is suitable, then our public interest requires the next best alternative, which seems to be the existence of American-owned foreign ships that would be available for our military requirements in an emergency. Very truly yours, GEORGE W. MORGAN, President. NOTE.-Tables referred to not enclosed herewith. Mr. MORGAN. I would also appreciate it if our 1952 study on this matter were inserted in the record. Senator BUTLER. It will be so ordered. SHIPPING SURVEY [Vol. 8, No. 1, January 1952] (Association of American Ship Owners, New York, N. Y.) FOREIGN TRANSFERS OF AMERICAN SHIPS A few weeks ago the United States Government filed a libel action against the United States-flag T-2 tanker Meacham, then tied up at Norfolk, Va. The Government asked the court to declare the $2 million ship forfeited on grounds its ownership had been transferred to noncitizens without approval of the Federal Maritime Board as required by law. The tanker was one of a group purchased from the old Maritime Commission in late 1947 by American Overseas Tanker Corp., whose transactions were investigated early this year by the Senate Expenditures Committee. Title to the Meacham was vested in National Tanker Corp., a wholly owned subsidiary of American Overseas Tanker Corp. The Government's allegation is that in 1948, long before the present emergency, all the stock in National Tanker Corp. was transferred to United Tanker Corp.; that the latter company is controlled by Chinese who are not citizens of the United States; and that since prior approval of the transfer by the Maritime Commission was not obtained as required by section 9 of the Shipping Act of 1916, the vessel is forfeited to the United States. It is understood that arrangements were subsequently made for the sale of the Meacham to a buyer whose American citizenship is beyond question and that the proceeds of the sale are being held in escrow pending the outcome of the libel proceeding. The court action to confiscate the Meacham served to focus attention of the maritime industry once again on the cloud that is cast on the title of every American-flag vessel by reason of the special restrictions in the law on sale of such vessels to noncitizen buyers, restrictions not applicable to any other type of property. SECTION 9 OF THE SHIPPING ACT OF 1916 The pertinent provision of section 9 of the 1916 act reads as follows: "Except as provided in section 611 of the Merchant Marine Act, 1936, as amended, it shall be unlawful, without the approval of the United States Maritime Commission, to sell, mortgage, lease, charter, deliver, or in any manner transfer, or agree to sell, mortgage, lease, charter, deliver, or in any manner transfer, to any person not a citizen of the United States, or transfer or place under foreign registry or flag, any vessel or any interest therein owned in whole or in part by a citizen of the United States and documented under the laws of the United States or the last documentation of which was under the laws of the United States." Penalty for violation of this paragraph is forfeiture of the vessel involved to the United States plus a fine up to $5,000 or imprisonment for not more than 5 years, or both. Section 2 of the act contains explicit definitions of citizen and noncitizen corporations, excluding from citizenship any corporation in which noncitizens exercise control either directly or indirectly. Section 611 of the 1936 act, only exception to the sweeping restriction in section 9, permits vessel owners receiving an operating differential subsidy to sell their ships foreign if the United States Government defaults on the subsidy contract. It has never been invoked. The restrictions in the original Shipping Act of 1916 on foreign transfers of vessels were by no means as sweeping as they are at the present time. As first enacted, the paragraph was restricted in its application to times when the United States was at war or during a national emergency proclaimed by the President. It also contained a provision requiring that any vessel proposed to be sold abroad be tendered first to the Shipping Board at the price in good faith offered by others, or at a price agreed upon or determined by three appraisers. The sections relating to valuation in such cases were repealed by the Merchant Marine Act of 1920. The 1916 act was rewritten by Congress in 1918. Only restriction retained in the law at that time was that such vessels, before being transferred to foreign registry, must first be tendered to the Shipping Board on the same terms specified in the 1916 act. However, another revision of section 9 in 1920 eliminated this protection of private property rights and left the paragraph requiring Board approval of foreign sales of United States-flag vessels substantially in its present sweeping form. It should be emphasized that section 9 is applicable in times of peace and normalcy. Another section of the 1916 act, section 