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The CHAIRMAN. There is no particular difficulty in determining about what the wages of labor are which are paid abroad, I assume? Mr. JOHNSON. In general, no great difficulty.

Senator CLARK. There is great difficulty in some countries, isn't there? For instance, you would have great difficulty in determining what labor costs are in Japan, would you not?

Mr. JOHNSON. I don't think any more than you would have in Germany or Russia.

Senator CLARK. Well, there is great difficulty in determining the labor costs in any foreign country, is there not?

Mr. JOHNSON. There is great difficulty in finding what any job would have cost in America 5 years ago. Of course there is more difficulty in finding that out in a foreign country, but it can be arrived at with sufficient accuracy for the Authority to furnish American shipowners ships comparable to the foreign cost.

Senator BACHMAN. May I be permitted to ask you this: Did I understand you to say that the differential was a minimum of 331⁄2 percent?

Mr. JOHNSON. I did not quite get through with that. No, sir; 333 percent is the general maximum.

Senator BACHMAN. You said it might go to 40 percent.

Mr. JOHNSON. It may go to 40 percent, and if in the opinion of the Authority, even a greater subsidy is required, they may grant that, provided they make a report to the appropriate committees of Congress 30 days before it becomes effective.

That same principle has quieted the return of overpayment of taxes, concerning which there was very great controversy a few years ago. Now, when taxes are claimed to be overpaid, that report is made to Congress before it is refunded.

The Postmaster General today, in paying for mail on railroads, can pay a greater amount than that prescribed, provided he reports to the committees in Congress after it is done-and that is being done and when a higher percentage of the prescribed rates are now being paid to railroads for carrying mail under certain circumstances, it is reported to Congress after it is done.

Senator CLARK. So that in truth and in fact there is no limitation then on the amount of subsidy which can be granted under this act, except the right of Congress within 30 days, if they acted within 30 days, to prevent that action; is not that correct?

The CHAIRMAN. There is a limitation of 40 percent

Senator CLARK (interrupting). No. I understand that if the Authority sees fit to go on above the 40 percent, and to any greater extent, they may, provided they notify the committees of Congress at least 30 days before they take such action.

Mr. JOHNSON. No; but there is a top. They can only increase 10 percent of the total cost even then.

Senator CLARK. That gets up to 50 percent?

Mr. JOHNSON. No, sir; and 50 percent is what is generally now thought should be a comparison.

Senator CLARK. So that if Congress happened to be in recess at the moment

Mr. JOHNSON (interrupting). It cannot be done except that Congress is in session.

Senator CLARK. And then if Congress does not act in 30 days, then of course the commission has a right to go ahead and grant subsidies

Mr. JOHNSON (interrupting). That is correct up to 50 percent. But it can only be reported to Congress and done 30 days after it is given to the committee-30 days in advance of its effective date with Congress in session, and then it is limited to 50 percent.

Senator FLETCHER. It has been claimed that a ship that would cost $1,000,000 in American yards to build could be built abroad for $600,000?

Mr. JOHNSON. Yes, sir; that is about right.

Senator FLETCHER. Of course, that may vary?

Mr. JOHNSON. Yes, sir.

Senator FLETCHER. The shipyards may get more efficient and the materials may cost less?

Mr. JOHNSON. And varying with the type of ships. Your high type of passenger mail ships, we can build more nearly at the European price or the foreign price, than we can the freight ships. The CHAIRMAN. All right, Colonel. Go ahead.

Mr. JOHNSON. There is a ship provision for subsidy for tankers which we have taken up with the Navy. There is a representative here from the Navy who will discuss that with you.

The operating subsidy is to absorb the difference between the foreign operation and American operation. There is a provision in there, too, where that may be exceeded when in the opinion of the Authority, it is necessary on account of foreign subsidies.

Senator CLARK. How much will it be exceeded, Colonel?

Mr. JOHNSON. Ten percent is the top. That is to meet the foreign subsidies, which was one of the three items named by the President in his message.

The CHAIRMAN. And is it your belief that we could not establish parity unless the American operators should receive the equivalent of a subsidy paid by foreign governments?

Mr. JOHNSON. The idea was parity, and if they are given parity on every other score except foreign subsidy, you will not have reached parity.

