Mr. Foster?

Mr. FOSTER. Yes, sir, thank you.

At the present time, if American-flag vessels are not available, you can use foreign-flag vessels, is that true?

Mr. KENDALL. That is correct, sir.

Mr. FOSTER. If this legislation became law and there was a shortage of American-flag vessels under the definition of this law, this bill that is being proposed and there was a shortage, you would still be able to use foreign-flag vessels?

Mr. KENDALL. I would think so, sir, but I would like to consult counsel on this to be sure that I have interpreted the terms of this proposed law correctly. I don't see in a quick examination right now any difficulty in using a foreign-flag ship if no American-flag ship were available.

Mr. FOSTER. What is the basis of your present authority to use foreign-flag vessels?

Mr. KENDALL. The 1904 law says, as I recall it, exactly what is in the first sentence of the proposed amendment, but the Attorney General in 1907 ruled, and there has never been a change in that ruling, that a ship had to be available before the provisions of this law would be mandatory.

Mr. FOSTER. This doesn't change that wording?

Mr. KENDALL. Not that I can see.

Mr. FOSTER. Therefore not the interpretation that has been placed on it.

Mr. KENDALL. That is correct.

Mr. FOSTER. Your understanding is that you would still be able to use foreign-flag vessels, if nothing else were available?

Mr. KENDALL. Right, sir.

Mr. FOSTER. What is the limitation then that would be placed upon your moving anything at any time?

Mr. KENDALL. There would be no limitation placed upon us, sir, except in the sense that we consider that the mandate of this law to use American-flag ships is almost overwhelming and we would have to be absolutely certain that no American-flag ship could meet the requirements.

Mr. FOSTER. You feel that way now?

Mr. KENDALL. We do that right now, but under this amendment, if we had a ship which had been rebuilt abroad or had been rebuilt in an American yard with a foreign midbody, we would not be able to use that ship until 3 years had passed. It would be an American ship, but it wouldn't be available for military cargo.

Mr. FOSTER. Are you suggesting by that then that the Defense Department would be placed in a situation where actually if that vessel were a foreign vessel, you could use it, but because of this, you wouldn't even be able to use it?

Mr. KENDALL. That is correct, sir.

Mr. FOSTER. Does it follow from that, if we then made a change which said that these vessels that are built in U.S. shipyards with foreign midbodies during that 3-year period would be considered as foreign ships for purposes of emergency, that you would support the legislation?

Mr. KENDALL. I don't think it would change the provision of the statute, sir, because if the-I see what you have in mind. You would give us an exemption in this case?

Mr. FOSTER. Yes; just like you do in terms of foreign ships. Mr. KENDALL. I think we would have no particular difficulty in agreeing to that, sir.

Mr. FOSTER. Thank you, Mr. Chairman.

Senator BARTLETT. Thank you, Mr. Kendall.

Mr. KENDALL. Thank you, sir.

Senator BARTLETT. The third witness is Alvin Shapiro, executive vice president, American Merchant Marine Institute.

STATEMENT OF ALVIN SHAPIRO, EXECUTIVE VICE PRESIDENT, AMERICAN MERCHANT MARINE INSTITUTE; RICHARD KURRUS, COUNSEL FOR AMERICAN TRAMP SHIP OWNERS ASSOCIATION; HOYT HADDOCK, AFL-CIO MARITIME COMMITTEE; MARVIN COLES, COMMITTEE OF AMERICAN TANKER OWNERS; AND WALTER OATES, SHIPBUILDERS COUNCIL OF AMERICA

Mr. SHAPIRO. Good morning, Mr. Chairman, I have some colleagues with me, if I may.

Mr. Chairman, I have just a very brief statement, if I may read it, I would appreciate it.

Senator BARTLETT. You may do so, but, first, for the record, so the record will be clear, will you identify those that accompanied you to the table?

Mr. SHAPIRO. With me, on my left, is Richard Kurrus, counsel for the American Tramp Ship Owners Association, one of the organizations joining in support of this statement with the American Merchant Marine Institution; Mr. Hoyt Haddock, AFL-CIO Maritime Committee, another organization joining with us; Mr. Marvin Coles, of the Committee of American Tanker Owners, third organization joining with us.

In the room, I believe although not here-here he is, Mr. Walter Oates, of the Shipbuilders Council of America, another organization joining with us in this statement, and Mr. Earl Clark is not here, although, the Joint Labor Management Maritime Committee does support us in this statement.

