Between the first quarters of fiscal 1963 and 1964 Guam's total imports increased by 87 percent by value and 60 percent in tonnage. Fiscal 1963, of course, was the year of the typhoons, and the initial repair of typhoon damage. Guam's foreign imports increased even more; that is, 162 percent by value and 122 percent in revenue tonnage between the first quarters of fiscal 1963 and 1964.

To translate that, I think the import of this is that Guam's commerce is increasing at a great rate, but the intrusion of foreign goods and foreign shipping is accelerating at a rate greater than is the participation of the American producers and the American shippers. The only other point I think I can add to the record, Mr. Chairman,. is some discussion about the precedents that have been established for this bill.

As you noted yesterday, the act of June 14, 1934, exempted American Samoa from the coastwise shipping laws and the act of April 16, 1936, exempted the Virgin Islands from the application of the coastwise shipping laws.

Mr. Gulick noted yesterday that the initial motive for the action taken by the Congress with respect to American Samoa came from an imbroglio with the Government of Great Britain, and as a result of their charge in the early thirties that the application of the coastwise shipping laws was, in fact, an abrogation of the tripartite treaty of

1899.

It is true that this probably triggered the congressional action at that time, so to speak. You will find in your committee report of the 73d Congress; that is, House Report No. 1643 of the 73d Congress, dated May 15, 1934, with respect to House Joint Resolution 340, of the 73d Congress, that your committee also observed that the population of American Samoa consisted of approximately 10,000 persons, and its commerce was insufficient to be attractive or profitable to American shipping. It follows, the report concluded, that the maintenance of the coast wise shipping laws in American Samoa was of no importance. Also, in your committee's report No. 2281, of the 74th Congress, with respect to S. 754, this report being dated March 30, 1963, your committee noted that even though the Coastwise Shipping Act of 1920 was by reference made applicable to the Virgin Islands, that it had never, in fact, been applied there.

As a matter of fact, every year for 13 or 14 years, I believe, the President of the United States issued an annual proclamation excepting the Virgin Islands from the terms of the coastwise shipping law. It was cited in your committee's report at that time, again, that the total population was less than 25,000 people in the Virgin Islands, that its exports and its imports were very small and unattractive to thee American shippers, that its main asset at the time was the bunkerage that it was able to supply to foreign vessels that were en route from Europe through the Panama Canal.

The bunkerage service rendered to these vessels was approximately 50 percent of the business available to the Virgin Islands, and the report concluded that the application of the coast wise shipping laws would prevent those calls.

So, in effect the Congress, in addition to concering itself with the treaty aspect in the case of American Samoa, had also taken the position that all these islands were remote, they were poor in resources,

and they ought to be left free to develop whatever resources they could to improve their economy.

Since that time we can say very happily that the economies of the Virgin Islands and American Samoa have improved vastly. Shipping is now quite significant in both of those areas; but I can tell you that the result of their exemption from the coastwise shipping laws has not deprived American producers or American shippers of a market. The goods going into both American Samoa and the Virgin Islands now are substantial in volume, and by and large they are American goods carried in American ships. There are exceptions, but the big bulk of the cargo comes from American manufacturers and the big bulk of the shipping is done by American shippers. So, the exemption of these territories from the coastwise shipping laws has not deprived America of the market there.

That is all I have to add to the record, Mr. Chairman.

The CHAIRMAN. Your statistics on the increase of foreign commerce into Guam are interesting. What do you attribute that to?

Mr. MANGAN. Well, in the first instance, it is the disparity of prices between the cost to the consumer of the goods bought from a foreign source as against American sources. We performed an exercise requested by Mr. Tollefson's colleague, the gentlewoman, Mrs. Hansen, for the Appropriations Committee this year, about the effect of this foreign commerce on the lumber industry with respect to the vastly accelerated building program in the trust territory, we found that the government of the trust territory has preferred as a matter of policy to apply the terms of the Buy American Act, even though it is not applicable in the trust territory.

But the cost of lumber has become so disparate that now 60 percent of the lumber used in construction in the trust territory is foreign, but that 60 percent by volume represents only 40 percent of the cost. Conversely, the 40 percent that is brought in from the States costs 60 percent of the territory's expenditure for lumber.

