free? That is the issue we must decide before we can be united to chart the future course for the restoration of the American merchant marine under private ownership. SENATE DOCUMENT No. 60, SEVENTY-FOURTH CONGRESS, FIRST SESSION MERCHANT MARINE POLICY AND SHIPPING AND SHIPBUILDING SUBSIDIES Memorandum on France, Germany, Great Britain, Italy, and Japan, prepared for the Senate Committee on Commerce in the consideration of S. 2582, a bill to develop a strong American merchant marine, to promote the commerce of the United States, to aid national defense, and for other purposes (Presented by Mr. Copeland) FOREWORD SHIPPING AND SHIPBUILDING SUBSIDIES, FRANCE, GERMANY, GREAT BRITAIN, ITALY, JAPAN The following statement is a summary of shipping and shipbuilding subsidy policies of France, Germany, Great Britain, Italy, and Japan. The material includes the more direct aspects of policy, expenditures, technical provisions, and control with available source citation. It is a summary of testimony given before the Committee on Commerce, United States Senate, Seventy-fourth Congress, first session, on S. 2582, April 25, 1935, and of testimony given before the Committee on Merchant Marine and Fisheries, House of Representatives, Seventy-fourth Congress, first session, March 21, 22, 26, and 27, 1935, on merchant marine policy. The report is referred to on page 46, Senate Commerce Committee hearings, and on pages 376 and 377, of the committee prints of the House Merchant Marine Committee hearings. J. E. SAUGSTAD. ROUTES, CONTRACTORS, AMOUNTS, 1935 1. Far East, Australian, Indian Ocean, and Eastern Mediterranean.... Contractor: Societe des Services Contractuels des Messageries Maritimes (French National Mail Steamship Lines), Marseilles. 2. Brazil and River Plate.. Contractor: Compagnie de Navigation Sud-Atlantique (South At- Dollars 405, 650, 000 1 15,901, 480 $ 26,935, 160 3. Corsica.......... Contractor: Compagnie Marseillaise de Navigation (Fraissinet & 4. France to North America, Mexico, the Antilles, and Central America.....| Contractor: Compagnie Generale Transatlantique (French Line), 1 At stabilized rate of franc: United States $0.0392. Journal Officiel No. 303, Dec. 25, 1934, p. 12641. 'At average exchange Feb. 24-Mar. 2, 1935: $0.0664. CONTRACT TERM 1. Twenty-five years, from July 28, 1921. (Contract of Dec. 29, 1920, Journal Officiel, Aug. 3, 1921, p. 9071.) (Law of July 28, 1921, Journal Officiel, Aug. 3, 1921, p. 9070.) 2. Twenty-four years, from December 31, 1929. (Contract of Jan. 31, 1928, Journal Officiel, Apr. 7, 1928, p. 3983.) (Contract of May 10, 1927, Journal Officiel, July 24, 1927, p. 7675.) 4. Fourteen years, from January 1, 1933. (Contract and law, July 20, 1933, Journal Officiel, July 25, 1933, pp. 7751, 7760.) CONTROL AND JOINT LIABILITY PROVISIONS Loans and bond issue control: Ministry of Finance. Account and audit control: Audit Commission for Subsidized Navigation Companies' Accounts. 1. Far East contractor is a subsidiary corporation whose sole business is to carry out Government contract services, and whose administrative board includes Government representatives. Subsidy depends on balance sheet. Government receives or pays 80 percent of profit or loss. Contractor receives or pays 20 percent of profit or loss. Government guarantees 4 percent dividend on 60,000,000 francs $2,352,000,1 $3,984,0002; capital stock, 120,000 shares at 500 francs. Government guarantees principal and interest on the following bond issues: " Canada: 1927-52, 6 percent, $11,000,000, tax free. France: 1929-54, 5% percent, 165,000,000 francs, tax free Netherlands: 1930–49, 41⁄2 percent, 5,000,000 florins, tax free----- 1930-47, 4%1⁄2 percent, 201,000,000 francs- 1930-55, 41⁄2 percent, 100,000,000 francs, tax free 1933-58, 5 percent, 175,000,000 francs, tax free.- -{ 3 $6, 468, 000 3 10, 956, 000 2, 010, 000 1 7, 879, 200 3 13, 346, 400 1 3,920, 000 3 6, 640, 000 1 6, 860, 000 3 11, 620, 000 Insofar as the subsidies to the Far East services are based upon the excess of operating losses over operating revenues, the receipts of Services Contractuels des Messageries Maritimes are an increasingly important item in the French subsidy system. In 1933, receipts of this company were 296,528,320 francs, compared with 352,834,696 francs in 1932. Operating expenditures were reduced from 581,171,928 francs in 1932 to 549,390,030 francs in 1933, leaving an excess of expenditures over revenues of 252,861,709 francs, compared with 228,337,232 francs in 1932. This is the largest loss sustained by the company in any one year, and to meet it the budget for 1935 provided an allowance of 202,500,000 francs, as compared with a budget allowance of 143,300,000 francs for 1934 for this company alone. Subsidies to the Far East services have increased as follows: 2. Brazil and River Plate contract: Government and contractor share profits or losses at 90 percent and 10 percent, respectively. Government guarantees principal and interest on loans for construction of new tonnage, and 5-percent interest payment on a bond issue of 1912-14. A 51⁄2-percent loan of 165,000,000 francs $6,468,000,1 $10,956,000,2 in 1928, payable by 1952, and a 140,000,000 francs $5,488,000,1 $9,296,000,3 41⁄2 percent, 20-year loan of 1930 are guaranteed under the agreement. 