bill competitive factors with respect to other American flag operators would be minimized by (1) limiting the passengers to round-trip passengers, (2) prohibiting the carriage of mail or cargo, (3) requiring that cruises begin and end at a domestic port on the operator's essential service to which the vessel is assigned, (4) permitting the embarkation of passengers only at domestic ports on the operator's essential service to which the vessel is assigned, and (5) permitting the vessel to stop at other domestic ports only for the time and the same purposes as is permitted with respect to foreign flag vessels carrying passengers who embarked at domestic ports.

The length of time that foreign flag vessels carrying passengers who embarked at a U.S. domestic port are permitted, by the Bureau of Customs, to stop at another U.S. domestic port is indicated by Treasury Decision 55147(19) to be less than 24 hours, with passengers allowed ashore for sightseeing, but are not allowed to stay ashore overnight. In addition to the reduction of competitive factors by the foregoing provisions of the bill, the way the Board would contract under the bill would protect other American flag operators from serious adverse affects. The Board would require in the operating-differential subsidy contract that each specific cruise would have to be approved by the Board. In determining whether to approve a specified cruise, the Board in the discharge of its obligation under the act to promote the entire American merchant marine, would consider whether the cruise would seriously adversely affect any other American flag operator and if it determined that this would be the result, the Board would not approve the cruise.

The bill provides that section 605 (c) of the act shall not apply to cruises. Section 605 (c) provides that no operating-differential subsidy contract shall be entered into with respect to a vessel which is to be operated on a service, route, or line, served by citizens of the United States, which would be in addition to existing services unless the Board, after hearing all interested parties, determines that the existing American flag service is inadequate. The section would not by its terms apply to cruises. We are not suggesting an amendment to make this section applicable to cruises, because 605 (c) proceedings can be so prolonged and costly that this procedure would make impracticable the prosecution of any application for a cruise that would be contested. We think that the bill provides adequate safeguards for all operators without an amendment of section 605 (c).

The bill would add a new section 613 to title VI of the Merchant Marine Act, 1936, which would authorize the Federal Maritime Board to subsidize cruises, subject to the conditions that have been mentioned, if the Federal Maritime Board determines that for the period of such cruises, operation of the vessel is not required in order to furnish adequate service on the service, route, or line to which the vessel is assigned or for which application is made. Operation of the vessel on cruises would be restricted by the new section to not exceeding one-third of each year.

The new section 613 provides that if at the end of a 10-year recapture period, the contractor has earned an average return of more than 10 percent per annum on his capital necessarily employed, he should pay to the United States 75 percent of such excess but not exceeding the amount of operating-differential subsidy paid with respect to such

cruises. This is in lieu of the 50 percent recapture provision of section 606 (5) of the act. If the operator has earned less than an average return of 10 percent per annum, his recapture accounting would be under section 606 (5) of the act.

The bill would amend section 601 of the act (which requires, as a prerequisite to the granting of operating-differential subsidy, a finding that operation of the vessel in a service, route or line is required to meet foreign flag competition and to promote the foreign commerce of the United States), to require a finding that the operation of the vessel in a service, route or line is required to meet foreign flag competition except to the extent the vessel is operated on cruises authorized under the new sections 613. Conforming changes would also be made in sections 602, 603, and 607 (b).

The amendment to section 603 (b) would provide that for the period during which the vessel is operated on cruises authorized by the new section 613, operating-differential subsidy shall be computed as though the vessel were being operated on the essential service to which it is assigned. The reason for this provision is that it would not be practical to make the computation on the basis of direct competition. After reconsideration, however, we have concluded that if the cruise ship calls at a foreign port that is not on its essential service, but which is on the essential service of another subsidized operator who has a lower subsidy rate, subsidy for the cruise should be computed at this lower rate. This amendment to the bill, which we recommend, could be made by (1) striking out of line 4, page 6, of the bill the words "a comma" and all after them down through the word "comma" in line 7, page 6, and inserting in lieu thereof the following: "for the operation of vessels on a service, route or line"; and by inserting in line 14, page 6, before the period. a colon and the following:

Provided, however, That if the cruise vessel calls at a port or ports outside of its assigned service but which is regularly served with passenger vessels (as defined in sec. 613 of this Act) by another subsidized operator at an operating-differential subsidy rate for wages lower than the cruise vessel has on its assigned essential service, the operating-differential subsidy rate for each of the subsidizable items for the period of the cruise shall be at the respective rates applicable to the subsidized operator regularly serving the area.

