them."

Mr. MURRAY. The act authorized the executive department to come to Congress with a request, which does not specify any particular

amount.

It seems to me that

Senator MAGNUSON. That naturally follows. your directives down there should stem more from what the purposes of the 1936 act are, the directives of Congress, than what the Bureau of the Budget says about the expenditure or the outlay of a certain amount of money.

Mr. MURRAY. The matter was pretty thoroughly canvassed, and was decided for this year it would be a proper situation.

Senator MAGNUSON. I think on individual applications

Mr. MURRAY. To make a deferment.

Senator MAGNUSON. The act puts the onus upon you, on individual applications, to say that this one shouldn't be granted or this one.

should. But to have an overall approach to the thing, just a blanket approach, which I think is just going through the back door as to what the 1936 act directed, is not right. If we don't want to do that, we ought to repeal the approach of the 1936 act.

Mr. MURRAY. We have an overall national problem at this time, as we all know. Each individual item has to fall into its proper place in view of the overall national problem.

Senator BUTLER. It seems to me this is a very important thing, when we realize that we have no American tonnage available to do the job that these three vessels will do when converted.

We have the Labrador mines opening up in mid-1954 with no available tonnage, as I have said, to carry that ore. We have certainly no oversupply of tankers. These vessels would be used for tankers when they are not being used for ore carrying. In view of the present emergency, it seems to me that is one of the top-priority things that the Commission should give its attention to.

Mr. MURRAY. That is one purpose of tying in this whole problem with the Defense Department, to come up with a program

Senator BUTLER. It is true that we don't have any surplus of tankers. We certainly have no available tonnage for this particular purpose. We do have those mines opening up in mid-1954. We have no American cargo space to carry them.

I think we ought to do something about it, especially when you take the whole thing, overall, that if we do it here in the American yards we are going to get most of the money back, anyhow, whereas this work is going to go abroad and we won't get a dollar out of it.

Mr. MURRAY. That is why I am hopeful we will come up with a careful piece of work here that will guide us.

Senator MAGNUSON. Mr. Murray, I listened carefully to your talk down at the transportation luncheon. I was interested in what you had to say. It seems to me the approach may be all right, but as to the overall approach of saying, "We are going to freeze maritime activity until we the executive department-take another look," is another thing, and Congress never intended that act to be frozen for a period of time.

Mr. MURRAY. I am sure that Congress expected the act to operate to the best possible advantage, and that is what we are trying to arrive at.

Senator MAGNUSON. You say there is enough construction. How many ships do you think are being constructed in the American yards today?

Mr. MURRAY. About 48 ships for private account, some for American flag, some for foreign, oil tankers.

Senator MAGNUSON. How many cargo ships?

Mr. MURRAY. The only ones are in the Government program, 35 Mariners.

Senator MAGNUSON. As far as I know, there is not a single dry cargo ship on the ways.

Mr. MURRAY. We have this Mariner program, which is a pretty good-sized program.

Senator MAGNUSON. But nobody wants to buy those.

Mr. MURRAY. They are going to be built, as far as the shipyards are concerned, whether they will be bought or not. A desire has been expressed by the Pacific Far East