"Mr. POOLE. I find myself in an awkward position of being out of step with all the wise men that you have mentioned, but I think that one thing has been said that is wrong, that in the absence of an exchange in the law you can't consider the value of the currencies. Actually, you cannot avoid considering the value of the currency. If you have used an official exchange rate, you have made a judgment which I think is not justified, and I wonder if you would mind if I ask one question. Does any Commissioner think that the Dutch guilder is worth 37.8 now or is likely to be worth it during the period these ships are built?

"Mr. MELLEN. Well, I am not going to enter into a discussion expressing my opinion in foreign exchange.

"Mr. POOLE. The American dollar does have a gold backing, a specific gold backing.

"Mr. MCKEOUGH. It might well be changed, Mr. Poole.

"Mr. POOLE. Well, if we are going to abandon everything that we couldn't be certain of, we might as well not have a meeting, Mr. Commissioner, because nothing is certain in this world.

"Mr. MCKEOUGH. I think in all fairness you are as far in the realm of the material as anyone could be. I said sincerely that it might well be changed. It has been.

"Mr. POOLE. Yes; but I am talking about now. We are converting, as I understand it, at an official rate that does not represent the value of the guilder, and I think you could ask any foreign-exchange banker in the world whether the guilder is worth 37.8 cents and he would say "No."

"Mr. MELLEN. Tell me, Mr. Poole, where has it been brought to your attention anywhere that our conclusions are based on foreign so-called official exchange rates? How do you know that? Why do you assume it?

"Mr. POOLE. May I ask you, then, if you used the official estimate?

"Mr. MELLEN. I made my statement a while ago that I thought it was very clear. "Mr. POOLE. You did not use the official statement?

"Mr. MELLEN. I said we took it into consideration, gave it due measure of weight, in arriving at our estimates with respect to foreign construction.

"Mr. CODDAIRE. I'd be interested in getting an answer to Commissioner's question there about anything telling you who didn't use it or did use it.

"Mr. POOLE. I will say this. When I first came here about 3 weeks ago, I had quite an extensive conversation with Mr. Beidelman; and I brought up this subject of foreign exchange with him; and I don't think he did make that statement, Mr. Commissioner; but I left with the very possible impression.

"Mr. MELLEN. You are just going on impressions and not on any data or statement made to you.

"Mr. POOLE. If you have considered the real value

"Mr. MELLEN. What leads you to the conclusion that we have not? That is what I am trying to find out. You must have something on which to base that assumption.

"Mr. POOLE. If you have considered the real value of the guilder in making this

"Mr. MELLEN. No, no. I have asked a question. I'd like to have an answer to it. What gives you reason to believe that the computations are made with respect to foreign construction costs exclusively upon the official exchange rates in that country?

"Mr. POOLE. No one has stated whether the official exchange rate has been used in computations or whether it hasn't. If it has, tell me so.

"Mr. MELLEN. I already stated half an hour ago-your mind may have been somewhere else I say that we did give consideration to it and did give some weight to it but we could not give 100 percent application to it.

"Mr. POOLE. Well, I think that goes a long way toward answering the question I had.

"Mr. MELLEN. But it doesn't answer my question directed to you. Why do you assume we did or did not? You just assumed it, in other words. Did anybody tell you that that you talked to in the Research Department or Technical Bureau or anywhere else in our organization?

"Mr. POOLE. I left this conversation I speak of with a very definite impression. "Mr. MELLEN. I am not asking about impressions, Mr. Poole. Did anybody make that statement to you?

"Mr. POOLE. No.

"Mr. MELLEN. Well, you have nothing to base it upon at all. It is only your imagination.

"Mr. POOLE. Well, there are two ways we can leave this: One is that you have considered everything; and the other is, Did you give weight to it?

"Mr. MELLEN. I have stated we did. We went into it very extensively and got much corroboration from a lot of sources that would lay the basis to utterly deny any assumption on your part that we could give 100 percent application to this gray market in foreign exchange or black market in foreign exchange.

"Mr. POOLE. So we say free market.

"Mr. MELLEN. Now get back to your American currency you are talking about that you said had a gold backing. Now explain that to me. What gold backing? As a matter of fact, American currency is merely secured by the national debt, by American Government bonds. Show me a gold certificate today that you can use and go and get gold in exchange for it. So what do you mean by a gold backing? If we had time, I'd love to spend 2 hours with you in that realm. "Mr. POOLE. I'd like to hold that conference at Fort Knox, if I may."

