TITLE V. CONSTRUCTION-DIFFERENTIAL SUBSIDY Section 501: (a) (1) Correct to read "service, route, or line requires a new vessel of modern and economical design to meet direct or indirect foreign-flag competition and to promote the foreign commerce of the United States." The reasons for this addition are stated in detail in the earlier part of this report. (b) No comments. (c) No comments. Section 502: (a) No comments. (b) This is to be corrected by striking out the words "fair and reasonable" and substituting the word "lowest;" in place of the word "principal," substituting the word "any;" and after the words "foreign shipbuilding center," strike out the words "which is availed of by the principal foreign competitors in the service in which the vessel is to be operated, and which is deemed by the Commission to furnish a fair and representative example for the determination of the estimated cost of construction in foreign countries of vessels of the type proposed to be constructed." The corrected paragraph (b) would then read: "The amount of the reduction in selling price which is herein termed the 'construction-differential subsidy' may equal, but not exceed, the excess of the bid of the shipbuilder constructing the proposed vessel (excluding the cost of any features incorporated in the vessel for national-defense uses, which shall be paid by the Commission in addition to the subsidy), over the lowest estimate of cost, as determined by the Commission, of the construction of the proposed vessel if it were constructed under like plans and specifications (excluding national-defense features as above provided) in any foreign shipbuilding center :". The rest of the paragraph is approved. (c) In the illustration table I in the earlier part of this report, it is shown that in the cases illustrated the payment of 25 percent of the American construction cost is equal to 50 percent of the foreign construction cost. (d) It is not clear why the question of domicile is a condition of the granting of a 6-percent differential in building prices to the Pacific coast shipyards, which differential, we understand, is to equalize the higher Pacific coast building prices. (e) No comments. Section 503: No comments. Section 504: The first part of this section to be corrected by striking out the words "and if it is the lowest bid" and the insertion of the words "which construction subsidy, however, shall be based on the lowest responsible American bid." The section will then read: "Where an eligible applicant under the terms of this title desires to finance the construction of a proposed vessel according to approved plans and specifications rather than purchase the same vessel from the Commission as hereinabove authorized, the Commission may permit the applicant to obtain and submit to it competitive bids from American shipyards for such work. If the Commission considers the bid of the shipyard in which the applicant desires to have the vessel built fair and reasonable, it may approve such bid and become a party to the contract or contracts or other arrangements for the construction of such proposed vessel and may agree to pay to the shipbuilder a construction subsidy in an amount determined by the Commission in accordance with section 502 of this title, which construction subsidy, however, shall be based on the lowest responsible American bid:". The paragraph then continues unchanged with: "Provided, however,”. Section 505: (a) No comments. (b) No comments. (c) No comments. (d) No comments. (e) Should be corrected by inserting the words "if the applicant agrees." Section (e) would then read: "If the shipbuilder whose bid has been approved by the Commission and accepted by the applicant, as provided in section 502 of this title, shall refuse to agree to any of the requirements of this section, the Commission is authorized to rescind its approval of such bid and to advertise for new bids, or, in its discretion, if the applicant agrees, the Commission may have the vessel or vessels in question constructed in a United States navy yard." We believe that the applicant's permission should be required before a ship may be built for private account in a navy yard. A practical situation that may develop in the case of navy yard construction might be that, due to the percentage limitation of the amount of differential subsidy that can be permitted, the applicant whose ship was built in the navy yard may not be put on a parity with a person who built a similar ship in a private yard, due to higher navy yard costs and in any event, he would, if the price of building is higher in the navy yard, have to advance as his 25 percent of the actual construction cost, a greater sum of money than if the ship were built at a lower cost in a private shipyard. Section 506: To be corrected by striking out the words "an island" and inserting "a Pacific", striking out the word "island" between "or" and "territory" and inserting the words "a Pacific" before the word "territory" so that the first part of this section would read: “or on a voyage in foreign trade on which the vessel may stop at a Pacific possession or a Pacific territory of the United States, unless the owner of such vessel shall receive the written consent of the Commission" etc. It should be further amended after the word "provided" in the