domestic versus foreign travel, and so forth. I would like to add also that the American Merchant Marine Institute and the Pacifie American Steamship Association are in complete agreement with the CASL position in this matter and fully support H.R. 10109.

Other U.S. organizations have indicated approval of this type of legislation and, it is our belief that the responsible foreign-flag cruise lines will agree as they did in the 1930's, that reasonable regulation is both necessary and desirable. After all, irresponsible cruise operators of any nationality harm the entire industry-both U.S. flag and the many responsible foreign-flag operators.

The cruise industry is a substantial part of American commerce and our domestic economy, and we believe that it is the duty of the Congress to regulate it appropriately. The suggestions made have ample precedent in other forms of transportation. We respectfully request the endorsement and support of this subcommittee in the passage of this bill so important to the well-being of the American merchant marine, the national interest and the safety of U.S. citizens. This concludes the CASL statement.

I have some further testimony I would like to give.

Earlier I mentioned that I had several personal observations to make on disparities in the respective competitive positions of United States and foreign flag cruise operators.

I mentioned that subsidies did not provide true parity and that items such as tax advantages alone were sufficient to make the differences between a reasonably profitable voyage and one that showed a loss. Take, for example, a foreign-flag cruise ship, the new Oceanic now operating continuous cruises from the port of New York to Nassau. Later this year this ship is scheduled to begin a series of successive voyages from New York to the Caribbean. Our management group took a look at the tax advantage of the Oceanic compared to a U.S.flag ship on the Nassau run-making several assumptions which were intended to reflect a reasonable estimate of operations and costs. This study indicates a tax advantage of $59 to $71 per passenger on only a 1-week round trip voyage. Based on an average tariff of $300 to $330 per passenger, the difference approximates 20 percent.

In the assumptions we have assumed they would carry less than capacity, about 75 percent at $300 to $330 per passenger per voyage. The point is, they are under the Panamanian flag, and as far as income taxes are concerned, they do not pay any. I think we would expect, in a cyclical business that net earnings of 10 percent would not be an unreasonable goal. We are not making it now but it is not an unreasonable goal.

As present tax rates, we have to earn 20 percent to have 10 percent left; under the Panamanian flag, a ship can earn 10 percent and have the same amount left.

Certainly this type of cruise ship operation should be considered as much a U.S.-based operation as any foreign manufacturing plant or service operation located in any of the 50 States of the Union.

At Edgewater, N.J., for example-Lever Bros. has a plant-they pay taxes to the city and the State. They pay Federal income taxes on any profits. However, docking within sight of Edgewater, N.J., are foreign-flag cruise ships enjoying all the privileges but paying no taxes. Personally, I think such foreign-flag ships as are continuously

"based” in the United States for virtually the sole purpose of making repeated voyages in the cruise business-carrying almost solely U.S. citizens should pay a license fee in lieu of and in an amount equivalent to the taxes which would be due and payable if it were a U.S.-flag ship earning at a reasonable rate in a cyclical industry.

In the case of W.R. Grace & Co that has operations in other countries-taxes are paid in that country before any money is brought home. We have to recognize this fact.

Also, I recognize this is outside the preamble of H.R. 10109, but I would hope that consideration might be given to modifying this proposed legislation to help correct this situation.

Thank you very much.

Mr. DOWNING. You did not mean to imply we should do something to offset the tax disadvantage?

Admiral MCNEIL. I suggest perhaps, as in the old legislation, there be established, by statute, authority for a license fee equivalent to an amount that would ordinarily be paid in taxes. I offer that as a suggestion. There may be better ways to accomplish the same purpose. Mr. DOWNING. Mr. Garmatz.

Mr. GARMATZ. On page 7 you say that background information giving a detailed description of American passenger ships and their operation has been prepared by CASL. Copies of this have been previously furnished members of this committee, and we suggest that it be made of record in these hearings.

(The booklet mentioned was placed in the files of the committee.) Mr. GARMATZ. I suppose you want to include the last two charts in your statement, also.

Admiral MCNEIL. We would appreciate it if they were included in

the record.

