Mr. Chairman, we know that contentions have been made that Public Law 664 serves as a basis for other countries to justify the imposition of restrictive practices in favor of their own merchant marines and discriminatory against other countries, including the United States. It must be emphasized that foreign discriminations, which apply to commercial as well as to Government-sponsored cargo, go far beyond the principle involved in our cargo-preference law.

The merchant marine of the United States continually is faced with foreign-import controls and currency regulations. Some of these measures are clearly intended to favor national-flag vessels. These discriminations apply to commercial cargo movements and the United States is continually negotiating and working to correct these discriminations. The cargo-preference statute, to some extent, offsets the effect of discriminatory foreign regulations even though it relates only to that small portion of our commerce which is financed by our Government and for which only a 50-percent United Statesflag participation is required.

The Department subscribes to the principle that strictly commercial shipments are international in character and that all carriers, regardless of flag, should have equal opportunity to compete.

We recently estimated, pending complete figures, that in 1955following the passage of Public Law 664 our exports and imports subject to cargo preference represented 5.4 percent of the total exports and imports military cargo excluded. Even of this relatively small portion subject to cargo preference, the Cargo Preference Act contemplates that foreign-flag vessels will share the transportation about equally with the United States-flag vessels.

Obviously, such a fair apportionment of this noncommercial traffic does not constitute an unfair advantage for United States ships to the detriment of foreign vessels. The Cargo Preference Act assures American ships, in their field of operations, limited almost entirely to trade into and out of the United States, of a 50-percent participation at least in the movement of Government-financed cargoes. The problem of maintaining a minimum level of essential United Statesflag shipping services in our foreign trade since World War II has been a difficult one.

The lessons of two world wars teach us that the United States cannot depend upon friendly nations for its essential shipping services. As a matter of fact, during World War II the United States supplied to its allies, under lend-lease agreements, 5%1⁄2 million tons of merchant ships while receiving from our allies the use of some 11⁄2 million tons. Out of our World War II construction program, there was built up a surplus-

The CHAIRMAN. Now, Mr. Rothschild, right there. Of course, it does not mean that these nations were not disposed to help us with our shipping, but it just does not work out that way.

Mr. ROTHSCHILD. That is correct, sir; these are just matters of fact, not of principle.

The CHAIRMAN. Yes. Proceed.

Mr. ROTHSCHILD. Out of our World War II construction program, there was built up a surplus of vessels, large numbers of which were sold to rehabilitate the war-torn fleets of our allies; thereby enhancing their ability to compete in foreign trade. To have our merchant marine in a sound position is important to our friends and our allies,

both in peace and in war. If we should allow our merchant marine to deteriorate in capacity or efficiency, our international trade and our national defense may be in danger.

You have requested, Mr. Chairman, by your letter of April 9, 1956, to the Secretary of Commerce, information from the Department on certain specific points. I will comment on these in the order presented

to us.

First, you inquire as to the Department of Commerce study for the President on direct and indirect subsidies to the merchant marine. We have completed this study and it is being transmitted to the President for his approval.

The CHAIRMAN. Now, I know that your purpose in completing this study quickly and our purpose also, had another facet to it, that we want whatever we are getting to be right up on the table so that everybody knows what the merchant marine is getting, so there will be no question about it. This study would bring that right into focus, would it not?

Mr. ROTHSCHILD. I would predict, Mr. Chairman, that you would be very happy with the kind of study that has been done in this

instance.

The CHAIRMAN. Because there has been some testimony in not only this hearing but other hearings, that there has been some tendency to hide what the merchant-marine subsidies are, and we want to dispel that once and for all.

Mr. ROTHSCHILD. Well, this study goes very thoroughly into all phases of aid to the merchant marine and lays at rest any criticism that may have been directed on the basis of hiding anything in the past.

With respect to cargo-preference aid in relation to other forms of aid to the merchant marine, available or suggested as alternatives, we do not find any adequate substitute for getting the cargo, which is the heart and core of the ocean-shipping business. Examination of alternatives indicates that they, in fact, would be indirect aid as contrasted with the direct benefit arising from cargo-preference laws.

Suggested substitutes, such as subsidizing the American owner for rate reductions made to obtain cargo, payment to the American owner of profit which he would have obtained under cargo preference, or payment to the American owner of a subsidy equal to the difference between a fair United States-flag rate and the current market rate of foreign-flag vessels, all involve complicated administrative requirements likely to be insurmountable and likely to give results less satisfactory, more costly to the United States, and harmful to the American merchant marine, without appreciable benefit to the Government export program.