37, applies in periods when the United States is at war or a national emergency has been proclaimed. It is more sweeping, requiring Board approval of any sale, lease, charter or transfer foreign, not only of any vessel currently documented under United States laws, but also of any ship being built in United States shipyards. Section 37 became operative when the President declared a national emergency on December 16, 1950. The decision in the Meacham case may throw light on the situation that could easily arise if an American shipowner were to die intestate and if his only heirs-at-law were British or nationals of some other foreign country. It could also resolve serious questions as to the constitutionality of the restrictions in section 9. If the right to dispose freely of one's own property in peacetime is in itself a property right, then why is the owner thereof not entitled to just compensation when the Government takes that right from him? Furthermore, section 9 contains no standards for the guidance of the Maritime Administration in determining whether to approve or deny an application for permission to transfer a ship to foreign ownership. In the absence of such standards, does the section improperly delegate legislative power to the executive branch of the Government? This latter question may have added significance because of the provisions of section 41 of the 1916 act which purports to authorize the Maritime Administration to prescribe conditions upon its approval of a transfer under section 9. Violations of such conditions are made misdemeanors, punishable by fines up to $5,000 or imprisonment up to 5 years, or both. Thus, there seems to be a question whether Congress has not purported to delegate to the Maritime Administration the power to legislate in the field of crimes. The legal problems that are inherent in section 9 were very well summarized by Admiral Land when he was Chairman of the old Maritime Commission. In 1941 he said in a memorandum to the House Merchant Marine Committee: "In administering the section (sec. 9 of the 1916 Shipping Act), the Maritime Commission has borne in mind that the extremely broad power granted to it obviously should be applied judiciously and with great care, in a manner harmonious with other statutes and constitutional guaranties affecting property rights, and that its arbitrary exercise not only would be wholly inconsistent with American principles of respect for rights in the ownership of private property, materially decreasing the value of vessels to their owners, but would tend to defeat the interests of the United States by discouraging private investment in vessels required for the national defense." In that passage from his memorandum Admiral Land pointed to an important economic fact of life, namely, that if private capital is to be induced to invest in private industry, such investment should not be discouraged by restrictive measures. But it also contains a further thought that deserves very serious consideration-the suggestion that so bread a power has been granted by the Congress that the protection of constitutional guaranties lies only in the manner of its administration. That seems to describe government by men rather than government by law. S. 1704 PROPOSES MORE DRASTIC RESTRICTIONS ON FOREIGN SALES A bill now pending in the House Committee on Merchant Marine, already passed by the Senate, would make the restrictions on foreign transfers of United States vessels in section 9 so much more drastic than its enactment virtually would prohibit any further transfers. The bill, S. 1704, is sponsored by Senators Magnuson, Democrat, Washington, and O'Conor, Democrat, Maryland, both members of the Maritime Subcommittee of the Senate Committee on Interstate and Foreign Commerce. S. 1704 would amend section 9 so as to prohibit the Secretary of Commerce from approving foreign sale or transfer of any United States vessel unless (1) the Secretary of Defense certified the vessel was not needed for defense; (2) the Secretary of State certified the transfer would further United States foreign policy; and (3) the Federal Maritime Board determined and certified to the Secretary of Commerce that (a) such vessel is not needed for an adequate United States merchant marine, (b) such vessel would not compete with American-flag vessels after its transfer, and (c) the maritime laws governing manning scales, crew accommodations and safety of the nation of transfer are in accordance with the highest international standards prevailing. Since United States manning, crew accommodation and safety standards are the highest prevailing in the world, and since it can be argued with some reason that any foreign-flag vessel competes, indirectly at least, with the United States merchant marine, the effect of S. 1704 if enacted would be virtually to prohibit any foreign transfer of American ships. Maritime labor unions, whose