(The charts referred to follow :)

Aliens and citizens departing from the United States, on cruise vessels by type of cruise, calendar year 1964

MAY 17, 1965.

Memorandum to: Mr. W. J. McNeil.
Subject: Tax status of the Oceanic.

As you requested, I have attempted to make some estimate of the effect in dollars per passenger of the privileged income tax position enjoyed by the Occanic. Two separate approaches were made: first, based on an assumed return on investment and, second, based on an attempted proforma P. & L.

Since the Oceanic flies the Panamanian flag, it pays no corporate income tax, either in the United States or in Panama.

Construction cost of the Oceanic is said to have been $35 million. Assuming the owners earn 10 percent on their investment they would earn $3.5 million per year, on which the U.S. tax, if applicable, would be $1.7 million. However, if the earnings from this ship were subject to U.S. income tax, the owners would have to earn $6.7 million pretax in order to pay a tax of $3.2 million and have aftertax earnings of $3.5 million, or 10 percent. Thus, a U.S.-flag ship earning 10 percent after tax in a comparable situation would have to pay $3.2 million tax. The Oceanic has a "cruise capacity" of 1,200 passengers; assuming 75 to 90 percent utilization, she would carry 900 to 1,080 passengers per voyage or 45,000 to 54,000 per year on a 1-week run to Nassau. This would indicate a tax advantage of $59 to $71 per passenger on the Nassau run, against an average tariff of $300 to $330 per passenger, or about 20 percent.

Construction of a proforma P. & L. indicates that the owners could, in fact, be earning $3.7 to $4.9 million per year on 900 to 1,080 passengers per voyage:

Mr. IRA EWERS. May I offer two other documents of the same nature? The West Indies Cruise Agreement of 1932. We have copies of that agreement here, and I think it would be helpful if that be made a part of the record.

Mr. DOWNING. Is that a large document?
Mr. IRA EWERS. No, four or five pages.

53-924-65-7

(The agreement referred to follows:)

TRANS-ATLANTIC PASSENGER CONFERENCE,

New York, September 30, 1932.

WEST INDIES CRUISE AGREEMENT, SEASON 1932-33

U.S. Shipping Board, Bureau of Regulation and Traffic, Washington, D.C.: Pursuant to the requirements of section 15 of the Shipping Act of 1916, approval by the U.S. Shipping Board is requested of the attached copy of West Indies Cruise Agreement for the season 1932–33.

Filed on behalf of the following parties to this Agreement:

Anchor Line.

Canadian Pacific Steamships.

Cosulich Line.

Cunard Line.

French Line.

Hamburg-American Line.

Holland American Line.

Italian Line.

North German Lloyd.

Red Star Line.

Swedish American Line.

United States Lines.

White Star Line.

S. E. MORSE, Secretary.

NEW YORK, September 30, 1932.

WEST INDIES CRUISE AGREEMENT

(1) This Agreement embraces passenger traffic booked in the United States and/or Canada for, or in connection with, cruises to the West Indies, Central America and northern ports of South America which do not involve a transAtlantic voyage North or South.

The West Indies are defined as the Bahamas, Greater and Lesser Antilles and, for the purpose of this Agreement, Bermuda.

(2) Season. The West Indies Cruise season, for the purpose of this Agree ment, shall be considered to cover all cruise sailings taking place between November 1, 1932, and April 30, 1933, both dates inclusive, but for sailings from November 1 to December 5, 1932, and the month of April 1933, a reduction up to 20 percent in the agreed minimum and schedule rates may be made. (3) Definition and Duration of a West Indies Cruise.—

(a) A West Indies cruise is defined as a pleasure voyage calling at two or more ports in territory covered under Clause (1), this with the exception of a Line's regular service or a cruise to Nassau and Havana.

(b) The duration of a cruise from hour of departure to the hour of arrival divided by 24 will constitute the number of full days. The remaining hours if more than 12 will be counted as an additional day, but less than 12 hours will not be counted.

(4) "Rationing" and Distribution of Sailings.-The maximum allotment of cruises per Line for the period December 5, 1932, to March 31, 1933, shall be: