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1 Not available. Mr. DREWRY. On that question of the lowest cost center, your emphasis on it sounds as if that is virtually the only criterion. I have not kept up with it in detail, but it has been my impression that it should more properly be expressed as the "lowest cost center where a prudent businessman would go.” On the redetermination of the sales prices and the construction differential of the Independence and Constitution there were three centers taken into account: As I recall they were Germany, Italy, and Holland—possibly Great Britain. But I seem to recall a discussion here I am not sure whether Holland, the center chosen, was the lowest or not-but considerations were taken into account in regard to Germany that they had not built vessels of that type in recent years, therefore that was not a proper center to look at; Italy's political situation was unstable and therefore, irrespective of price, they were not the lowest center; Holland had built ships more or less within that range, and there were certain other factors such as freer foreign exchange which were taken into account, rather than solely the question of which one was the lowest.

We have also had hearings in the past year or so concerning Spain as a shipbuilding center, as being a very low-cost shipbuilding center, and yet I do not know where they stand with regard to Japan or Holland or West Germany, but I do gather from some hearings we have had that there might be some serious questions as to whether things are sufficiently stable in the shipbuilding industry in Spain, that that would be followed even though it were the lowest cost.

Am I right on that, Mr. Hoffman, could you answer that? That you do not necessarily take the absolute lowest cost?

Mr. HOFFMAN. This is correct, in determining the center, consideration is given to the stability of the country and the amount of building in that country, too. If it is a minor center it is not used for that purpose.

Mr. Johnson. Let me say in this connection, that this able presentation by you evidences the fact that we are already, to some extent, considering the very practices that we are now talking about in terms of my statement here this morning—that we should not consider just the lowest cost center without regard to anything else. To some measure that is already being done, and we are considering a reevaluation of those principles, as you expressed.

Mr. ABLES. Dr. Drewry, we do the same thing for our foreign costs as we do for the determination of the domestic bid price for the construction of vessels here. That is, determine whether the bidder or the foreign yard is a responsible bidder or a responsible foreign yard, so it is not just low cost, it is a responsible low-cost center that we have been following as our test.

Mr. DREWRY. Well, I had the impression that you were stating that the present formula was the lowest center and I wanted to get my own thinking clear on that, that you already take into account a number of factors which lead in the direction of, to my mind, where an American, if he were free to build abroad, might go. It would be taking these factors into account.

Mr. JOHNSON. That is right. There is already an attempt to reach that principle.

Mr. DREWRY. The weighted average thing; I cannot quite follow it in relation to what the law provides although you may be right, that it is within the law as it is written. I have a feeling it is not, and from what you say I have to do some rethinking and restudying.

Thank you, Mr. Chairman. Mr. TOLLEFSON. May I ask another question? The CHAIRMAN. Yes, sir. Mr. TOLLEFSON. At some point in the past we discussed the idea of eliminating the ceiling in the law which presently is 55 percent, eliminating it altogether because the Maritime Administration formerly arrived at its construction-differential subsidy figure on the basis of the differential as it actually is without regard to the ceiling unless it should exceed the ceiling. Is that so? Mr. JOHNSON. Yes, sir.

Mr. TOLLEFSON. What would be your thought in connection with eliminating the ceiling altogether from the legislation?

Mr. Johnson. Well, sir, I am afraid that would just have to revert me back to the bottom of page 2, since presumably the administration and the Department's position, and that of the Maritime Administration as well, would be that if we have no objection to a 1-year extension at this time, in contrast with a 3-year extension, presumably the position would be the same with regard to an indefinite suspension altogether.

Mr. TOLLEFSON. I was going to ask you what you thought about eliminating the ceiling in the legislation and eliminating the cutoff date, too. You have answered it by saying you would have to add here to the position of the Department which is a 1-year extension of the present law?

Mr. Johnson. Yes, sir; the position that we are all taking here at this time.

Mr. TOLLEFSON. You would not feel that you would want to go any further than that at this time?

Mr. JOHNSON. No, sir; and—well, no, sir.
Mr. TOLLEFSON. That is all, Mr. Chairman.

The CHAIRMAN. Well, there is always give and take in legislation as well as private business. We have 3 and you want 1. How would 2 suit you?

Mr. JOHNSON. No, sir; our position is stated here at the bottom of page 2.

This is like taking the fifth amendment.
The CHAIRMAN. You are not a good trader.
Mr. Johnson. No, sir.

The CHAIRMAN. We are talking about 3, you are talking about 1, there must be some happy

Mr. JOHNSON. It would seem to me that the compromise would be rather obvious; yes, sir.

