These examples, I am sure, will indicate that Maritime does a fire job even perhaps an outstanding one-in encouraging expedition from others by setting a self example.

There is another function of Maritime which was criticized, and that was in the matter of its advice to the Secretary of Commerce which caused him to make a determination of the rate of government insurance applicable to the ships for the Navy tanker charter program. I should like at this point to read a part of Public Law 781. See tions 3 (a) and (b) are identical, Mr. Chairman, except that section 3 (a) authorized the Secretary of Commerce upon application from the mortgagor, and section 3 (b) authorized the Secretary of Commerce upon application by the borrower, but otherwise the language is identical, so my remarks would apply to both of those paragraphs. This section reads as follows:

The Secretary of Commerce, upon application by the mortgagor, is authorized to insure as hereinafter provided the interest on and 90 per centum of the unpaid balance of the principal of, any mortgage offered to him which is eligible for insurance as hereinafter provided and, upon such terms as the Secretary of Commerce may prescribe, is authorized to make commitments to insure any such mortga prior to the date of execution or disbursement thereon: Provided, That in the case of special purpose vessels certified by the Secretary of Defense to be essential to national defense, the Secretary of Commerce may insure 100 per centum of the principal of and interest on any such mortgage eligible for insurance as hereinafter provided and upon such terms as the Secretary of Commerce may prescribe

The law, it seems to me, is quite clear in its indication that under all normal circumstances, qualified applicants were to be considered for 90 percent insura ice and that only in unusual and exceptional cases, titled in the legislation "special purpose," was 100 percent insurance to be considered.

The purpose of these vessels, gentlemen, is to transport petroleum products. Mr. Morse and his associates will indicate that so far as the speed of these vessels is concerned, there are privately owned and operated commercial tankers which operate at a speed at least as great as the Navy ships; that so far as the size is concerned, at least one of the large companies operates a whole fleet, each component of which is considerably smaller than these ships, and that at least another company is just now building a ship of almost the identical size.

Mention has been made of the fact that these ships are equipped to handle four different kinds of products. I know of at least 1 tanker which handles not 4 different products, but 4 times 4, or 16, different products.

Perhaps there are some other elements of this legislation which make shipbuilding under it a bit difficult. Nevertheless, Mr. Morse wi indicate to you later that in spite of all the handicaps which seem to be included in the legislation, it will be possible to get ships built under the existing law and almost immediately.

Any delays that have occurred have been made necessary br extended negotiations both on the part of the Military Sea Transpor tation Service and Maritime to attempt to make the building of ships possible in spite of the restrictive elements of this legislation.

Therefore, it is my suggestion, Mr. Chairman, that if, in spite our prodigious efforts to make this legislation work, we find that it is not possible to get all of the ships authorized built, that you adop Senator Payne's suggestion and enact such amendatory legislation as will not only encourage the building of these ships, but make

clear and unequivocal the intent of the Congress with regard to the insurance feature.

In doing so, you will recall, I am sure, that it was the intent of the Congress in passing Public Law 781 to provide an area in which Government's competition with business might be diminished.

The CHAIRMAN. I want to ask you this question first: Are you familiar, Mr. Rothschild, with the letters that were sent by the then chairman of the Subcommittee on Merchant Marine and Fisheries, Mr. Butler of Maryland, and the report of the House Merchant Marine Committee, setting forth what they thought was the intent of this language?

Mr. ROTHSCHILD. I am familiar with that letter, Mr. Chairman. The CHAIRMAN. It was two letters.

Mr. ROTHSCHILD. Yes, sir; with both of them. However, I am sure that you would agree that your own General Accounting Office and the courts of the Nation have decided too many times that laws must be administered as written and that intent, while it may be interesting, is not the basis

The CHAIRMAN. I might agree with you on the General Accounting Office in this case, but I do not know who would ask who in this case, if you decided that the intent of this law was what the Congressmen who passed it said it was.

I agree with you about the General Accounting Office. They have some peculiar interpretations occasionally down there, but I just cannot see as a lawyer myself who would sue who in view of the clarification of the intent or the meaning of the language by those who passed it. That would be evidence.

Mr. ROTHSCHILD. I am not a lawyer.

The CHAIRMAN. I could see the possibility, I might agree with you that if there was some squabble at the end of 10 years over the rights of respective degrees of the mortgators in this case, that it might involve some legal controversy, but I cannot see any question of any lawsuit if the Maritime Administration would go ahead and do what he letters suggest.

Mr. ROTHSCHILD. Is it not possible, Senator and I am not a lawyer, as you know-that if a default were to occur at some point after the first 10 years, and the Government would be called upon to balance out with a lender, that the Department of Justice, in representing the interests of the Government, might make an issue of the intent versus the language of the law?

