Specifically, we recommend the following congressional action:

1. To encourage the development of U.S. domestic petroleum resources and refineries, Congress should enact legislation which would: (a) Repeal the present 22 percent depletion allowance from taxable income on oil extracted from foreign sources and (b) eliminate the credit from U.S. taxes for taxes paid to foreign governments on income from foreign operations of U.S. oil companies.

2. The performance of the oil industry in meeting its obligation to supply the energy needs of the American people at reasonable and competitive price levels should be reviewed by Congress to determine whether or not the oil industry is not in fact a public utility and therefore subject to interstate regulation by the Federal Government, as are other public utilities.

3. At the present time, there are no U.S. flag tankers regularly engaged in carrying imported oil from foreign sources to the United States. To end America's dual dependency on foreign sources and foreign transportation for U.S. oil and oil products, Congress must legislate a guarantee that a fair share of all imported petroleum cargoes be carried in U.S.-Flag ships. Such legislation would guarantee the development of an American tanker capability that would be in the best interests of the national security, the economy, and a more favorable balance-of-payments position, and would result in the generation of thousands of jobs in the construction and operation of such a fleet.

Mr. Chairman, I thank you and the committee for your patience in hearing this at this late hour of the day.

Mr. BURKE. Thank you, Mr. Moody.

Mr. Duncan.

Mr. DUNCAN. Thank you, Mr. Chairman.

Mr. Moody, I thank you for a very excellent statement.

What is the size of our merchant fleet at this time?

Mr. MOODY. The latest figures I saw, Mr. Duncan, are that our entire merchant fleet numbered about 630 ships.

Mr. DUNCAN. Do we have some international companies, American companies, that have more ships under foreign flags than they do under American flags?

Mr. MOODY. Yes; that is quite true.

Mr. DUNCAN. What kind of companies are those?

Mr. MOODY. The multinational oil companies own the world's largest foreign flag tanker fleets. These companies may have a few U.S.-flag ships, but their fleets are largely foreign flag.

Mr. DUNCAN. Why have they registered those ships under foreign flags?

Mr. MOODY. We say, Congressman Duncan, that it is for the purpose of evading U.S. taxation, U.S. safety laws, the payment of wages at the American standard to American crews; that is about the sum of it. Mr. DUNCAN. Has the number of ships under American flags been on the decrease in recent years?

Mr. MOODY. The number of ships under American flags has been on the decrease in recent years.

Mr. DUNCAN. Have American-owned ships under foreign flags been increasing?

Mr. MOODY. That is right.

Mr. DUNCAN. I like your proposal, on the face of it, of waiving the fee on oil imports carried on American-flag tankers. Do you have an idea what it would cost in dollars if the fee were waived? I imagine it would be hard to determine how much it would cost.

Mr. MOODY. Mr. Klausner tells me that he estimates that in 1980 it would amount to about $200 million. What I think we really should bear in mind, however, is that we have the offsetting factor of the taxes that would be generated by the great number of American jobs

that would result from bringing into being a real American transportation capability in this field and the offsetting factor that we would be able to rid ourselves to a great degree of this dual dependency on foreign sources for both the source of energy and the transportation without its costing the American consumer any more money. Under our present policies, the consumer is getting gouged two ways: He is getting gouged for the higher price of the oil. He is also getting gouged by, in effect, paying the taxes of the oil companies.

Mr. DUNCAN. As I stated, I don't know all the details on your proposal, but on the face of it it seems to me to be one of the best suggestions that has been offered to this committee. I thank you for your contribution here today.

Mr. MOODY. Thank you, Mr. Duncan.

Mr. BURKE. Mr. Karth, do you care to inquire?

Mr. KARTH. Mr. Chairman, I have just one quick question.

I guess there is no argument, Mr. Moody, that the energy crisis is going to continue to worsen. I notice on the second page of your statement you tie the energy crisis directly to the dollar crisis and thereby have suggested or stated rather emphatically that as the energy crisis escalates the dollar crisis will worsen.

So, I suppose if your figures are accurate, that is, the suggested numbers of imports in the field of oil alone, and other energy-producing materials, that we could expect a third devaluation of the dollar, and perhaps even more. Is that what you are suggesting? Mr. MOODY. I think that could very likely be the result.

Mr. KARTH. All other things remaining equal.

Mr. MOODY. That is right. That is the result as we see it.
Mr. KARTH. Thank you very much, Mr. Chairman.

Thank you, Mr. Moody.

Mr. BURKE. Mr. Archer will inquire.

Mr. ARCHER. Mr. Moody, I am curious how we are going to get lower cost energy if we force the use of ships that are more expensive to carry the oil back to this country from overseas. How is that going to benefit the consumers in this country if the shipping costs are increased to the companies that are importing the oil into this country?

Mr. MOODY. First of all, we have suggested what we think is a reasonable way to offset what is really a slight increase in the difference of carriage between U.S. Flag and foreign flag, but I think the consumer has got to be concerned with whether or not he gets the oil. We are not suggesting anything that is unusual here.