With respect to operating-differential subsidy, its extension would affect adversely many vessels of United States registry. Liner vessels, which are now receiving operating subsidy aid, will suffer a reduction in revenue to the extent that their share of the Governmentcreated cargo is reduced. Tramp vessels, likewise, even with operating-differential subsidy, would obtain a smaller proportion of the Government-generated cargo. To maintain full employment they would be compelled to compete with foreign-flag tramp vessels for tramp cargo moving in the United States foreign commerce which under certain conditions may not be available in adequate quantities

for all vessels. If tramp vessels of United States registry are unable to obtain enough employment in the United States direct trades, they will be compelled to search for cargoes moving between foreign countries, or request transfer to foreign flag.

You next inquire as to the effect of Public Law 664 in maintaining a strong merchant marine and as to what proportion of liner and tramp operation would be in jeopardy if the law were rescinded.

Pressure of existing economic factors in international trade and shipping as well as the natural urge of foreign governments to favor their own shipping where programs of interest to them are involved, will, in the absence of the influence of the cargo preference law, make it very difficult for American flag vessels to compete. Steamship companies have testified that without the cargo preference provisions many of their ships would be withdrawn from service. It should be noted also that uncertainty as to continued application of the permanent cargo preference law-Public Law 664-has hampered ship replacement programs of United States-flag operators carrying substantial quantities of preference cargo.

Before enactment of Public Law 664 under the then existing cargo preference provisions of law-years 1953 and 1954-total dry cargo and tanker cargo movements subject to cargo preference comprised about 10 million tons, with United States-flag vessels carrying 5 million tons. The preference cargo shipped outward by all flags was equivalent to 10.7 percent of liner exports, 10.8 percent of tramp exports, 2.4 percent of tanker exports, and represented slightly over 9 percent of our total exports exclusive of military cargo. If compared to our total export and import during the 2-year period, this preference cargo represented somewhat over 3 percent of the total cargo military excluded.

Preliminary figures for the year 1955 show a total movement of preference cargo nearly equivalent to the total in the 2-year period, 1953-54. Liner exports of preference cargo in 1955 amounted to 2,655,000 tons, about equal to the annual average during the years 1953-54. As to tramp exports subject to cargo preference during 1955, preliminary figures indicate they total 6.2 million tons, 40 percent more than the total for the previous 2-year period.

In the absence of final data showing the total liner and tramp exports in 1955, it is impossible to give a completely accurate figure as to what proportion of our exports are subject to the preference cargo law. It is estimated, however, that liner exports subject to cargo preference may be slightly higher than the 1953-54 percentage which was, as previously stated, 10.7 percent. The tramp exports subject to cargo preference may also be somewhat higher than the percentage in the years 1953-54, which was stated above to be 10.8 percent.

Earlier in this year we estimated that the preference cargo carried by United States-flag tramp operators in 1955 would run up to 78.5 percent of their total outward carryings. The latest indications are that the 1955 figures may show an even greater proportion of preference cargo.

It is true that of the preference cargo carried in 1955, part of such cargo would be attributable to the Mutual Security Act 50 percent clause and to the preference provision of Public Resolution 17, 73d Congress.

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Public Resolution 17 was, of course, reaffirmed by Public Law 664. Even if the movements otherwise covered by the other acts were deleted from consideration, it may be estimated that in 1955 over 3 million tons of cargo were subject to Public Law 664, of which United States vessels obtained about 1,635,000 tons.

You further inquire as to benefits resulting from cargo preference which redound to the merchant marine and the Nation from the $3 million tramp differential under title I of Public Law 480, as set forth by the Department of Agriculture as an expense to the agricultural program.

Assuming the correctness of this rate differential of $3 million, we believe that that expense is overbalanced by the benefits of having United States flag vessels participate in the programs.

It appears that the vessel employment situation in 1955 resulting in the existing tight market would have been accelerated without the available United States-flag vessels to carry portions of the program cargoes. It is likely that the extra freight paid to foreign vessels could have exceeded the actual freight paid by $1, $2, $3, or more a ton. With over 2 million tons shipped by Agriculture in 1955 on tramps, it is quite possible that the $3 million extra freight on American tramps prevented a market situation where, without such tramps, a greater excess would have been paid to foreign-flag vessels.