activities in pushing wages of American seamen far above those of other maritime nations have generated much of the pressure for foreign transfers, have been agitating against such transfers for several years. Their pressure reached a peak in late 1949 and early 1950 when the recession in shipping resulted in many United States vessels being idle and many seamen unemployed. It was during this period, in February 1950, that the Senate Maritime Subcommittee headed by Senator Magnuson, held several days of hearings on foreign transfers of American ships. Maritime union leaders at these hearings strongly urged that foreign transfers be virtually prohibited. Executive departments, both the Navy Department and the Maritime Commission, argued that flexibility in administration of transfers was essential and opposed any more restrictive language than now appears in section 9. As a result of these general hearings, Senator Magnuson on June 26, 1950, introduced S. 3823, which is identical with S. 1704 in the 82d Congress. The Magnuson subcommittee held a 1-day hearing on S. 3823 on July 18, 1950. The shipping industry opposed the bill, as did the Navy Department and the Maritime Administration. Maritime labor unions indorsed the bill and urged its enactment and the Comptroller General submitted a statement analyzing the bill but making no recommendation on it. No action was taken on S. 3823 in the 81st Congress. Senators Magnuson and O'Connor reintroduced the bill as S. 1704 in the 82d Congress on June 19, 1951. Two days later, without hearings or amendment, it was reported favorably by the Senate Committee on Interstate and Foreign Commerce. On July 23, 1951, S. 1704 was passed unanimously by the Senate on the call of the Consent Calendar. In his brief explanation of the bill at that time Senator Magnuson dwelt almost entirely on transfers of American ships to Panamanian registry and it is doubtful if many Senators understood the full import of the measure. There had been about that time considerable criticism of the fact that ships flying the Panamian flag had been carrying cargoes to Red China, although evidence was completely lacking that any such ships were owned by American citizens. In the House S. 1704 was referred to the Committee on Merchant Marine and Fisheries, where it is now pending. Committee Chairman Edward J. Hart has assured industry groups that hearings will be held before any action on the bill is considered by his committee. Although no hearings have been held as yet on S. 1704, it is clear from the Senate hearings on its predecessor, S. 3823 in the 81st Congress, that the sole demand for such drastic restrictions on foreign transfers comes from the maritime labor unions. The industry opposed the bill as an unjustified interference with private property rights which in the long run would injure rather than help the United States merchant marine. Both the Defense and Commerce Departments also opposed the measure, their position being that both the fact that section 9 does constitute a severe interference with property rights and the fact that defense and foreign policy needs are constantly changing require that a great deal of administrative flexibility be allowed in any statutory restrictions on foreign transfers. 47478-54-pt. 1- 5 ADMINISTRATION OF SECTION 9 RESTRICTIONS Policies followed in the administration of section 9 have varied a great deal over the years. They have tended, on the whole, to become more restrictive in recent years, due partly to the increasing importance of foreign policy considerations in determining whether to approve transfers. The steadily mounting opposition of maritime labor unions to approval of foreign tranfers also has been a factor in bringing about more restrictive policies, because of the political influence now exerted by organized labor. In general, a very liberal policy in approving transfers was followed during the period between World Wars I and II, the position being that constitutional due process required a narrow exercise of the sweeping discretion granted in the statute. Transfer applications generally were approved unless there was a positive finding that retention of the vessel under United States registry was essential either to the national defense or to maintenance of an adequate United States merchant marine. Union opposition to foreign transfers began to exert effective pressure in the late 1930's and has increased steadily since then. At about the same time, foreign policy considerations began to play an important role in the administration of section 9. Because the Neutrality Act forbade United States ships sailing to belligerent ports, the administration deliberately encouraged the transfer of a number of American ships to Panamanian or Honduran registry in 1940 and 1941 so they could carry munitions cargoes to France and Britain, Foreign policy aims have been a major factor in