Mr. ABLES. Yes, sir.

Mr. DOWNING. Thank you again, Mr. Administrator, and I do wish you every success.

Mr. JOHNSON. Thank you, Mr. Downing.

The CHAIRMAN. Mr. Pelly?

Mr. PELLY. Mr. Johnson, I certainly want to join with my colleagues in welcoming you here. It is my first opportunity to discover that even in colloquy with these long-dedicated members of the American merchant marine that you are able to stand up and defend your position. Personally, I have sort of welcomed a fresh look that you have given to this problem. I have always thought if the Americans could place their orders abroad those foreign shipyards would raise their costs very rapidly and that actually it was not quite fair to say that the low-cost yard throughout the world was the cost at which we could build our ships. If they could get our business they would raise their costs pretty fast in some of these yards, and the law of supply and demand would work, as soon as they got more orders they would raise their costs, and yet, in feeling that way I do not yield to anybody in my interest in building our merchant marine, and so, as I say, just in a general way, I think you are doing the right thing to take a look at this.

This overall national interest that we have certainly transcends national defense; it is more than that; it gets into the matter of our balance of payments and the gold flow. I do not think sufficient credit has been given by any administration to the importance of our merchant marine on that score.

So, while I think maybe the limit of subsidy of 55 percent, or whatever it would be and the formula that you use maybe does not reflect our national economic interest enough; maybe the Government should go 100 percent and lease ships to these operators if we can assure ourselves in this country of larger cargoes and preserve our own dollars. Anyway, you have gotten plenty of advice and counsel today, and certainly I know you have the assurance of every one of us that we are looking forward to working with you toward achieving the objectives of the legislation that now is on the books and if you come in with some more recommendations, I, for one, will certainly, with an open mind, welcome your suggestions and I think maybe we can do even more than we are doing now in the national interest.

Mr. JOHNSON. I think we can do a lot more. I appreciate your statement.

Mr. PELLY. I will be happy to yield to my colleague.

Mr. TOLLEFSON. I want to commend the gentlemen from my State for mentioning the balance of payments. I think that is a fact looked into by the Maritime Administration in resolving this question. I would also hope they would give consideration to the loss of tax dollars to Uncle Sam if American operators were permitted to build their ships abroad. These are factors I think ought to be had in mind, too. Mr. JOHNSON. You are quite right, and what you are both directing yourselves to is the question of the "build American" program, the shipyards subsidy program, and, of course, in considering the merits of that program you must look to the balance-of-payments problem and other consequences for our economy, not the least of which are the shipyard workers.

Mr. PELLY. Thank you, Mr. Chairman.

The CHAIRMAN. I would like to qualify the colloquy between Mr. Johnson and Mr. Downing.

I took note of this and on March 2 directed a letter to Mr. Johnson. In the letter I call his attention to the fact that we will hold hearings on this bill H.R. 10053, and in the letter, the last paragraph, I stated:

It is my intention to schedule early hearings on H.R. 10053, at which time I would like to receive your views on your new proposal as well as on the bill itself. That is a proposal with respect to this five-country nation equalization of subsidy.

There are important issues involved in this matter and I hope that you will not make any final determination on your new procedure until this committee has had an opportunity to consider the entire subject with you.

And as chairman of the committee I appreciated very much your reply.

We shall, of course, be prepared to give our views to your committee whenever you ask. I can also assure you that the Maritime Administration will not take any final action to apply our new proposal without you first being informed.

And so I think we can pass over that matter with your assurance, as contained in these two letters, and now talk about this extension of the maximum of 55-percent subsidy for construction.

Mr. Casey?

Mr. CASEY. Thank you, Mr. Chairman.

Mr. Johnson, it is a real pleasure to have a fellow Texan here to help defend us on this committee. Every once in a while they are very complimentary but they also get a little rough once in a while. I think even though there has been voicing of disagreement on what you are stating, I think the committee, I know I have, and I think the committee has been impressed with the fact that you do not intend to just do business as usual, but to explore any and all of the facets of your new position to see what you can do to improve it.

How long has this study been going on now that you have under consideration for changing the formula?

Mr. ABLES. May I answer that, Mr. Casey, since Mr. Johnson was not here before March 1. It is more than 6 months.

