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Mr. Case. Admiral Land, are there any contracts which the War Shipping Administration is making for services which carry any clauses similar in any respect to those that have just been under discussion?
Admiral LAND. No, sir.
Mr. TABER. But when Mr. Wigglesworth asked you about the reasonable profit proposition for this particular outfit, that is, the contractor, in connection with the renegotiation of their contract, there was an answer that there was not. That brought this whole thing about the relationship of the Government with this organization into the foreground. That was why I felt attention should be called to it at this point.
Mr. CASE. Then, further, what interest does the War Shipping Administration have, if any, in the ships that are procured through such contracts as those made with the Maritime Commission?
Admiral LAND. No interest whatsoever in any way, except that ultimately they utilize the ships; but no contractual interest and no direct interest.
Mr. CASE. Well, does it affect your insurance payments in any respect?
Admiral LAND. No, sir; it does not affect vessels of the War Shipping Administration.
Mr. WIGGLESWORTH. Let me ask you one other general question on another subject.
PURCHASE OF OLD VESSELS Is it not a fact that we have been and are paying larger sums for these 20-year-old vessels under present policy than a foreign buyer would pay for a brand new ship under the legislation recommenedd by W. S. A.?
Admiral LAND. I do not think I understand your question. Would you mind repeating it?
Mr. WIGGLESWORTH. Is it not a fact that we have been and are paying for 20-year-old ships, we will say, considerably higher prices than a foreign buyer would be called upon to pay for brand new ships under the legislation recommended?
Admiral Land. That result does not seem probable to me as Liberty ships would be valued at about $80 per ton in the latest draft. The legislation recommended in any event is a post-war piece of legislation when you are dealing with surplus. The price we are paying now is on an operating unit that is in the war and of which there is no surplus.
Mr. WIGGLESWORTH. Mr. Chairman, I have other questions, but I think I will stop here and take them up when we go over the matter in detail.
Mr. CANNON. Mr. Case?
ASSIGNMENTS TO SHIPS
Mr. Case. Mr. Chairman, I should like to ask Admiral Land a few questions with regard to some of his testimony this morning.
First, with respect to those charts to which you called our attention, in chart 11 I notice that the black portion, which indicates the actual number of assignments in 1945, is below the level of that for 1944, although the schedule assignment will be considerably larger.
Mr. JOHNSON. It covers only two-thirds of the year, you see the black portion of that chart.
Mr. CASE. Do those relate to man-years, then?
Mr. Johnson. That is the number of assignments made during the 8 months of the fiscal year 1945 in relation to the estimate as a whole. Do I make myself clear?
Mr. CASE. It does not indicate turn-over and loss of personnel? Mr. Johnson. No; it is simply the number of men assigned to the ships during 8 months.
PAYMENT OF PRICE DIFFERENTIALS FOR FUEL OIL
Mr. Case. In your statement on page 11 there was a reference to the type of activity which you said might be regarded in the nature of a subsidy. I think that portion of your statement was not read, but I refer to that portion of your statement which deals with the purchase of bunker fuel oil and the contribution to the tank-car pool.
Admiral Land. Yes, sir.
Mr. CASE. As I understand it from the testimony, you purchase this bunker fuel oil from private oil companies?
Admiral LAND. Yes. Mr. Cass. Who in turn have purchased it from the Navy. At New York and Norfolk bunker fuel oil is purchased by the oil companies from the Navy and resold to War Shipping Administration and in accordance with Defense Supplies Corporation regulations oil companies contribute to the tank-car pool the difference between the sum of their purchase price from the Navy plus an allowance of 10 cents provided for by the Defense Supplies Corporation and the Office of Price Administration ceiling price.
Let us take a sample transaction and follow it through. Do you know the average price paid to the Navy by private oil companies for this fuel?
Admiral LAND. No.
Mr. Case. But, in any event, the Government originally owns it in the agency of the Navy?
Admiral LAND. Yes. Mr. Case. Why do you not purchase that oil directly from the Navy?
Admiral LAND. I cannot offhand answer that, because this is all an agreed procedure, in which the 0. P. A. and the Defense Supplies Corporation are definitely involved with the Petroleum Administration for War, the Navy, and ourselves. I feel quite sure that there is Do loss to the taxpayer by the method followed; otherwise it would long since have been picked up.
