Mr. DREWRY. But ships do wear out and become less efficient so that the cost would increase. Now, one possibility has been suggested and that is under this authority in section 11 of title 46, I believe, that permits foreign-built vessels to engage in the trade between the United States and Guam and various other areas, but then the witness for Pacific Far East Line called attention to section 27 of the 1920 Shipping Act, Merchant Marine Act, which forbids foreign-built ships to engage in trade between the United States and domestic points which apparently would include Guam. The witness for the Maritime Administration yesterday seemed to feel that there was no problem about that, that the section 11 provision would take care of it and thus would provide at least an opportunity for someone to put modern tonnage into that trade, built foreign and thus with lower capital cost. Do you have any feeling as to the conflict between these two sections as to whether there is any? Mr. MANGAN. I cannot assess that, sir. It is beyond our capability. We would have to defer again to Maritime on this point. Mr. DREWRY. Mr. Chairman, there does not seem to have been any interpretation on this point. I wonder whether it might be worth while to ask the Controller General perhaps, or Maritime, to furnish for the record an interpretation as to whether this section is available or whether section 27 in the 1920 act would be a practical barrier against anyone building foreign? The CHAIRMAN. We will make that request. Mr. DREWRY. That is all I have, Mr. Chairman. (The requested information follows:) Hon. JOSEPH CAMPBELL, The Comptroller General, General Accounting Office, Washington, D.C. APRIL 16, 1964. DEAR MR. CAMPBELL: Reference is made to the bill, H.R. 7028, which by amending sections of the Merchant Marine Act, 1920, and the Merchant Marine Act, 1936, would make the coastwise laws inapplicable to Guam and treat commerce between the mainland of the United States and Guam as foreign commerce, thus making service to Guam eligible under the subsidy provisions of the 1936 act. During the course of the hearings on this bill it was brought out that 46 U.S.C. section 11 authorizes seagoing vessels "wherever built" to engage in trade with the islands of Guam, Tutuila, Wake, Midway, and Kingman Reef, it wholly owned by citizens of the United States. However, one witness called attention to the possible conflict with section 27 of the Merchant Marine Act, 1920, which prohibits trade between points in the United States, including districts, territories and possessions thereof, embraced within the coastwise laws, in any other vessel than a vessel built in and documented under the laws of the United States. I would appreciate receiving a ruling from your office on the question of whether or not the authority in 46 U.S.C. section 11, to use foreign built, Americanowned ships in U.S. mainland trade to Guam would be available, notwithstanding the broader prohibition against use of foreign-built vessels in domestic trade. Sincerely, HERBERT C. BONNER, Chairman. Hon. HERBERT C. BONNER, COMPTROLLER GENERAL OF THE UNITED STATES, Chairman, Committee on Merchant Marine and Fisheries, DEAR MR. CHAIRMAN: Further reference is made to your letter of April 16, 1964, concerning H.R. 7028, which by amending sections of the Merchant Marine Act, 1920, and the Merchant Marine Act, 1936, would make the coastwise laws of the United States inapplicable to Guam and treat commerce between the mainland of the United States and Guam as foreign commerce, thus making service to Guam eligible under the subsidy provisions of the 1936 act. It is stated that during the course of the hearings on H.R. 7028 it was brought out that 46 U.S.C. 11 authorizes seagoing vessels "wherever built" to engage in trade with the islands of Guam, Tutuila, Wake, Midway, and Kingman Reef, if wholly owned by citizens of the United States. However, you advise that one witness called attention to the possible conflict with section 27 of the Merchant Marine Act, 1920 (46 U.S.C. 883), which prohibits trade between points in the United States, including districts, territories, and possessions thereof embraced within the coastwise laws, in any other vessel than a vessel built in and documented under the laws of the United States. In view thereof you request our opinion on the question whether or not the authority in 46 U.S.C. 11, to use foreign-built, American-owned ships in U.S. mainland trade to Guam would be available, notwithstanding the broader prohibition against use of foreign-built vessels in domestic trade. The origin of 46 U.S.C. 11 is section 4132, Revised Statutes, which in turn as originally enacted (act of Dec. 31, 1792, ch. 1, 1 Stat. 287, 288), provided: "Vessels built within the United States, and belonging wholly to citizens thereof, and vessels which may be captured in war by citizens of the United States, and lawfully condemned as prize, or which may be adjudged to be forfeited for a breach of the laws of the United States, being wholly owned by citizens, and no others, may be registered as directed in this title." Apparently it was always considered that the vessels enumerated in this statute could be enrolled and licensed to engage in the coastwise trade because the provisions of section 4312, Revised Statutes (46 U.S.C. 252), permitted the enrollment of vessels having the qualifications required for registration. By the Panama Canal Act of August 24, 1912 (ch. 390, sec. 5, 37 Stat. 562), section 4132, Revised Statutes, was amended. In addition to the classes specified in section 4132, Revised Statutes, the amendment admits to American registry certain "seagoing vessels, whether steam or sail, * * * wherever built, which are to engage only in trade with foreign countries or with the Philippine Islands and the islands of Guam and Tutuila ***" Then follows this sentence: Foreign-built