Soviet threat, a strong Turkish naval presence in this area plus its control of the Turkish straits connecting the Black Sea to the Mediterranean are certainly welcome adjuncts to the existing U.S. 6th Fleet capabilities.

VIETNAM

The two proposed destroyer escorts to Vietnam for which we seek loan authorization will provide the future principal units of the Vietnamese Navy, which, heretofore, has had no "blue water" capability. These ships are needed to patrol the 1,200 miles of coastline, to prevent seaborne infiltration, and to provide naval gunfire support. Attempts at seaborne infiltration can be expected to increase as overland routes through the DMZ and Cambodia are interdicted. Once turned over and operating as units of the Vietnamese Navy, they will replace the USN destroyers now carrying out these specific tasks.

REPUBLIC OF CHINA

This bill also provides for the loan of three submarines for the Republic of China. The executive branch did not request the authority to make this loan to the Republic of China and these submarines were placed in the bill by the House Armed Services Committee in executive session on February 4, 1970. The bill that passed the House of Representatives included these submarines. I will now discuss in detail the question of submarines for China. In 1969 the Chinese expressed a need for submarines, on the basis that the Communist Chinese have over 30 submarines and that ASW forces require constant services of target submarines in order to maintain ASW efficiency. Prior to fiscal year 1969, the military assistance program paid for the cost of two U.S. Navy submarines which serviced the western Pacific navies. This included Taiwan. In fiscal year 1969 due to the decreasing amout of MAP funding the two submarines were changed to service funding. The U.S. Navy picked up the bill.

The Republic of China was receiving 42 ASW training days per year from these two submarines. In July 1969, the Government of the Republic of China renewed its request, and CINCPAC, after careful review, recommended reconsideration of the State/Defense decision, pointing out that the Chinese Navy could develop the necessary skills and facilities to support submarines, but that all acquisition, operation and maintenance and training costs would have to be borne outside of MAP. The Departments of State and Defense reviewed the question and in January 1970 confirmed the original decision to disapprove the Republic of China request. On February 4 the House Armed Services Committee added three submarines for China to the ship loan bill. One additional factor should be considered. Since January, because of budgetary constraints, the U.S. Navy has been forced to reduce target submarine service to east Asian navies, including the Republic of China. If it is necessary to discontinue these services completely, the Republic of China would be unable to maintain such ASW capability as it now has. The executive branch recognizes that this amendment is permissive and not mandatory. It also should be noted that prior to the actual negotiation of any ship loan, the Joint Chiefs of Staff and the Secretary of Defense are required, by section 4 of this bill, to con

sider the interests of the United States before recommending a course of action to the Department of State and the President. This then outlines the elements of this rather complex problem, and leads me to the executive branch position which I quote:

As the Committee knows, the Executive Branch did not request the inclusion of the authority to lend submarines to the Republic of China. Rather, this amendment was added by the House committee. While the Executive Branch thus did not recommend this amendment, in view of the fact that it is permissive and not mandatory, it will interpose no objection should the Congress wish to enact it. The ship loan bill, as originally submitted, was developed by the Department of Defense as an integral part of our military assistance program. It reflected the recommendations of our country teams composed of the U.S. Ambassador, chief of the military assistance advisory group and where applicable the director of the U.S. aid mission in each country involved. The loans and extensions were approved by the unified commanders involved, by the Joint Chiefs of Staff, the Secretary of Defense, and the Secretary of State. The Bureau of the Budget has advised that this proposal, as a part of our military assistance program, is in accord with the program of the President. The funds necessary to implement this authorization for Turkey were obtained from the Congress in the military assistance portion of the Foreign Assistance Act, passed this session. The money necessary to provide an austere overhaul to the destroyer escorts for Vietnam will be provided through military assistance service funding. Should the President exercise the loan option, the cost associated with the provision of submarines to the Republic of China would be charged to funds provided by the recipient government. There is no monetary expense involved in the extension of the ships presently on loan to Pakistan and Greece.

In anticipating questions concerning the recent sales of stricken U.S. warships to allied navies, I would like to explain the background of this program and stress the manner in which it complements ship loan. The sale of these stricken ships by the Navy is based on title 10 United States Code 7307 which states:

(b) Without authority from Congress granted after March 10, 1951, no battleship, aircraft carrier, cruiser, destroyer, or submarine that has not been stricken from the Naval Vessel Register under section 7304 of this title, nor any interest of the United States in such a vessel, may be sold, transferred, or otherwise disposed of under any law.