I am, therefore, Mr. Chairman, speaking on behalf of the American Merchant Marine Institute, but also for these other organizations, and, therefore, represent rather a broad cross section of the total American maritime industry.

Mr. Coles and Mr. Kerr may be able to answer some legal questions that may arise. There are some technical legal points that are involved in this legislation.

If I may divert almost before I start, Mr. Chairman, with your permission, if I were half a gambler, I would let the pro or con of this legislation rest with the two questions that counsel for this committee asked:

One was of the Maritime Administrator, there the problem was what happened when we precluded the use of foreign midbodies subsequent to 1962, which was the effective date of the preclusion. And I think a very close examination of that data and I only heard the facts really for the first time when I was sitting in this room-I think a close examination of that data will reveal that, obviously, when people can't go abroad for midbodies and cannot build new ships,

they go to the United States for their midbodies and for the rejoining work.

I am almost willing, without the permission of all of my colleagues, to practically restt he case as the Maritime Administration addressed itself to this problem on that fact.

The second question Mr. Foster asked was the one about the never-never land, about this vessel which the MSTS indicated it would be using for a period of 3 years. We have absolutely no intention of encumbering the military. If the military can take recourse of foreign-flag vessels, when American-flag vessels aren't available, we certainly have no objection to their taking recourse to these vessels in that never-never land, when the military requires. that they be used under any provision that this committee sees fit, which would, as Mr. Foster indicated, consider these vessels in that interim period as foreign-flag for that interim, by the military, when the American-flag vessels aren't available is perfectly acceptable to us.

We do not want to preclude the military from the use of any vessel, military or foreign, that it actually needs in the case of an emergency. We never have, and I will never come before you and urge that.

As a matter of fact, I have come before you on a number of occasions, Mr. Chairman, you will remember, and said, even in the commercial trades, when a shipper couldn't get an American-flag vessel, I had no objection to his using the foreign-flag vessel. Of course, tradings on whether our ships are there or not and for us to take a position that everybody in the world can go sit on a back seat as a shipper because we, as carriers, cannot render the services, I will stop associating myself with this industry, because I don't think that is a position for us ever to take.

The purpose of S. 2600 is to close two significant loopholes which are currently found in existing law dealing with the movement of Government-sponsored cargo ander MSTS und other U.S. agencies on ships which have either been built abroad, rebuilt abroad, or documented abroad.

On July 5, 1960, Public Law 86-583 was enacted. This law amended section 27 of the Merchant Marine Act of 1920, by providing that no vessel may engage in the coastwise trade of the United States which had been rebuilt abroad unless the entire rebuilding, including the construction of any major components of the hull or superstructure, is effected within the United States. There was thus barred from this domestic trade what was becoming a common practice of building midbodies abroad and bringing them to the United States for insertion between the bow and stern sections of older existing vessels. This is the cutoff date you were concerned with in your questioning of Mr. Johnson.

On September 21, 1961, the Congress passed Public Law 87-266, amending section 901(b) of the Merchant Marine Act of 1936, the so-called consolidated Cargo Preference Act. This provided that U.S.-flag vessels which were either built outside the United States, rebuilt outside the United States, or documented outside the United States, could not carry any portion of the cargo preference cargoes reserved to privately owned U.S.-flag commercial vessels until they were first registered under U.S. law for a period of 3 years.

This latter action, like the earlier one, was taken because the Congress clearly recognized that one could not encourage the develop

ment and maintenance of an American-owned, American-built merchant marine so long as recourse was available to flag transfer or foreign rebuilding.

Apparently we were mistaken in thinking that we had solved the problem. S. 2600 is intended to close the two gaps which have appeared subsequent to the last enactment.

The first breach which became apparent developed when the Military Sea Transportation Service of the Department of Defense interpreted existing law in a fashion which was hardly contemplated either by us or apparently by the Congress. You will recall the preference law under which U.S. military cargo moves was first enacted in 1904 and reenacted in 1956. It requires that vessels must be U.S.-flag registry only. MSTS feels, however, that once a vessel, regardless of where it was built, rebuilt or documented, is under U.S. flag, they are free to charter it. They have done so on a number of occasions.

You can appreciate, Mr. Chairman, that the dangers of the potential involved herein are vast since every ship in the world is eligible for MSTS charter upon its return to U.S. registry. The failure to include defense and military cargoes within the scope of Public Law 87-266 was certainly an oversight on our part, which we believe in all consistency should now be rectified.