sentence that follows by inserting: "or a round voyage from the Atlantic coast to the Orient" and striking out the words "an island" and inserting "a Pacific", and also striking out the word "island" between "or" and "territory" and inserting the words "a Pacific" before the word "territory", so that it would read: "Provided, That no operating differential subsidy shall be paid during the duration of such temporary or emergency period, and such period shall not exceed three months. Every contractor receiving a contract for a construction differential subsidy under the provisions of this title shall agree that if the subsidized vessel engages in domestic trade on a round-the-world voyage or a round voyage from the west coast of the United States to a European port or ports or a round voyage from the Atlantic coast to the Orient or loads or discharges cargo or passengers at a Pacific possession or a Pacific territory as permitted by this section, that the contractor will repay annually to the Commission that proportion of one-twentieth of such construction subsidy as the gross revenue of such protected trade bears to the gross revenue derived from the entire voyages completed during the preceding year." Section 507: The first part should be changed by striking out the word "exclusively" and substituting "then". Also strike out the words "which valuation shall not exceed the cost to the owner or any former owner plus the actual cost previously expended thereon for reconditioning, and less a reasonable and proper depreciation, based upon not more than a twenty-year life of the vessel and less a proper deduction for obsolescence." The first part of that section would then read: "If a contract is made by the Commission under authority of this title for the construction and sale of a new vessel to replace a vessel then operated in foreign trade, which in the judgment of the Commission should be replaced because it is obsolete or inadequate for successful operation in such trade, the Commission is authorized, in its discretion, to buy such replaced vessel from the owner at a fair and reasonable valuation, and apply the purchase price agreed upon to that portion of the construction cost of such new vessel which is to be borne by the purchaser thereof:" The balance remains as it is. Section 508: In the sentence following the word "provided" after the word "foreign" the words "or domestic" should be inserted so that it will then read "that such vessel shall not be operated in the foreign or domestic commerce of the United States at any time" etc. Section 509: In the second sentence after the word "conditions" there should be inserted the words "of sale," so that it will then read: "If such application is approved by the Commission, the vessel may be constructed and sold to such applicant under the same terms and conditions of sale as are provided in the Act for the construction and sale of vessels" etc. Remainder of article-no comments. TITLE VI- OPERATING-DIFFERENTIAL SUBSIDY Section 601: (a) (1) Insert after the word "meet" the words "direct or indirect" so that the sentence will then read: "No such application shall be approved by the Commission unless it determines that (1) the operation of such vessel or vessels in such service, route, or line is required to meet direct or indirect foreign-flag competition and to promote the foreign commerce" etc. Balance of (a) satisfactory. (b) This section should be eliminated in its entirety for the following reasons: (a) The act already provides that any aid shall be given only to an American citizen with a definition of what constitutes citizenship; (b) it would be impossible, in the case of many corporations to accurately state all the persons having a direct or indirect pecuniary interest. Furthermore, the persons having a direct or indirect pecuniary interest, at the time of filing application, might not be the same as those having it at the time the application is granted or at any time during the period for which the operating differential subsidy applies. Foreign competitive lines are under no such restrictions. Section 602: No comments. Section 603: (a) End the sentence with the word "Act" deleting the words "including a performance bond with approved sureties, if such bond is required by the Commission." As it rests with the Commission to be satisfied that the applicant possesses all of the qualifications herein and before mentioned in the act, necessary to permit the Commission to approve the application, a surety bond should not be necessary, as this would involve an unnecessary expense upon the part of the applicant. (b) After the word "expense" in the first sentence, insert "of any kind or nature whatsoever (including overhead)" and before the word "disadvantage" strike out "substantial" and also strike out "substantial" before the word "competitors" so that the corrected section (b) would read: "Such contract shall provide that the amount of the operating differential subsidy shall not exceed the excess of the fair and reasonable cost of insurance, maintenance, repairs not compensated by insurance, wages and subsistence of officers and crews, and any other items of expense of any kind or nature whatsoever (including overhead) in which the Commission shall find and determine that the applicant is at a disadvantage