The CHAIRMAN. Of course, our interest is to make the building of ships more attractive here in America and to reduce the cost to the Federal Government as well as the maritime industry as a whole. Mr. HOOD. That is what we want to do; that is our objective as well.

The CHAIRMAN. Mr. Van Pelt?

Mr. VAN PELT. No questions.
The CHAIRMAN. Mr. Pelly?

Mr. PELLY. Thank you, Mr. Chairman.

Mr. Hood, I have been thinking about Mr. McNamara's statement here one time which you are familiar with, when he indicated from a defense standpoint there might be a need for some fast roll-on, rolloff ships; other than that they would use airlift, discounting the defense value of our American merchant marine.

I wonder if you have made a study as to the contribution in the economic cold war which our American flagships are playing? You mentioned these 300 ships that Russia is building, is that not a part of their economic war in order to maintain their balance of trade and save their gold supply and strengthen their economy against us? Mr. HOOD. That is right.

Mr. Pelly, my friends in the Committee of American Steamship Lines have had a study done in this area, and I think they have demonstrated convincingly that the American merchant marine is very important in the balance-of-payments issue.

Mr. PELLY. Well, it seems to me that we are placing too much emphasis on the defense needs of supplying an Army overseas, and certainly now with South Vietnam that might have some real importance, but I do not see where there has been enough emphasis laid as to the defense of a stable economy and the strength of our whole economic system as against the Communist system. The defense of America lies in maintaining the stability of our economy and halting the flight of gold.

Mr. HOOD. I agree with you.

Mr. PELLY. Right now this is crucial, and I would hope that maybe in this record at this point that you would be able to have a summary inserted as to the study that has been made so that this particular aspect of the national welfare could be pointed up. We should show the value of American ships to protect the dollar in a time when defense is being cut back. We hear we may have a 25 percent cutback in defense, and the DOD does not want anything charged to defense. Well, is not the economy of our country a part of our defense just as much as the Navy?

Mr. HOOD. It certainly is. If the economy fails, then the whole defense mechanism fails. It is the national economy that sustains the national defense.

Mr. PELLY. Well, I think this competition with the Communist world comes right down to a matter of American merchant marine. That is the way it strikes me and I would hope that maybe you could put something in the record, if the chairman would permit.

Mr. HOOD. I have a copy of the CASL study in this area, Mr. Chairman, and will be happy to forward it to the committee this afternoon. The CHAIRMAN. Fine.

(The information mentioned follows:)

U.S. Flag Ships Cut Payments Deficit $1 Billion

A NEW FOREIGN SPENDING POLICY

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IN AN EFFORT to stem the mounting deficit in the U. S. balance of payments, President Eisenhower issued a directive on November 16th to all Federal agencies ordering drastic cuts in foreign spending.

In general, the agencies are ordered to "place primary emphasis❞ on purchases of goods and services of United States origin, and to hold to a minimum any credit advances that do not finance direct procurement of United States goods and services.

The balance of payments deficit amounted to approximately $10 billion in the past three years, a substantial part of which has been settled by shipments of U. S. gold reserves.

"A definite improvement in our balance of payments situation is mandatory”, said the President, “not only to insure our economic well-being and military security here at home but also to insure that the United States can continue as a strong partner in the future economic growth and military strength of the free world".

The Government's new foreign spending policy may be regarded as underscoring the importance of our Merchant Marine's annual contribution toward the effort to achieve a favorable payments balance.

This report discusses the relation of U. S. flag ships to the balance of payments problem and suggests how our Merchant Marine's contribution can be increased. Use of American flag ships to the point where a minimum of 50% of all American foreign trade is carried on American ships would materially assist the Government's program and would be in line with the President's directive to “place primary emphasis” on financing services as well as goods of United States origin.

U.S. Flag Ships Cut Payments Deficit $1 Billion

BACKGROUND OF THE PROBLEM

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RADE, AID AND MONETARY MEASURES — major weapons in the field of foreign economic policy - are more important today than ever before in implementing America's desire to contribute to the vast problems of world redevelopment and peace.

One aspect of this policy that is currently a matter of serious national concern is the problem of the balance of international payments — more money flowing out than in.

Dollars constantly flow out of the United States primarily for imports, tourism, investment, government aid, military assistance, and expenditures for the support of the vast U. S. military establishment abroad.

Balanced against this are the dollars that are constantly flowing in - largely for exports and dividends and interest on American investments

overseas.

What Balance Means

There is sometimes confusion between the meaning and significance of the balance of international payments and the balance of trade.

The balance of international payments is simply a two-sided statement of the number of dollars entering and leaving our country for any reason whatever over a specific period of time. It sets forth what the Government, citizens and businesses in the United States spend, lend and invest abroad, and the amount that they earn abroad. Imports account for the largest out-payments, while sales of exports produce the biggest earnings.

In contrast, our balance of trade is the difference between merchandise exports and imports. It is only one factor, although the most important one, in the balance of international payments.

The United States has had an adverse balance in its international payments, averaging some $1 billion annually from 1950 to 1957. Widespread public interest, however, was not aroused by this "deficit" until 1958, when it amounted to $3.6 billion. Last year it showed a further increase to $3.8 billion, and the prospects are for another large deficit in 1960, perhaps as much as $4 billion.

Foreign claims have thus been building up against dollars and U. S. gold reserves in recent years at an annual rate of from $3 billion to $4 billion. Gold is fundamentally involved in the payments deficit because gold is the basis for settling accounts in world trade. It is accepted everywhere as a standard of value.