Title 10 United States Code 7305 is also applicable and states:

(B) The Secretary of the Navy shall appraise each vessel stricken from the Naval Vessel Register under section 7304 of this title. If he considers that the sale of the vessel is in the best interest of the United States, he shall advertise it for sale.

This authority within title 10 has been used in the past essentially for the sale of auxiliary type ships but has not been used until recently for combatant ships because U.S. Navy had no desirable assets in this category. Recent U.S. budgetary restrictions have altered this situation and made available destroyer types that have been stricken from the Navy Register. All these ships that have been stricken have been inspected by a Navy Board of Inspection and Survey and found to be unfit for further U.S. naval service and would otherwise be disposed

of as scrap. The best ones in this category have been offered to certain NATO and forward defense allies on an "as is, where is" basis.

To date the following combatant ships have been disposed of under

this program:

Canada-one submarine.
Italy-three destroyers.

Turkey-three destroyers.
China-five destroyers.

National funds are used in the purchase of these ships and of course this is a sizable savings to the military assistance dollar. For example, the three destroyers sold to Turkey were overhauled in the United States and they underwent shakedown training with full crews in this country. They are now en route to Turkey. The total expenditure for these three destroyers was $7.3 million of which $2.8 million were Turkish national funds. By comparison in the past when we went the ship loan route and a ship was brought out of mothballs, activated, modernized, crew trained, spare parts and ammunition provided, we estimated the cost to be $7.5 million per ship. These are normally military assistance dollars. We thus feel that the availability of the stricken ships has allowed the Navy to modernize certain allies at a pace much more rapid than if we relied on the availability of the military assistance dollar and the use of inactivated ships alone. In fact with the decreasing military assistance dollar, it is doubtful that we would ever come close to our planned goals without the availability of these stricken ships.

There is one additional phase to this program which I would like to bring to the attention of this committee. We consider the stricken ship and even the ship loan program to be a short-range solution to force improvement. As a long-range solution, the U.S. Navy is promoting the in-country construction program of new ships. Several programs of this type have been initiated. Turkey with U.S. Navy assistance is building diesel powered destroyer escorts, the first of which will be launched next year. These new ships should last well past the year 2000 and by 1980 Turkey should have replaced several of her loaned and purchased Destroyers obtained from the U.S. Navy with these new ships.

We recently sent a team of experts to Korea for consultations with our Military Assistance Advisory Group personnel on a boat that will be built in Korea and that will be designed specifically to counter the North Korean infiltration by sea. We have completed a program with Portugal in which three Dealey class destroyer escorts were built in that country with U.S. Navy assistance. We believe that the provision of loaned and stricken ships provides the best short-range solution for the smaller free world navies allowing time for the in-country naval construction capability to develop, which of course will provide new ships and be the best long-range solution.

The combination of sales, loans and construction programs, then, supports U.S. policy, strengthens free world forces, and enhances U.S. forward security. Last and most important it converts ships no longer useful to the U.S. Navy, plus the potential of a portion of the Reserve Fleet to actual operating naval strength, strategically dispersed and operational in the hands of our allies, at minimum cost to U.S. resources.

In essence, we in the Navy consider that the proposed legislation is in the best interest of the United States.

This concludes my statement. Thank you.

Senator INOUYE. Thank you very much, Captain Hagerman. I would like to ask a few questions relating to your testimony here. On page 3-I am quoting you

Just as the U.S. Navy is faced with a continuing need for ship replacements and force improvements, so are the Navies of the selected countries; however, they cannot afford or do not yet have the technical ability to construct new or replacement ships. In most instances their shipbuilding industry is just beginning to develop.

Several lines below that you continue and say "During this ten-year period we estimate some of these countries will substantially improve their own shipbuilding capabilities and become more self-sufficient in this area.

Now, Captain Hagerman, I have been led to believe that today in the area of shipbuilding, Japan is now No. 1 and leads the United States; Germany should be No. 2 or No. 3; Greece is supposed to be one of the top merchant marine countries in whe world.

