we find a still worse illustration-in dollars, though not in principle on the Pacific in two contracts with the Dollar Steamship Co. for services between the Pacific coast and Manila, P. I., from which that company will reap over $27,000,000, and also without any contract obligation to build any new vessels, you will understand why I consider the matter so important and as calling for prompt action.

Mr. JONES. Mr. President, will the Senator permit me a word there?

Mr. KING. I yield.

Mr. JONES. I think it is fair, in connection with the statement the Senator has just made and read, and which I am not questioning, as far as that is concerned, to state that I am sure the Senator knows that we had quite a controversy over the Dollar contracts and after a long controversy they were approved, and while they were not required under the contract to build new ships, I think I ought to put into the Record the fact that they are building two of the finest up-to-date ships to engage in that Pacific trade that we will have.

For information about these two ships, and statements that they were not being built under the contracts involved, see pages 24, 44, and 48.

Mr. KING. But they borrowed the money from the Government at 111⁄2 per cent or less for a period of 20 years.

Mr. MCKELLAR. One and eight-tenths per cent.

Mr. JONES. They are probably taking the same course others have taken. I am not excusing any of those things, but I am just calling attention to the fact that they are actually building two fine, new, up-to-date ships.

Mr. MCKELLAR. Mr. President, will the Senator from Utah yield to me?

Mr. KING. I yield.

Mr. MCKELLAR. While that is true, that is just a means of getting another subsidy from the Government to pile on that which they already have.

Mr. MOSES. Mr. President, will the Senator from Utah yield to me?

Mr. KING. I yield.

Mr. MOSES. Before the Senator leaves the subject of the ocean mail pay to steamships, I think it wholly pertinent to say that much of the difficulty in which we found ourselves regarding the problems which the Senator from Utah now presents has come from the fact that two different departments of the Government have been dealing with this question. We had the Fleet Corporation and the Shipping Board on the one hand, and the Post Office Department upon the other. The result was that Congress has found itself confronted by mail contracts made in pursuance of the statute, and unless Congress intends to repudiate the acts of executive officers, which are carried forward under statutes supposedly deliberately adopted by Congress, there is no recourse for us except to make these appropriations.

I want to make this suggestion to the Senator from Utah in connection with this matter. There happens to be at the minute in existence in the Committee on Post Offices and Post Roads a subcommittee which is dealing with another branch of postal transportation, and the functions of that subcommittee can be readily enlarged in the Committee on Post Offices and Post Roads so as to

take up this other question also. If that were done, I think without question we could then secure a set of facts upon which in another year, when the post-office appropriation bill comes here, we will have a structure of information upon which to base our action. Mr. MCKELLAR rose.

Mr. MOSES. I am glad to see the Senator from Tennessee on his feet as I make that suggestion, because he knows the subcommittee to which I refer; he knows the proposal before the committee upon which that subcommittee is to act; and he, with his great experience in the committee and his knowledge of all these matters of postal transportation, I think will readily see the point of the suggestion which I am making.

Mr. MCKELLAR. Mr. President, I want to say to the Senator from New Hampshire, if the Senator from Utah will yield, that I do see the point of that suggestion. I think it is a very wise suggestion, and I hope the Senator will enlarge the motion he has heretofore made, which has already been passed, so as to give the subcommittee jurisdiction over these mail contracts, and all mail contracts, to examine and report to the next session of Congress.

Mr. MOSES. Mr. President, I chance to be chairman of that subcom. mittee, the Senator from Tennessee is the ranking minority member of the subcommittee, and I have no doubt that he and I can readily agree upon a form of words which will make possible a complete and accurate informative study of this whole subject.

Mr. MCKELLAR. I will be very happy to cooperate with the Senator from New Hampshire.

Mr. KING. Mr. President, the work which will be done by that subcommittee, however, does not cover past transactions. It will not invalidate, and can not, perhaps invalidate, some of the long-term contracts under which subsidies have been and are being paid, far in excess of what would be legitimate subsidies, even though we believed in subsidies and adopted their payment for the purpose of aiding the development of a merchant marine.

Mr. MOSES. That is true, Mr. President, but, of course, the Senator from Utah recognizes that situations like that are constantly arising; and while we may not be ex post facto in what we do, we certainly can close the door against abuses in the future.

Mr. KING. Mr. President, I want to ask the Senator whether this large appropriation of $36,000,000 carried in this bill was investigated by the committee with a view to determining whether the contracts under which subsidies are paid are valid; whether the contracts were in harmony with the spirit of the law, even though perhaps they may have been in most instances in harmony with the technical construction of the law? My information is that some contracts were entered into wherein shipping lines had been established, and where no subsidies were required, under the claim that they were necessary in order to build up operating lines.