The following is a true and accurate copy of an excerpt from pages 22-23 of the transcript of the special meeting of the Maritime Commission held on February 25, 1949, regarding the application of United States Lines Co. Colonel Butler and Mr. Helmbold, whose testimony appears in the following excerpt, are Col. Hugh D. Butler, then Chief, Research Division, Maritime Commission; and Gerald H. Helmbold, Chief, Bureau of Government Aids, Maritime Commission.

"Commissioner CARSON. Is there today, world-wide, a free exchange market? "Commissioner MELLEN. No. Of course there isn't. "Commissioner CARSON. One other question.

valuation do you place on the pound?

"Colonel BUTLER. $4.03, the official rate.

In arriving at these figures, what

"Mr. HELMBOLD. Which is the only one available to us and the only one we can use in a calculation of this sort.

The

"Commissioner MELLEN. The only one that exists in reality, you mean. little extras are so negligible in value that you could never take them into account, especially in Britain, which is so severely controlled and regulated by the British agencies.

"Commissioner CARSON. What consideration, if any, has been given to the monetary rate, based upon the fact that the United States is exporting dollars to the countries involved?

"Commissioner MELLEN. Is that question directed to me?

"Commissioner CARSON. No.

"Commissioner MELLEN. Because the answer is we are not exporting dollars. We are establishing dollar credits, on the theory that these foreign missions would make use of those dollar credits to buy goods either in this country or elsewhere.

"Commissioner CARSON. If they buy them elsewhere, there must be an exportation of the dollars to do it.

"Commissioner MELLEN. It's only the dollar credits, Joe.
"Commissioner CARSON. I don't understand the difference.

"Commissioner MELLEN. Because in fact you import dollar equivalents unless in fact you do as was the case before the war, where the international trade values were settled by the movement of gold.

"Commissioner CARSON. O. K.

"Commissioner MELLEN. It gets into a labyrinth of economic treaties. "Commissioner CARSON. That's what I thought."

The following is a true and accurate copy of an excerpt from pages 5-8 of the transcript of the special meeting of the Maritime Commission held on February 28, 1949, regarding the application of United States Lines Co. Colonel Butler, whose testimony appears in the excerpt, is Col. Hugh D. Butler, then Chief, Research Division, Maritime Commission.

"Commissioner MELLEN. Colonel, making your computations about comparable salaries or wages paid in a foreign shipyard or British shipyard as against comparable wages that are paid in an American shipyard, wherein in an American shipyard it is based on dollar wages and in British shipyards it is based on the British monetary units, what did your figures show in these papers as to the difference between those, translated on the Government fixed rate of exchange for the pound sterling?

"Commissioner MCKEOUGH. Figured at $4.03.

"Colonel BUTLER. $4.03. That's right.

"Commissioner MELLEN. What did it yield in percentagewise difference? "Colonel BUTLER. Where we were a hundred, they were a little bit more in one case and a little bit less in another, than 40 percent.

"Commissioner MELLEN. Based on a hundred in terms of the dollar wages, when the British wages are translated back into the dollar thorugh the pound sterling value of $4.03, the British wages are then, you say, 40 percent of the American wages?

"Colonel BUTLER. Yes. In the case of shipyard labor it is 38 percent and subcontractor labor 40 percent.

"Commissioner MELLEN. Thirty-eight percent? That is your figure, isn't it? "Colonel BUTLER. They are both pertinent, 38 in one case and 40 in the other. "Commissioner MELLEN. I infer from that recitation that that deals with relative wages on what we call an apparent monetary unit basis. Have you translated that by analysis in making a computation on what the economists call real wages?

"Colonel BUTLER. No. we haven't attempted that. That of course involves this question of productivity.

"Commissioner MELLEN. It involves simply this: To what extent can the Britishers with their pay in terms of the denominations of the pound sterling. when they are paid in that way, what can they buy with that in their home area as against what an American shipyard worker can buy with the dollars? "Colonel BUTLER. I know what real wages are.

"Commissioner MELLEN. I know you understand what I'm talking about-the difference between the apparent and real wages. I must assume that you have not gone into that labyrinth at all.

"Colonel BUTLER. No, we haven't.

"Commissioner MELLEN. That, to my mind, is far more pertinent than appears on the surface.

