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in any instance, said materials are being transported for military or naval and not for civil use.
If it be administratively determined that the transportation of materials for the construction of the cargo vessels authorized by the Act to Promote the Defense of the United States and the Defense Supplemental Appropriation Act, 1941-the principal purpose of which acts appears to be the rendering of direct aid in resistance to military aggression-involves transportation for civil rather than military or naval use, the administrative certification will be accepted by this office as prima facie correct in connection with payment for such shipments without deduction for land grant.
Comptroller General Warren to the Chairman, U. S. Maritime Commission, August 15, 1941:
I have your letter of August 2, 1941, as follows:
As you know the Commission is presently engaged in an extensive ship construction program for the construction of 312 emergency type cargo vessels under Public Law 5, 77th Congress, 1st Session, approved February 6, 1941, and the Lend Lease Act. Expansion of this program is probable.
The emergency type vessels are being constructed pursuant to Public Law 5, whereby the Commission is authorized to provide "as rapidly as possible cargo ships essential to the commerce and defense of the United States," and pursuant to the Lend Lease Act and appropriations thereunder (Public Law 11 and Public Law 23, 77th Congress, 1st Session, approved March 11 and March 27, 1941, respectively) whereby the Commission is authorized to manufacture and procure cargo vessels defined as "defense articles for the Government of any country whose defense the President deems vital to the defense of the United States." In order to carry out this program with the speed expressed or inherent in the respective statutory authorizations, the vessels in question are of identical design and are under construction in emergency shipyards owned by the Government in various parts of the United States. Further in the interests of speed, efficiency, and economy the Commission has deemed it desirable to procure and provide, by contracting directly or through an agent, for the manufacture of the greater part of the materials and equipment for use in the construction of the emergency type vessels. Under this procedure as materials and equipment are needed by the various shipyards they are shipped to such yards under Government Bills of Lading. At the time of shipment such materials and equipment are property of the United States. The quantity of materials purchased directly by the shipbuilders or on an f. o. b. destination basis is relatively small.
Obviously, large expenditures must be made by the Commission in payment of transportation charges and the probable extent of such expenditures must be determined as accurately as possible in order to provide for proper allocation of funds in the Commission's budget. Under present circumstances, however, it is extremely difficult to ascertain the extent of the funds necessary to allocate from time to time on account of such charges. Due to the withdrawal of ships from intercoastal trade and due to the fact that the urgent needs of the shipyards frequently require rail shipment even if water carriage were otherwise available, a reasonable anticipation of transportation charges is particularly difficult with respect to iron and steel, and their products, in view of the extreme differential prevailing between rail and water rates on such items. In this connection, the Commission, through its Director, Emergency Ship Construetion Division, has been requested by the Office of Price Administration and Civilian Supply to authorize that agency to represent the Commission's views with regard to securing the agreement of the railroads to reduce their commercial rates on iron and steel, and their products, and also to consider negotiating a rate under Section 22 of the Interstate Commerce Act for shipments of Government property not subject to land grant reduction. In view of the large quantity of freight moving under the emergency ship construction program, the Commission has indicated accord with the general aims mentioned above and is interested in an early determination of the problems involved. We have been advised by the Office of Price Administration and Civilian Supply, however, that while the Transportation Act of 1940 abolished land grant deductions with respect to Government property, the railroads have expressed unwillingness to reduce their commercial rates so long as there is any doubt
as to the application to Maritime Commission property of the exception contained in Section 321, Part II, Title III, of the Transportation Act which leaves in effect land grant rates so far as concern the shipment of "military or naval property of the United States." The applicable portion of said section reads as follows:
"SEC. 321. (a) Notwithstanding any other provision of law, but subject to the provisions of sections 1 (7) and 22 of the Interstate Commerce Act, as amended, the full applicable commercial rates, fares, or charges shall be paid for transportation by any common carrier subject to such Act of any persons or property for the United States, or on its behalf, except that the foregoing provision shall not apply to the transportation of military or naval property of the United States moving for military or naval and not for civil use or to the transportation of members of the military or naval forces of the United States (or of property of such members) when such members are traveling on official duty;
The doubt in this case appears to be predicated upon the unquestioned fact that the vessels for which the materials and equipment purchased by the Commission are to be used, are being constructed as part of the Government's emergency National Defense Program.