The CHAIRMAN. I suppose it is always possible for a lawyer to bring a lawsuit. They do that quite occasionally and sometimes not particularly very sound on their legal grounds; but I am speaking of the ultimate 1esult of such a lawsuit.

I cannot conceive where you use the words "special purpose," the interpretation of that would be the intent of Congress in those two words.

Surely, that intent has been borne out in testimony before the Armed Services Committee, on the floor of the Senate, and by personal letters on two occasions to the Maritime Administration.

It is possible that somebody could bring a lawsuit, but I would not see how they could get any place in it. I would like to be on the other wise of it as a lawyer. Have you asked the Attorney General for an interpretation of this act?

Mr. ROTHSCHILD. It is my understanding that the Attorney General gives opinions of that nature only to the President.

The CHAIRMAN. They give interpretations to departments. That is what they are hired for, executive departments which are part of the executive branch of the Government.

Anyway, it has not been asked for?

Mr. ROTHSCHILD. It has not been asked; no, sir.

The CHAIRMAN. Mr. Rothschild, I agree with you in what you say that the last Congress did a pretty good job in maritime legislation, I think. I think there has been a pretty good job done in the last 6 years in postwar maritime legislation that was needed.

Congress can pass laws; but after legislation is passed, then it must be administered. When Congress directs somebody, that says we think this should be done.

It is true that the Maritime Administration has acted with great dispatch in many matters, and I think that you will agree with me that we have on many occasions complimented, in Appropriations Committee and in this committee, and, indeed, probably complimented them on so many things, it is so much better under this system than it was under the old Maritime Commission-and I was primarily responsible for the Executive order that was issued by the then President of the United States changing that-but what we are dealing with here are those tankers. Although they did move with dispatch on the conversion of the Liberties, the two big items in the program of last year which Congress approved were the passenger ships and these Navy tankers.

They were the big items. They were the important items.

That was the big program, and those two have been delayed. I was glad to hear that they are moving on the passenger ships, and I can appreciate the fact that the design of a passenger ship is very intricate and causes lots of delays. They turn it back and change them and so forth. But the tankers have been designed, as I understand it. The design is complete.

Mr. ROTHSCHILD. We have only been delayed because of the financing, in the matter of the financing.

The CHAIRMAN. This gets down to the meat of the coconut, the financing, and I think the great majority of the Members of Congress who passed this bill, and the great majority of those who were on the committee said there should be 100 percent for such purposes.

I gather from your testimony that we are getting down to the roadblock in this case, which is the interpretation, the definition of whether these are special purpose or not.

Mr. ROTHSCHILD. That is correct, sir.

The CHAIRMAN. If they were designed as special purpose ships, would you say that you would then give them the 100-percent loan under present laws, but you want us to say that?

Mr. ROTHSCHILD. I am sure that we would make that arrangement on a roll-on and roll-off ship.

The CHAIRMAN. A roll-on and roll-off ship-there is no question about that being special purpose.

Mr. ROTHSCHILD. Yes, sir.

The CHAIRMAN. But what about these tankers which are tailored for the Navy?

Mr. ROTHSCHILD. We do not consider them special purpose ships. The CHAIRMAN. And you have no intention of considering them special purpose?

Mr. ROTHSCHILD. I do not even think it will be necessary to consider them special purpose ships, because we think we can, and I am sure that no Member of Congress would have any objection, if we get these ships built under the 90-percent arrangement.

The CHAIRMAN. No; because as a matter of fact, you know I opposed at one time the 100 percent; but apparently all the testimony we can get and all the information is that under the 90 percent that they are not going to be built.

Mr. ROTHSCHILD. Would you listen to some testimony from Mr. Morse and his staff, because I think they can elucidate on that matter? The CHAIRMAN. Yes, sir; because all we are concerned with is getting them going, and if this is causing the delay we want to know why and see if we cannot help to speed them up.

Mr. ROTHSCHILD. And we need and want your help at all times and know that we cannot do anything without you.

The CHAIRMAN. I think that it has been somewhat a very serious situation that they have been delayed this long over, let's call it, technicalities, if you want, in financing and interpretation of the law, in view of the testimony before the Armed Services Committee and the testimony before Congress of the immediate need of these tankers for the defense of this country.

Mr. ROTHSCHILD. It is regrettable from my point of view, sir.

The CHAIRMAN. Thank you very much, sir. Mr. Morse, we will be glad to hear from you.

(The letter from D. D. Strohmeier, vice president, Bethlehem Steel Co., shipbuilding division, from which Mr. Rothschild quoted, was ordered inserted in the record at this point.)

(The letter is as follows:)

Mr. Louis S. ROTHSCHILD,

BETHLEHEM STEEL CO., INC.,
SHIPBUILDING DIVISION,

New York 4, N. Y., October 28, 1954.

Administrator, Maritime Administration,

Department of Commerce, Washington 25, D. C.

DEAR LOUIS: I appreciate the opportunity you gave me last Friday to discuss with you matters relating to shipbuilding, and the Navy tanker program in particular. You asked me at that time if I would jot down some of my thoughts. In the first place, I think a great deal has been accomplished this year in legislation and great credit goes to you, Mr. Weeks, Mr. Murray, Senator Butler, Senator Saltonstall, and Mr.Tollefson. This year has produced the most useful legislation since the passage of the Merchant Marine Act, the principal items being:

1. The 50-50 cargo law

2. Ship mortgage insurance

3. Trade in and build program for tankers

4. Grace Line and Moore McCormack authorizations

5. Navy tanker bill

6. Liberty repowering

7. Emergency ship repairs

These are tools to start a substantial peacetime shipbuilding program. Some of these tools are better than others but none of them will produce results unless they are used.

The tanker trade-in program seems to be underway and I am confident that such a program is sound and will produce the desired results.

The Moore McCormack and Grace Line ships apparently have all the legislative wherewithal to go forward and there remains only the question of whether

the subsidy granted will be sufficient inducement to permit construction and also whether any commitment made is on a firm enough basis.

The emergency ship-repair program is already underway and proving helpful This program is, of course, of limited and short duration but is helpful nor because it is needed.

The program of repowering Liberty ships will also provide some work. The Navy tanker bill, however, which is the largest single immediate program authorized this year, is one of the less perfect instruments in this year's legislative program. As originally conceived, this program was to stand on its own two feet. Unfortunately, so many amendments found their way into this legislation that the resulting act is not what the sponsors of it originally intended. It is hard to say which of the many restrictive features are most to blame for an unfortunate result but a few may be named. First is the $5 rate limitation. Although there was much discussion during the hearings about escalation and although the MSTS invitation for charter provides for escalation, there is doubt as to whether the law, literally interpreted, will permit it. Then there is the limitation of two-thirds recovery. The significance of this limitation must be determined in the light of the commercial utility of these tankers when they come off charter at the end of 10 years. There are commercial ships being built today against which these Navy tankers could not compete commercially. The deadweight, speed, power, fuel consumption and draft of the Navy tankers are all dictated by military considerations and do not represent the best combination for a commercially competitive tanker. No bank or insurance company that I know of wi finance these tankers beyond the amount that can be spun off from the chartet. Thus, at least 33 percent of the cost of these ships would have to be equity capital. No one I know of is willing to risk that kind of money with the odds so high against recovering it. There are too many other opportunities for more prudent employment of capital.

I am firmly of the belief that the Government should make it possible for private financing to share some of the financial burden that would otherwise be borne entirely by the Government. However, the Government must realize that, in order to attract such private capital, it must create conditions that are competi tive as to risk with investment opportunities in private business. In my opinion, the tanker bill has failed to do this. There is only one way I know of to bring the risks to private capital under this program in line with other investment risks, and that is to make use of the ship mortgage insurance program.

You have previously expressed to me your feelings in this matter but I would not be doing what you asked me to do if I did not honestly tell you that, in my opinion, the success of the Tanker Act will be jeopardized without the application of ship mortgage insurance. I am sure that as prospective shipbuilders under this program we have talked to most of the operators who have shown interest in these charters. I can assure you that there will be strong competition among tanker operators if such mortgage insurance were applied in this case. On the basis of the many interested parties who have discussed this program with us I can, with almost equal certainty, predict a failure of the program and, instead of 19 or 20 ships, it is likely there would be only 3 or 4 for Government account.

It seems to me that the purpose of ship mortgage insurance was to take care of the marginal situation where private financing is not otherwise forthcoming on account of the risks involved. Such is the situation here. Here we have an adequate tool to do the job but, if the job is to be done, the tool must be used.

These ships are most certainly special-purpose ships entitled to 100 percent insurance at 872 percent. The record of hearings on these vessels is replete with reference to special features. As pointed out above, the combination of charse teristics as to size, speed, and power make these ships special-purpose vessels what other excuse could there be for intentionally building a type of ship that cannot compete commercially with ships now being built?

I fully appreciate the original hope that the tanker program would stand on its own legislation but this will not be the case. I would hate to see, and I know you would too, the greatest legislative program in many years fall flat on its face st the outset of its application to specific situations.

Sincerely yours,

D. D. STROHMEIER, Vice President.