The CHAIRMAN. Did the President mention that in his message? Mr. JOHNSON. Yes, sir; construction subsidy, operation subsidy, and a subsidy to meet foreign subsidies, there were the three cardinal points mentioned by the President, and while we put a limitation on it of 10 percent both in the operation and construction, unless that 10 percent covers it, you still have not reached parity.

There is a provision in here for the R. F. C. to finance for our domestic and river trade. They can buy the securities of shipowners in the foreign trade.

There is a recapture clause. It is a little mixed up, Mr. Chairman, however, in this print. The recapture clause was to have clearly expressed a recapture on a 50-50 basis between the Government and the owner, allowing the owner 10-percent profit after he had put up his reserves. It is just a little confused in this print. I referred to that yesterday, that it is not quite clear in here.

The CHAIRMAN. I notice there is an ambiguity.

Mr. JOHNSON. There is a differential, too, of 6 percent between Pacific and Atlantic ports, and as I read the print, and as I under

on the Pacific, it has a lower rate of interest than on the Atlantic. There is a limitation of salaries of $25,000, anything above which will not be considered in arriving at subsidies and the expense of the shipowner.

Senator FLETCHER. What are the provisions in this bill now for rebates?

The CHAIRMAN. No provision.

Mr. JOHNSON. No provision for rebates, sir.

The CHAIRMAN. Let me answer that fully, Senator Fletcher. We had in our star print last year, provision for rebates, limited liability, and some other matters, but it seemed wise to separate the problems, and to place in this bill merely those matters which were referred to by the President, referring to the subsidy, and in a second bill which is known as 3501, the matter to which you have referred, Senator Fletcher, is included.

Mr. JOHNSON. The matter of mixed foreign and domestic trade gave us a great deal of trouble. We solved it by prorating all of the subsidies in proportion to the domestic portion of a mixed service. The CHAIRMAN. It provided also for what is known in the bill as a semidomestic trade?

Mr. JOHNSON. Yes, sir. We considered that our island possessions might be touched at, and that portion of the revenue arrived at in that way. Whatever relationship it bore to the total revenue, the subsidies would be awarded in that way. We for some time had an idea that the subsidies might be enjoyed on shipping business composed of any proportion of domestic and any proportion of foreign, and the subsidies would be proportioned in that way. It gave us quite some complicated awards, and it was finally determined in the way that this bill provides.

Senator FLETCHER. Have you arrived at any estimates as to what these subsidies would amount to annually?

Mr. JOHNSON. What is that?

Senator FLETCHER. Have you arrived at any estimates as to what these subsidies would amount to annually?

Mr. JOHNSON. No, sir. That is one of the things that the Authority has to do.

Senator FLETCHER. I thought perhaps you had figured out some estimates on that.

Mr. JOHNSON. Well, Mr. Peacock, who is by me here from the Shipping Board Bureau, might give you some estimates that he has on it. It is a little too technical for me, Senator.

The CHAIRMAN. We will reach that at a later time.

Mr. JOHNSON. Yes.

Senator FLETCHER. I would like to see how that compares to the cost of the ocean-mail contracts.

Mr. JOHNSON. I think Mr. Peacock can tell you that.

The CHAIRMAN. To have the record complete at this point, Mr. Peacock, I ask you how, in your opinion, the subsidies provided by this bill would compare with the amounts now received under the ocean-mail contracts?

Mr. J. C. PEACOCK (Director of United States Shipping Board

this last print has been agreed upon. My recollection is that at the hearing last spring there was considerable information put in the record about the expense of the proposed subsidy. The changes since then have all been in the direction of cutting it down and restricting it so that the expense would be somewhat less than before, but we have no precise revised figures.

Senator CLARK. How does it compare with the present ocean-mail subsidies? Are you able to make any estimate as to that?

Mr. PEACOCK. Those figures are a little hazy in my mind. As I recall, there was some figure of $16,000,000.

The CHAIRMAN. It is a little less, as I recall the testimony, than it is for the ocean-mail contracts.