The bill is an effort to place the operator of U.S.-flag passenger vessels on a more favorable competitive basis with his foreign-flag competitors by permitting him to compete with them for available off-route cruise passengers during the slack season on the regular service of the vessels. Through anticipated improved financial results these operators will be able to further strengthen the future. of the U.S. passenger fleet.

With the amendment proposed, we recommend enactment of the bill.

The Bureau of the Budget advises there is no objection to the submission of this statement from the standpoint of the administration's program.

Senator BARTLETT. Thank you, Chairman Stakem.
Mr. Engle?

Senator ENGLE. I have no questions.

Senator BARTLETT. Mr. Bourbon?

Mr. BOURBON. I would like to ask a few questions.

Mr. Chairman, this bill is designed, is it not, primarily to permit subsidized vessel operators to cut their losses in their off-season by engaging in the very lucrative cruise operations? These cruise operations are pretty big business, aren't they?

Mr. STAKEM. Yes, they are. Í recently saw some figures put out by the Immigration and Naturalization Service; I can't remember the figures, but I was surprised at the number.

Mr. BOURBON. Was it around 145,000 annually, or something like that?

Mr. STAKEM. Something like that, Mr. Bourbon. It is a big business and a lucrative business.

Mr. BOURBON. Most of the people are citizens or residents of the United States who take these cruises out of New York?

Mr. STAKEM. The biggest part of the people are U.S. citizens. Mr. BOURBON. Who is getting most of that cruise business at the present time?

Mr. STAKEM. Foreign-flag ships are getting it at the present time. Mr. BOURBON. They are piling in here at a great rate. As you say, 60 cruises were advertised from New York, for both January and February; is that right?

Mr. STAKEM. Yes, sir. I took the months of January and February of 1960 as indicative of the size of the number of criuses, and I found, in the leading advertisement publication, 80 for each of the 2 months for 1960.

Mr. BOURBON. Actually, aren't we some years late with this type of legislation? Haven't we kind of hogtied our own subsidized line to the advantage of any of these foreign lines that wanted to come over here and skim the cream off this business?

Mr. STAKEM. I agree, Mr. Bourbon, that the legislation is late. We wish that we had had it before the Congress before this time. Mr. BOURBON. And there is no question about it: if more of our people were given an opportunity to cruise on American ships, more of them would cruise on American ships?

Mr. STAKEM. Very definitely. I think the American-flag ships are of outstanding quality and I think that they will be attractive to the touirst public and they will be well received.

Mr. BOURBON. Now, if the one and only purpose of this legislation is to give our lines a chance to be much more fully competitive in this cruise business, why can't we go all the way and permit American vessel operators to be fully competitive? For instance, why shouldn't they carry mail or cargo, to the extent that such carriage does not interfere with their cruising and does not tread on the toes of another American operator?

Mr. STAKEM. Mr. Bourbon, you have me in the same corner that Congressman Downing and Congressman Mailliard had me in yesterday before the House.

I can say to you, as I said to them, the purpose of the language in the bill was to lean over backward not to hurt another American-flag operator in whose territory these cruises may run.

I also told the House committee that we would study this idea of allowing in some circumstances the carriage of cargo and that we would report back to the committee the Board's final position on that. I would like to make the request of this committee that at the time

when the Board restudies this, we would supplement the statement that I am making here today in letter form to the committee of our final position on that.

Senator BARTLETT. We shall await that communication.

Hon. WARREN G. MAGNUSON,

THE SECRETARY OF COMMERCE,
Washington, April 24, 1961.

Chairman, Subcommittee on Merchant Marine and Fisheries, Committee on Interstate and Foreign Commerce, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: At the hearing on S. 677 before the Subcommittee on Merchant Marine and Fisheries, we were asked to furnish our views whether the bill should be amended to authorize vessels on cruises authorized under the bill to carry passengers, mail, and cargo.

After considering this matter, we have concluded that vessels operating on such cruises should be permitted to carry mail, cargo, and passengers between ports on the vessel operator's essential service. We do not, however, believe that this should be extended to other ports.

With respect to the amendment recommended by the Pacific American Steamship Association which would amend the definition of "passenger vessel" in the bill (a) by eliminating the requirement of the new section 613(a)(2) that the vessel "has a designed speed which before the vessel was built was approved by the Board but not less than 18 knots" and (b) by changing the requirement of the new section 613 (a) (4) that the Secretary of Defense approved the vessel as desirable for national defense features before it was built to a requirement that the vessel is of a design and speed approved by the Secretary of Defense as desirable for national defense purposes, we recommend the amendment described in (a) above, and with respect to (b) above we recommend that the requirement of the new section 613 (a) (4) be eliminated rather than be changed. The foregoing changes are desirable in order to qualify the President Hoover, which was built by the Panama Canal Company and not by the Federal Maritime Board, or its predecessors. To require that the Secretary of Defense approve these vessels currently would entail unnecessary administrative expense.

The Bureau of the Budget advises there is no objection to the submission of this report from the standpoint of the administration's program.

Sincerely yours,

EDWARD GUDEMAN, Under Secretary of Commerce.

Mr. BOURBON. It can be argued, can it not, Mr. Chairman, that you are leaning over backward in that language, too, unintentionally I am sure, to make it more difficult for the American ships to realize fully the potential of their cruise business?

Mr. STAKEM. I would rather put in this way, Mr. Bourbon, that we have been under the impression that the attractiveness of the cruises themselves would result in considerable financial success of the particular voyages. I am not informed today as to extent to which the foreign-flag vessels themselves who are engaged in these cruises do pick up cargo and/or mail. We are going to make a study of that to get the most up-to-date information.

This will be part of the supplemental picture which we will submit to the committee.

Mr. BOURBON. I was going to ask that question, whether these foreign ships did operate under any such restriction?

Mr. STAKEM. My impression is that they do not operate under any restrictions, as such, because they are freewheelers in this business. But whether as a matter of practice they engage in the carriage of cargo and mail, I don't know. But we are going to try to find out.

Mr. BOURBON. Now why the severe penalties on the subsidized lines if they add a few extra stops to sweeten their cruises? The purpose, it must be remembered, is to permit the lines to make money on these cruises, and if they feel that stopping at a few points outside of their

regular calls would encourage more people and, again, it doesn't interfere with any other American line, why wouldn't they be able to do that without being penalized beyond the 32 days?

Mr. STAKEM. Let me break that down, too, Mr. Bourbon.

If you are talking about additional calls into foreign ports, there is no limitation except the company's own scheduling as to how many foreign ports could be traveled by a ship on a cruise.

Mr. BOURBON. But there is a limitation if they deviate beyond 311⁄2 days; they lose their subsidy?

Mr. STAKEM. Not on cruises. If a ship is on a cruise, and if this cruise under the language of this bill is approved by the Board, the deviation rule we have would not be applicable.

Mr. BOURBON. I am glad to hear that. I was under a misapprehen

sion.

Mr. STAKEM. On this point, I would like to give an example.

In the contract with the Moore-McCormack Line, they have under their required service, the scheduling of several trips a year in their Scandinavian run. They also have in their required service that they will make one, or no more than two voyages that will go from the United States to South America, to Africa, and then they have an option to either come through the Mediterranean or to return by way of South Africa back to their regular port of call in the United States. Now I want to make a specific distinction between that type of voyage and the cruise that we are talking about in this bill. This is part of Moore-McCormack's required service, and that trip that it makes once or twice a year, in that long area, would not, in my estimation, under the terms of this bill be considered a cruise. It is part of the Moore-McCormack required service.

Mr. BOURBON. On the Scandinavia route you don't require them to have a passenger service, do you?

Mr. STAKEM. They are required, and this is by request of the company who have applied to the Board for the right to make one or no more than four, I believe it is, trips a year with the Argentine and Brasil to Scandinavia on their trade route section. And this has been written into their contract.

Mr. BOURBON. So while it is in the nature, somewhat, of a cruise, you don't regard it as a cruise?

Mr. STAKEM. That is correct. It is not a cruise because it is the required service, and it would not be described as a cruise by the Board within the language of this bill if approved.

Mr. BOURBON, Would there be any reason why the bill could not be amended to take care of a situation like that, if you felt it desir able! After all, you still have the basic problem that you want these passenger ships to be able to make some money, and if you are going to penalize a ship $10,000 or $50,000 for being 4 or 5 days off the route, why it seems to me that you are negating the original purpose of the Commission to let them go up there.

Mr. STAKEM. It seems to me we are talking two different things here. This is not a cruise as such within the language of the bill, and I don't think that you could write language into this bill that would change the service description in the regular operating def ferential subsidy entered into between the company and the United States--at least under this bill.