in competition with vessels of the foreign country hereinafter referred to, in the operation under United States registry of the vessel or vessels covered by the contract, over the estimated fair and reasonable cost of the same items of expense (after deducting therefrom any estimated increase in such items necessitated by features incorporated pursuant to the provisions of section 501 (b)) if such vessel or vessels were operated under the registry of a foreign country whose vessels are competitors of the vessel or vessels covered by the contract." The American lines are confronted, on account of the American standard of living, with higher overhead on account of shore personnel. In the case of indirect competition they (American lines) have to maintain large terminals at higher rentals in this country that foreign competitors do not have to maintain in a foreign country when trading from a foreign port to the foreign ports served by this American line. (c) At the end of the paragraph, strike out after the word "subsidy" the words "and shall be made only after there has been furnished to the Commission such security as it determines to be reasonable and necessary to insure the refund of any overpayment." Such a provision, we believe, would involve additional expense and would seem to be unnecessary because of the requirements that the Commission must first find that the applicant has the experience, financial resources, and other qualifications necessary to enable them to conduct the proposed operation of the vessel and furthermore, the Commission is only advancing 75 percent of the amount they estimate to be due. Section 604: The word "all" should be stricken out and the words "a majority of" substituted so that the latter part of this section would read: "Provided, That no such additional subsidy shall be granted, and no part thereof paid, except upon an affirmative vote of a majority of the members of the Commission." It would be so easily proven that a foreign government is giving subsidies that would have to be offset that no restriction should be put in the way of having the subsidy granted at the earliest possible moment. Under this provision as it was worded a prolonged illness or absence of one member might prevent any action whatever. Section 605: (a) Strike out the words "an island" before words "possession or" and insert words "a Pacific." Strike out word "island" between "or" and insert “a Pacific" before the word "territory." The corrected part ́ would then read "in foreign trade on which the vessel may stop at a Pacific possession or a Pacific territory of the United States," etc. (b) No comments. (c) No comments. Section 606: (1) At the end of the second sentence after the words "in the public interest" insert "within the purposes of this Act." In the fourth sentence the word "shipping" should be stricken out and the words "the relationship between American flag and foreign flag costs of operation" inserted so that corrected (1) should read: "(1) that the amount of the future payments to the contractor shall be subject to review and readjustment from time to time, but not more frequently than once a year, at the instance of the Commission or of the contractor. If any such readjustment cannot be reached by mutual agreement, the Commission, on its own motion or on the application of the contractor, shall, after a proper hearing, determine the facts and make such readjustment in the amount of such future payments as it may determine to be fair and reasonable and in the public interest within the purposes of this Act. The testimony in every such proceeding shall be reduced to writing and filed in the office of the Commission. Its decision shall be based upon and governed by the changes which may have occurred since the date of the said contract, with respect to the items theretofore considered and on which such contract was based, and other conditions affecting the relationship between American flag and foreign flag costs of operation, and shall be promulgated in a formal order, which shall be accompanied by a report in writing in which the Commission shall state its findings of fact ;". (2) No comments. (3) No comments. (4) No comments. (5) Attention is called to the criticism of the principles involved in this subsection (5), as well as some other subsections of section 606, in sections 5 and 8 in the earlier part of this report. (6) We suggest after the words "his contract in" striking out the words "the most" and substituting the word "an", so that it would read "by his contract in an economical and efficient manner," etc. (7) No comments. Section 607: The following tabulations show the debits and credits to income and profit and loss account, table II; capital reserve fund depositaries, table III; and special reserve fund depositaries, table IV; as covered by the provisions of this section. Foreign competitors are under no such restrictions with respect to the allocation of their funds. Classification of Operating Operating expenses exclusive of depreciation. Depreciation charges and that part of the profits which are Classification of Income and Tax accruals whether based on the valuation of the prop- Authority Classification of Operating Credit Operating revenues. Description Operating-differential subsidy after adjustments, (a) for |