Mr. BOYD. That they not be permitted to be used for tanker purposes?

Senator BARTLETT. Yes.

Mr. BOYD. Again, as I understand it, there is a rather large, or there is a surplus of tanker capacity today, and this has been true, historically, for at least the period of the vessel exchange program, and I do not believe we see any reasonable expectation of that situation being changed.

I am also advised that S. 2069 provides a more lengthy amendment to-I am sorry-I can't read his writing-you had better come up and tell me what you wrote.

Senator BARTLETT. You have been partially advised.

Mr. BoYD. This is Mr. Gulick, Deputy Administrator.

Mr. GULICK. Thank you, Mr. Chairman. We wanted to say that S. 2069 does provide for the conversion of tankers in exchange out of the reserve fleet. But by the process of a more lengthy amendment than the one which we propose, which is simply to permit the exchange of tankers and their use as long as they are not to be used in the carriage of petroleum products; that is, as a tanker.

Mr. BOYD. Why do we prefer our amendment?

Mr. GULICK. We prefer our amendment for the reason that we do not believe the language in the bill, commencing on page 2, in section 2, needs all of the conditions set up under the proposed item 9. We would consult with the Secretary of Defense under ordinary procedures.

Under (b) we have no particular brief for a limit on operation of these ships in the domestic trade. We feel that the exchangers should be free to use these converted carriers in the best way possible in order to get the full benefit of their investment.

(c) We would prefer to see the permanent restriction against the use of the ship as a tanker in view of the surplus of tanker ships in the market today.

Senator BARTLETT. In the event of war, for example, when we might use many tankers, you wouldn't probably be bound to adhere to that language?

Mr. GULICK. Correct.

Mr. BoYD. In that situation, if we do not have some sort of an emergency-escape clause, I am certain, Mr. Chairman, that the Department of Commerce would permit a conversion, and then come to the Congress and seek authority ratifying our ultra vires actions.

Senator BARTLETT. I see no particular reason to inquire into this at such considerable depth. I don't apprehend there will be any difficulty in accepting the proposal. I may be wrong.

I should like to ask you, though, Mr. Secretary, at least one further question. I didn't know, before you called it to the committee's attention, that a vessel must be prepared for commercial operations in a shipyard in the continental United States. What is the definition, I wonder, of continental United States?

Mr. BOYD. Well, for present purposes, Mr. Chairman, my definition would run from Key West, Fla., to Point Barrow, Alaska.

Senator BARTLETT. I am not especially concerned-I am sure you won't believe this-with Alaska at the moment, because I don't think we will be in a position for quite some time to perform these services. But I am wondering about Hawaii?

Mr. BoYD. That raises a very real question. I have not had this question raised before. I don't know whether it is a burning issue in any sense.

Senator BARTLETT. I don't know whether it is, either, and I don't know if it will be. Perhaps, Mr. Secretary, you would do this: Cogitate on that and make a written reply to the committee, giving your recommendations whether we should leave the language exactly as it is, or alter it.

Mr. BOYD. All right, sir. That is as to the extent of the continental United States for the purposes of this statute, and what the Department of Commerce thinks about it?

(See letter from Department of Commerce dated July 14, 1965, on p. 33.)

Senator BARTLETT. Right. I don't know whether Hawaii has any commercial shipyard. If they do, I don't think they ought to be excluded by law.

Mr. BOYD. We are opposed to discrimination. That is why we want to take the domestic restrictions out of the amendment on tankers.

Senator BARTLETT. I understand. Thank you very much, Secretary Boyd. I predict to you, Mr. Secretary, there will be days, as you deal with merchant marine legislation, when you long for the simple old times of aviation.

Mr. BOYD. I have the impression that you are not given to exaggeration, Mr. Chairman.

Senator BARTLETT. The next witness will be Harold Logan, Sr., vice president, Grace Line.

STATEMENT OF HAROLD LOGAN, SR., VICE PRESIDENT, THE GRACE LINE; ACCOMPANIED BY HOWARD ADAMS, VICE PRESIDENT, PACIFIC FAR EAST LINES; AND ALBERT E. MAY, ASSISTANT EXECUTIVE DIRECTOR, COMMITTEE OF AMERICAN STEAMSHIP LINES

Mr. LOGAN. Mr. Chairman, for the same reasons the Secretary described, I would like to be flanked by a couple of people: Mr. Howard Adams, vice president of the Pacific Far East Lines; and Albert E. May, assistant executive director of the Committee of American Steamship Lines.

Senator BARTLETT. Their presence has been duly noted.

Mr. LOGAN. We appear here today on behalf of the Committee of American Steamship Lines, an organization comprised of 14 U.S.-flag liner steamship companies which hold operating-differential contracts under the Merchant Marine Act of 1936.

We are here in connection with the Vessel Exchange Act which S. 2069 would extend for another 5 years.

The segment of the industry which we represent, CASL, supported the enactment of vessel exchange legislation in 1960 in order that other segments of the American merchant marine might be able to use some of the remaining life left in the ships which were being traded in as a result of our replacement program.

We still support the exchange legislation for the same reasons. However, the problems which I wish to discuss briefly with you today arise from the impingement of the Vessel Exchange Act program upon

another highly important program of the United States; namely, the vessel replacement program embodied in title V of the 1936 act. The integrity of both of these programs must be maintained to the greatest extent possible. It is the position of the Committee of American Steamship Lines that 5 years of experience with the Vessel Exchange Act have demonstrated certain inequities which requires its amendment if the entire U.S. vessel replacement program, subsidized and nonsubsidized, is to function effectively. These inequities are caused by:

1. Government competition with us in the used private ship sale market.

2. Undervaluation by the Government of our ships upon being traded in and;

3. The Maritime Administration requirement that excessive repair be accomplished on ships before trade-in.

We feel that if the second and third points can be straightened out we can live with the first problem. We have been unsuccessful for many years in attempting to do this through administrative process and ask that this committee assist in the correction of these inequities in order that the intent of the trade-in provision of the 1936 act may be carried out.

Briefly, we would like to see language in S. 2069 which would require the Government to place a fair value, based on the higher of the foreign or domestic price, upon the vessels we are trading in and to follow normal commercial practices regarding the repairs required prior to delivery of the ships in the reserve fleet. By correcting these two pactices we would more nearly approach parity, with our foreign competitors, as set forth by the 1936 act.

CASL companies have contracted to invest approximately $1.8 billion of their own money in the replacement of their war-built fleets. New vessels are costing the owners approximately six times as much as those being replaced, and the added depreciation costs of the new ships is resulting in a net erosion of our companies' assets. In addition, many companies with limited capital resources are forcer to trade in because they need funds at the time they contract for new ships. We respectfully urge that your committee consider correcting these inequities during your deliberation on the extension of the Vessel Exchange Act.

Thank you, Mr. Chairman. We will attempt to answer any questions which you may have.

Senator BARTLETT. Mr. Logan, I want to thank you for appearing before the committee, in company with Mr. May and Mr. Adams. I shall not have any questions, but I want to assure you the committee will give careful consideration to your recommendations.

I believe Mr. Foster has a question.

Mr. FOSTER. Mr. Logan, if you would have available any written amendment that might be helpful to the committee in considering your problems, the committee would like to have it just for the record.

Mr. LOGAN. We would be glad to do that. We have, we think, some simple words here that we will present to the clerk for the record. Mr. FOSTER. Thank you.

(The amendment follows:)

That section 510(d) of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1160 (d)), is amended by adding after the second sentence thereof the following:

"If the market value of the obsolete vessel is different for operation in the foreign or domestic trade of the United States than for operation in the world trade, the higher value of the two shall be used. At the time it is traded in and upon redelivery from use agreement, the obsolete vessel shall be in class under the requirements of the American Bureau of Shipping, free of all outstanding recomemndations and requirements and shall have a U.S. Coast Guard certificate of inspection valid and in force and shall have valid certificates of such other bureaus or agencies, governmental or nongovernmental, as the Secretary shall prescribe consistent with normal commercial practice for the certification of U.S.-flag vessels, such certificates to be free of all outstanding recommendations and requirements. The owner shall have no other repair obligations. A vessel in its American Bureau of Shipping year of grace shall be deemed to be in class, if it is free of all outstanding recommendations and requirements. The market values used in determining the allowance shall be based on a similar type of vessel of a similar age and class position. The cost of deactivation and preparation of the obsolete vessel and its equipment for storage or layup and of delivery of the vessel and its equipment to the location designated by the Secretary shall be borne by the United States."

Senator BARTLETT. Alvin Shapiro, executive vice president, American Merchant Marine Institute, Inc.