Are you trying to tell me that these countries do not yet have the technical ability to construct new or replacement ships?

Captain HAGERMAN. No, sir. I think, sir, we are talking first of all about warships. There is no question concerning what you say about Japan, and they certainly have the capability to construct any type of warship.

Senator INOUYE. Isn't it right that most of our ships are now being repaired in Yokosuka.

Captain HAGERMAN. Yes, sir. I have no argument with the fact that Japan can do this. This was not meant in the context of Japan. Senator INOUYE. I know we loaned them one submarine, two destroyers and two destroyer escorts.

Captain HAGERMAN. Those ships were on loan 10 years ago. Senator INOUYE. And what about Germany's five destroyers? Captain HAGERMAN. This was back in 1958 when the new German Navy was just becoming reorganized, and since that time, yes, they have built.

I might point out as far as the German Navy is concerned they bought three guided missile destroyers from us. The last one is still here in this country.

Senator INOUYE. Do you still find it is necessary to loan ships to these countries?

Captain HAGERMAN. No, sir; we have not loaned ships to those countries for 10 years, sir. Ten years ago the situation was somewhat different, or even longer ago.

Senator INOUYE. On page 8, the fifth line, there is a phrase saying that these ships were forced to retire from active duty.

If they were so bad that they were forced to retire, how is it that they are good enough for our allies, naval defenses?

Captain HAGERMAN. I am sorry, sir, what line?

Senator INOUYE. On the fifth line of page 8 you use the phrase these ships have been forced to retire from active duty.

Captain HAGERMAN. This is because of budgetary constraints, not the condition of the ship.

As you know, because of the cutback in budget, we cannot man the number of ships that we did in the past years.

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Senator INOUYE. Yet I noticed in the procurement bill we are requesting new submarines and new destroyers.

Captain HAGERMAN. Sir, I am not qualified to speak to it.

Senator INOUYE. Is anyone qualified here?

I am just intrigued by this testimony that says all these ships are necessary for our allies to carry out their commitments in the Mediterranean and Far East. We find that these ships are adequate enough to counter the threat of the Soviet Union, but yet they are stricken from our list and forced to retire because they are either scrap, as you say in the one part.

Captain HAGERMAN. Yes, sir.

Senator INOUYE. Scrap for us, but good enough for Turkey and Greece and others.

Captain HAGERMAN. Yes, sir; because this is basically budgetary. If we had the money that we had a couple of years ago, or expected to have that money, I am reasonably sure those ships would remain in the active United States Navy on the Ship Register.

Senator INOUYE. I shall keep that in mind. I didn't realize that. What made the executive department, the Department of Defense, the State Department, change their minds on the Republic of China? They declared twice officially that they were against the loan of three submarines to the Republic of China, but finally after the action taken by the House they came out with this rather unusual statement saying they interpose no objections because this is permissive, not mandatory. If this is just permissive, why not forget about it? What do we intend to do with it?

Captain HAGERMAN. Again, as I tried to indicate in the statement, this is a changing situation. The reason that they give for wanting the submarines is to provide training to their ASW forces.

As I indicated in the past, we in the U.S. Navy make two submarines available to swing a couple times a year through the Far East. Again because of budgetary constraints it looks like this situation is changing and we will no longer be able to do so and if the Chinese Navy is to have a substantive ASW capability, they need target submarines. This loan authorization would be one way of doing it. Senator INOUYE. Yet earlier in this year your Department didn't believe in that. I just want to know what made you change suddenly in a matter of a few months, in fact?

Captain HAGERMAN. Well, it has been about 6 months.

Senator INOUYE. Is this the result of political muscle? This is an executive session, so please be candid.

Captain HAGERMAN. Very honestly not from my point of view. I think, as I say, the situation has been developing and rather rapidly. The budget changes and the drawdown in ships has come basically since the first of the year. In fact, we are not even sure where we are going to end up in this and this is one alternative to do something about the Chinese Navy.

Senator INOUYE. I have been impressed that the 7th Fleet of the U.S. Navy is the most powerful fleet that man has ever put on our oceans and I have been assured that this fleet has taken adequate care of our friends on Taiwan.

What is happening to the 7th Fleet now? Aren't we providing enough in that part of the world?