"Colonel BUTLER, Well, except for the fact that it doesn't bear, in my ouinion, on the cost of building the ship. That is what these boys get.

"Commissioner MELLEN. I don't say that such is the case, but if the Britisher. in terms of dollar equivalent, gets $38 to an American worker getting $100 and if with that $38 in Britain he could buy as much as an American could buy in America with his $100, then there would be no difference in wages, would there-in real wages?

"Colonel BUTLER. Not in the return to the worker.

"Commander MELLEN. There would be no difference.

"Colonel BUTLER. No difference, that is correct.

"Commander MELLEN. I don't say that such is the case, but if it were, there would be no difference in the real wages?

"Colonel BUTLER. That's right.

"Chairman SMITH. You are not talking about the wages. You are talking about the relative cost. Suppose the American operator were building it over there?

"Commander MELLEN. That's right. That is what you have got to compare it with and that is why that undoubtedly contributes somewhat to the disparity between the apparent wages. I don't say that it makes it uphold it. It probably does not, but it does contribute something to a modification of the difference between the apparent wages as against the real wages.

"Commander CARSON. Mr. Chairman, I don't know what the costs are right now, but I know from my own experience that not only are prices over there very high but, in addition to that, there is another angle. There are so many, many things you can't buy. I don't know whether this rationing has ended, but it matters not how much money you had because there was a limit to how many suits of clothes one could buy or how many bottles of Scotch, for instance. Spirits are almost unobtainable there, but a great deal was exported here. The price for a fifth of Scotch was 25 shilling sixpence when I was over there, but you couldn't buy it for that because there was such a limited supply that if you got it at all you'd probably pay double.

"Now you can buy Scotch whisky imported in this country if you takethere are 23 shillings to the pound, aren't there? Well, it would be about $5, wouldn't it?

"Commander MELLEN. Twenty cents to the shilling now, you see. "Commander CARSON. Tobacco is very costly. Cigarettes cost far more there than they do here. and besides, many things that we are just accustomed to every

day are unobtainable there. Anything that is in tin, like canned tomatoes or canned fish or anything like that is awfully difficult to get. It took so many coupons to get it. The one thing that seemed in great abundance was an exceedingly poor grade of apples that were for sale on the street, and brussels sprouts and kale and those hardy greens that will grow in a northern climate like that. It would be very interesting indeed to know the small list of things that are obtainable, and if it's anything that is in tins or packaged similarly, as I remember it, it just costs clear out of sight. That is my only contribution. I think he gets less. I think instead of him having his pounds-I think $4.03 over here will buy more of the things that men like to have than the pound will over there."

The following is an excerpt from a letter, dated August 5, 1948, from Mr. J. F. Curtin of American Export Lines, Inc., addressed to the Commission, confirming certain testimony which he gave at the special meeting of the Maritime Commission held on August 4, 1948. A copy of the letter is included as part of the record of the special meeting of the Maritime Commission held on August 4, 1948.

“Application of these standards of importance to the highest Dutch wage rate in each class produces a weighted average Dutch rate of $0.376, or say 38 United States cents per hour. The official rate of the guilder-$0.377—has been utilized in making the conversion from Dutch currency to ours.

"The guilder is pegged to the dollar. We have heard of black-market speculation in the currency but do not know, of our own knowledge, that it is extensive. It is a certainty that speculation in any black market must entail transfer of the guilder at less than the official rate, because otherwise there would be no object in such speculation. If a lower-than-official rate were used in converting the guilder, the Dutch wages would, of course, have an American equivalent lower than the average we have developed. We have thought it unnecessary to engage in speculation on the point, however, and have made our own conversion at the official rate."

At a special meeting on August 9, 1948, the Commission considered a memorandum dated August 9, 1948, from the Assistant Chief, Research Division, and the Chief, Technical Bureau, regarding the application of American Export Lines, Inc. That memorandum included the following reference to foreign exchange:

"In estimating the foreign cost, data have been taken from various materials and labor surveys of the American bidders and unit prices adjusted where necessary to reflect foreign labor costs. These were obtained from earnings and working hours in the Netherlands, published in the Ministry of Labor Gazette (British), March 1948, and converted into United States cents at the exchange rate of $0.37674 per florin as furnished from the Research Division files. The Dutch average hourly rates were brought up to 1948 base by means of the Netherlands' national base index of the United Nations published in Bulletin Mensuel de Statistique-December 1947, and resulted in an estimated average hourly engineering and shipbuilding wage for the Netherlands of $0.4665 as compared to current United States rate for May 1948 of $1.54 (United States Labor Department, Bureau of Labor Statistics)."

