MISCELLANEOUS MERCHANT MARINE LEGISLATION

GUAM SHIPPING LEGISLATION

WEDNESDAY, MARCH 11, 1964

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON MERCHANT MARINE OF THE

COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D.C. The subcommittee met at 10:10 a.m., pursuant to call, in room 219, Cannon Building, Hon. Herbert C. Bonner (chairman of the committee) presiding.

The CHAIRMAN. The committee will come to order.

This morning the subcommittee will continue hearings on H.R. 7028 and identical bills.

The first witness will be Mr. Wester of the Pacific Far East Lines. You may proceed, Mr. Wester.

STATEMENT OF EDWIN A. WESTER, VICE PRESIDENT, PACIFIC FAR EAST LINE, INC., ACCOMPANIED BY HOWARD C. ADAMS, VICE PRESIDENT

Mr. WESTER. Thank you, Mr. Chairman.

Mr. Chairman and members of the subcommittee, I am Edwin A. Wester, vice president, vessel scheduling and cargo control, Pacific Far East Line, Inc., and I would like to thank you for the opportunity to appear here today in support of H.R. 7028.

Pacific Far East Line was organized in July of 1946 and shortly thereafter commenced a regular service to Guam, recognizing the importance and the need for restoring the economy of that war-ravaged island. Regular service to Guam has been maintained by Pacific Far East Line since 1946 and we are currently employing four vessels in this trade with a sailing frequency from the west coast of approximately every 12 days. This service has been maintained even though financial losses were incurred during some years.

By virtue of its geographical location the trade must depend entirely on cargo movements to Guam and, to a lesser extent, some of the other mid-Pacific islands, such as Wake Island, Kwajalein and Eniwetok, and Midway. The financial success of any voyage to Guam must necessarily depend upon the outbound cargo as this is essentially a one-way trade with virtually no tonnage offering from Guam to the continental United States.

The problems involved in steamship lines serving Guam can also be illustrated by the fact that there has been only one other carrier; namely, American President Lines, that has seen fit to offer continuous regular service to that island over the past several years.

We believe it is essential to the economy of the territory of Guam, as well as to preserve the historical ties between that island and the continental United States, that the present shipping service from the United States be maintained. Guam is now and has been for many years a strategic base for our military service and obviously this liner service is important to the military in the carriage of necessary supplies.

Another important reason for the maintenance of service from the United States to Guam is the important role it plays in our balanceof-payments position in that any curtailment of service would undoubtedly result in increased service from foreign areas carrying foreign products, at the expense of U.S. manufacturers and shippers. During the past 312 years Pacific Far East Line has carried from the United States a total of 240,813 weight tons of commercial cargo to Guam and 131,577 weight tons military cargo averaging 68,804 tons of commercial and 37,593 tons of military annually. Aside from the military cargo and cargo freighted to Guam for transshipment to other mid-Pacific islands, Guam imported from mainland points in the United States in fiscal 1963, 104,892 revenue tons of cargo with a value of $23,591,890. Those statistics are based on the territorial government of Guam commerce statistics.

It is expected that this tonnage movement, with its corresponding dollar value, will increase substantially in the years to come. It is interesting to note in table 6, and I invite your attention to turn to page 13, that between the years 1950 and 1960, the civilian population of Guam increased from 31,000 to 43,700, an increase of 41 percent.

Also, the Guam population projection reflects an estimated increase in population of the civilian population from 43,700 in 1960 to 85,000 in 1985, an increase of almost 100 percent. In the event that the military population remains constant at 23,300 persons, the total population of Guam by 1985 will be 108,300 persons.

This population explosion can only result in a substantial requirement for additional consumer products and an expanding economy for the territory of Guam which obviously will result in increased tonnage moving to that island. We are hopeful that such increases will come from our own domestic sources.

It is alarming to note the increase in foreign commerce to Guam since 1959. The dollar value of the foreign manufactured and produced products imported to Guam was $3,318,110 for the fiscal year 1959. The comparable figure for fiscal 1963 was $6,519,781 representing an increase of almost 100 percent.

