This is very true. You take, for instance, when you are talking about large tankers, the largest tanker in this country was built in the Fore River Shipyard in Quincy, Mass. It was built in a concrete way, in a basin, built quickly, very efficiently. In Japan they build them on the old-fashioned inclineway or tilted way and you have to consider the angle that the ship is at the time. In speaking of the shipbuilding industry, Mr. Chairman, let me say that not only are the American shipyards way ahead of anything in the world but we have an instance here where one of the oldest shipyards in this country, one of the largest, and the one which has the greatest, the largest central technical division in the world is now out of business, and that is the Bethlehem-Fore River Shipyard. It was closed down as of December 31, 1963, and when we talk about defense potential, this is one of the greatest weaknesses that we have that these yards are being closed down. Within the last 3 years there has been any number of yards closed down, the 56th Street yard in New York, the 27th Street yard in New York-good, large, modern shipyards and, of course, the Fore River Shipyard is one of the top shipyards in this country. It rates with shipyards like Newport News and New York shipyard. They built two of the atomic ships-the cruiser and the frigate-that we now have in our fleet. We have four surface ships-the big flattop was out of the Newport News yard, and the Savannah, as you know, was out of the New York yard, and the Long Beach, the cruiser, and the Bainbridge, the frigate, were out of the Fore River shipyards. And they had, along with Newport News and New York, the greatest know-how in the atomic shipbuilding world today, but that yard is now out of commission as far as Bethlehem Steel is concerned. It is now being operated by the General Dynamics Corp., their Electric Boat Division. They are going to complete the work that the Bethlehem Steel people had when they closed down and then do the overflow work from their Groton yard as far as submarines are concerned. The CHAIRMAN. Any questions, Mr. Tollefson? Mr. TOLLEFSON. I just have one. Based on your experience would you say that the differential in construction costs between foreign yards and domestic yards will continue at about the same level, or is there a possibility that it will even spread more? Mr. PETTIS. I would think that with the change in the economic world, especially in Europe and in Asia and that part of Asia that we might designate as Japan, with the increase in the standards of living which results in an increase in the wages, that the differential should go down rather than up. Mr. TOLLEFSON. Well, would that take place within the next 2 or 3 years, the period covered by this bill? Mr. PETTIS. I would think not, not to any great extent. Mr. TOLLEFSON. You are talking about the future, are you not? Mr. PETTIS. Yes, indeed. The situation in Europe, of course, is such that where we had in Bonn. in West Germany, a very peak situation where they were able to build ships almost-well, they competed at one time with Japan, you know, very shortly after they got into operation after the allies allowed them back into the shipbuilding industry after 1950 they were competing with Japan and their wage rates were very low, but the economy of Germany, of course, as you know it today, has risen considerably and the wages have risen, and no longer is there that necessity to build up the economy by keeping down wages. I was at an interesting meeting yesterday with Hans Buiter, the secretary of the secretariat of the ICFTU for the Common Market, and he explained all about this situation in Germany and the wages and the standards of living are increasing rapidly. In that area you would find that the German shipyard wages will go up comparably with anything in Europe. Mr. TOLLEFSON. But for the time being you think we ought to extend the present 55-percent ceiling in legislation? Mr. PETTIS. I would say, "Yes"; that in light of what the chairman has said-I, of course, No. 1, would be in favor of Mr. Haddock's position, that we have no ceiling, as long as we have checks in the law and in the policy of the maritime. The CHAIRMAN. We will go into executive session. Do you have any questions? Mr. PELLY. No, sir. The CHAIRMAN. Thank you, Mr. Pettis. I have a letter dated April 7, 1964, from Mr. Alvin Shapiro, vice president, the American Merchant Marine Institute, Inc., which will be placed in the record at this point. Also, if any material is received in the next 10 days pertinent to this subject, let it also be placed in the record. (The material referred to follows:) Hon. HERBERT C. BONNER, AMERICAN MERCHANT MARINE INSTITUTE, INC., Chairman, Committee on Merchant Marine and Fisheries, DEAR MR. BONNER: The American Merchant Marine Institute, a national association representing a majority of the owners and operators of Americanflag ships-freighters, passenger ships, and tankers-in both the domestic and foreign trade of the United States, favors enactment of legislation embodied in identical bills, H.R. 10053 and H.R. 10058, which your committee is considering. Many, but not all, qualify for construction differential subsidies provided by the Merchant Marine Act of 1936. In 1962 when your committee considered legislation which would have made permanent the 55-percent limitation on construction differential