Senator CLARK. As I understand it, the Postmaster General has found officially that some 40 out of the 42 contract, the present ocean-mail contracts, are founded in fraud; in other words, the Government is being robbed by those contracts. What I am trying to get at is whether under this proposed bill, the Government is to be robbed to the same extent?

The CHAIRMAN. I think the question is hardly in fair form. I do not think any member of the Senate would wish to attempt to pass a bill which would rob the Government.

Senator CLARK. I do not accuse the Chairman of an attempt to do so, but as I read the findings of the Postmaster General under the present system, I cannot arrive at any other conclusion than that the Government has been robbed. If this bill in its present form pays these companies the same amount of money, I would be very much of the same opinion. Of course, that is a matter purely of opinion.

The CHAIRMAN. I am wondering why if there are fraudulent contracts, that they have not been canceled.

Senator CLARK. That is exactly what a great many other people are wondering.

The CHAIRMAN. Perhaps that is because they were not fraudulent. Senator CLARK. But the Postmaster General so found.

The CHAIRMAN. Go ahead, Colonel.

Mr. JOHNSON. I think that covers the generalities of the bill, Senator.

The CHAIRMAN. May I ask you a few questions just to summarize your testimony and to have it in concrete form? I assume from what you say that the Commerce Department is in favor of building a strong merchant marine and favors the immediate enactment of a law which would insure its building?

Mr. JOHNSON. That is correct.

The CHAIRMAN. And you consider that an American merchant marine is a necessity in order to build up and maintain our foreign commerce?

Mr. JOHNSON. And for our national defense.

The CHAIRMAN. That is to say, your answer is that it is necessary to aid foreign commerce and to provide naval auxiliaries?

Mr. JOHNSON. Yes, sir.

The CHAIRMAN. In case of emergency?
Mr. JOHNSON. Yes, sir.

The CHAIRMAN. And you are in favor, I take it from what you have said, that you believe in a direct subsidy instead of a subsidy through mail contracts?

Mr. JOHNSON. Yes, sir.

The CHAIRMAN. Your statement also has been quite clear, as I understand it, that the construction subsidy is necessary if we are to build these ships in American shipyards, because of a higher cost of building them?

Mr. JOHNSON. Yes, sir.

The CHAIRMAN. And you understand that the cost of operating the ship under the American flag is considerably greater than the cost under foreign flags?

Mr. JOHNSON. Yes, sir.

The CHAIRMAN. That is the reason why an operating subsidy is essential?

Mr. JOHNSON. Yes, sir.

The CHAIRMAN. You have already made clear that foreign governments are granting subsidies to aid in one form or another their merchant marine, and your thought is that in this particular there should be some consideration given by the proposed Authority, that additional feature, which is advantageous to our rivals?

Mr. JOHNSON. I do; otherwise parity cannot be attained.

Senator CLARK. What would you consider a reasonable profit for the shipbuilders to be given, Colonel?

Mr. JOHNSON. We have provided here, Senator, 10 percent. Senator CLARK. What yardstick is set up for determining the basis on which the 10 percent is to be figured?

Mr. JOHNSON. On the actual investment.
Senator CLARK. You mean on what?

Mr. JOHNSON. On the shipowners' investment.
Senator CLARK. How is that to be determined?
Mr. JOHNSON. By the Authority.

The CHAIRMAN. For instance, in another committee of which I have been a member, it has been in evidence that the cost-plus contracts on ships made for the Navy during the war, in which the shipbuilder was permitted a percentage of the cost, that in figuring that cost, the payment of their representative in China was figured in as a base cost as a part of their overhead, and expenditures of wine, liquors, and cigars which were drunk on the trial trip was also figured into the base and on which the Government was charged a percentage. Would you consider that a fair element of cost?

Mr. JOHNSON. If I had been on the committee, I would not, and I judge that you did not.

Senator CLARK. I did not.

Mr. JOHNSON. I will agree with you.

Senator CLARK. I am asking you what you would consider in determining profits under this subsidy.

Mr. JOHNSON. The actual cost of the essentials that enter into it and result as a profit, or which are essential to the service of the Government.

The CHAIRMAN. Am I right, Colonel, in believing that in the absence of some subvention or subsidy, in view of the higher cost of building in American yards and the higher cost of operating

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