It is also significant that since Guam was opened to foreign-flag vessels from foreign ports by Executive order in 1962, the dollar value of the foreign imports has climbed from $3,953,705 in fiscal 1962 to $6,519,781 in fiscal 1963, representing an increase of about 65 percent. I might elaborate just a little bit about that Executive order.

Since Guam became a territory of the United States, the security of Guam was left to the Navy Department and any person or vessel desiring to call at Guam had to get prior clearance from the Navy

Department. In 1962, August, I believe, the President issued an Executive order which retracted the previous requirement of the Navy control of the people and ships that were allowed to go into Guam.

We believe it was intended primarily to stimulate tourism to Guam, however, it did have the side effect and damaging effect of permitting foreign-flag vessels to also call at Guam from foreign ports. They were still restricted from calling at Guam from the United States under the terms of the Jones Act.

The projection for fiscal 1964 indicates that the dollar value of foreign imports to Guam will be $10,746,000, representing an increase of 224 percent over fiscal year 1959. This is illustrated by table 2 on page 9.

This marked increase in foreign imports to Guam is graphically illustrated by tables 1 and 2, and graphs 1 and 2 attached hereto. Tables 3, 4, and 5 also give in detail the type of products being imported into Guam from foreign sources. It might be interesting to you to turn to page 9 and run down the list of commodities that were taken from actual manifests of vessels that sailed from Japan to Guam and you will find every conceivable item that can and is produced in the United States-automobiles, beer, canned foods, cement, clothing, matches, machinery-practically every item that is available in the United States.

Similarly, on page 11, it illustrates that from Australia, although there is a lesser variety, there was quite a substantial number of items that are being imported from Australia, and some of the biggest items being frozen meats and other frozen foods and canned milk and rice.

We are also now getting quite substantial imports from Hong Kong in clothing, furniture, liquor, sugar, plastic goods, and so forth. From the Philippines, the imports into Guam have been confined principally to beer, furniture, and lumber, and from New Zealand, frozen

Ineats.

It might be well to point out, too, that these foreign imports into Guam are not subject to any duty. Guam is a duty-free port so the American products not only have to compete with a greater steaming distance to arrive at Guam, but the foreign products unlike any coming into the United States, can come into Guam duty free.

It is clear that a regular American-flag shipping service from the continental United States to the American territory of Guam should be maintained since otherwise foreign imports carried on foreign bottoms will increase substantially with a further adverse impact on our balance-of-payments position.

In support of our contentions and to more graphically illustrate the remoteness of our American territory of Guam to continental United States as opposed to the surprising proximity to foreign countries of the Far East and Australasia we have prepared table 7 on page 15, showing distances to the main neighboring foreign countries. You will note that the distance from San Francisco to Yokohama is 4,536 miles, and the distance from San Francisco to Guam is 5,053 miles. The distance from Guam to Yokohama is 1,352 miles, and the distance from Guam to Manila is 1,492 miles.

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You can see that the ships plying from the United States have to steam further to supply Guam than is the case of vessels calling at Yokohama, most of which are presently subsidized.

The four vessels we are now operating in this trade are World War II vessels, which are approaching obsolescence. In view of this, and if the service is to continue, we are faced with the necessity of building or buying new vessels for this trade which, due to statutory requirements, must be American built and fly the American flag. That is in accordance with the Merchant Marine Act of 1920.

However, there is some dispute as to whether or not title 46 of United States Code, section 11, may permit foreign-built vessels to ply in the trade between the United States and Guam, Tutuila, Wake İsland, Midway Island, and Kingman Reef. Kingman Reef is what we now know as Palmyra, and I believe it is geographically within the Hawaiian Island chain. Tutuila is the same as American Samoa. That is what it was apprently known as at the time that particular code was enacted.