3. Corsica service vessels are owned by the contractor and are chartered to the Government, which hires the contractor to operate them under certain flexible conditions of payment, depending upon the revenue derived from the operations of the service. 4. Supervision over Compagnie General Transatlantique service is exercised by Minister of Merchant Marine through a Government commissioner. Audit commission reports directly to Minister of Merchant Marine, who reports to Parliament annually. Not less than one-third of administrative board of Compagnie Generale Transatlantique must be Government representatives. Financial control is elaborate. Annual subsidy is distributed first to cover operating losses, then to pay off old creditors. In 1932, the French Parliament voted a temporary loan of 110.000,000 francs $4,312,000,1 $7,304,000, to cover operating deficits. This loan was a debt to the French Treasury and must be refunded. Another loan of 68,748,000 francs $2,694,921,1 $4,564,867, was made for completion of construction then under way. On March 14, 1935, a bill was introduced in the Chamber of Deputies (Doc. No. 4981, 1935) approving a supplementary agreement of March 7, 1935, between the French Government and the Compagnie Generale Transatlantique, which provides: "(1) That the State shall pay amortization, as to principal and interest on the Normandie. "(2) That the Government shall guarantee interest and principal of loans to cover operating deficits for 1933 of 45.000.000 francs, and for 1934 of 10,000,000 francs, in excess of the total subsidy of 150,000.000 francs. "(3) That operation account of the Normandie shall be distributed in accordance with the agreement of July 20, 1933, and, that in view of the State undertaking the payment for the Normandie, the insurance agreement on that vessel for account of the State is to be canceled." SPEED AND VESSEL REPLACEMENT 1. Speed is fixed by allowance of days and hours for passage on each line. Sixteen vessels of 13 to 141⁄2 knots when contract was signed. Since 1921, replacements have been one 91⁄2-knot, one 10-knot, one 111⁄2-knot, one 121⁄2-knot, five 13-knot, four 14-knot, five 15-knot, and one 161⁄2-knot vessels. Size range: 4 at 5,000 to 8,000 gross tons, 6 at about 10,000 gross tons, 4 at about 12,000 gross tons, and 4 at from 15,000 to 17,000 gross tons. 2. Speed to insure reduction from 18- to 21-day passages to 15- to 18-day passages. New ship l'Atlantique (burned 1933), 39,000 gross tons and 23 knots, built under this contract. 3. Contract provides for replacement of 3 ships by 4 ships, 3 of which are to have speed of 15 knots. 4. Generally, on all lines, speed is average annual speed as determined from vessel performance. A tolerance or allowable annual speed reduction of one-tenth of 1-knot per year is provided for passenger vessels, both old and new. New York line.-At least 3 passenger vessels of 20 knots. Average speed to be made by ships of line is: T-6 (Normandie), 23 knots; Ile-de-France, 20 knots; Paris, 20 knots; France, 18 knots; Champlain (temporarily), 181⁄2 knots; Lafayette (temporarily), 17 knots. Ships to be built must be of at least 22,000 tons. Mexico, the Antilles, and Central America.-Line 1, 14 knots; lines 2, 3, and 4, 11 knots, with reduction allowances for certain vessels in service when contract was signed. POSTAL PROVISIONS 1, 2, and 3. The contractor carries all mail for account of the postal administration, compensation being fixed annually jointly by postal administration and 1 At stabilized rate of franc: United States, $0.0392. At average exchange Feb. 24-Mar. 2, 1935: $0.0664. Moody's Industrials, 1934. Ministry of Merchant Marine. Parcel Post is carried at Universal Postal Union rates. 4. Contractor carries all mail for account of the French Government at rates established by article 40 of the law of December 19, 1926, without exceeding the rates paid to foreign vessels for the same service. In effect, this is Universal Postal Union rates, but places French postal administration in position to pay less to French ships. CONCESSIONS TO GOVERNMENT 1. Government has first refusal of 25 percent of passenger and freight space until 14 days before sailings. Reduction in tariffs on several categories of public business, preference of space for French goods, and nondiscrimination against French goods are provided. Ships entered into contract service must have gun mountings and 11⁄2-knot reserve speed, as military requirements. Comparative results of various types of traffic over this service are shown to be as follows:4 2. Contractor agrees to fix freight and passenger rates according to competitive tariffs, and to enter into agreements and conferences. Limited space reservations and reductions in rates on certain public travel. 