Estimates indicate that the preference cargo provided employment for a total of some 590 outward voyages. This is equivalent to maintaining in operation throughout the year almost 100 vessels employing over 4,000 officers and seamen. This represents a substantial contribution, both for commercial and defense purposes by keeping vessels in operating condition and trained crews available. Benefits also go to the ship repair, ship supply, and other related industries.

The CHAIRMAN. We might add taxes.

Mr. ROTHSCHILD. I mention that a little bit later, sir.
The CHAIRMAN. All right, proceed.

Mr. ROTHSCHILD. The wages, together with fringe benefits, for 4,000 seamen-including officers over a period of 1 year would total over $30 million. The active employment of the vessels would involve an estimated total outlay in United States channels of trade of around $70 million. The withdrawal of these vessels from service upon repeal of cargo preference would have an adverse effect upon many business activities and upon tax revenues.

Even if these offsetting benefits were limited to the outgoing cargo in the agricultural program, over 25 vessels, with crews and officers totaling over 1,000 persons, would be rendered inactive. The total expenditures involved in the maintenance of this number of vessels is estimated to be almost $20 million.

It is obvious that even partial repeal of the Cargo Preference Act would reduce our reserve of active vessels and seamen, which are very important to our national defense.

You inquire also whether the Department of Commerce would be willing to cooperate with the Department of Agriculture in certifying or determining the nonavailability of United States vessels on a 6-month or a 12-month basis as a device to obviate the necessity for separate determinations for each shipment.

We will, of course, be pleased to cooperate with the Department of Agriculture in making such declarations of nonavailability as may be helpful in expediting shipments under the Agriculture program.

In the light of past experience, it is not believed to be necessary or advisable to issue a general statement that in the absence of United States-flag services, any available ships may be used over a given route during a specified period. At present, any programs financed by Agriculture or other Goverment agency must be checked with the administering Government agency from time to time.

We believe that when an applicant approaches such agency regarding the credit and shipping arrangements scheduled to cover a period of 2, 3, 4 months or longer, then is the appropriate time to give advance indication of any permissible waiver which would be limited to the period in which the shipment is contemplated. This method should avoid misinterpretations or mistakes that might arise through general advance issuance of waiver arrangements. As between Agriculture and Commerce, there is no objection on our part to having an understanding regarding the routes on which United States-flag facilities. are not available to facilitate prompt action at Agriculture, avoiding unnecessary subsequent inquiries, but always with some provision that, if American-flag services become available during the period at issue, appropriate adjustments will be made accordingly.

The CHAIRMAN. In other words, there, the Department feels that a 2, 3, or 4 months' notice to the Department of Agriculture or information to them you can work that out much better than the longer general period?

Mr. ROTHSCHILD. We feel that it would be a much more satisfactory operation, Mr. Chairman, to work it out on a case-by-case basis rather than to have stated in advance that certain-

The CHAIRMAN. And the Department of Agriculture would still have ample time to route their shipments?

Mr. ROTHSCHILD. That is our thinking; yes, sir.

The CHAIRMAN. All right, proceed.

Mr. ROTHSCHILD. The Secretary of Commerce by letter of March 1, 1956, reported in full on S. 2584 to Hon. Allen J. Ellender, Sr., chairman, Committee on Agriculture and Forestry, United States Senate, and recommended against enactment of the bill. Since that time the bill was referred to your committee for consideration. We request, sir, that the Secretary's report of March 1, 1956 together with reports from the Departments of State and Agriculture be made a part of the record of this hearing, if that is deemed appropriate by you. The CHAIRMAN. That will be placed in the record in full. (The above-mentioned document is as follows:)

Hon. ALLEN J. ELLENDER, Sr.,

THE SECRETARY OF COMMERCE,

Washington, March 1, 1956.

Chairman, Committee on Agriculture and Forestry,

United States Senate, Washington, D. C.

DEAR MR. CHAIRMAN: This letter is in reply to your request of July 12, 1955, for the views of this Department with respect to S. 2584, a bill to exempt sales of surplus agricultural commodities for foreign currencies from certain statutes relating to shipping.

The bill would exempt transactions for disposal of surplus agricultural commodities (title I of the Agricultural Trade Development and Assistance Act of 1954, as amended) from the United States shipping provisions of the act of