The CHAIRMAN. What did you say? Mr. JOHNSON. I said it would seem to me that the compromise between 1 and 3 would be rather obvious, but the position as I have described is on the bottom of page 2.

The CHAIRMAN. Well, we have enjoyed having you and you have made a splendid witness.

The committee will adjourn until tomorrow morning at 10.

(Whereupon, at 11:55 a.m. the hearing was adjourned, to reconvene at 10 a.m., Wednesday, April 8, 1964.)




Washington, D.C. The subcommittee met at 10:10 a.m., pursuant to adjournment, in room 210, Cannon House Office Building, Hon. Herbert C. Bonner (chairman of the subcommittee) presiding.

The CHAIRMAN. The subcommittee will come to order. The subcommittee will continue with the consideration of H.R. 10053.

During the testimony of the Maritime Administrator at hearings yesterday, there was much discussion concerning the proposal currently under consideration in the Department of Commerce and the Maritime Administration for a new method of computing construction differential subsidy under the 1936 act. The proposal was first brought to the attention of the Chair by letter of January 27, 1964, by Mr. Robert E. Giles, former chairman of the Maritime Subsidy Board, who enclosed a copy of a notice of intent to revise existing policy which had been filed in the Federal Register on that date.

In his appearance yesterday, Mr. Johnson obliged by discussing a number of aspects of the January 27 proposal which is presently under study.

Since the primary purpose of this hearing was to consider H.R. 10053 to extend for another 3 years the present 55- and 60-percent maximum construction-differential subsidy for cargo and passenger ships, respectively, the committee's notice scheduling these hearings did not include reference to the previously proposed revision of the policy regarding the method of computing construction subsidy. In view of this, the Chair appreciates that witnesses are not in a position at this time to testify fully, if at all, on this subject. It is evident, however, from the Maritime Administrator's testimony, that possible extensive administration changes in existing law and procedures are under consideration.

These possible changes are of great interest to this committee and it is for this reason that I have asked the Maritime Administrator to make no final determination on new procedures until the committee had an opportunity to consider the entire subject.

By the same token, the shipping, shipbuilding, and labor segments of the maritime industry are also greatly interested. The Chair suggests, however, that in order to expedite consideration of the bill itself, further testimony at this hearing be confined primarily to the bill.

In the meantime, I hope and expect that the Maritime Administration will advise the committee of developments as they review their procedures and give us ample prior notice of intent to take final action on any new procedures. It is our intent to hold further hearings on the matter of subsidy computation; so, will the witnesses please confine their testimony primarily to the bill that is before us this morning.

Mr. TOLLEFSON. Mr. Chairman? The CHAIRMAN. Yes, Mr. Tollefson. Mr. TOLLEFSON. Had you completed your statement ? The CHAIRMAN. Yes, sir. Mr. TOLLEFSON. The hearings yesterday ended on a note which I thought required some statement this morning and I am glad that the chairman perhaps felt similarly and has accordingly made the statement.

I would like to support the chairman's position on this matter to the effect that the proposed procedure shall not be made effective until this committee has completed hearings on the matter. Normally, our committee abstains from holding hearings on areas in which administrative agencies contend they have discretion. The present circumstances, however, are quite different.

The current law and the related procedures for arriving at shipbuilding subsidies were the direct outgrowth of a prewar request of the U.S. Maritime Commission to enable them to fix these subsidies in the low-cost shipbuilding center. They have been reviewed and investigated time and time again by this and other committees of the Congress and by the General Accounting Office—and never has the selection of the low-cost responsible shipbuilding center been challenged. Where foreign owners ordered ships is not immaterial to the issue—they have other benefits—many of which are unknown to us. We in the Congress are seeking to create an American maritime industry—and the important, overriding consideration is in what foreign market would a reasonable, prudent American liner company order liner vessels if we permitted them to do so. Mr. Johnson agreed in his testimony yesterday that this policy was the intent of the 1936 act.

While differences of interpretation can arise, the present procedures for arriving at shipbuilding subsidies have worked well and have been a cornerstone of the Act for a guarter century. Accordingly, I share your concern and join with you in expressing the strongest possible support for an orderly, deliberate consideration of any proposed change. Several times in the past this committee has served the national interest by conducting open hearings on matters of major maritime importance.

So, Mr. Chairman, once again at this critical juncture of our national maritime affairs, I think it most appropriate that this committee interpose itself in this matter and request the full and complete cooperation of the Maritime Administration and the Department of Commerce to the end that before any changes are made, this committee shall hear all interested parties and record its views.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you. And in conjunction with this subject I have written Mr. Johnson, the Maritime Administrator, the following letter, which will be placed in the record and I will read the letter:

Following the adjournment of the committee today I recalled one point that I wanted to raise with you.

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