conformity with the intended purpose of the time limitation stipulated in section 511 of the act. If, however, it be the view of your committee that the time for commitment of the funds should be extended by reason of the pending proceedings, we suggest that consideration be given to the adoption of an amendment in the form of permanent legislation which would authorize extension of such time for not longer than a stated period after final determination of any application by an operator for approval of a proposed expenditure or commitment of such funds. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. TREASURY DEPARTMENT, Washington, September 28, 1963. Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in reply to your request for the views of the Treasury Department on S. 1698 (88th Cong., 1st sess.), entitled "A Bill To Amend Section 511 (h) of the Merchant Marine Act, 1936, as Amended, in Order To Extend the Time for Commitment of Construction Reserve Funds." Section 511 of the Merchant Marine Act, 1936, as amended, permits a citizen to deposit in a construction reserve fund, for the purpose of constructing, reconstructing, or reconditioning vessels, (1) proceeds from the sale of vessels, (2) indemnities for the loss of vessels, (3) any earnings from the operation of American-flag vessels, and (4) earnings upon amounts previously deposited in the construction fund. No gain is recognized for tax purposes upon the sale or loss of a vessel if the net proceeds or net indemnity is deposited in the construction reserve fund and if the taxpayer elects to treat such gains as not recognized. The amount of the untaxed gain then serves to reduce the basis of a new vessel subsequently purchased with such gain. Section 511 (g) provides that the deferment of the tax on the proceeds of sale or indemnity will be lost, and the capital gains tax thereon will become payable, unless the deposit is expended (or obligated for expenditure) for the construction, reconstruction, or reconditioning of vessels within 3 years of the date of such deposit. Section 511 (h) provides that the Secretary of Commerce may extend this period for 2 additional years. The act of December 23, 1944 (58 Stat. 90), added a proviso to section 511 (h) to provide that, in addition to the foregoing extension, additional extensions could be granted which would end not later than 6 months after termination of the war. Public Law 586, 82d Congress (66 Stat. 760), amended this proviso to provide that further extensions could be granted that would end not later than September 30, 1953. Public Law 86-237 provided that, until January 1, 1961, further extensions could be granted that would end not later than December 31, 1961. Public Law 87-303 provided that until January 1, 1962, further extensions could be granted that would end not later than December 31, 1962. Public Law 87-782 provided that until January 1, 1963, further extensions could be granted that would end not later than December 31, 1963. The Treasury Department had no objection to the enactment of Public Law 86-237, Public Law 87-303 or Public Law 87-782. Public Law 87-782 represents the current status of the law in this area and therefore any extension granted under its provisions will expire on December 31, 1963. The instant bill would provide that until January 1, 1964, further extensions of time in which to expend or obligate deposits may be granted, but that such extensions shall not end later than December 31, 1964. At present there are three different construction reserve funds with aggregate deposits totaling approximately $12,600,000. Only one of these deposits, however, would be affected by the, bill. That deposit, in the amount of approximately $11,675,000, belongs to American-Hawaiian Steamship Co. The time to expend or obligate this deposit will expire on December 31, 1963. The time to expend the other deposits does not expire prior to December 31, 1964. American-Hawaiian Steamship Co.'s application for title XI loan and mortgage insurance for construction of three containerships (the estimated cost of construction being approximately $67.800,000) for operation in U.S. intercoastal trade was denied by the Maritime Administration by letter to the company dated May 10, 1961. However, American-Hawaiian Steamship Co., by letter dated November 17, 1961, to the Secretary of Commerce, resubmitted its proposal. According to the Maritime Administration, it is probable that a final decision on this matter will not be made prior to December 31, 1963. Therefore, it is unlikely that the American-Hawaiian Stemship Co. will know whether its funds which are now on deposit in the construction reserve fund will be required to purchase vessels until after the extension provided for by Public Law 87-782 has expired. Since the decision of the Maritime Administration on American-Hawaiian Steamship Co.'s application for title XI loan and mortgage insurance may determine whether the steamship company will add new vessels to its fleet, it may seem wise to grant an additional extension of time to expend or obligate deposits in the construction reserve fund in order to allow the AmericanHawaiian Steamship Co. to receive the Maritime Administration's decision. In the light of the foregoing, this Department has no objection to the enactment of S. 1698. The Bureau of the Budget has advised the Treasury Department that there is no objection from the standpoint of the administration's program to the presentation of this report. Sincerely yours, STANLEY S. SURREY, Assistant Secretary. FEDERAL MARITIME COMMISSION, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in reply to your request of June 12, 1963, for the views of the Federal Maritime Commission with respect to S. 1698, a bill to amend section 511(h) of the Merchant Marine Act, 1936, as amended, in order to extend the time for commitment of construction reserve funds. Inasmuch as the bill does not affect the responsibilities or jurisdiction of the Commission, we express no views as to its enactment. The