The work under the Commission's emergency cargo vessel program was commenced pursuant to authorization by the President with funds allocated or authorized under the emergency fund for the President contained in the Military Appropriation Act (Public No. 611, 76th Congress, approved June 13, 1940) which Act provides, in part, with respect to said fund, as follows:
"To enable the President, through the appropriate agencies of the Government, without reference to section 3709, Revised Statutes, to provide for emergencies affecting the national security and defense and for each and every purpose connected therewith, including all of the objects and purposes specified ander any appropriation available or to be made available to the War Department for the fiscal years 1940 and 1941; the furnishing of Government-owned facilities at privately owned plants;
Funds allocated under said emergency fund were used in financing the construction of shipbuilding facilities essential to the construction of the vessels. Public Law 5, under which 200 of the 312 emergency cargo vessels are being constructed, appropriates sums which by the terms of the Act are, in addition to the foregoing, necessary under a program of $350,000,000 to provide for the facilities and the construction of the ships. In this connection the President, in a message to Congress on January 16, 1941, said:
"Because of the urgency of the situation, and after consultation with the Office of Production Management with respect both to the necessity for immediate action and to the coordination of this ship construction with other phases of the national-defense program, I have already allocated to the Maritime Commission the sum of $500,000 from the emergency fund for the President contained in the Military Appropriation Act, 1941, and have authorized the Commission to enter into contracts for these purposes to the extent of $36,000,000 under the contractual authority contained in said appropriation."
Irrespective of the possible subsequent disposition of these vessels the materials and equipment destined for use in their construction are at no time in the custody or control of the military or naval establishments of the Government. Accordingly, it seems a determination that such materials and equipment are "military or naval property" must be based upon the broader ground that but for the existence of emergencies affecting the security and defense of the United States the program would not have been launched.
In general, the classification of the component materials and equipment for the 112 emergency type vessels being constructed under the Lend Lease Act, as "military or naval property of the United States," is governed by the same considerations prevailing with respect to the 200 vessels being constructed pursuant to Public Law 5.
In view of the use of the words "military or naval" in connection with the transportation of members of the military or naval forces of the United States in said Section 321 of the Transportation Act, 1940, the Commission inclines to the view that by parity of reasoning, "military or naval property" should be confined to property in actual use or custody of the War or Navy Departments. However, since the vessels in question are being constructed solely because of emergencies affecting the security and defense of the United States, and since the applicable legislation was designed to further the ends of national defense from the point of view of military and naval preparedness, the Commission
believes that there exists sufficient doubt in the premises to ask for a determination of the question by your office.
In view of the resultant appropriation saving in the event land grant rates are applicable to this freight, and the possibility of a favorable conclusion to the aforementioned negotiations pending between the Office of Price Administration and Civilian Supply and the rail carriers in the event land grant rates are not applicable, it is respectfully requested that we may receive your decision at an early date.
It is understood from the foregoing that the question presented relates to the right of the United States to deduction for land grant from commercial transportation charges on shipments of iron and steel, procured by the United States Maritime Commission for the construction of certain cargo vessels, 200 of which are to be constructed under authority of the joint resolution approved February 6, 1941, Public Law 5, 55 Stat. 5, making an appropriation to the Maritime Commission for emergency cargo ship construction, and the remainder, 112 cargo vessels, under authorizations made pursuant to the Act to Promote the Defense of the United States, approved March 11, 1941, being Public Law 11, 55 Stat. 31.
It is noted you state that the materials and equipment destined for use in the construction of these vessels are at no time in the custody or control of the military or naval establishments of the Government and that the Maritime Commission is inclined to the view that the term "military or naval property" as used in the Transportation Act of 1940, 54 Stat. 898, should be confined to property in the actual use or custody of the War or Navy Departments, but that doubt in the matter exists by reason of the unquestioned fact that the vessels concerned are being constructed solely because of emergencies affecting the security and defense of the United States and pursuant to legislation designed to further the ends of national defense from the point of view of military and naval preparedness.
In connection with the considerations so advanced it will be observed that the provisions of the Transportation Act of 1940, prescribing exemption from the requirement for the payment otherwise of the full applicable commercial rates and charges for or on behalf of the United States, relate in terms to "military or naval property of the United States moving for military or naval and not for civil use" [italics supplied]. There is no specific limitation of such exemption to property in the custody or control of the War or Navy Departments; and if military or naval property belonging to the United States is transported for military or naval and not for civil use, it is not apparent why deductions for land-grant, if otherwise available, are not required to be made. That military purposes may be served by construction under the direction or control of departments other than the War and Navy Departments seems sufficiently manifest from the provisions of the Emergency Relief Appropriation Act, fiscal year 1941, 54 Stat. 611, making appropriation of
$975,650,000 to the Work Projects Administration, and containing a provision for the use, by the Commissioner of Work Projects, of not to exceed $25,000,000 of the sum so appropriated to supplement amounts authorized for other than labor costs in connection with projects certified by the Secretary of War and the Secretary of the Navy, respectively, as being important for military or naval purposes. See in this connection 20 Comp. Gen. 438. See, also, in this connection, Public Law 166, approved July 11, 1941, 55 Stat. 584, which amends section 1 of the Act of January 28, 1915, 38 Stat. 800, so as to provide that the Coast Guard, which operates usually under the Treasury Department in time of peace, "shall be a military service and constitute a branch of the land and naval forces of the United States at all times."
