Mr. SHAPIRO. Mr. Foster, the real danger with this problem is one that is very difficult to visualize. I suspect one can say that it is not occurring and therefore either why oppose it or why support it? The point is we now know we are right on the brink of it actually occurring. We know of people who are very interested in going through this process.

Once this breach becomes obvious, and it is going to become terribly obvious, there is no limit as to how far it can go. So this is, let's say, a cause preventative, if you will, and that is the exact status we are in, and it is the same thing with MSTS. I mean, if you could say this only involves one vessel or four vessels, why fool around with it? It is not too consequential, I guess, on the basis of cold examination of the facts, that is true, but it is facetious to visualize Americanflag construction when recourse can be taken to foreign midbodies activity. I mean the economics are such that it is just impossible to visualize that anybody is going to spend twice as much money on a midbody here, as he is going to spend abroad. It is just about that simple, Mr. Foster.

May Mr. Kurrus comment on that, please?

Mr. KURRUS. As I understand it, Mr. Foster, there are two parts. to the inquiry. I don't believe there have been any vessels built with foreign midbodies and joined in the United States between the end of 1962 up to the present, but there is one, as I understand it, being joined at the present time, and there is another in contemplation, and apparently several others.

seven

Second, as I also understand it, approximately six or vessels have been transferred from foreign-flag registry to Americanflag registry for charter to MSTS. So, with respect to the two loopholes, there have been a significant number of vessels coming back from foreign-flag registry to American-flag registry for MSTS charter. Mr. FOSTER. What was the length of those charters?

Mr. KURRUS. Some of them have been under charter, I believe, for as long as 2 and 3 years for the carriage of coal to Europe.

Mr. SHAPIRO. This, in itself, Mr. Foster, if I may comment, is really not the answer, because, if the owner, and MSTS can get together on an agreeable rate, depending on the market, MSTS is perfectly free to charter it for whatever length it wants with the statutory limitation. And I think that statutory limitation is well beyond 3 years, so it may be a mere coincidence that these charters may be 1 or 2 years. They could have easily been 3 years. All somebody had to do is make a decision that he has a 3-year charter and MSTS make the decision it would take a 3-year charter on that rate, and it is a 3-year charter.

Mr. KURRUS. It might also be said that, at the time MSTS chartered these ships that were renegade foreign ships, several American-flag ships were available to carry the business, and I believe it is clear that MSTS chartered the "X" foreign-flag ships solely out of considerations of lower rates. Obviously, these vessels were willing to carry the cargo at less rate, or lower rate.

Mr. FOSTER. Are you suggesting, Mr. Shapiro, that, if Government policy would be such as to encourage foreign shipbuilding, that the Government, without any change in any legislation could, through the chartering powers of MSTS, charter foreign-built vessels under U.S. flag and permit them to operate for 3 years under our present

law and thereafter be available perhaps not for subsidy, in terms of the subsidized operations, but would in terms of our bulk-carrier fleet, tramp fleet?

Mr. SHAPIRO. What I am saying, Mr. Foster, and I regret I missed the beginning of your inquiry, is that MSTS has this authority right at this moment, and it is this authority we are trying to preclude; yes, sir.

Mr. FOSTER. Mr. Shapiro, the public announcements from the American Merchant Marine Institute, if I read them correctly, would reflect an interest in being permitted to build foreign and bring back under U.S. flag and use under U.S. flag, at least, perhaps, superficially, but, on the face of it, there appears to be some kind of a conflict between the American Merchant Marine Institute taking the position you would like, authority to build foreign and bring back under U.S. flag for U.S. operations and supporting this legislation.

Do you see any inconsistency?

Mr. SHAPIRO. Well, Mr. Foster, to be perfectly forthright, there is a kind of superficial conflict, but I think it is rather superficial and let me explain our position, and then I think you will see that the conflict disappears.

We took a position in support of the American shipbuilding community, and we said that this community, which deserves to be supported, should be supported by the United States in the form of subsidy. And we went on to say that this subsidy should be directly paid, et cetera, but that is rather irrelevant.

We also went on to say that, to the extent that the Government wants a private shipbuilding community, it should support it during the course of its existence through subsidy. If the Government decides it wants to the tune of $10 million, that is a governmental decision, we would regret that it would be that small, but that would be its decision, or $100 million, or $200 million. So, we put this in the area of a Government decision to support the shipbuilding community.