Bureau of the Budget has advised that there would be no objection to the submission of this letter from the standpoint of the administration's program. Sincerely yours, THOS. E. STAKEM, Chairman. SHIPBUILDERS COUNCIL OF AMERICA, July 26, 1963. Hon. WARREN G. MAGNUSON, DEAR MR. CHAIRMAN: We note you have introduced S. 1698, amending section 511 (h) of the Merchant Marine Act of 1936 to permit extension for an additional year to December 31, 1964, of the time for commitment of construction reserve funds by shipowners. As was the case last year, this proposed extension would particularly apply to funds of the American-Hawaiian Steamship Co., which must be committed by December 31, 1963, under present law. The situation making passage of S. 1698 necessary is almost the same as existed last year and we believe the committee will be in unanimous accord with the purpose of the bill. The general outlook for the shipbuilding industry is, as you know, unpromising and we are therefore hopeful that the time extension proposed by the bill will result in the construction in this country of three large containerships for the critically depressed intercoastal trades at a time when our shipyards are in urgent need of new contracts. The current shipyard situation is covered in our enclosed press release dated July 19, 1963. On behalf of the Nation's shipbuilding and ship repair industry. we urge favorable action on this bill. Sincerely, EDWIN M. HOOD, President. AMERICAN MERCHANT MARINE INSTITUTE, INC., Senator WARREN G. MAGNUSON, Chairman, Committee on Commerce, DEAR SENATOR MAGNUSON: The American Merchant Marine Institute, Inc., a national trade association representing American shipowners and operators on all coasts of the United States, continues its support of pending legislation, S. 1698, which would extend for an additional year the time for commitment of construction reserve funds established under section 511 of the Merchant Marine Act of 1936. The granting of this extension is of great concern to American-Hawaiian Steamship Co., which has in excess of $11 million in its construction reserve fund, and a contingent Federal income tax liability thereon of approximately $2,500,000 if the funds are not invested in new ships. In 1959 the company applied for mortgage insurance to construct four (later reduced to three) lift-on, lift-off container ships at an overall cost of about $64 million. The application was denied because another operator had offered to provide vessels of its own which would not require mortgage insurance. In 1961 the company renewed its application. As a result of hearings held on the matter, an initial decision of the chief examiner, Department of Commerce, Maritime Administration, in April of this year found that American-Hawaiian's proposed intercoastal container ship service was economically sound and that the impact of the project on other water carriers now in the service did not appear to warrant the denial of the application in the light of benefits which could accrue to domestic commerce. Under existing law the money in the construction reserve fund must be committed by December 31, 1963. S. 1698 would extend until December 31, 1964, the period within which the construction reserve funds could be made available in the building of the new vessels. The company's plan for utilization of the fund, i.e., either the construction of new vessels if the application is granted or, in case of denial, use of the money in a manner which would aid shipping, should not be jeopardized pending finalization of the Department of Commerce decision in this matter and/or consideration of alternative use of the funded moneys. As we have previously pointed out, enactment of this measure would provide the possibility of upgrading our coastal water service. This is a segment of the industry which needs assistance to strengthen our economic and our national defense positions. Furthermore, another factor which merits consideration is the need of the Nation's shipyards for shipbuilding contracts. For the reasons stated herein we ask favorable consideration of S. 1698 and ask that this letter be made a part of the written record of the bill. Respectfully, ALVIN SHAPIRO. Senator BARTLETT. The committee will stand adjourned. (Thereupon, at 12:25 p.m., the committee was adjourned.) (Subsequently the following letter, containing certain information requested of the writer at the hearing, was received from Mr. James Johnson, commissioner of the Port of Coos Bay, for insertion in the S. 2100 record :) Senator WARREN G. MAGNUSON, Chairman, Senate Commerce Committee, PORT OF COOS BAY, OREG., Coos Bay, Oreg., October 17, 1963. DEAR SENATOR MAGNUSON: On September 23, I appeared before the Merchant Marine and Fisheries Subcommittee of the Senate Commerce Committee at a hearing to testify on behalf of the Port of Coos Bay in favor of extending the current waiver of the Jones Act to permit shipment of American lumber to Puerto Rico in foreign-flag vessels. At that time, you advised me to submit actual cost figures for foreign- and American-flag vessels. Georgia-Pacific Corp. states that the lowest bid received from an Americanflag line was $56.94 per thousand board feet of lumber. The bid submitted by Kawasaki Kisen Kaisha Line was $40 per thousand board feet, a difference of $16.94 per thousand. Dant & Russell, Inc., advises us the Interstate Commerce Commission berth terminal rate from Portland, Oreg., to New York is $36 per thousand. The operators of foreign-flag vessels have stated the cost of lumber shipments to be $22 per thousand, allowing a slight variance for the type of vessel and market conditions. Last summer, Canadian lumber was transported at the rate of $19.50 per thousand. Using the higher figure of $22 per thousand board feet cost of foreignflag shipping, you will note there is a difference of $14 in excess cost. Thus, American mills would have their transportation costs reduced by 39 percent, which would afford them the opportunity to compete in the domestic lumber market. |