ment also is familiar with operating differential cost data. In addition, we will want the Department's views on the matter of discrimination by foreign countries against American shipping and other matters on which the knowledge and experience of your representatives can be useful to the subcommittee in reaching its conclusions on our national maritime policy.

Do you have a statement which you would like to read?

STATEMENT OF HARVEY KLEMMER, DEPUTY DIRECTOR, OFFICE OF TRANSPORT AND COMMUNICATION, DEPARTMENT OF STATE

Mr. KLEMMER. I have a very short one, Senator. The Department of State welcomes this opportunity to appear before the Special Subcommittee on Maritime Subsidies. The development of a sound and long-range shipping policy for the United States is of great importance to our relations with other countries.

I have been directed to assure you that the Department will cooperate in every way it can to facilitate and to make fruitful the work of this committee.

The State Department is forced to approach the shipping problem from the standpoint of overall foreign policy. Unlike some agencies which are charged with a single responsibility, we have many responsibilities and the discharge of one must be viewed in relation to its effect on all the others.

The Department has been gratified to learn that this committee plans to make a broad study of Government aid extended to the merchant marine. I should like to be able to give you a statement outlining the Department's views on shipping policy as it has evolved over the years, with particular reference to developments which have occurred since the Merchant Marine Act of 1936 took effect.

However, as the members of the committee will readily understand, the new administration has not had time to review all aspects of our foreign policy, including shipping policy.

The Department therefore does not believe that we should attempt to put in a formal statement at this time.

If the members of the committee have any questions on shipping policy as it relates to the conduct of foreign affairs, I will, of course, answer these questions to the best of my ability.

We don't feel that in view of the short time that the new management has been in charge there that we can take formal positions on some of these questions.

Senator POTTER. We can appreciate that. I think one of our efforts in having this discussion today is not so much to come up with the answers but to make sure that we are recognizing the same problems. I think that can be as valuable many times as coming up and saying, "This is the answer today," and then tomorrow we will find it is not the answer.

To be frank with you, I can well appreciate the fact that you may well not be in a position to give some definite answers, but we hope the Department of State is recognizing some of the problems that the maritime industry is faced with.

Mr. KLEMMER. By the time you have your open hearings I think the thing will be crystallized there to the point where we can give you some more forthright answers than we can now.

Senator POTTER. Just what do you do, just what does the Depart ment of State do in relation to the construction subsidy program? I assume the Maritime Board requests you to secure some data for them, and the Department of State's effort is just in securing that data; is that true?

Mr. KLEMMER. That is right. Until 1948, the summer of 1948, the then Maritime Commission had their own staff for collecting data. It was a small staff. It consisted of 2 people abroad, both located in Europe, 1 construction cost expert and 1 operating cost expert.

On July 1, 1948, we took over the function of obtaining this following cost data. We took over the 2 men that Maritime had on this thing, on this work. We added to the staff until we recently had a total of 9 men working on this project.

I supervised the collection of data in Europe, in connection with other duties that I had at the Embassy in London, until 2 years ago now when Mr. John Mann, who is in the room, took over.

Mr. Mann has just returned from his 2-year assignment on this cost work. I think he will bear out anything I have to say about it. Senator POTTER. Did you find a reluctance-I am thinking now of securing data for construction subsidy on the part of foreign shipyards to give you the data when they knew they were not going to get the work? It has always seemed a dangerous thing to be doing, to ask the guy how much it is going to be to do the work and to know that he is not going to get the job.

Mr. KLEMMER. It is a sore subject with us. I would like to tell you frankly what we ran into in endeavoring to get this data.

The first thing we did was call on all the people that we hoped to get data from, and explain to them the operation of the Merchant Marine Act of 1936, with which they were quite familiar, anyway, and put it up to them on this basis:

The United States intended to have a merchant marine, that to have such a merchant marine we found it necessary to subsidize the building and operation of ships, that we were dedicated to the parity principle that would put American builders and operators in a competitive position with their foreign competitors, and that if the foreign shipbuilders would cooperate with us in giving us this necessary data this thing would be kept on an even keel; in other words, it would be kept on a parity basis. If they didn't cooperate with us, we would have to use what data we could get, and if we were going to make any mistakes we would probably make the mistakes on the side of overpayments and not underpayments in order not to do an injustice to our people.