Mr. Case. You say in your statement that "an allowance of 10 cents" is "provided for by the D. S. C.” I suppose that is the Defense Supplies Corporation?
Admiral LAND. Yes, sir. Mr. Case. And after that allowance, why, then, the private oil company collects in its price to you an amount sufficient to make up
formula differential between that and the 0. P. A. price?
Admiral LAND. The reason we purchased that was that there was not enough Government-owned storage for the Navy to take care of
the needs and for the other reasons set forth in the statement supplied on p. 410.
Mr. Case. The net result intimated in your statement is that the War Shipping Administration is called upon to contribute a subsidy of between $4,000,000 and $6,000,000 to the pool?
Admiral LAND. That is the transportation cost-coming in tank cars rather than tanker.
Mr. CASE. What is the future of that practice?
Admiral LAND. I hope it is going to be very much lessened, progressively as the situation improves, and it ought to drop down very materially, although it is still necessary to carry some oil in tank cars. We have been trying to reduce that.
Mr. CASE. Would not the Government be further ahead if it merely rented some storage space?
Admiral Land. I suppose it would if it had it or could build it; but the stringency at the particular time this was done, in manpower, oil, and steel, did not permit it.
Mr. Case. The transaction, as it appears from your statement, would indicate that the Government, through the Navy, originally owns the oil and then permits private companies to buy the oil. They get a 10-cent allowance from the Defense Supplies Corporation, and after they have had that and whatever margin they may have under the 0. P. A. ceiling price, the Government turns around, buys it again, and gets ownership again. Undoubtedly there is some margin in there for the oil companies appearing in the transaction. The Government might, it seems to me, be better off if it kept possession of the oil in the first place.
Admiral Land. This has been thoroughly screened on several occasions. There may have been a better way of doing it, but we were not able to discover it; neither were the Defense Supplies Corporation, the railroads, the oil people, nor the Navy.
(The statement requested earlier on this point is as follows:)
FURTHER STATEMENT OF VICE ADMIRAL EMORY S. LAND, ADMINISTRATOR, WAR
SHIPPING ADMINISTRATION, RELATING TO PURCHASE OF BUNKER OILS The problem involved in purchase of oil bunkers in the ports of New York and Norfolk is primarily one of distribution. At the urging of the Navy alı bunker fuel oil in these ports is maintained by the Navy in a single stock pile in facilities rented by them from the various oil companies. The service per formed by the oil companies in their transaction with the War Shipping Administration is that of accepting orders, arranging deliveries, and maintaining of sc counts with the many different operators acting as War Shipping Administration agents. In view of the complexity of the operation the Navy Department has expressed an unwillingness to deal with the operators direct and the War Shipping Administration has felt that it would not only require the development of a large staff but also would disrupt facilities which will be required in the post-war period for it to replace the existing distribution agencies by the establishment of a new Government bureau operated by War Shipping Administration.
With regard to the financial aspects of this transaction, the regulations of the Office of Price Administration and the Defense Supplies Corporation would per mit a mark-up of 10 cents per barrel for this function. However, by negotiation the War Shipping Administration has obtained a reduction to 5 cents per barrel The questions involved in this method of purchase are confined to the ports o New York and Norfolk and are distinct from the questions of subsidy discussed in my statement yesterday, the latter being applicable to all east coast ports As explained in my earlier statement, at the present time, by reason of Nar price levels, no subsidy is being paid, although it has been paid in the past an may be paid in the future. As far as the War Shipping Administration is con cerned, this payment is made to another Government agency, the Defense Sug plies Corporation, and its continuance or discontinuance would not necessita any change in the method of purchase involved which is being followed in th ports of New York and Norfolk.
TAXES ON CHARTERED SHIPS
Mr. Case. Do you pay taxes of any sort on the ships which you charter?