STATEMENT OF ALVIN SHAPIRO, EXECUTIVE VICE PRESIDENT, AMERICAN MERCHANT MARINE INSTITUTE, INC., WASHINGTON,

D.C.

Mr. SHAPIRO. Mr. Chairman, my name is Alvin Shapiro. I am executive vice president of the American Merchant Marine Institute. I won't bother to tell you what the American Merchant Marine Institute is, because I am sure you are reasonably familiar with the nature of our organization.

Senator BARTLETT. Yes.

Mr. SHAPIRO. There is rather little for me to say about the piece of legislation before you, Mr. Chairman. I must say I am rather a little bit embarrassed. Five years ago we practically fathered this bill, and we are rather proud of it. If I may, I would like to revert to the hearings at the time the bill was originally enacted, which I described this legislation then under consideration as recognizing the realities about our present day merchant marine and I considered it one that embodies proposals remarkably practical and fair to all parties concerned, including of course the U.S. Government.

It has been just this kind of bill, Senator, in my judgment. I will omit the details and specific provisions of the law which are quite well known and I am sure others will put it in the record.

If I may, however, I would like to refer back again so another point I raised during the course of those hearings 5 years ago, when I said that:

While I cannot claim it will prove a panacea for our maritime problems, to the extent that it is used, and I am reasonably certain that it will be substantial, it will help meet one of our most pressing merchant marine needs, that is of maintaining in active operation more, rather than less, modern vessels.

Those are not quantitative more or less, those are qualitative more or less. It has been this kind of a bill, Senator; 52 vessels have been traded out from the reserve fleet and they are now operating in our present day merchant marine in place of antiquated vessels.

Yard work has been estimated at $100 million. This is $100 million worth of work that in my opinion would never have been pro

duced without this legislation, or very little of it. And the Government got $4 million in cash.

Of course the merchant marine is now using more rather than less modern vessels. I must say I anticipate there will be the same degree of advantage to all parties in the future as has been in the past.

Most of the users of this exchange program have made use of it. Therefore, however, no less than 13 applications and I think there will be more. So there may be in the future a somewhat quantative difference in the advantage of the legislation, but I think the legislation will prove advantageous in the future. For that reason, Mr. Chairman, we advocate that this will be extended.

I would like to comment, if I might, on three amendments, or three suggested amendments somewhat out of turn. I don't want to step on anybody else's territory who is about to follow me.

One is an amendment dealing with the Great Lakes, to make Great Lakes vessels older than war-built vessels eligible for trade-in. Now I have a great deal of doubt about the usability of this amendment by the lake carrier operators. But I think some of them may use it. And I would certainly recommend that they not be barred from this. And that would cover the first amendment which has been offered.

The second amendment you will hear about is one in correcting not an oversight in draftsmanship, but a situation that has arisen subsequent to the passage of the legislation, in which an operator has purchased a subsidized vessel on the open market. He would now like to trade that vessel in for a better vessel than he purchased on the open market. He is barred from trading that vessel in because, while he never operated it, it was, within the last 3 years, operated under subsidy. He would have to wait-he purchased this almost 2 years agohe would have to wait another year under the law.

Now we never intended to preclude this kind of possibility, but we never anticipated this kind of problem would arise. But I think in all equity that amendment, which you will hear about, is a fair one and certainly we would urge its enactment. There has been quite a bit of conversation here about tanker vessels being traded in, traded out, really traded out, opening this program to tank ships, which were precluded from the original law largely because of the military. Obviously if the military have no longer the desire to keep these vessels in the reserve fleet, or some of them in the reserve fleet, I think it is rather fair to bring them out on the basis which has been suggested here and which will be suggested in the future.

But I would like to state one thing for the record: I have grave fears, and I hope nobody misinterprets my remarks-I have grave fears that it is being contemplated to preclude or postpone processing of construction differential subsidy applications for bulk carriers, which are presently on file at Maritime, under the pretense that we had better not process those until we run through the problem of: Aren't tanker vessels available, which can be brought out under the exchange program, and be used in the bulk trades or converted for use in the dry bulk trades?

Now that will give you, by that process, a dry bulk carrier. In my opinion, not a very good one. But at a very minimum, I would like to go on record, Mr. Chairman, as indicating that I would hope that this committee sounds a note of caution that it is not seeking the ex