vessels registered pursuant to this Act shall not engage in the coastwise trade; Thus it appears that one of the main purposes of the 1912 amendment of section 4132, Revised Statutes, was to admit a new class of vessels to American registry, and in so doing to limit their operations to foreign trade and the insular trade defined in the act. Section 27 of the Merchant Marine Act, 1920 (46 U.S.C. 883), provides: "No merchandise shall be transported by water, or by land and water, on penalty of forfeiture thereof, between points in the United States, including districts, territories, and possessions thereof embraced within the coastwise laws, *** in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States, The question whether said section 27 repealed the provisions of section 4132, Revised Statutes (46 U.S.C. 11), as well as certain other existing statutes, was considered by the Attorney General in an opinion dated June 30, 1930, 36 Op. Atty. Gen. 302, wherein he held that while a strict, literal construction of section 27 would seem to prevent, under penalty of forfeiture, any merchandise from being carried in the coastwise trade in any vessel not "built in and documented under the laws of the United States," other than the vessels excepted therein, the section should be liberally construed to leave the law unchanged with respect to, among others, the class of vessels admitted to American registry by the act of August 24, 1912. The holding in the above opinion apparently has been consistently followed in the administration of section 4132, Revised Statutes, and in the amendment thereto by the Act of May 24, 1938, 52 Stat. 537, whereby the islands of Wake, Midway, and Kingman Reef were added to island possessions of the United States with which American-owned foreign-built vessels could engage in trade. In view of the long-standing interpretation and application of section 27 of the Merchant Marine Act, 1920, we see no basis to question such interpretation at this time. Accordingly, you are advised that in our opinion the authority to use foreignbuilt American-owned vessels in trade between the United States mainland and Guam is available under 46 U.S.C. 11, notwithstanding the broader prohibition in section 27 of the Merchant Marine Act, 1920 (46 U.S.C. 883), against the use of foreign-built vessels in the domestic trade. However, in our opinion, the provision of 46 U.S.C. 11 permitting trade between the United States mainland and the island of Guam in foreign-built American-owned vessels is merely an exception to the coastwise laws, and does not actually make such trade "foreign commerce," even though it would be so considered under the amendment to section 905 (a) of the Merchant Marine Act, 1936, proposed by section 2 of H.R. 7028. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. April 16, 1964. Hon. DOUGLAS DILLON, Secretary of the Treasury, Treasury Department, Washington, D.C. DEAR MR. SECRETARY: Reference is made to the bill, H.R. 7028, which by amending sections of the Merchant Marine Act, 1920, and the Merchant Marine Act, 1936, would make the coastwise laws inapplicable to Guam and treat commerce between the mainland of the United States and Guam as foreign commerce, thus making service to Guam eligible under the subsidy provisions of the 1936 act. During the course of the hearings on this bill it was brought out that 46 U.S.C. section 11, authorizes seagoing vessels "wherever built" to engage in trade with the islands of Guam, Tituila, Wake, Midway, and Kingman Reef, if wholly owned by citizens of the United States. However, one witness called attention to the possible conflict with section 27 of the Merchant Marine Act, 1920, which prohibits trade between points in the United States, including districts, territories, and possessions thereof, embraced within the coastwise laws, in any other vessel than a vessel built in and documented under the laws of the United States. I would appreciate receiving a ruling from your office on the question of whether or not the authority in 46 U.S.C. 11, to use foreign-built, Americanowned ships in the U.S. mainland trade to Guam would be available, notwithstanding the broader prohibition against use of foreign-built vessels in domestic trade. Sincerely, HERBERT C. BONNER, Chairman. Hon. HERBERT C. BONNER, THE GENERAL COUNSEL OF THE TREASURY, Chairman, Committee on Merchant Marine and Fisheries, DEAR MR. CHAIRMAN: Your letter of April 16, 1964, requests a Treasury Department ruling on the question of whether or not, under the authority of section 11, title 46, United States Code, American-owned foreign-built vessels may be used in trade between the U.S. mainland and Guam notwithstanding the general prohibition in section 27 of the Merchant Marine Act, 1920 (46 U.S.C. 883), against the use of foreign-built vessels in domestic trade. You advise that in the course of hearings held by your committee on H.R. 7028, a bill which, among other things, would make the coastwise laws inapplicable to Guam, a witness pointed out a possible conflict between these two statutes. Section 4132 of the Revised Statutes, as amended (46 U.S.C. 11), provides that seagoing vessels, wherever built, which are to engage only in trade with foreign countries and with the islands of Guam, Tutuila, Wake, Midway, and Kingman Reef, and which are owned wholly by citizens of the United States or corporations meeting certain criteria may be registered as vessels of the United States, but that foreign-built vessels registered pursuant to that section shall not engage in the coastwise trade. Section 27 of the Merchant Marine Act, 1920 (46 U.S.C. 883), in pertinent part provides that no merchandise shall be transported by water, or by land and water, on penalty of forfeiture thereof, between points in the United States, including districts, territories, and possessions thereof embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States. This section is made applicable to the island territories and possessions of the United States, including Guam, by section 21 of the Merchant Marine Act, 1920 (46 U.S.C.877). The Treasury Department recognizes an inconsistency in the statutes in that section 11, title 46, United States Code, authorizes the admission of Americanowned foreign-built vessels to registry to trade with Guam while section 883 of title 46, made applicable to Guam by section 877 of that title, concurrently restricts the privilege of transporting merchandise between points embraced within the coastwise laws to vessels built in the United States. However, the Treasury Department and the Department of Commerce, its predecessor agency in the administration of the coastwise laws, have held at least since 1939 that American-owned foreign-built vessels admitted to registry under authority of section 11 of title 46 may engage in trade between the United States and Guam notwithstanding the general prohibition of section 883 of that title against other than vessels built in the United States engaging in the domestic trade. The Department is of the opinion that this construction of the statutes is in harmony with the intent of Congress as expressed in the act of May 24, 1938 (52 Stat. 437), which amended section 4132 of the Revised Statutes by adding the islands of Midway, Wake, and Kingman Reef to those islands with which American-owned foreign-built vessels admitted to registry might trade. In Senate Report No. 1848, 75th Congress, 3d session, the Committee on Commerce, in recommending approval of S. 4049, stated: "The bill was introduced to meet an emergency situation. A [Americanowned foreign-built] vessel of the Pan American Airways, recently reconditioned at a cost of $200,000, is unable to sail from Honolulu for carrying supplies to the islands of Wake, Midway, and Kingman Reef, because the existing law has not been amended since new possessions were acquired. This bill undertakes merely to add to the existing law, where such ships are permitted to go to Guam, the words 'Midway,' 'Wake,' and 'Kingman Reef." The law thus was amended in 1938 for the specific purpose of authorizing an American-owned foreign-built vessel to trade between Hawaii and Wake, Midway, and Kingman Reef in the same manner as it theretofore was permitted to trade with Guam. All of the islands named are embraced within the coastwise laws, and the Department believes that the law authorizes such a vessel to trade between U.S. mainland ports and Guam. Sincerely yours, G. D'ANDELOT BELIN, The CHAIRMAN. You have an arrangement with Pacific Far East to operate ships out of Guam throughout the entire trust area? Mr. MANGAN. That is correct, and Japan. The CHAIRMAN. And Japan? Mr. MANGAN. Yes. The CHAIRMAN. By that arrangement and contract-is it a contract? Mr. MANGAN. Yes, sir. The CHAIRMAN. Then you are depending on Pacific Far East bringing that cargo to Guam? Mr. MANGAN. Not all; no, sir. on its cargo at Guam. The trust territory takes delivery The CHAIRMAN. However it may come in? Mr. MANGAN. However it gets in there; yes, sir. And some of the cargo is brought back directly from Japan by the Pacific Micronesian Line. The goods from ports other than Japan are picked up at the docks at Guam. This is why I say whatever the freight rates fixed for Guam determines what they are throughout the trust territory. Those ships ply over this 3-million-square-mile area of the Pacific leaving cargo at the 90-some population centers throughout the trust territory and pick up the exports from those, which is largely copra, but also some specialty good like pepper from Ponape, some handicrafts, and things of that sort. Then the ships in returning toward Guam take that cargo that they pick up in the islands to Tokyo where it is sold, by and large. This is the place where copra prices have been high in recent years, so practically all of the exports from the trust territory go to Japan, and such goods as we buy in Japan are then brought back for these areas in the Pacific Micronesian Line to Guam; and there cargo is loaded that is brought in from the other points, and the ships go around the circuit again. The CHAIRMAN. How many ships are used in that service? Mr. MANGAN. Nine, sir. There are two good-sized ones of the Knot class, I guesst about the C-1 variety. There are the Gunners Knot and the Pacific Islander, which is the old North Star that was in the Indian service trade and Alaska coast until last year. Then there are four smaller vessels of the AKL class. There are two other ships that are of about that size and capacity that were built by the trust territory and put in the trade, and then there is one medium tanker that is also operated. So it means two large freighters, six medium freighters, and a medium tanker that are operated. The CHAIRMAN. Who owns these ships? Mr. MANGAN. The United States. The CHAIRMAN. What age are the ships? Mr. MANGAN. Except for the two ships that have been built by the trust territory, which are fairly small, local transports, they are all World War II ships. Practically everything in the trade out there, and this has been pointed out as a problem here, are ships of 20 years or more in age and they are wearing out. The CHAIRMAN. Do you have any concern about the future transportation to Guam after completion of this expanded building in Guam itself that has brought about a great amount of commerce to the island of Guam? When things settle down there, do you have any concern about dependable service? Mr. MANGAN. Yes, I think we would be remiss in our duty if we were not concerned about it. The CHAIRMAN. What is your concern? Mr. MANGAN. Our concern is that unless we can put a private economy in those islands to supplant the Federal subsidy that will be largely limited to the next 5-year period for rebuilding, then the trade |