Senator CAPEHART. IS Mr. Silverman here?
Mr. JARRETT. No, sir.

Senator CAPEHART. IS Mr. Lee here?
Mr. LEE. Yes.

Senator CAPEHART. Can you answer that?
Mr. LEE. That is my understanding.

Senator CAPEHART. Could the matter we are discussing here be handled by a treaty? I mean if we extend to the Canadian ships the right to pick up from one American port in Alaska to another, would they give us the same right in, say, British Columbia? Should they give us the same right?

Mr. BAILEY. Mr. Chairman, I do not know what would result. Senator CAPEHART. Is there any traffic there?

Mr. BAILEY. I think it is fair to say in almost all countries, and I do not know of an exception at the moment, all countries protect their domestic trade to ships of their own flag.

For instance, as the Governor knows, we ran a line down to Australia, and we called first at Sydney and then at Melbourne, but we were not allowed, under the American flag, to pick up business at Melbourne and discharge it at Sydney, and not allowed to pick up business at Sydney and discharge it at Melbourne.

We were allowed to have true international business originating at any port other than a port of the particular country.

Senator CAPEHART. I remember when I flew back last summer from Alaska, I wanted to stop in Edmonton a couple of days, but I was unable to do so because it was against the rules and regulations to stop off at Edmonton for 2 days and then get back on the Northwest Airlines again. At least I was told that.

Can anyone here help us on that? Does Canada have the same rules and regulations and laws in respect to their coastal shipping as we have?

Mr. BAILEY. I understand they do, and that they do in aviation. I have had some telephone calls from the American companies in aviation.

Senator CAPEHART. Can any one here help us on that? Is that true that Canada does have the same rules and regulations?

Mr. SWANSON. I believe I can answer that. That is true. The Canadian laws are almost identical to our laws.

Mr. BAILEY. In other words, the Canadians protect their domestic traffic to their own flag, both air and sea, in the same manner the Americans protect their domestic traffic between two domestic ports to their own flag, air and sea?

Mr. SWANSON. That is correct.

Senator CAPEHART. I understand Port Rupert is the terminal of the Canadian Pacific Railroad.

Mr. BAILEY. There is a terminal at Rupert.

Senator CAPEHART. The thought has been injected into the hearings there might be a lot of traffic from the East and Middle West of the United States by rail through Canada to Port Rupert.

Mr. BAILEY. That would be merely diversion of American traffic between two American ports.

Senator CAPEHART. Under such circumstances, only a Canadian ship could pick up the cargo when it arrived at Port Rupert?

Mr. BAILEY. Between Port Rupert and Alaskan ports, it would be international traffic open to international flags.

Between two Canadian points, it would be Canadian traffic confined to the Canadian flag.

Senator CAPEHART. Then, if a lot of cargo were shipped by rail from Chicago to Port Rupert, an American ship could stop and pick up the cargo and haul it on into Alaska. Is that right?

Mr. LONG. That is correct if it goes in bond.

Senator CAPEHART. Correct if it goes in bond?

Mr. LONG. That is right, but they could not take it unless it did. Senator CAPEHART. They could not take it unless if did go in bond? Mr. LONG. That is my understanding.

Mr. BAILEY. You are talking about a matter of transportation law?

Mr. LONG. That is correct.

Mr. BAILEY. I think there is some question about that. This diversion provision in the law was originally designed so that rail cargo moved from one point in the United States to another point in the United States, which crossed the

Senator CAPEHART. What I am thinking about, I understand that Canadian ships take cargo to Skagway, and then it travels a distance over American soil, and then into Canada. Is that not correct? there not some traffic there, quite a little traffic?

Is

I presume that has been accomplished through virtue of a treaty. Is that correct?

Mr. LONG. A customs decision, sir.

Senator CAPEHART. In other words, we accommodate Canada by permitting them to ship to Port Rupert or Vancouver, then up to Skagway by boat, then on into Canada proper.

Alaska has the problem here of possibly wanting to come through a tip of Canada into Port Rupert, and then get their merchandise into Alaska.

I mean that has been one of the things that has been brought out in these hearings this morning.

You understand I am not an expert on this subject, and I am trying to make a record here that will be fair and equitable and a record that will mean something to any person reading it, and then it might be well that I become educated myself a little.