The shipbuilders cooperated to a surprising extent, much better than the foreign operators did. In fact, we didn't have much trouble on the building side, but we had a lot of trouble on the operating side. In fact, we have had a terrible time on the operating side.

There were other factors, the relations between the Maritime Commission during the war and foreign shipbuilders, especially British shipbuilders, were very close and friendly.

Admiral Land, Chairman of the Maritime Commission, and Admiral Vickery, Vice Chairman of the Maritime Commission, knew the British shipbuilders and were highly respected by them. So we went in there with the climate very good in the beginning.

Also, these countries were grateful to us for what we had done during the war and after the war to help them. Several of them told us that although they didn't like this chore they wanted to do the right thing by the United States and to help us out in this difficult chore.

Senator POTTER. Did we pay them for any work they might have to do in order to make this determination?

Mr. KLEMMER. No. I might add one more point before we get off this business of getting the cooperation of the builders. We also pointed out to them that it would be to their interest if we got this data right from headquarters rather than running around and bothering their technicians and snooping, peeking over somebody's shoulders and getting it that way.

They readily agreed it would be better, from their standpoint, to give us cooperation rather than have us on their necks all the time. Now, what was your question, Senator?

Senator POTTER. I assume by doing this we would put them to some cost of manpower, at least, and if we paid them for their effort to secure this data for us?

Mr. KLEMMER. No; we never paid. We were working under a considerable disadvantage because of the fact that we couldn't pay.. We had very little to spend, even in the way of representation money. Many times, I suppose hundreds of times, literally, we took men out to lunch and to dinner, and bought them a drink and paid that out of our own pockets, because the representation allowance in the Foreign Service, as you probably know, is very low.

Senator POTTER. You have to charge your representation loss to the Maritime Board.

Mr. KLEMMER. So, we were greatly handicapped in not being able to at least entertain them a little. Some of these yards were surprisingly generous in the amount of time they would devote to a thing

like this.

Senator POTTER. Did you find any collusion on the part of either the yards or the operators? After all, it might be in their best economic interests as a country, maybe, to falsify the data.

Mr. KLEMMER. We took that into account. We were very suspicious, at least in the beginning. At least every paper we got we went over it with the idea of trying to find something wrong with it.

I can truthfully say that we never found any evidence of any coloration of the facts. Either they turned us down cold and wouldn't cooperate, or if they did cooperate, I think the best figures we could expect them to produce without hiring a corps of estimators and a lot of engineers to do a highly technical job, as they would on bidding for a ship, was furnished to us.

Senator POTTER. It is your feeling that the data you received was fairly accurate?

Mr. KLEMMER. Yes; that it was fairly accurate. I think I should make clear that the man we took over on construction had been chief engineer of the Liberty ship program at the Maritime Commission

during the war; had 38 years of experience in private shipyards, and with the Government; a man of great integrity and vast experience. It would be very hard to pull the wool over his eyes, I would say. Every single man taken on this cost project work was recruited out of the Maritime Commission or out of the Navy, and everyone was approved by the Maritime Commission.

Senator POTTER. Who is this man?

Mr. KLEMMER. This man was John Grant. He is now dead. He died of a heart attack while on this work, as did his successor, Captain Schumacher, of the Navy. I have always felt the arduous nature of this work had something to do with it. They worked like dogs getting this data.

We never found anything wrong with their figures. We had firstclass technicians; the very best we could get. We even asked the shipbuilding organization more than once to find us competent men. As Mr. Gerrish Smith's record, president, Shipbuilder's Council of America, will show, we hounded him to suggest candidates because we had trouble filling these jobs.

Senator POTTER. Are the men engaged in this work now men that have had considerable experience in the maritime field?

Mr. KLEMMER. Yes. We have now Mr. Meyer, who is a practical shipbuilder of 30 or 40 years' experience, I suppose. He was most recently with the Butler Shipyards in Wisconsin. We only have two shipbuilding men, now.