We also went on to say that the Government's inadequate support of the shipbuilding community from time to time should not reflect itself on creating an inadequate merchant marine. Therefore, we should have authority when Government financing or shipyard construction is absent, or at minimal level, ship operators who are in a somewhat different business than building ships, should be able to go abroad to build their ships with full U.S. privileges, and here comes the obvious conflict. Ours is a policy statement in principal. And we stand behind it and, very frankly, my personal view is that the position is only half drawn. I wish it were an even stronger position in that regard, but that is rather another problem.

Until such time as the Government takes a firm policy position, should it ever take it, that building a product with full U.S. privileges is acceptable part of national policy in the interest of the maritime industry as a whole. We do not think these little hole-pecking proeesses should exist, which are accomplishing the same thing without clear congressional mandate.

So, if the time were to come when you were to say, "We want to build vessels abroad, because the U.S. Government is not producin enough construction subsidy money to allow Al Shapiro, Marviz Coles, or S.S. Steamship Co. to build new vessels at the economie burden of building them in the United States and therefore he want

to build them abroad, we will support such a program"-We have supported such a program and will continue to support such a program. That is a basic policy approach. This is an accomplishment of the same thing through interpretations outside of the area of congressional intent. So, I think the two are really not as inconsistent as one might think.

We are doing here, through the existing situation, as S. 2600 wants to preclude what the institute wants to support, but, let's do it as a policy mandate of the U.S. Government, or, let's close it as a policy mandate of the U.S. Government. Let's not let maritime policy and the issue of construction of new vessels, or midbodies, be determined by very keen, perceptive lawyers privately employed. They are determining maritime policy now because they are finding the interpretations. This is their job. I don't want to degrade them, don't want to malign them, but they are setting the policy of building abroad, and S. 2600 is trying to preclude that.

When the U.S. Congress sets a policy of building abroad, you will find me here supporting that policy to the extent that the U.S. Government is unwilling to adequately support a shipyard industry.

But,

Have I made the inconsistence disappear somewhat, at least? Mr. FOSTER. I think you have, the point being that, if you are really talking about the long-term interest of the U.S. merchant marine and you are talking about a major upgrading of the fleet, one approach, according to the institute, would be building abroad. if you are talking about minor loopholes, patchwork here, and bringing in foreign-built midbodies, or whether someone is successful in getting to MSTS for sufficiently long charters to bring in a foreign vessel, either on the surface or subrosa, in terms of the length of the contract, and the assurance that they will have some type of activity under U.S. flag for a sufficient period to last out the 3 years, is a makeshift way of going about a business.

Thank you.

Mr. SHAPIRO. Precisely.

Mr. FOSTER. Thank you, Mr. Chairman.

Senator BARTLETT. Senator Dominick.

Senator DOMINICK. Mr. Chairman, I came in late, but I have read this bill and I have one question. We recently had testimony indicating that we didn't have enough ships in the merchant marine to handle our traffic and I just wonder if we pass this bill, if this means that all of our merchant marine is going to have to turn into carrying for defense purposes and how we are going to handle the ordinary work that they are doing?

Mr. SHAPIRO. Senator Dominick, this bill really doesn't reflect itself on how many we are going to have. It rather reflects itself on where the midbody, if you will, is going to be built for the vessl which ultimately becomes the U.S.-flag vessel.

I assured the committee and its chairman before you came in that while the MSTS came here in objection to the legislation as limiting or potentially limiting the availability of ships for its purpose, that this was not within the scope of our mission whatever. We had absolutely no objection to their providing in any shape, manner or form, and Mr. Foster, committee counsel, brought this out very clearly, that under no circumstances would this limitation as contained in this bill have any bearing on recourse of the military to vessels in a national emer

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gency when they found adequate American-flag vessels were not available to it.

Senator DOMINICK. I can sympathize with what you are trying to do, but the first sentence of the bill says: "Only vessels of the United States or belonging to the United States may be used in the transportation by sea of supplies bought for the Army, Navy, Air Force, or Marine Corps."

Mr. SHAPIRO. This is existing law, Senator Dominick.

Senator DOMINICK. It is largely, I gather, in the process of either being or looked aside or skirted.

Mr. SHAPIRO. May Mr. Coles reply to that, Senator Dominick? Senator DOMINICK. Yes.

