vessels built under the act of 1936, and vessels of comparable age and condition, be exchanged for. We are talking now about the exchanges to be made for. There are few ships of comparable age and type, other than those of 1936, and we think that the changes which the Commission has cited in its memorandum should pertain to other ships, and we therefore suggest that the authority for exchange should be broadened to include exchange for any American vessel which has been lost or requisitioned for use under circumstances which make its return to the owner impracticable.

Section 6 of H. R. 1425 imposes no limitations on the type of vessels which the Maritime Commission can transfer in lieu of payments for vessels lost or requisitioned. I think there is no doubt but what the Commission is not going to transfer obsolete vessels, but some of our people felt that that matter should be clearly stated and, in order to clarify it, we suggest that only new vessels described in section 1 of H. R. 1425 shall be eligible for transfer.

The CHAIRMAN. What do you mean by a "new" vessel?

Mr. ROTH. I meant not new in the sense that it is absolutely new, but I meant vessels which qualify under section 1 of the bill itself, which is vessels built within certain periods of time.

The bill exempts from its provisions vessels not economically suited for general use in the carrying of commodities or general commercial operations. We had some discussions on that subject. We know, we think, what the Commission is striving to do. There are a great many different types of special vessels that have been built during this war. It might be possible that some of those vessels could be reconstructed for uses which would not put them in competition with vessels sold under the bill, but we do not believe that the language as now dragted gives the protection against that contingency that we would like to have. We have endeavored to try to make a concrete suggestion, but we will have to admit that we ourselves find it difficult to do it, and we would be glad to sit down with the Commission and attempt to find some language for your committee which covers that point more clearly.

Incidentally, it should be noted that the difficulty we are talking about is noted in the bill itself, because it says that these ships shall be sold with certain restrictions and upon certain conditions to be determined by the Commission, which would prevent their entering into competition. There you have an anomalous situation, where you say the Commission is going to except certain vessels, and yet they are not excepted.

The CHAIRMAN. Mr. Roth, I have not gotten the specification as to those types of ships. About the most outstanding example I have now is mule boats, constructed for carrying mules, or something like that. I asked them, please, to specify what that type of ship was.

Mr. ROTH. The bill makes no provision for the charter of tankers. The Federation recommends that the Commission be authorized to charter tankers for a period of not less than 2 years.

There are many uncertainties which make it difficult for tanker operators to determine their future requirements. It is only fair that they be permitted to charter ships until future volume of trade, operating costs, foreign competition, future use of transcontinental pipe lines, and other uncertain factors are clarified.

From the standpoint of national defense and the post-war employment of American seamen, it is highly important to keep as many

tankers as possible operating under the American flag. The opportunity to charter would make it possible for some American tankship operators, who will not be in a position to buy tankers, to continue operations.

This is a rather technical matter, but I would like to submit it for the record.

Mr. BRADLEY. I assume you probably know the unions in Portland, Oreg., wired us requesting that this bill not be enacted for that very

reason.

Mr. ROTH. I did not know it. I think the unions will make statements here this morning.

Under the provisions of section 5 of H. R. 1425 the Commission is authorized to adjust prices on vessels sold or agreed to be sold between December 31, 1940, and before the date of the enactment of the bill, in conformity with the sales formulas provided in section 3.

Under this provision the price of a ship contracted for before December 31, 1940, but not delivered until after that date, could not be adjusted.

We believe that the date of delivery rather than the date of contract should be the determining factor. We, therefore, suggest that an adjustment of prices on prior sales shall be made "in the case of any vessel delivered by the builder subsequent to December 31, 1940, and sold or agree to be sold before the date of the enactment of the bill."

We have another matter on which we have not been able to agree with the Maritime Commission. The bill, as drawn, uses as a yardstick for computing trade-in allowances-this is in section 5, where there has been a trade-in of an obsolete vessel

the market value of such obsolete vessel as determined by the Commission for operation in the world trade or in the foreign or domestic trade of the United States between January 1, 1939, and September 1, 1939, and any special amortization taken by the purchase of the new vessel under the provisions of section 124 of the Internal Revenue Code

and then there are certain other adjustments.