France, for example, requires that 75 percent of its petroleum imports be carried in French-flag ships for the reason that they are concerned, as we should be concerned, with the geopolitical implications of having to depend on foreign-flag ships for the transportation of this vital energy resource from a foreign source.

Mr. ARCHER. Even if the so-called foreign ships are owned by American companies and flying a foreign flag, do you think that they would be in jeopardy of being lost to us from the standpoint of national security?

Mr. MOODY. We don't have a great deal of confidence in a ship that is registered in Liberia or Panama, commanded by an Italian captain and manned by a Chinese crew. As a matter of fact, during the

Vietnam crisis—what you are really talking about is what is referred to by the runaway flag advocates as "the effective control theory"this effective control theory did not really work out in Vietnam because for political reasons at various times these foreign crews refused to sail the ships to Saigon. Consequently, the American merchant marine had to meet almost the entire challenge of the transfer of material to that war zone.

We were able to meet it by bringing out of mothballs a great many overage, unsafe ships that we had to sail in that sealift. As a matter of fact, Admiral Zumwalt has expressed great concern over the national security implications of not having any real American-flag capability in this area.

I would like to direct my comments to one more thing about the cost factor. One of the biggest cost factors in the transportation of petroleum to the east coast of the United States results from the fact that we have no deep water ports that can accommodate very large crude carriers.

Congress is now considering whether as a matter of national policy, and we think as a matter of policy, we should go into a program of construction of offshore deep-water ports so that we can accommodate these very large crude carriers. As you go up the scale in these kinds of ships, from an 80,000-ton tanker to a 250,000-ton tanker, and they are talking in terms of 400,000 and 500,000-ton tankers, when you go up that scale, then crew costs become insignificant to the point that they almost have no influence at all in the price of the transportation of the oil, because you are operating those large ships with about the same size crew with which vou operate the smaller tanker.

Mr. ARCHER. Thank you very much, Mr. Moody.

Mr. MOODY. You are quite welcome, Mr. Archer.

Mr. BURKE. Mr. Moody, how is the merchant marine program going right now? Are we advancing at the scale they predicted a few vears ago when they came out with the proposal to build 300 ships, I believe, over a 10-year period?

Mr. MOODY. Congressman Burke, the Merchant Marine Act of 1970 really gave us what we at the time advocated, has given us the kind of guidelines and has extended to all segments of the American merchant marine the kind of Government support that we really believe has turned the thing around.

We think we are on the uphill grade now. We think we have bottomed out.

In terms of the number of ships that are being constructed as envisioned by the 1970 act, we are not building the number of ships that the 1970 act projected.

Mr. BURKE. That is what I mean. Are they building the ships that they projected at that time, or are we back where we were?

Mr. MOODY. No, we are not building the number of ships that were projected, but we are building the tonnage that was projected. You see, this energy crisis has forced us into some shipbuilding that I don't think we really foresaw in 1970. We should have foreseen it, but we didn't.

That program projected 30 ships a year for the next ten years, which would have produced 300 ships. But a good part of our construction subsidy has been placed in bulk carriers, petroleum carriers, and also

in liquified natural gas carriers, with the result that we have not achieved the 30-a-year goal.

I was trying to bring from the back of my mind the figure of ships now contracted for. It escapes me at the moment. I will be happy to supply it for you.

Mr. BURKE. What I am getting at is that they really have not reached the goal that they predicted back when the 1970 act was passed, that they would be building 30 ships a year.

What is it around 16 or 17?

Mr. MOODY. Something like that. The figure that comes to my mind is 18, for some reason.

Mr. BURKE. Have you heard that the subsidy for construction of the tankers might be cut?

Mr. MOODY. I am sorry, I didn't hear the question.

Mr. BURKE. Have you heard anything about a rumor that the subsidies on the construction of these tankers that some of these shipyards are negotiating for now might be cut a bit?

Mr. MOODY. No, I have not. As I am sure you are aware, Congressman Burke, the act provided for a general downgrading of construction differential subsidies.

Mr. BURKE. You have made an excellent statement here. You have zeroed in on some very important problems as far as national security is concerned, depending on the foreign source for the energy and also depending upon foreign-flag ships.

As you pointed out, during the conflict in Vietnam many of these foreign flag ships refused to bring our goods over there. This could be a problem that we might find ourselves in if we don't take some steps to correct that problem right now. Now is the time to do it while we have a chance.

Do you wish to inquire, Mr. Gibbons?

Mr. GIBBONS. No, I don't; but I want to welcome Bill Moody to the committee. I don't think he needs any welcome; we all know him.

Mr. Chairman, I don't want to handicap this man with any further burdens, but he used to be a constituent of mine. He saw the light and left, and came where he could be of greater service.

Mr. MOODY. Thank you, Mr. Gibbons.

Mr. BURKE. We thank you for your contribution.

Mr. MOODY. Thank you, Mr. Chairman.

[The following was subsequently received:]

Mr. Chairman, I appreciate the opportunity to submit this detailed statement for the record.

First, I would like to submit the following table of Federal Income taxes of 18 Major Oil Companies,1 which relates specifically to the portion of my testimony under the heading "Foreign Tax Credit."

1 Source: U.S. Oil Week, August 21, 1972.