Senator POTTER. Only two?

Mr. KLEMMER. We had jobs set up for three, but in the budget cutting, we had to eliminate one of the jobs, which was done with the Maritime's approval. In The Hague, we have Mr. Thomas McCraine, who also was one of those 30- or 40-year men, who has been with the Government before, during the war, and most recently was with a naval architect's firm in New York, doing joinery work.

Aside from the experience of these men, another reason they wouldn't try to collude on these figures was that no shipyard knew where else we were getting our data. Unless all the shipyards in a particular country got their heads together, we could use one aganist the other. We tried to get data from three yards in each case. times we didn't make it. Sometimes we would get only 2, and sometimes only 1.

Some

Even if all the shipyards in a particular country got their heads together, we could check them against shipyards in other countries, which presumably they wouldn't be in touch with. We had a rough idea of the difference between the costs in the different countries. We knew that the Dutch costs were 5 or 10 percent below the British. If we got an estimate out of a British yard and that was higher than the Dutch estimate, we would know there was something wrong. The only weakness in it, Senator, is this: It was not that they would deliberately give us false figures, because I don't think they would dare, even if they wanted to, but we couldn't get out of a shipyard for nothing the kind of an estimate which you make if you were bidding for work.

So, in a matter of a day or two, with one of his estimators, or a couple of estimators working on it, would be what you might call an educated estimate of what they could build that ship for. It might

be off I don't know how many percent. They claimed they could come within 5 percent with this estimating method.

Senator POTTER. They probably had the specifications of the ship, but they didn't go into it in detail, as they would if they were bidding on the ship to do the work.

Mr. KLEMMER. No. It costs anywhere from $10,000 to $100,000 to bid on a ship.

Senator POTTER. I would like to switch to another subject.

Mr. KLEMMER. If I could adjust one thing more, we succeeded in getting the cost of every ship we set out to get in Europe, of which we are very proud. Sometimes we had to travel all over the Continent in getting it, somewhere else other than where the ship was being built.

These are ships actually being built for foreign owners which the Maritime wanted to use for yardstick purposes. Sometimes we would get it from the yard, the owner, and sometimes the bank, and sometimes from a local newspaperman who was friendly with somebody who would ask the right man. There was quite a lot of ingenuity, but on every foreign ship that we set out to get the cost on, in one way or another we finally got it.

Senator POTTER. I imagine the Department of State will appear before the Congress in support of the 50 percent requirement for American bottoms for the Government-aid program?

Mr. KLEMMER. Is there a new one pending on it?
Senator POTTER. You can bet there will be.

Mr. KLEMMER. You are asking me the $64 question, now.

I can't

say. As you know, the Department of State opposed the 50-50 provision in the original ECA Act, as did Paul Hoffman, and some Senators and some Representatives.

Senator POTTER. But not enough.

Mr. KLEMMER. But not enough. After it took effect, the Department saw how things stood, and like MSA, which I believe follows the same policy, just kept quiet about it.

The other day I believe Secretary Dulles told the Senate and House Foreign Affairs Committees he would have no objection if the 50-50 provisions were repealed by Congress.

Senator POTTER. If it were repealed?

Mr. KLEMMER. If it were abolished by Congress.
Senator POTTER. I don't imagine he would.

Mr. KLEMMER. I don't know how far I can go without getting in trouble during this period where we haven't really sorted ourselves out yet. I think I could say that the State Department, which has the responsibility of resisting discriminations and restrictions in quarters all over the world, naturally has to view this a little bit differently than an agency concerned with shipping.

We are up against quotas on other American products. The automobile dealers of Michigan are very unhappy right now because the British have put a quota on United States automobiles of six per year. We have to face all these other industries. They don't like quotas. Senator POTTER. Six automobiles?

Mr. KLEMMER. Yes. Each manufacturer is allowed to bring one in to show it around and to show what it can do. They can't spare dollars for automobiles. When they put the quantitative restriction on our timber, apples, pears, citrus fruits, tobacco, cotton, things