Mr. CASEY. How long do you think before you may reach a decision on what type of formula should be used if the lowest yard should not be used? Do you have any guess?

Mr. JOHNSON. I do not think I would want to pin us down to a precise date, Mr. Casey, to answer your question, except to say it is now under active consideration. I have made an attempt to speed up the processing of everything over at the Maritime Administration, the Maritime Subsidy Board matters, and other applications, and I would hope that we could apply the same principles of expedition to this

matter.

Mr. CASEY. Compared to what you are contemplating and what has been done in the past, there is a good deal more complexity about the application of a new formula than there is just using the lowest yard; is there not?

Mr. JOHNSON. You are quite right, and that is a factor that concerns me about this.

Mr. CASEY. And possibly some new thoughts have been injected here today by the members of this committee as something that

you are going to have to take into consideration and the difficulty of reaching what would be a fair differential if you apply a new type of formula?

Mr. JOHNSON. Yes, sir.

Mr. CASEY. You have suggested that whether this bill passes or not, evidently, if your study reveals that a new formula should be used, you are going to put it into effect; are you not?

Mr. JOHNSON. Yes, sir; under the act this is a matter that has been delegated to us. As I indicated in my letter to the chairmanMr. CASEY. And you feel you have the discretion?

Mr. JOHNSON. Yes, sir.

Mr. CASEY. Under the existing law to do it?

Mr. JOHNSON. Yes, sir.

Mr. CASEY. What is the need, then, for trying to cut the application of this bill down to 1 year when you have an indefinite idea as to when you might put in a new formula if you do, and even if you do, the extension of this act for 3 more years would not affect the application of your formula one bit where, if you do not, if you finally determine that it is more reasonable to go ahead with the lowest yard formula, you would not be in the position of a year from now going through this same thing again?

Mr. JOHNSON. Well, I could, in response to that question, only refer back to the statement and say that it is the position of the administration and the Department and the Maritime Administration, of course, that as long as these matters are under consideration that a 1-year extension is all that is really needed at this time.

Mr. CASEY. Suppose you use some formula different than is being used now? You still might exceed 50 percent. Then you would have to come in and extend this again.

Mr. JOHNSON. I think in that event that would be the consequence; yes, sir.

Mr. CASEY. Well, we have to think a little bit about the practical aspects of this, of keeping going back to the floor with extensions of a year, or something of that nature, and some of our colleagues get a little suspicious of us trying to put something over on them.

Mr. JOHNSON. I cannot imagine them being suspicious of you, Mr. Casey, but I can understand the problem of going back every year. Mr. CASEY. They think we are trying to feather the nests of the shipyards and ship operators and we are trying to eke this along a year at a time, and it is not good, I do not think, from a legislative standpoint to come in and ask for just a 1-year extension when somebody is going to challenge the chairman on the floor and say, well, are you going to be back next year? And he is going to have to say, we may have to be back next year because there is a study being made of some sort of a new formula. Even with a new formula we may still have to have it.

Where, if you do get an extension of 3 years, it is not going to hurt a thing, because you are still going to have what differential is determined by you under the law.

Mr. JOHNSON. You are quite right. You are very familiar with how much progress can be made in Houston in 1 year, and we would hope if we could not reach that ultimate goal, we could make some progress in 1 year. I can certainly appreciate your problem and again only revert back to the comment in the statement.

Mr. CASEY. Frankly, your objection to any extension over 1 year is more or less academic. There are no dollars involved and it would not work a hardship on the administration of your office, would it, if it were extended for more than 1 year?

Mr. JOHNSON. Again, I would want to refer to the paragraphs on page 2, if I might, at the top of the page, again, and the language there has been changed slightly.

Since the actual difference between foreign and American costs in recent shipbuilding contracts has been between 50 and 55 percent of the total cost, it is appropriate that we have authority to pay subsidy in this cost range if it becomes necessary.

And then at the bottom of the page, the reference to the fact that as long as we are studying this matter, we believe a 1-year extension is sufficient.

The CHAIRMAN. Would you let me interrupt you?

Mr. CASEY. Yes.

The CHAIRMAN. You have this authority now, do you not?

Mr. JOHNSON. Which authority, Mr. Chairman?

The CHAIRMAN. You are reading a paragraph on page 2?