This is an unhappy result because the American lumber is highly desired. The redwood of the Northwest coast is a very fine commodity for building in the trust territory. In particular, they like the prefabricated sash work and milled things, but you can build so much more with the lower cost of foreign goods that it becomes almost unconscionable to build two schools with the money available when using American materials; when you can build three, using foreign goods.

So I think it is just that factor.

The CHAIRMAN. Mr. Tollefson?

Mr. TOLLEFSON. I have no questions at this time, Mr. Chairman.
The CHAIRMAN. Mr. Mailliard?

Mr. MAILLIARD. I have no questions.

The CHAIRMAN. Mr. Pelly?

Mr. PELLY. Thank you, Mr. Chairman.

Unfortunately, I have had to be at another committee that was reporting out legislation and I could not get here for the early part of your testimony, but I would like to pursue this matter of your statement a moment ago with regard to lumber.

Is it not true that the imposition or the elimination of the cost of subsidy to Guam is through the service from the Pacific Northwest by

American-flag ships? Is there not a service? I think you say there are two shipping lines in your testimony?

Mr. MANGAN. Yes, since we prepared that there are actually three now. They are Pacific Far East Line, American President Lines, and now Pacific Navigation.

Mr. PELLY. Well, does this in any way change your testimony on your position?

Mr. MANGAN. I do not believe that the advantages of subsidy are available in the trade between the stateside port and the Territory of Guam. I again plead I am not an expert in shipping, but it is my understanding

Mr. PELLY. Any subsidy at present is refunded; is that not correct? Mr. MANGAN. That is right, those that are engaged only in the west coast to Guam trade get no subsidy at all, and those ships which are on subsidy runs must rebate that amount of subsidy that is represented by the part of the cargo that they deliver to Guam, which is not exempt from the coastwise shipping laws. At least that is my understanding, sir.

Mr. PELLY. That is the way, I believe the testimony has shown so far on this legislation.

Mr. MANGAN. Yes.

Mr. PELLY. And this new service which is now available from the Pacific Northwest certainly is changing the statistics as far as lumber is concerned. We must be selling lumber direct to Guam, is that not so, following the terrible typhoon and so forth?

Mr. MANGAN. Yes, sir. I am not aware of any substantial Guamanian imports of Canadian lumber at this time. And I am not sure that the fact that it is of a Canadian origin is going to benefit the American shipper. In view of the fact that the vessels that run from the west coast to Guam are not subsidized, it probably would not be competitive with Philippine lumber now, which is only 1,500 miles away from this area.

Mr. PELLY. Well, if a subsidy was allowed to an American-flag service, is there any reason to believe that this would reduce the cost of goods to the consumers in Guam?

Mr. MANGAN. Well, that is our hope, that this rapidly accelerated market out there will produce that result. Our statement to the effect that there are two shipping lines is in error. Since the time we wrote this report some months ago, Pacific Navigation has come into the field with four ships, and they have been able to use the fact that they were entering at a peak of the business and can carry cargo in full ships to, as I understand it, offer freight service at substantially lower rates.

But the problem is, we are still not going to make the goods competitive in some fields. We had hoped, and still hope, that not only would the increased traffic enable lower prices and attract more competition, but also that subsidies would be passed along in the way of savings in order to add to the competitive reach for market.

We have not convinced the Budget Bureau on that, sir, as I was careful to point out in my report. They are persuaded more by the position of the Maritime Administration that this legislation will not, in fact, assure lower rates; but we hope that they will.

Mr. PELLY. How do you feel that the actual allowance of a subsidy actually gets into lower freight rates?

Mr. MANGAN. In effect it reduces the shipper's overhead by

Mr. PELLY. But how do you know that that does not get into profits and dividends as against

Mr. MANGAN. This is the nub of the question, of course. All of these shippers have indicated that this traffic on this line has become profitable to them. It is possible that subsidies will be used to pyramid profits on profits. On the other hand, we think that there is a good possibility that it will be used competitively to get a larger part of the market and therefore will be reflected in reduced shipping rates, and it is that premise that we support as the rationale for this bill. That is our sole interest.

Mr. PELLY. Do I understand that you are favorable to a loophole so that foreign-flag vessels could serve Guam?

Mr. MANGAN. Well, I am not in favor of any loophole, per se, as I understand it

Mr. PELLY. That is the only reason that there is a subsidy, to offset the costs as against the foreign-flag vessels?