We suggest that the yardstick to be used in adjusting credits should be the just compensation value of such obsolete vessel as determined by the Commission pursuant to the rules and formula announced by the Advisory Board on Just Compensation on December 7, 1943, and any special amortization taken by the purchaser of the new vessel under the provisions of section 124 of the Internal Revenue Code. We believe it is more equitable and more workable to use the formula which we have suggested than the one proposed in the bill. We understand that it would be rather difficult to obtain data on the market value for operation in world trade, as suggested by the Maritime Commission.

Now, section 5 of H. R. 1425, which authorizes an allowance for accelerated depreciation, by reason of war use, in the adjustment of prior sales, is rather vague. In fact, it makes no mention of any credit for special depreciation on account of wear and tear. Under the language of the section it appears doubtful whether the special allowance of accelerated depreciation, by reason of war use, is authorized in respect to vessels sold or agreed to be sold before the date of the enactment of the bill and delivered subsequent to December 31, 1940. As the spirit of section 5 is to place sales heretofore made on a parity with those to be made after the enactment of

the bill, it is suggested that the authority to make such allowances in connection with the adjustment of prior sales be clearly expressed. Failure to do so would create an obvious inequity. For example, consider the case of two identical vessels, completed on the same date, say January 1, 1941. Suppose that one of these vessels was purchased by a citizen on the day of completion, while the other has remained in Government ownership. If H. R. 1425, or some similar bill, be enacted in 1945, the Government-owned vessel can be purchased on January 1, 1946, at a price 17% percent below the net book value of the privately owned sister ship, having credited 5 years' accelerated depreciation at 31⁄2 pecent on one and not on the other. As both ships will have undergone the identical abnormal wear and tear of war service, the inequity is obvious.

It is suggested that the allowance for accelerated depreciation on ships sold before the date of enactment of the bill be based on the period of war service up to and including the final date of enactment. In this manner, the price paid by such earlier purchaser will be adjusted to the same basis as would be available to him on the day after the bill is enacted.

There is just one more technical matter which I did not include and which I overlooked, which I think is important to our tanker group, and I phoned last night to the Commission and they have not had an opportunity yet to consider this suggestion. I make it for the record:

Section 3 (a) of H. R. 1425 provides that tankers which are purchased at depreciated pre-war domestic cost may be used without restriction as to trades, services, routes or sailing schedules. Then section 3 provides that tankers sold at pre-war foreign cost can be used in foreign trade, but cannot be used in the domestic trade without the consent of the Commission and without certain adjustments on their cost charges.

Now, it is quite obvious that the next provision at the end of that section conflicts with the first one I mentioned. This section further provides that in the case of a tanker sold under subsection (c) or subsection (a) the Commission may permit the operation of such tanker in commerce between foreign countries. This reservation by the Commission of the authority to permit operation carries with it, of course, the authority to deny them, and the authority to operate is given by the first section. We think the last sentence in section 3 (c) should be deleted, and we think with some technical amendment that that obvious conflict between the two sections can be cleared up.

The CHAIRMAN. I thought that was in line with the operating subsidy, where you could use them sometimes in foreign trade and then adjust the difference between them.

Mr. ROTH. We are not objecting to that at this time. The only question here is whether or not the last four lines of that section, which deal with that, which say that the Commission may permit the use of ships sold under the first part of the section, which is unrestricted, does not conflict with the first section. Obviously it seems to. You say in section (a) that you can sell these things at pre-war domestic cost and use them in any way, and then you say in the next section that the Commission may permit the use of ships sold under that very same section.

(NOTE. The Maritime Commission observations with regard to points raised by Mr. Roth will be found at the conclusion of Mr. Roth's testimony.)

Mr. ROTH. Now, some general observations, Mr. Chairman and gentlemen of the committee, and I am through:

The important consideration in fixing a floor under sales prices should be the ability of our merchant ships to operate successfully at such prices rather than the recoupment of funds invested in ships as instruments of war.

There is a tendency on the part of many of our citizens to assume that the availability of our vast tonnage insures the maintenance of an adequate post-war American merchant marine. This is a false assumption. In the last analysis, the ability of this Nation to operate and maintain a sound and adequate American merchant marine will depend upon the ability of American shipping companies to compete successfully with foreign steamship lines and with other forms of domestic transportation.

