construction-differential subsidy paid for such vessel. Let them pay it all back. That is all right. That is fine. Mr. MAILLIARD. In other words, if they continue to operate beyond 25 years? Mr. PESSEL. Let them pay the full 100-percent construction subsidy back. Then nobody has any argument at all. That is a simple solution. The CHAIRMAN Mr. Stubblefield? Mr. STUBBLEFIELD. Thank you, Mr. Chairman. Mr. PESSEL. It would revise the payback period. In other words, the bill now asks for cutting it off at the end of 25 years. Well, if they are asking for it to cut off at the end of 25 years, they are asking to have something cut off and that is what we are objecting to. We say merely let subsidized operators go on paying back to the Government what the Government has given them until they pay back the whole amount. Then everybody is satisfied. Nobody has any kick coming. Mr. STUBBLEFIFLD. How would you compute that? Mr. PESSEL. You can compute it. Maritime Administration can compute it. Mr. STUBBLEFIELD. You have to have a cutoff date somewhere. Mr. PESSEL. Domestic cargo is a certain percent. That is added up every year. That is a matter of record down at the Maritime Administration. Mr. STUBBLEFIELD. It is computed on the revenue? Mr. PESSEL. That is right. Whenever that equals construction subsidy, knock it off. That is wonderful. That is simple. Mr. STUBBLEFIELD. Thank you, Mr. Chairman. The CHAIRMAN. Counsel? Mr. DREWRY. Mr. Pessel, at the end of 25 years, using an assumed figure that, say, 25 percent of the total carriage was domestic, would the other 25 percent not have been paid off to the Government by the performance of the operator in carrying out what the subsidy paid him for? Mr. PESSEL. I think you are talking again about the subject that Mr. Alexander clarified, the two different legs. We are not talking about the foreign leg at all. We are only talking about the construction subsidy, the proportion of the domestic total to the total foreign Voyage. Mr. DREWRY.. That is where I was confused. When you spoke of the whole subsidy, I assumed you were talking about the whole subsidy. Mr. PESSEL. I am only talking about construction subsidy. I am sorry. I should have clarified it. The CHAIRMAN. You contend that on the domestic portion of his route he has not paid the full subsidy? Mr. PESSEL. That is right. The CHAIRMAN. But he has paid it on the foreign? Mr. PESSEL. He will have paid it, yes, sir, I should think. The CHAIRMAN. He will have paid it. I understand he has paid it. Mr. PESSEL. Perhaps so. I wouldn't know that. I think it is a simple matter, Mr. Chairman, to have the records looked up to see what the records are. The CHAIRMAN. I will ask the Maritime Administrator. Has he paid it all then on his foreign portion of his trade route? Mr. ALEXANDER. No, sir. There is no obligation to pay back construction differential subsidy on the foreign portion of the voyage. The construction differential subsidy is paid by the Government for an entirely different reason. The reason for paying it is to provide parity with the foreign shipbuilding costs and there is no provision for repayment on foreign portions of a voyage but the repayment only goes to the domestic portion of the voyage and this is to protect the domestic operator. Mr. MAILLIARD. Mr. Chairman, could I ask Mr. Alexander a question? Would it then not be fair to say that he has not paid it but he has earned it by performing his contract? Mr. ALEXANDER. This is the idea. Mr. MAILLIARD. All right, but part of that contract is to replace that vessel? Mr. ALEXANDER. That is correct. Mr. MAILLIARD. So this is why it does not seem to me that when you get into a situation where the contract is not lived up to and that the vessel is not replaced at the end of this time, then from then on it is a relatively free ride. He has already earned his full construction differential subsidy between his time operating on the foreign routes and what he has paid back when he is on the domestic routes, but then you continue to let him operate. That is fine in the foreign trades. We do not care how successfully he competes with the foreigners but when you continue to let him onerate in the domestic trades with no consideration for the fact that he is operating a subsidized vessel, then this question of competition with the domestic carriers comes in which seems to me just alters the question and it does not look to me that we have come up with the right answer. There may be an answer but this does not appear to me to be it. Mr. DOWNING. Why is he operating this ship if he is supposed to replace it at the end of 25 years? Mr. MAILLIARD. Either he does not want to put up the money or the Government does not want to put up the money. So he continues to operate. If he followed the law he would not. Mr. ALEXANDER. I think Mr. Mailliard's statement is 100 percent correct. Mr. MAILLIARD. Theoretically nobody would continue to operate over 20 years by law but maybe by the facts of life the companies do not have the money so you put it off for everybody's convenience, but in this case it would seem to be for the inconvenience of the domestic operator. Mr. PESSEL. Here is an example that Mr. Graham just wrote out for me. I don't have the proof of this but when a 25-year-old mariner is sold to a person who will operate it in the domestic trade, the Maritime Administration does not have 805 (a) control. The subsidized operators can sell their old ships for use in the domestic trades without further repayment of construction-differential subsidy if the sections 2 and 3 are left in the bill. Mr. MAILLIARD. Would Maritime have any control over that sale! Mr. PESSEL. No, I don't think so. Mr. ALEXANDER. It is my impression, sir, that the Maritime Administration would have to approve that sale. Mr. MAILLIARD. That is what I would assume. In other words, the only condition under which they would sell is if they replace the ship, presumably, and then it would be taken in a trade by the Government but only with Maritime's permission could it be sold; is that correct? Mr. ALEXANDER. That is correct. Mr. ABLES. That is correct. The CHAIRMAN. Are there any further questions? Mr. PESSEL. Thank you, Mr. Chairman. The CHAIRMAN. Without objection, we will place in the record a letter from the American Merchant Marine Institute endorsing H.R. 6813. (The letter referred to follows:) Hon. HERBERT C. BONNER, AMERICAN MERCHANT MARINE INSTITUTE, INC., Washington, D.C., July 16, 1963. Chairman, Committee on Merchant Marine and Fisheries, DEAR MR. BONNER: The American Merchant Marine Institute, a national trade association composed of U.S. steamship companies operating a substantial majority of U.S.-flag vessels in the foreign and domestic trades of the United States, endorses H.R. 6813 which your committee is considering. In 1960 the Congress amended the Merchant Marine Act of 1936 (Public Law 86-518) to establish the depreciation period of certain U.S.-flag vessels at 25 years rather than the then-established 20 years. At that time there was an inadvertent failure to change the base used by the Maritime Administration for computing repayment of construction-differential subsidy under section 506 of the act when the vessel is operated in a domestic trade. Provision should have been made in the case of already existing vessels to recompute the base by spreading the remaining percentage of the base construction-differential-subsidy cost over the remaining years of the vessel's 25-year life. For example, a vessel with a construction-differential-subsidy cost of $25 million that was 10 years old when the law was changed would have paid for half the life of the vessel. Under the new 25-year life, however, the Maritime Administration has computed the amount due the Government to be one twentyfifth of the entire amount, to be paid annually during the remainder of the 15year life of the vessel. This results in the operator's having to pay three-fifths of the base during the balance of the life of the vessel. The computation base should require the operator to pay 50 percent over the remaining 15 years. However, under Maritime's computation, he would be required to pay 60 percent over a 15-year period. This results in the operator being obligated to pay to the Government a larger adjustment than was originally intended. In order to correct this inequity, we urge the committee to give favorable consideration to this proposal. We ask that this letter be made a part of the written record of the bill. ALVIN SHAPIRO. The CHAIRMAN. That will conclude the hearings this morning, and the committee will have an executive session. (Whereupon, at 12:45 p.m., the subcommittee adjourned.) |