Mr. MANGAN. As I understand it, the enactment of this bill without the amendment that Pacific Far East Line has suggested would, in effect, allow foreign shippers to move goods from the ports of the United States into this market. We would have no objection to that. Our interest, again, is getting lower prices in the territories for goods. Mr. PELLY. Thank you, Mr. Chairman.

Mr. VAN PELT. No questions.

The CHAIRMAN. Mr. Drewry?

Mr. DREWRY. Mr. Mangan, you say this would bring about lower rates. Have you given any thought to how the Department feels about the removal of rate regulation by the Maritime Commission?

Mr. MANGAN. First, sir, we are not sure that this will bring about lowered rates. We hope that that will be the result; but on this point, again, we realize that this is a vastly complicated field and that we are not experts in it and we would have to defer to the judgment of the Maritime Administration on questions of this sort.

Mr. DREWRY. As I understand your position, mainly, you want to see, somehow, assured service to Guam.

Mr. MANGAN. That is correct.

Mr. DREWRY. And for the benefit of, if not directly to, the trust territories?

Mr. MANGAN. That is right. We have an interest not only in continued service at this crucial time when we have to rebuild Guam, but we also have to operate a shipping line throughout the trust territory, that is the Pacific Micronesian Line which is now operated through contract with Pacific Far East Line.

If they go out of business in their service to Guam, I assume they will not be interested in operating the Pacific Micronesian Line, either; because they will not have a base of operations in Guam. This means then that we would be forced into the operation of this rather substantial shipping business in the trust territory as a government operation, and we do not want to do that.

Mr. DREWRY. Government operation could be considerably more expensive than a commercial operation?

Mr. MANGAN. It could be, sir. The present arrangement is that we pay Pacific Far East Line under the present contract, $1,750,000 per year to operate the line, and then the revenues from the nonpublic business conducted by the carrier is covered back into the trust territory treasury. In the past year those revenues have been about $1 million, which results in getting all of the public cargo carried throughout the trust territory for about $750,000 per year.

Apparently our people have thought that it is to their advantage, to the Government's advantage, to get this done by private operators. Presumably this means that if we had to undertake it as a Government operation that that $750,000 deficit that we now incur could become a substantially greater one.

Mr. DREWRY. I notice that you mention increase in civil government expenses from the trust territory from $71⁄2 to $172 million. It that per year?

Mr. MANGAN. Yes, sir. The bill that I referred to in my statement is the bill that raised the statutory ceiling for appropriations from $712 to $172 million per year. That raised it in steps. It was $15 million for this fiscal year and $17 million thereafter, and the House Appropriations Committee has just allowed the full appropriation of $172 million for 1965.

Mr. DREWRY. And the $45 million--that is a lump sum?

Mr. MANGAN. No, sir.

Mr. DREWRY. Is that an annual appropriation, too?

Mr. MANGAN. Well, it is not a lump-sum appropriation, but rather it is an authorization for Guam. And I should add here, incidentally, that this is preponderantly a loan fund. a loan fund. It is subject to repayment over a 30-year period in differing amounts for different categories. The result will be that the bulk of that $45 million will be paid back over the next 30 years. As I recall the amount that is in fiscal year 1965 budget for this rehabilitation program in Guam is $9 million for the first year. It will be appropriated only as a program can be developed for its use.

Mr. DREWRY. Procurement out of those funds would have to be in the Buy American Act; would it?

Mr. MANGAN. I do not believe so, sir.

Mr. DREWRY. Do you have any idea of how much the military spends annually in Guam?

Mr. MANGAN. No, I do not know that. It is a very substantial amount, but I do not know that we can even get that amount. Some of it is involved in security operations out there.

Mr. DREWRY. I am just trying to get some concept of how much of an investment the Government would be trying to protect if it were to try to subsidize the service into the area.

Just one more question. As I say, the main thing you want is service?

Mr. MANGAN. That is correct.

Mr. DREWRY. And if it can be accomplished over a long term, dependable basis with older ships, I assume you would be perfectly satisfied?

Mr. MANGAN. That is correct. We see this bill as one through which we hope to realize substantially lower prices in the two territories, consistent with a reasonable profit to the operators and improved satisfied?