Mr. MCKELLAR. Mr. President, will the Senator yield?
Mr. KING. I yield.

Mr. MCKELLAR. Of course those are subsidies, and, as everybody knows, under the law which has been passed, subsidies to which I never agreed and do not agree now, but they were subsidies never

theless. In that connection I want to ask the Senator from New Hampshire, if I may in the time of the Senator from Utah, whether he can give any estimate as to about how much these subsidies paid by the Post Office Department amount to. The purpose of the question is this: As the Senator knows, there was a very large deficit in the Post Office Department for the last two or three years, perhaps for several years. How much of that deficit is due to the subsidies granted to the steamship and aircraft carriers, just in a general way?

Mr. MOSES. Mr. President, I can not answer that in terms of dollars, and even at the risk of stimulating the Senator from Utah to another line of inquiry, I can only recall to the Senator from Tennessee an episode which took place as the conferees were discussing the items in this bill, when the allegation was made and pretty well supported by some of the House conferees, that at least 70 per cent of one item of appropriation in this bill constituted a subsidy.

The Senator from Tennessee will forgive me if I try to state his position-he and I, who had been actively cooperating at the beginning of the appropriation for air mail service, took the position that we had to encourage the aircraft industry.

Whether the percentage of encouragement under these appropriations for the ocean-borne mail is too great or not I do not know. But I am firmly convinced that the Congress ought to have the information, and I hope that in view of the ready acquiescence which the Senator from Tennessee has indicated in the suggestion which I advanced a few minutes ago, we may have that information before another Post Office Department appropriation bill comes here.

Mr. MCKELLAR. Mr. President, my recollection is, if the Senator will permit me, that we fixed a limit for the Postmaster General in fixing a rate both as to air mail and as to steamship companies, and that he has given a limit in making the contract.

Mr. MOSES. That is my recollection.

Mr. KING. Mr. President, I have an engagement and am compelled to now leave the Chamber. There are further points I should like to discuss, but can not do so at this time. I ask permission to insert in the Record as a part of my remarks excerpts from page 3 of this public document (No. 210) entitled "Monopoly in Bidding," and from pages 8, 9, and 10, under the heading "Subsidies very excessive."

The PRESIDING OFFICER. Is there objection?

There being no objection, the matter was ordered to be printed in the Record, as follows:

II. MONOPOLY IN BIDDING

COMPETITION WAS EXCLUDED, INTENTIONALLY EXCLUDED, BY SPECIFICATIONS, COMPLIANCE WITH WHICH WAS POSSIBLE BY ONE PERSON ONLY

The monopoly in bidding resulted, primarily, from the certifications made by the Shipping Board relative to kind, size, and speed of vessels "required" for the postal route involved. The exclusion of all bids other than the preferred line was perfected by two limitations imposed by the Postmaster General, viz: (a) The short time allowed within which to present a bid and (b) the very early date by which the operation of the service was required to commence.

Under section 403 the Postmaster General is required, before he invites bids for the proposed ocean route, to ascertain from the board

* the type, size, speed, and other characteristics of the vessels which should be employed on each such route; the frequency and regularity of their sailings; and all other facts which bear upon the capacity of the vessels to meet the requirements of the service proposed by the Postmaster General." The text of this mandate clearly intends that, prior to the certification being made by the board, a careful investigation should be made of the trade route involved, both with reference to the competition by foreign vessels there to be met and to the commercial needs of the route irrespective of such competition.

Even if there was no foreign-vessel competition on the particular route, important inquiries remained desirable to determine the adequacy, efficiency, and rate factors required to promote American commerce by that route in its competition with the transportation of similar commerce between other countries and the same point.

The transportation problem is greater than securing to American vessels the transportation of the commerce, in fact, enjoyed by the United States; it has an important part in the increase and extension of that commerce. To illustrate: Importers of copra from the Philippine Islands, through our Atlantic ports, have been unable at times to secure cargo space, with the result that imports normally belonging to the United States for processing, etc., have not only moved in foreign vessels, but to foreign countries, there to be processed and exported.

Now, the investigation of these matters is not reposed in the Post Office Department; it rests on the Shipping Board as a necessary preliminary to the certification it is required to make.

Instead of having an investigation made, the board in most instances simply ascertained the vessels and the number of voyages a favored line was operating and made its certification to conform to the service maintained by the fortunate line. To illustrate:

The board was asked by the Postmaster General to certify appropriate vessels on the route from New York to Mediterranean ports. Having confirmed that the service then and there operated by the Export Steamship Co. was with 10-knot vessels of about 4,000 gross tons, and that it had a sufficient fleet to make 84 voyages per annum, its certification conformed to these facts, and that line was the only and the successful bidder, and at maximum rates.