Admiral LAND. We do not pay taxes generally except for tonnage taxes paid to the Federal Government on time-chartered vessels and on other vessels when operating commercially. Mr. Case. Do you pay a retailer's excise tax on supplies purchased? Admiral LAND. With respect to State retailers sales taxes, we attempt to avoid payment on the theory of sovereign immunity in all cases where the tax is assessed against the purchaser. Where the tax is assessed against the seller and added to the price of the goods, the payment cannot be avoided under this doctrine. We have been generally successful in avoiding this type of tax except in a few cases where the amount involved is so trivial as not to justify the cost and expense of establishing the immunity. However, we do pay Federal retail excise tax pursuant to section 307 of the Revenue Act of 1943 which directs Federal agencies not to claim immunity from Federal taxes of this kind. Also, under section 1c of Public Law 17, Seventy-eighth Congress, the War Shipping Administration had specific authority to waive immunity from Federal taxes in the interests of administrative convenience and this authority has been exercised in some cases.
Mr. Case. Do you pay any State inspection or license fees on any ships that you operate?
Admiral Land. Not so far as my knowledge goes. We may pay it on harbors, tugs, and things of that kind. Locally those charges, if they are State, we may have to pay. But I am not sure about that. Normally we do not pay any Federal taxes like that, because it merely means taking money out of one pocket in the Treasury and putting it into the other. We are trying to avoid that,
Mr. CASE. I am referring particularly to State taxes. Admiral LAND. I do not think we do. Mr. CASE. Do you specifically claim immunity as an instrumentality of the Federal Government?
Admiral LAND, Yes.
TUG AND HARBOR CHARGES ON CHARTERED VESSELS
Mr. CASE. Do you pay any tug or harbor charges?
Admiral LAND. Yes. Our policy regarding foreign exactions and the distinctions between taxes and service charges has the approval of the State Department and is set forth in legal bulletin 9.
Mr. Case. Supposing you are making a shipment of supplies under lend-lease-do you pay dock charges?
Admiral LAND. We get those under reverse lend-lease.
Mr. Cass. What would you say to a report that on materials shipped to India under lend-lease you were required to pay $1,000 per boat or per load to unload in India harbors?
Admiral Land. I would not think there was any justification for it. It may have occurred. I do not know of any such incident, but it is possible. We sometimes use Army piers in India.
Mr. Case. Do you pay any charges like that where the supplies are for our own use when we have troops training in India ?
Admiral Land. Not to my knowledge. On shipments to lend-lease countries harbor charges are advanced under reverse lend-lease ordinarily, regardless of the nature of the cargo moved.
Mr. CASE. Will you check up on that point and find out what harbor or dock or unloading fees may have been paid for the use of harbors in India, and place the information in the record?
Admiral LAND. Yes, sir.
The practice of the War Shipping Administration with respect to vessel and voyage disbursements in India is as follotvs:
i. Payment of all bills incurred is made in cash by the local agent of the vessel operator, at the port in question.
2. The local agent bills the vessel operator's principal Indian agent for reimbursement and such reimbursement is made from a rupee revolving fund provided to the principal agent by the Indian Government. The bills are then examined and segregated and any items not eligible for reciprocal aid are reimbursed to the revolving fund by the vessel operator. All cargo handling activities, such as stevedoring, terminal expenses, etc. would be eligible for payment out of the reciprocal aid revolving fund provided by the Indian Government regardless of whether the cargo was lend-lease, military, or commercial.
REVENUE FROM LEND-LEASE
Mr. CASE. In your statement you say, I believe, that it is anticipated that from Lend-Lease you will get revenues of $1,153,800,000?
Admiral LAND. Yes, sir. · Mr. CASE. Who pays that? Admiral Land. The Foreign Economic Administration.
Mr. Case. But it is paid by the United States, out of Government funds?
Admiral LAND. Yes.
Admiral Land. No, sir. It constitutes a lend-lease charge against such countries.
Mr. Case. That is all.
REVOLVING FUND--1946 BUDGET
Mr. Cannon. We will take up the various items included in the revolving fund, and insert in the record at this point pages 9 and 11 of the justifications.
(The pages referred to are as follows:)
$450,000,000 2,090, 624, 717
Revolving fund, 1946 budget, base statement Regular appropriation 1945 act. l'nobligated balance carried forward from 1944. Transferred from "Marine and war-risk insurance fund, revolving fund".
Total funds available during 1945. Estimated unobligated balance available for 1946..
2, 640, 624, 717 1, 181, 243, 840
1, 459, 380, 877