for new vessels and the elimination of statutory differentials with respect to vessel reconstruction or reconditioning, the institute suppored it. However, under legislation enacted that year (Public Law 87-877) authorization of the 55-percent limitation with respect to new construction and 60 percent construction subsidy on reconstruction and reconditioning of passenger vessels expires June 30 this year. H.R. 10053 and H.R. 10058 would extend the authorization until July 1, 1967. The Merchant Marine Act of 1936 judiciously contained the cardinal principle that certain qualified operators in our foreign trade be permitted, in the interest of maintaining an American merchant marine, to have real economic parity with foreign competitors on our essential trade routes. The proposal you are now considering deals with parity in the area of capital investment required of the American versus the foreign-flag operator in the procurement of ships-the tools of the trade-and their reconstruction and reconditioning. The matter of operating subsidy is not involved. The 50-percent statutory limitation on construction differential established originally was perhaps appropriate at that time, based on then prevailing economic conditions, but postwar developments in our economy contrasted with the economies of the countries which are the principal fabricators of ships abroad today can make the imposition of a statutory 50-percent limitation a breach of parity. If such a limitation is resumed, it will place our merchant marine, our shipbuilding facilities, and the laboring community on board ship and in the yards in an unfair and disadvantageous position. This in turn could be detrimental to the national interest. I wish to emphasize that the proposal before you does not modify the parity principle and does not involve greater Federal expenditures or greater Government assistance unless it is necessary under the parity principle. If parity can be achieved by 45-percent differentials, the actual awards will be on the basis of all the facts on which any determination is based. But if differentials under the parity principle rise, as they have in the past, above the levels of 50 percent, a statutory/economic barrier to constructing vessels for the American merchant marine with Government assistance would exist in the event this legislation is not enacted. Concerning the granting of up to 60 percent construction subsidy on reconstruction and reconditioning of passenger vessels, the unusual proportion of labor costs involved in this process makes a 55-percent differential fall outside the realm of parity. If the 60-percent differential is not continued, it is most likely that few, if any, operators will find it economically feasible to reconstruct or recondition vessels in either the process of modernizing individual fleets or the merchant marine as a whole. It is our strong and sincere belief that failure to enact the proposed legislation will result in progressive weakening of the American merchant marine, a possibility we cannot afford to let become a reality. Therefore, we urge favorable action on the proposal, and ask that this letter be made a part of the written record of the bills. Sincerely, ALVIN SHAPIRO. AMERICAN MARITIME ASSOCIATION, Hon. HERBERT C. BONNER, Chairman, House Merchant Marine and Fisheries Committee, Washington, D.C. DEAR MR. BONNER: The American Maritime Association endorses H.R. 10053 and urges favorable action on it by the House Merchant Marine and Fisheries Committee. We believe most sincerely that failure to extend the present differential for construction subsidy would be detrimental to the American merchant marine and injurious to the national interest. We therefore urge favorable action on the proposed bill. The issue raised by H.R. 10053 is the maintenance of parity with foreign competition. It is quite clear that since the end of World War II construction costs in the United States relative to foreign shipbuilding have increased to the point where a statutory 50-percent limitation on the differential would breach the parity principle. If the original liimtation is resumed, it would place our merchant marine at a serious competitive disadvantage. I wish to emphasize that at the present time it is essential for the maintenance of the parity principle that the maximum allowable differential for construction subsidy be kept at 55 percent. Should the maximum be reduced below that level, we fear that the American-flag ship replacement program would be seriously jeopardized. For the same reasons; namely, maintenance of parity, we believe that Congress should continue the 60-percent construction subsidy on reconstruction and reconditioning of passenger ships. We fear that anything short of that level would seriously discourage any further reconstruction or reconditioning of vessels of that type. We believe most sincerely that failure to enact H.R. 10053 would represent a serious blow to the American merchant marine which is totally unwarranted by the economics of the industry or the important need for a strong merchant fleet. We therefore recommend favorable action on the proposed legislation. Yours truly, MAX HARRISON, President. The CHAIRMAN. Thank you. The committee is adjourned and we will go into executive session at this time. (Thereupon, at 11:47 a.m., the committee was adjourned and proceeded to other matters.) О |