Had ample time been given other bids would have at least been possible; but it was not, for the Postmaster General required, first, that bids must be submitted within 30 days—a time wholly insufficient for new interests to survey the field and determine whether a bid by them would be justified; and, second, had other persons decided to bid provided time was given to acquire equipment, adequate time was not given; it was required that operation should commence within 30 days of the award of the contract, and no one but the then operator could meet this condition.

The undertaking by new interests would have involved not only the acquisition (possibly by new construction) of at least 18 vessels, but also securing terminal facilities at many foreign ports, and also other important commercial and financial arrangements.

While the text of the law, if intended as a subsidy, is in many respects defective, its provisions made wholly unnecessary the undue speed attending the award of these contracts; for instance: The law provided (sec. 414f) as much as 12 months from June 30, 1928, through which investigations could have been made, wise procedure developed, and reasonable time given prospective bidders to examine and consider the matter, within a reasonable time limit for bidding.

The commencement of operations under the contract could also have been fixed to allow prospective bidders time within which to secure necessary equipment, etc., with which to perform. The text reads (sec. 403, "Performance under any such contract shall begin not more than three years after the contract is let * *" a provision clearly contemplating that an award may be made to a company which may have to build new vessels for performance. The following is a sample of what in fact was done: The act was approved May 22, 1928. On May 24, two days later, the Post Office Department immediately adopted a group of routes for certification; they were in fact routes which had been previously recommended by the board. On May 29 the board certified the vessels' requirements, in the manner and on the basis we have described.

The advertisements inviting bids were then immediately inserted, viz, on June 9, 1930; they required bids to be presented by July 9, 1930, or within less than 30 days from the first appearance of the publication. More serious than these, however, was the requirement that performance of the contract should commence on August 1, 1930.

Prompt

This speed seems to have been unjustified from every point of view. movement of the mails was not involved, not only because the new act provided for the extension of the existing contracts for a term not exceeding one additional year, but also because, if such contracts were not extended, the steamship services were there and in the absence of any contract, their legal obligations to convey the mails was definite and certain--at the poundage rates. Such a system is not only prejudicial to the Treasury of the United States and the rights of other citizens, it is prejudicial also to the development of our merchant marine, as illustrated in the contract awarded.

IV. SUBSIDIES VERY EXCESSIVE

THE SUBSIDIES GREATLY EXCEED THE HANDICAP OF AMERICAN VESSELS IN FOREIGN TRADE; THEY GREATLY EXCEED ALSO THE OPERATING DEFICITS OF THE SUBSIDIZED LINES

A ship subsidy is an extension of the protective tariff system; it is justified by similar economic conditions, and legal requirements relative to the operation of vessels further augment the handicap.

Among the normal economic items are the facts that it costs much more to build a vessel in the United States than in foreign yards; also, the wages paid the crew are higher. The legal handicap mentioned results from our seamen's laws. As a result, the cost of operating a vessel under the American flag is greater than operating a similar vessel under foreign flag.

We refer to these differences in the aggregate as the "handicap" of American vessels when in competition with foreign vessels. A subsidy, therefore, should not be awarded vessels operating in coastwise trade, including, of course, our intercoastal trade, as foreign vessels are not permitted by law to operate on those routes.

The most ardent advocate of a ship subsidy would not expect the enactment of a law which would yield to any vessel or line a subsidy greater than the sum of these items: (a) The operating deficits; (b) a proper annual deduction for depreciation in value of the vessel; (c) reasonable interest or dividend on the money invested. When the " compensation" is greater than these the excess is not a subsidy in a normal sense; it is a gift from the Public Treasury. It may be challenged whether all the factors we have mentioned above should be recognized, unless qualified by a proviso that the operating deficit, if any, must not exceed the amount it would be under efficient and economical operation. To illustrate:

A deficit resulting in part from the payment of $100,000 annual salary to the president, as has been done by the Export Steamship Co., obviously does not deserve recognition nor can it be justified by the depletion of revenues to the profit of a subsidiary corporation, as also done by that company, to the extent of $250,000 in a single year, when such "profits" certainly might (and we think, certainly should) have been retained by the parent company, as a reduction of its costs of operations. The profits accrued to the subsidiary mainly, if not solely, from the activities of the parent company. More extended references to this line will be found at page 24.

Among the contracts which have been made are a number which yield compensation" greatly in excess of either of the subsidy tests mentioned. They exceed not only the competitive handicap but also the amount of the deficits actually sustained, as shown by the company's own statements, respectively. To illustrate:

THE GRACE STEAMSHIP CO.

The contract awarded this company, dated July 13, 1928, is for 10 years and provides for 26 voyages on the route from New York to the west coast of South America. The initial service required by the contract is substantially the same service the company has maintained for many years. The ' compensation" exceeds $645,000 annually.