Mr. JOHNSON. Yes, sir, we do.

The CHAIRMAN. You say that, "We have authority to pay subsidy in this cost range, if it becomes necessary."

Mr. JOHNSON. Yes, sir.

The CHAIRMAN. You have authority now?

Mr. JOHNSON. Under the present law we have it, under the 1-year or 3-year extension we would have it, and I referred to that paragraph only to reassure Mr. Casey with regard to our thinking about the basic principles involved while at the same time referring to our position that a 1-year extension should be adequate.

The CHAIRMAN. This committee was interested in the five-nation average and when we received the letter of January 27, 1964, from the Acting Chairman of the Maritime Subsidy Board, giving us a no answer on this, we wrote him a letter that this act would expire June 30, and that we would introduce a resolution extending it. I said in that:

I assume legislation would be introduced for further extension of the ceiling authority well before that date. In such event we would want to hear your detailed comments on your proposed new interpretation of this aspect of title 5.

Now, there is one other question. The Board would not publish in the Federal Register a change prior to coming before this committee and having a public hearing on this matter?

Mr. JOHNSON. I do not know that we would--as I explained in the letter, as I told you before and Jack Drewry before, we are anxious to work closely with this committee on matters of mutual interest. The CHAIRMAN. I just wanted it on the record, you would not put this new formula in the Federal Register and say this is it beforeMr. JOHNSON. I wanted to clarify precisely what I said in the letter. We are anxious to work closely with you, and as I said in the letter, we would inform you before taking any action on it. The way we normally take action on a matter is to publish it, rather than hold a public hearing before publication. Of course, it will be talked over with you and presumably with representatives of the industry. I

doubt that there would be a public hearing on the matter, however, before it was announced.

The CHAIRMAN. We want to hold a hearing before you put it in the Federal Register. Now, that is what I have been driving at all the time. That is what I interpreted your letter to mean. Once it gets in the Federal Register, then there you are. And we want some airing out down here.

Mr. JOHNSON. What I explained in the letter was that we would, of course, inform you and have the opportunity to discuss it with you informally before it was published in the Federal Register.

There was nothing in our exchange of correspondence that referred to a public hearing before this committee.

The CHAIRMAN. Well, just as soon as I heard about it, I would call a hearing down here about it. It is of great importance, in line with your own statement, I think, that we should have an opportunity to have the hearing held on this before it is put in the Federal Register.

Mr. JOHNSON. Well, it would be our view on that, I think, Mr. Chairman, that under the law we would have to retain the authority to promulgate the regulations of this sort, and our soul is pure and our purpose clear. We want to work with you as closely as we can, but I do not think we can be held up in the doing of our business, in publication of matters in the Federal Register, until this committee has held hearings.

The CHAIRMAN. I would then have to introduce a resolution right away, would I not? I mean introduce a resolution in the Congress to hold hearings on this subject?

Mr. ABLES. Sir, can we leave it this way, before any action will be taken we will certainly discuss the matter with you.

The CHAIRMAN. I am telling you now, when you tell me, then I will introduce a resolution and I will hold the hearings, you need not be bound on that. You can go ahead and publish what you want in the Federal Register, but I will have a bill over here in the House to hold some hearings on this matter, because from Mr. Johnson's own statement this needs quite a lot of airing out before it becomes a matter of fact in the Federal Register.

You see, Mr. Johnson, it is something that has not been mentioned here at all. In addition to making the American merchant marine competitive the world over, we want to preserve the ability and to have the advantage of shipyards here in this country and there is a good deal of weight that must be given to that in this entire program, not only for the American merchant marine but for other purposes. In the national interest of this Nation we have to maintain private shipyards.

Mr. JOHNSON. There is no proposal at this time that the American operators do build their ships abroad or be permitted to build their ships abroad.

The CHAIRMAN. I understand that.

Mr. JOHNSON. This is a matter, it seem to me, that needs to be given very careful attention.

The CHAIRMAN. I understand that thoroughly.

Mr. JOHNSON. Because

The CHAIRMAN. If this program is not carried out sufficiently to sustain American domestic shipyards, for all purposes including national defense, we will wake up some day finding ourselves in the same fix we were in in World War I and World War II, and this committee