Concerning the construction of the 200 vessels under the joint resolution of February 6, 1941, supra, it is noted that said act appropriated funds "for the purpose of providing as rapidly as possible cargo ships essential to the commerce and defense of the United States," said funds to be available for the construction of "oceangoing cargo vessels" of such type as the Maritime Commission may determine to be useful in time of emergency "for carrying on the commerce of the United States." In the report of the Committee on Appropriations, House of Representatives, relative to this resolution (Report No. 10), it is stated on page 2:
The necessity for the emergency construction of these cargo ships arises from the depletion of the reserve tonnage of American registry due to a number of causes and the facing of a problem of having sufficient cargo ships for the needs of American commerce. The committee was advised that every ship left in the reserve fleet is up for sale or charter or will be disposed of soon. The demand for ships exceeds the supply.
Similarly, the report of the Senate Committee on Appropriations (Senate Report No. 7) in connection with this resolution states:
The immediate need for the emergency construction provided for in this joint resolution is due to a possible world shortage of cargo vessels, the depletion of our reserve fleet and the additional demands for American ships for use in the avenues of commerce that are still open to them, which demands exceed the supply."
As further indicating the expectation that these ships would be devoted primarily to purposes of commerce rather than of war, there have been noted the views expressed in the following excerpts from the hearings before the subcommittee of the Committee on Appropriations, House of Representatives, in connection with this legislation:
Admiral LAND. This particular appropriation covers 200 ships.
Mr. JOHNSON of West Virginia. What are you going to do with them?
Mr. LUDLOW. Would they be held in reserve for any particular purpose, Admiral?
Admiral LAND. I would say they would be held in reserve for the transportation of American commerce. Where they would be operated it would be useless for me to attempt to predict, because these ships will not be available for some time. The first ship, we estimate, will be completed in 11 months after the date of the contract, and the total program will be completed in 24 months after the date of the contract.
Mr. CANNON. What comparison is there in need and circumstances and purpose, as between these ships and the wooden ships built during the World War?
Admiral LAND. I do not think there is any proper basis of comparison between these and the wooden ships, because these are so far superior to the wooden ships, in carrying capacity and other ways.
Mr. CANNON. Are they being asked for the same purpose?
Mr. LAND. I would say, generically they are, with this modification. The wooden ships and the concrete ships in the last war were built for what is generically known as the bridge of ships between here and Europe. There is no such purpose in this, as far as my knowledge goes. There were some 2,300 vessels built for this bridge of ships, and here we are talking about 200 ships. There is no comparison.
Mr. CANNON. They are not being requisitioned for the same purpose? Admiral LAND. No; as far as my knowledge goes they are for American commerce."
Mr. LUDLOW. Will they be used exclusively for American commerce, or will they be used in cooperation with Great Britain?
Admiral LAND. They would be more for the transportation of American commerce. As I have indicated, there is a probable use for them in the intercoastal and domestic trade, in which they would be superior to what we have now. As to what may happen to them after that, I would not want to prophesy.
With respect to the Act to Promote the Defense of the United States, approved March 11, 1941, 55 Stat. 31, and the Defense Aid Supplemental Appropriation Act, 1941, approved March 27, 1941, 55 Stat. 53, under which it is understood the remaining 112 vessels are being constructed, it is noted that under the former the Secretary of War, the Secretary of the Navy, or the head of any other department or agency of the Government, may be authorized by the President to manufacture or procure, to the extent funds are made available therefor, and to sell, transfer title to, lease, lend, or otherwise dispose of any defense article to the government of any country whose defense the President deems vital to the defense of the United States. The term "defense article" is defined in said act as meaning, among other things, "Any weapon, munition, aircraft, vessel, or boat" and "Any agricultural, industrial, or other commodity or article for defense."
In the report of the Committee on Foreign Affairs, House of Representatives, concerning this measure (Report No. 18), it is
It should be noted that the term "defense article" includes not only all arms, munitions, and implements of war, but also other articles or commodities such as cotton, wheat, and all other agricultural products which may be necessary for defense purposes.