3. Certain passenger classes receive reductions according to special rates of the metropolitan railroads. 4. New York line.-Thirty percent reduction in passenger fares to: French public servants traveling at State expense; students with scholarships. Mexico, the Antilles, and Central America.-State has first refusal of 25 percent of passenger space up to 15 days before sailing date. Three weeks' notice is required if State reserves more than one-half of passenger space. One-tenth of cargo space is reserved for the State until 10 days before sailing. Cargo will be paid for at commercial rates. Disabled war veterans receive 25 percent reduction in passenger fares if 50 to 75 percent disabled, 50 percent reduction if 75 to 100 percent disabled. Large families traveling together receive 20 percent reduction for 5 persons, 30 percent reduction for 6 persons, 35 percent reduction for 7 persons, and 50 percent reduction for more than 7 persons. If vessels are required to have military equipment, such fittings shall be for account of the Navy. A special indemnity shall be paid if more than 75 cubic meters of space is required for fittings. Munitions magazines up to 30 cubic feet may be required, also for account of the Navy. HISTORIC OUTLINE 1. Far East service.-Law of July 3, 1835, authorized Minister of Finance to establish Mediterranean steamer service as far as Egypt. On account of competitive shipping conditions Government carried only mails, passengers, and some valuables, but no freight. Fourteen years of Government operation cost 37,237,900 francs. (Grout, Henry: Les Services Maritimes Postaux en France, 1908.) National assembly became perturbed, and in 1849, voted transfer of packet services to private enterprise, and appointed commission to study problem with result that contract was made with Messageries Nationales for Mediterranean service for a subsidy of 3,000,000 francs, beginning 1851. First contract through to India, China, and Japan in 1861. In addition to subsidy, Government granted 12,000,000 francs loan to contractor for purpose of building vessels. From then to 1911, various contracts were entered into. 1911 contract was at about $1.75 per mile. 1921 contract includes first joint liability provisions. 2. South American services. First organized in 1860 with Messageries Maritimes Co. on the basis of a subsidy of 15.50 francs per mile ($2.99 at $0.193 to the Moody's Industrials. franc). Present contractor undertook service in 1912. Joint liability first included in 1928. 3. Corsica service.-Second oldest contract service in French system, having been authorized in 1850. 4. C. G. T. trans-Atlantic service.-First authorized in 1857, when the Minister of Finance was authorized to contract for services to New York, Mexico, Central and South America for a total amount of 14,000,000 francs annually. From 1861 to 1878, the French Government advanced 22,600,000 francs to the C. G. T., as loans for the purpose of acquiring tonnage, all of which were repaid by 1885. When the C. G. T. was reorganized in 1933, the company was obliged to liquidate its north African hotel business and some subsidiary activities. GENERAL NAVIGATION SUBSIDIES In 1934, for the first time since 1906, France enacted a general navigation subsidy law, under which all French ships not otherwise in subsidized services, and subject to many nationalistic and trade restrictions, may be granted subsidies for sea performance. (Law of July 12, 1934, Journal Officiel, July 13, 1934, p. 7059 et seq.) Effective period. Effective for 2 years, beginning 1 month after date of enactment of law, July 12, 1934. Appropriation. Ninety million francs for 1935. Funds are provided through increase of customs rates by a maximum of 4 percent, fixed by decree. It funds exceed 140,000,000 francs annually, Government shall revise duties each 6 months. Nationalistic restrictions. Vessels must be fully manned by French citizens. Subsidized vessels and those in protected French trade not eligible. Vessels built or purchased abroac. after May 1, 1934, not eligible. Basic allowance. Subsidies are allowed on a ton-day basis, that is, calculated per gross ton per voyage-day, varying with the size of vessel according to the following scale: For 10 to 14 knots, 10 percent additional on cargo vessels and 30 percent additional on passenger vessels. For 14 to 16 knots, 30 percent additional on cargo vessels and 50 percent on. passenger vessels. For 16 to 19 knots, 60 percent additional. For 19 to 23 knots, 90 percent additional. Performance requirements. To qualify for subsidy, vessels must make good the following mileage, daily: |