Mr. COLES. Senator Dominick, that provision you have read has been part of the existing law since 1904 and I don't think there is any question but that American vessels must be used under that law. This bill would not in any way change it. What it does do is go to a definition of what is an American vessel, and close two loopholes which presently exist from congressional enactments passed approximately 1961 and which have been discovered. It does not in any way cut down the number of ships which can be used by MSTS. It does not change the ships they can use.

It merely says in effect that American built ships will have preference by MSTS cargo and only thereafter, can they go to these other ships which would be brought back.

Senator DOMINICK. Why don't we say that?

Mr. COLES. As a lawyer, I can say that we lawyers foul up language a good deal and we are now in a statutory system and this is the way we have to do it.

Senator DOMINICK. You would prefer to leave it the way it is because custom has indicated that this first sentence doesn't mean anything anyhow?

Mr. COLES. No, sir, quite the contrary, that sentence has a very real meaning. That sentence says, and it is part of the general law, that the military must use American ships so long as they are available at reasonable rates. Thereafter, it may turn to foreign ships or whatever it needs to meet its needs and, as Mr. Kendall testified for MSTS, they have about 4 percent of their lift by foreign ships today. This would not change in any way. This would merely say that where you take a foreign midbody, a foreign cargo-carrying section and bring it to the United States and put it on an old stern and bow or when you get a brandnew ship, built abroad with foreign labor and brought to the United States, that ship will not qualify as an American ship. It will have to qualify in effect as a foreign ship for the first 3 years.

Senator DOMINICK. Thank you.

Mr. COLES. It is merely a matter of relative priority, Senator Dominick.

Senator BARTLETT. Mr. Kenney.

Mr. KENNEY. If I may. First, I think it might be helpful to this record if you would explain what it takes to register a ship United States, if you could?

Mr. SHAPIRO. It must A, be approved by the Coast Guard for U.S.-flag registry. This is a physical examination of the vessel and its characteristics.

Mr. KENNEY. This is a safety inspection, in effect?

Mr. SHAPIRO. Safety and other miscellaneous things attached to safety. Beyond that, I will pass on to Mr. Coles, who probably has done some of this.

Mr. KENNEY. It has to be American owned?

Mr. COLES. I have never documented a ship as such. I think what Mr. Shapiro has said is this, you must meet the physical requirements of the Coast Guard; the ship must be owned by a company which is American controlled, that is, over 51 percent of the stock. The president and managing director must be an American citizen and that is just about it. You go through other formalities, but that is the sum and substance.

Mr. KENNEY. It has to have an American crew?

Mr. COLES. Yes, and thereafter, in other words, it isn't until you document that you need the crew. Thereafter you must have an American crew.

Mr. KENNEY. Who speaks English and so on.

Mr. COLES. There are certain waiver provisions.

Mr. KENNEY. I have some questions on the actual text of the bill, if I may. The new language in section 1 of the bill proposes to add to title 10, as I see it, some phrases from section 901(b) of the Merchant Marine Act. After this language was enacted into law in 1961, if I remember correctly, we had to revise it later to take account of those vessels for which a contract had in fact been let before the effective date of the act. Are we going to run into the same problem here?

Mr. COLES. I think you are half right and half wrong. They did provide at that time that where contracts had been made and commitments undertaken, that they would allow a time period within which vessels could qualify.

Senator BARTLETT. Because there were certain specific cases initially.

Mr. COLES. Yes.

Mr. KURRUS. That was the 1960 amendment however, not the 1961. Mr. COLES. That was the 1960 amendment. Where the contracts had been made, where the midbodies were being constructed abroad, where the contracts had been made for joining, they allowed a 2-year period.

Mr. KENNEY. Isn't this likely to arise in this case?

Mr. COLES. No, the only situation I know of, there has been an application to the Maritime Administration to permit documentation with 50-50 privileges of two ships which would be built with preexisting foreign midbodies, foreign midbodies taken from old foreign ships, not new foreign-built midbodies.

There may be others which I don't know about, but that is the only

one.

Mr. KENNEY. How about September 22, 1965, date?

Mr. COLES. That was the date upon which this legislation-something is wrong, because it is October 5. Perhaps it is the date upon which the House bill was enacted. I know, in other words, nothing which was done before introduction of the bill would be disqualified.

Mr. KENNEY. There are certain occasions when we get, I suppose, criticized and are uneasy about passing bills that are retroactive. What would happen if this were to become effective on the effective date of enactment?