In other words, even if we have vessels, and even if cargoes are available, our American ships eventually will disappear from the seas, as they have in the past, unless they can be operated profitably. In the long run, the crux of the matter lies in our ability to compete rather than in the availability of ships or the volume of world com

merce.

We must face the fact that we shall be at a serious disadvantage so far as operating costs are concerned. It is generally agreed that our operating costs in foreign trade during the pre-war period were at least 50 percent higher, on the average, than those of our competitors. This serious adverse differential will no doubt continue to plague us. There is no point to be gained by glossing over the true facts. In order to compete successfully we must overcome this operating differential, and this is equally true whether we have private operation or Government operation. Our experiences with Government operation following the last war conclusively demonstrated that the Government is as allergic to red ink as private operators. As soon as operations began to show great losses the Government disposed of its fleet at the best prices obtainable and abandoned any hope of successful Government operation.

It is quite evident that post-war competition for both branches of our merchant marine will be the keenest which we have ever faced. In the domestic field the commerce which was formerly serviced by water carriers is now being handled by their rivals, the railroads and truck lines. There is every indication that these rival forms of transportation will do everything possible to hold this business. Our coastwise and intercoastal steamship companies, which have been fully engaged in the war effort, must therefore start from scratch and recapture their patronage.

In the foreign field all of the traditional maritime nations are hoping to restore at least the equivalent of their pre-war merchant fleets. Some of them are hoping to expand their shipping facilities in the postwar period.

The CHAIRMAN. It is going to take the services of the companies to build up foreign trade in order to get it.

MI. ROTH. I make that point later on, Judge.

Several of our South American neighbors, including Argentina, Brazil, and Chile have indicated their intention of expanding their merchant marine fleets. Canada is planning an extension of its tonnage. South Africa is planning to build and operate ships. China

hopes to carry its domestic commerce in its own bottoms, and to participate to some extent in international trade. They are concerned with the interisland trade in the Pacific Southwest. No one seems to know what Russia's plans may be, but there are indications that Russia also intends to enter the maritime field, and I understand that they are making a study of that subject now in this country.

Paradoxically, it will be necessary for American shipowners to build a number of specialized ships despite our vast surplus of warbuilt tonnage, if they are to compete successfully in both world and domestic trades.

It is essential, too, that our American merchant marine be equipped at all times with modern and efficient vessels. Other nations are laying great stress upon the need for continued progress in ship design and construction. New vessels which they build to replace their war losses are likely to be more efficient than our war-built tonnage. British shipping interests are insistent upon the need for specialized vessels to serve particular trades and routes.

I call your attention to a recent dispatch in a British shipping publication, which stated:

The General Council of British Shipping today advocated the full use af all available shipping after the war, but urged early scrapping of war-built vessels in favor of ships constructed for specific purposes. Lost vessels have been replaced largely by one type of ship-the 10,000-tonner

the report said, adding that

Permanent operation of a large volume of war-built vessels would invite disaster both for the maritime industry and the shipyards.

The sterilization of unsuitable shipping might seem extravagant, but the price would be cheap if England could secure an efficient merchant marine containing various types of vessels.

That position gives weight to our fear that the intent is to charter these vessels until they can build themselves better vessels.

By the same token, the United States cannot lag behind in technological advances and hope to compete against more modern and efficient foreign vessels. Our best vessels of today will become competitively obsolete in a relatively few years.

Lack of suitable tonnage applies particularly to our coastwise trade, which requires small vessels especially adapted to quick and cheap handling of cargo. Even if more suitable tonnage were available, we cannot shut our eyes to the fact that pre-war experience has shown that our coastwise trade was unable to earn a reasonable return over a considerable period on valuations which were much lower than those provided for in this bill, and I refer you to the previous testimony on that where you, yourself, referred to and put into the record a report on that question.

We point out that approximately 70 percent of our American merchant marine was engaged in domestic commerce at the outbreak of the war.

The problem of providing suitable passenger tonnage is also one of great concern. As has been pointed out to your committee before, many of our best passenger liners have been lost during the war, and others have been so radically converted for war purposes that there is little likelihood of their reconversion for passenger service. Unfortunately, we have built few, if any, ships which will meet our post-war passenger requirements and which will be disposed of under the terms of this bill.