As I mentioned, there is some question as to whether or not the United States Code, section 11, title 46, takes precedence over section 27, of the Merchant Marine Act of 1920, because the Merchant Marine Act of 1920 states that foreign vessels plying in the domestic trades of the United States, as well as the cargo, would be subject to forfeiture. So, there is a possibility, and this is a legal determination that will have to follow later, as to which of these statutes really are in effect. It is not economically feasible to finance these new vessels entirely privately; therefore, in the interest of maintaining this trade and to permit the building of new ships in U.S. yards to service it, we, therefore, support the resolution adopted by the Guam Legislature and the statement made by the Honorable Won Pat, speaker of the Guam Legislature, before this committee in support of operating and construction differential subsidy for the Guam service.

We, for our part, are prepared to invest the necessary capital, which we estimate would be in the neighborhhod of $18 million, for the construction of these vessels not covered by the construction differential subsidy. In the event that this operating and construction differential subsidy is granted, we believe that initially the service can be maintained on approximately the same frequency with only three vessels instead of four because of the increased capacity and speed that will be obtained with newer ships.

To depart slightly from the text of the statement, there are two changes which we believe should be made in H.R. 7028, the initial bill before this committee.

The first change merely involves a typographical error occurring in the title of the bill and also on line 4, 46 U.S.C. 887, should be changed to read 877.

The second change involves section 4 of this proposed bill. If section 4 is passed as presently written it will permit the foreign-flag operator to commence immediate service between the United States and Guam. It could conceivably take several months for Pacific Far East Line to have its application for subsidy approved by the Maritime Administration, during which time the foreign-flag operators would have free access to the trade and could make massive inroads on the movement of cargo between the United States and Guam.

I, therefore, recommend that section 4 be amended to read as follows:

SEC. 4. In addition to the procedures provided by the Merchant Marine Act, 1936, as amended, the Secretary of Commerce, with the consent of the party thereto and without a hearing, may modify any contract heretofore entered into pursuant to the Merchant Marine Act, 1936, as amended, requiring reduction of repayment of subsidy for service in the domestic, intercoastal, or coastwise trades, or so as to provide operating differential subsidy for a service which is not in addition to the existing common carrier service maintained by such party in the trade between United States ports and Guam for a period not less than three years prior to the passage of this Act.

One correction-I stated "requiring reduction of repayment." It should read, "requiring reduction or repayment."

In light of the foregoing, we heartily endorse H.R. 7028 as suggested by our amendment and believe its passage is essentially to the future well-being of the territory of Guam as well as the American merchant marine.

Thank you very much.

The CHAIRMAN. I am going to ask the counsel of the committee to question.

Mr. DREWRY. Mr. Wester, you mention you have had a regular service to Guam by Pacific Far East Lines since 1946. I would like to get cleared up for the record just what that service consists of.

As I understand it, you are operating four vessels at the present time. Do you operate exclusively to Guam on that service?

Mr. WESTER. We do not. We also service the other mid-Pacific lands, principally Kwajalein and Wake Island, and occasionally Eniwetok and Midway. We also call at Honolulu solely for the purpose of lifting cargo originating in Honolulu for Wake Island and Guam. We are not permitted to carry cargo into Honolulu. Essentially this is a Guam trade, these vessels do not go beyond Guam, so it is necessary that we make or break on what we can accomplish in that particular trade.

Mr. DREWRY. They do not go to the Philippines or Hong Kong or Korea or Japan?

Mr. WESTER. They do not.

Mr. DREWRY. It is not clear to me whether the four war-built vessels you are now operating are receiving subsidy at the present time, or whether they were built with subsidy in the first place.

Mr. WESTER. They are not receiving subsidy and they were acquired under the Ship Sales Act of 1946, I believe it was, at a cost in the neighborhood of $1 million apiece. Although some of them, or at that time, of course, Pacific Far East Line in all its services was operating nonsubsidized. Subsequently we did enter into a subsidy agreement covering trade route 29, and some of these same vessels were employed in the subsidized trade route 29 until we had obtained and built new Mariner vessels for that trade. Subsequently, we shifted these vessels from the subsidized service to the nonsubsidized service to Guam. Mr. DREWRY. Now, do any of these vessels receive operating subsidy for the area you serve other than Guam?

Mr. WESTER. They do not.

Mr. DREWRY. The trust territories are served on a nonsubsidized basis, too?

Mr. WESTER. That is correct.