At a regular meeting of the Maritime Commission on November 18, 1948, the Commission had before it a letter dated November 23, 1947, from American President Lines, in which the following two paragraphs appeared regarding foreign exchange:

"It is our observation that ship construction costs in the several foreign shipbuilding centers fall into one or the other of two different categories. One category includes labor at present wage levels and materials at present prices insofar as they come from normal sources. The other category includes numerous and substantial temporary and extra costs, such as those of importing United States steel into Sweden and Italy, of importing coal (for steel making) into France, Holland, and Denmark, of pay for idle man-hours awaiting materials to be allocated in Great Britain, of currency manipulations and controls resulting in apparent high vessel prices in United States money when converted from foreign costs at official rates as in Great Britain and France. A vessel if it could

be built for only a year's service perhaps should bear the temporary costs as they may appear. It is unjustified to pay a vessel price for amortization over 20 years, except as it may be related to the fundamental price and wage levels in a country constituting a normal and natural source of supply, exclusive of the obviously temporary and abnormal, not to say fictitious factors ruling at the moment.

"It is believed that consideration of price and wage levels basic to any foreign shipbuilding center of consequence, when accumulated to cover the cost of shipbuilding (including profit to the builder) and converted at the known real values of the several currencies, will demonstrate that 50 percent is less than the actual construction differential today. Should the temporary and delusive extra costs be included in the Commission's calculations of construction differential, the result would be not only less than fundamental parity with foreign competitors, but also a questionable basis for ship investment pending the dropping away of these temporary extra costs."

APPENDIX 2

OPINION OF RALPH E. CASEY, ASSOCIATE GENERAL COUNSEL, GENERAL ACCOUNTING OFFICE, CONCERNING SIMILAR PLANS AND SPECIFICATIONS

The question in issue is whether, in fixing the amount of a construction-differential subsidy under existing law, the Maritime Commission has authority to increase that subsidy by the cost of the superior standards required of American vessels. It is understood that these so-called superior standards pertain to sanitation, fireproofing, and the like, the example usually cited being the neces sity for larger and more comfortable crew quarters. Moreover, it is understood that most, if not all, of these standards are prescribed by the provisions of United States laws or regulations.

In an opinion dated July 16, 1948, the general counsel of the Maritime Commission has held, in substance, that so long as the Commission in its administrative discretion determines that the plans and specifications are "similar," the subsidy may be increased by the additional cost of the superior features required of a vessel built for American flag operation. This conclusion appears to be based partly upon an amendment to section 502 (b) of the 1936 act, enacted on June 23, 1938, changing the language from "like plans and specifications" to "similar plans and specifications" and partly upon the general philosophy underlying grants of construction-differential subsidies. Upon the basis of the study which I have made of this statute and its history, I am firmly of opinion that the construction placed upon it by the Commission's general counsel is not in accord with the legislative intent.

Section 502 (b) of the 1936 act, as originally enacted, defined and limited the amount of the subsidy to the excess of the domestic bid for constructing the proposed vessel over the fair and reasonable estimate of the cost of constructing the proposed vessel under "like plans and specifications" in a representative foreign shipyard. The word “like” was changed to "similar" by the amendment in 1938. It is, of course, very material to seek out the purpose of this amendment, particularly in order to determine the intended scope of the term "similar.” The amendment actually was proposed by the Maritime Commission itself. In justification of the proposal, the then Chairman of the Commission, Joseph P. Kennedy, testified:

"Similar' should be substituted for 'like' because of the possibility of an undesirably restricted construction of the latter term. If the specifications call for a General Electric turbine, the word 'like' might be interpreted to mean that the foreign vessel used for comparison must be one equipped with a turbine of that particular make, shipped from the United States to the foreign yard, and with duty paid thereon. Such a result was obviously not intended."

In its report on the amendment (Rept. No. 1618, 75th Cong.) the Senate Committee on Commerce commented merely that: "Similar' is preferable to 'like' because of possible unreasonable construction of the latter term, and the substitution is recommended accordingly."

Under the circumstances, it could well be said that the Commission acted with an abundance of caution in requesting the amendment at all, since the strict interpretation they sought to avoid would hardly be a reasonable one. But, in any event, the language change was proposed solely as a clarifying