You do not wish to discuss the merits or demerits of the specific legislation, then?

Mr. BAILEY. No. My objection is addressed to the fundamental policy of protecting American shipping in the carriage of cargo between an American port of origin and an American port of destination.

That is the fundamental principle we are addressing ourselves to. The Alaskan operators are here. On such exceptions as there may be, or local conditions, they are the best witnesses.

It is my understanding that cargo originating in the United States and destined to Alaska is confined to American transportation, and cargo which originates in Canada may move over Canadian transportation in any manner it sees fit.

We have one exception in the law which allows the transcontinental rail lines carrying cargo from eastern to western ports in the United States, where the line necessarily crosses over the Canadian border. And that was the purpose of the proviso in 27 not to invalidate those routes, making it impossible to ship that cargo because the rail line.

crossed over the Canadian border from a point in the eastern United States to a point in the western United States or vice versa.

Alaska came in because it was not expected to go that far north and swing through Canada and Alaska.

Senator CAPEHART. Is the cargo rate from Alaska to Seattle the same as Port Rupert to Seattle?

Mr. SWANSON. Yes, they are.

Senator CAPEHART. Is the freight rate from Chicago to Seattle the same as the freight rate from Chicago to Rupert?

Mr. SWANSON. That is right.

Senator CAPEHART. Then there would be considerable saving in carload shipments to Alaska that went by way of Rupert.

You may have some testimony on that later.

Mr. SWANSON. It would if the steamship rates were lower out of Rupert than out of Seattle.

Senator CAPEHART. Is the steamship rate from Rupert to Juneau comparable with the steamship rate from Seattle to Juneau?

Does any one have that on the end of his tongue? ·

Mr. LONG. The rates are less from Rupert to Ketchikan or from Rupert to Juneau than from Seattle.

Senator CAPEHART. The rate is less, you say?

Mr. LONG. Yes, sir.

Mr. BAILEY. Mr. Chairman, this matter of diverting American traffic and export traffic from American transportation to foreign transportation is not new to us.

For the last 10 or 15 years, the Australians, just as an example, to show you how this works, have had an import tariff in Australia and charge an import duty on the article based upon the cost at the point of origin, plus transportation cost to the port of exit of the country of origin.

That sounds like a very simple matter, as the basis for evaluation for duty, but the effect of it is, and unquestionably it was not a coincidence, the article produced, such as an automobile in Detroit, can be moved across the border for about $25, and it takes the Canadian rail transportation and Canadian steamship line to Australia.

Duty, when it arrives in Australia, is based upon $1,000 for the automobile and $25 for transportation, $1,025 is dutiable base, whereas if it follows American rail lines to the Pacific coast and then American steamship line, you pick up about $300 valuation for rail transportation from Detroit to the Pacific coast and you have a valuation base in Australia of about $1300.

The duty on an automobile which arrives by American transportation in Australia is about $75 or $100 more than an automobile which is diverted across the border and takes the British transportation.

So these are not new problems to us. We have had this up with the Maritime Commission for 10 or 15 years, and the only response that we can get to a complaint of that character is that it is not discriminatory because it applies in all countries. It applies in Europe as well as here. They make these basic tariffs that say it is the cost of the article plus the cost of transportation to the port of exit.

So, there are many ramifications in this. All we are trying to do, as a basic matter, is to protect for the American ships strictly American domestic cargo that originates in the United States and is destined to the United States, and the fact that it passes through some foreign

territory on the way should not result in that traffic being diverted from American ships.

Senator CAPEHART. You stated a moment ago, Alaska is in the same state as Hawaii and Puerto Rico.

How many shipping lines or companies that go to Hawaii; how does the service compare to Hawaii to Alaska?

Mr. BAILEY. I think the Hawaiian service is better. There is one local line that has approximately two and a half to three sailings per week.

Senator CAPEHART. Does anyone know exactly how many different lines, or what sort of service is rendered to Hawaii in comparison to Alaska.

Mr. BAILEY. I think I am perhaps the best witness on that question. Senator CAPEHART. That is why I asked you.

Mr. BAILEY. It varies, of course.

There is one local line, as I say, which has approximately two and one-half or three sailings per week, and there are a number of American lines that cross the Pacific and call at Hawaii en route, and they probably have two or three sailings a week. They can carry Hawaiian traffic and do upon occasion when the oriental cargo is light.