Not related to this problem, Mr. Chairman, is a fact that I know you appreciate that is, a vessel can come back to U.S. flag, be chartered by the military for a period of time, and become eligible (by neutralizing economic risks) as a U.S.-flag vessel, for operation in the Public Law 480 and other assistance program trades. Thus, the danger of MSTS's interpretation of existing law has two detrimental prongs.

One is in terms of its immediate charter; the other in terms of its ultimate eligibility for cargo, preference cargo, under the Farm Surplus Disposal or other acts.

The first section of S. 2600 would clarify existing law by providing that the term "vessels of the United States" shall not be deemed to include any ships which have been either built or rebuilt outside the United States or documented under foreign registry until such vessels have been documented under the laws of the United States for a period of 3 years. It further states that the terms "built outside the United States" and "rebuilt outside the United States" shall include the construction or alteration abroad of any major components of the hull or superstructure. This does nothing more than to give the same definition of American vessels that qualify to carry military cargo as is presently given to American vessels eligible to carry other Government-sponsored cargo.

The second breach in existing legislation which has developed also results from administrative interpretation, this time the Maritime Administration's interpretation of section 901 (b) of the Merchant Marine Act of 1936, as amended. They have interpreted this law so as to allow a foreign-built midbody or other section of a ship to be towed back to the United States and joined with part of an existing American vessel and still have such a rebuilt vessel qualify for the carriage of cargo preference cargoes such as farm commodities under the Public Law 480 program. When an opening of this type develops under the scrutiny of a legal magnifying glass, there is truly no

telling how far it will go. We know of a number of plans in this direction already. I frankly am startled by the Maritime Administration ruling which apparently hinges not on the issue of where the cargo-carrying capacity or midbody of the vessel was built so much as where the rejoining process actually took place. I believe, Mr. Chairman, it is not unfair to say that such an interpretation of law is completely outside of the congressional purpose in passing Public Law 87-266 in the first place. The record will reveal that it was clearly beyond the scope of those who advocated the passage of that bill during the course of congressional testimony.

Thus, the second section of S. 2600 seeks to close this loophole by adding to section 901(b) of the 1936 act the proviso that the term "rebuilding abroad" shall include the construction or alteration of any major components of the hull or superstructure of the vessel.

In our judgment, this proposed legislation does not involve any new policy or principle, rather it is intended merely to prevent resort to vessel transactions entirely inconsistent with the purposes of earlier preference legislation and, I think you will agree, Mr. Bartlett, clear congressional intent. It is however, essential to foreclose some newfound ways to erode the status of American-flag unsubsidized merchant ships primarily and do other serious injury to the American maritime industry as a whole. Senator Bartlett, I do not want to come before you indicating that this problem is one which will disseminate the American merchant marine. Far greater in significance of anything that has happened to date is the potential damage that these two interpretations may hold and, in my personal opinion, will hold.

I think, however, that, as a matter of commonsense, equity, and to me clear-cut congressional intention, it is important that the air be clarified on this issue. I hope this time, once and for all.

All of us, Mr. Chairman, urge that S. 2600 be given the Congress' prompt consideration.

Senator BARTLETT. Thank you, Mr. Shapiro.

Mr. Foster?

Mr. FOSTER. Mr. Shapiro, would you help the committee with some facts about the size of the loopholes?

First, on the midbody problem, how many vessels have been rebuilt, jumbo sized here in the United States with foreign midbodies since 1962?

Mr. SHAPIRO. I will try to produce that for the record, Mr. Foster. I do believe the submission of the Maritime Administration would answer that question, but, again, it is data that I have not yet seen.

Mr. FOSTER. Our problem here, as I think you recognize, is that question was directed to the Maritime Administrator in an effort to try to determine the size of the loophole and information I got back, if I understood what I was getting back, was that it is not occurring. Now, if it is not occurring, then I think the chairman's point that it therefore would follow that, if it is not occurring, why oppose the legislation, is an excellent question.

Mr. SHAPIRO. Yes, sir.

Mr. FOSTER. And yet, the Maritime Administrator insisted that there had been no documentation involving foreign midbodies coming into the United States in terms of this type of upgrading of the fleet, and we need to obtain the information from some source, if we can't get it from the Maritime Administration.