The opportunity to ship to Hawaii is unquestionably very much greater than the opportunity to ship to Alaska, and the volume of business is completely different.

Senator CAPEHART. Is there more volume to Hawaii than to Alaska?

Mr. BAILEY. Very much more.

Senator CAPEHART. What is the population of Hawaii?

Mr. BAILEY. About half a million.

Senator CAPEHART. Does the same situation exist in Puerto Rico? Mr. BAILEY. I am not as good a witness on Puerto Rico. I would say the service to Puerto Rico is perhaps more frequent than it is to Alaska, but I am not the best witness on that.

Senator CAPEHART. Do you have any opinion at all as to whether Alaska is receiving good or poor service?

Mr. BAILEY. I am not intimately acquainted with that. I think it is fair to say they have had, since the war, very great problems to solve, and I do not think those problems have all been solved.

I think the Alaskan operators would be the first to tell you that, but they are struggling with them today.

Congress passed an act to give them some relief in the reestablishment of those services, but it would certainly be discouraging, and I think it would defer the day when we would get proper American flag service to Alaska if we divided the traffic with any foreign flag line. Senator CAPEHART. You may proceed.

Mr. BAILEY. Vessels employed in the domestic trades of the United States are the most valuable ships for national defense and have always been the first vessels so utilized in an emergency. Due to their continual presence in home waters and therefore their ready availability, the Army and Navy have placed great dependence upon the use of these vessels for logistical support. To the extent that the passage of either of these bills would be a deterrent to the development of American shipping in the Alaskan trade and a discouraging indication of the weakening of the national policy to American shipping in the domestic trades, it would have a serious effect on national defense.

Without laboring the point, may I just quote to you a few brief paragraphs from a statement made last week by the Secretary of the Navy in his appearance before the Committee on Merchant Marine and Fisheries of the House of Representatives, in which he urged the building of additional ships for military support.

Mr. Sullivan said, and I quote:

Certainly the armed services are in no need of arguments to be convinced of their heavy dependence upon a strong and well-balanced merchant fleet in time of war. If ever proof of this fact were needed, it has been supplied in ample measure by the events of the recent war. * * *

All will agree that nothing has developed in the short interval since VJ-day to indicate that our military forces will have any lesser need for the aid of merchant ships in any emergency which our generation may be called upon to face.

It follows, therefore, that the merchant marine must continue to be viewed as a vital auxiliary of the Armed Services. Moreover, until the condition of world affairs becomes better stabilized than it is at present, the formulation and adoption of any policy relating to the merchant marine must be based primarily on the improvement of that asset as a component of national security. As such it must be subjected to the same critical scrutiny and inspection for readiness to undertake a wartime task as that with which the Army, the Navy, and the Air Force are constantly being studied and checked.

We shall also leave to the Alaska operators the opportunity of explaining to you the immediate effect upon their business and upon American shipping operations in Alaskan waters of the breach of the coastwise laws of the United States as contemplated in the two bills under consideration.

We desire, however, to say that we believe it would be most unwise. to take this action, which would retard the development of American shipping services to Alaska and might be an initial step in undermining and weakening the coastwise laws of the United States, which are of critical importance to American shipping, to American commerce, and to the national defense.

We, therefore, very respectfully but very earnestly urge your committee not to approve bills S. 1834 and S. 2092.

Thank you very much.

Senator CAPEHART. The next witness is Mr. George W. Morgan.
I understand you have just a brief statement, Mr. Morgan.
Mr. MORGAN. Very brief, sir.

Senator CAPEHART. You may be seated and proceed in your own

way.

STATEMENT OF GEORGE W. MORGAN, PRESIDENT, ASSOCIATION OF AMERICAN SHIPOWNERS, NEW YORK, N. Y.

Mr. MORGAN. I have a letter here.

Senator CAPEHART. Do you wish this printed in the record?
Mr. MORGAN. If you please, sir.

May I just say that my name is George W. Morgan, and I am an attorney at law, and I am president of the Association of American Shipowners.

Senator CAPEHART. May I ask what the difference is between your association and the one that Mr. Bailey represents, the National Federation of American Shipping, Inc.

Mr. MORGAN. We are both independent associations of shipowners. My group is composed of 14 steamship companies.

I would be glad to submit a list of the names.