administration of section 9 ever since. During the last war the Government transferred vessels under lend-lease to foreign governments, including Russia, and after it was over the Government itself sold nearly 1,000 vessels to foreigners in order to help our erstwhile allies rehabilitate their merchant fleets. Table I shows the total number of ships and the gross tonnage approved for foreign transfer (exclusive of lend-lease) from October 26, 1939, through June 30, 1951. It is immediately apparent from table I that the Government itself has been responsible for the great bulk of foreign transfers. Over two-thirds of the ships and nearly three-fourths of the tonnage approved for foreign transfer was sold foreign by the Government itself. The bulk of the Government sales to foreigners, of course, were made under the Ship Sales Act of 1946, in which Congress deliberately authorized such sales. However, table I does not tell the full story. The vessels sold foreign by the Government were bigger than the privately owned vessels approved for transfer. The Government-owned ships averaged 6,077 gross tons each, while the privately owned dry cargo vessels approved for transfer averaged only 4,365 tons and the tankers, 6,243 gross tons each. Also, the Government-owned vessels sold foreign were in the main war-built ships and much younger and faster than the privately owned ships approved for transfer. Table VIII-C in the final report of the Senate Maritime Subcommittee in 1950 shows that Governmentowned vessels approved for foreign transfer in 1949 averaged only 5.8 years old, while privately owned ships approved for transfer that year averaged 21.3 years old. Transfers of privately owned vessels over 1,000 gross tons approved have varied greatly from year to year, reaching a peak of 136 in fiscal 1947 and dropping off to 50 in fiscal 1949, 25 in 1950 and 37 in fiscal 1951. No statistics are kept on the applications for approval of transfers which are denied by the FMB. The 1949 and 1950 fiscal year reports of the Maritime Commission mention that 10 and 13 applications were denied in those years, or considerably less than were approved. Fact that the FMB is known to be reluctant to approve transfers and has developed a habit of attaching conditions to approvals when granted, plus the long delays often encountered, probably cuts down the number of applications received. By far the largest proportion of transfer approval applications, of course, involve smaller vessels-pleasure yachts, tugs and fishing boats, nearly all of which are approved, but with which this study is not concerned. CONDITIONS ATTACHED TO TRANSFER APPROVALS The old Maritime Commission developed the practice before World War II of attaching conditions to its approval of foreign transfer of larger vessels. The practice has grown and the conditions have become more onerous with passing years. At first the Commission was satisfied if it were given assurances the vessel would be available to the United States in case of war after its transfer. In some cases it insisted the vessel remain subject to requisition by the Government. A vessel replacement program also is a common condition attached to approval of foreign transfer, and is now formal policy insofar as vessels under 17 years old are concerned. The Administrator also is directed in some instances to obtain assurances that the vessel transferred will not be operated in any trade competitive with United States flag ships. TABLE I.-Foreign transfers of ships over 1,000 gross tons approved by U. S, Maritime Commission and FMB from Oct. 26, 1939, through June 30, 1951 In 1948-49 the old Maritime Commission added a new wrinkle to the conditions attached to approval by requiring the owner selling a vessel foreign to pay the Commission the amount of profit realized on the sale. This policy was developed in the course of a year and a half of consideration of the application of Seatrade Corp. to sell to Danish buyers three ex-German vessels which it had bought from the Commission after the ships had been turned over to the United States as reparations. After long negotiations, the Commission finally approved the foreign transfer of the 3 vessels, but only on condition that Seatrade pay to the Commission $450,000, its total profit on the sale as calculated by the Commission (Seatrade contended it was much less), and contract to purchase 3 Libertys for operation under the United States flag. The CIO Maritime Committee, in a statement submitted to the Magnuson subcommittee on S. 3823 in 1950, strongly condemned the Commission's policy in this case. The "The Commission then required that the company pay the statutory sales price for the three Liberty vessels," the CIO Committee said. "This price was about $150,000 to $200,000 more per Liberty vessel than the market price. Commission also required a down payment of $408,000 for the 3 Libertys. The Commission then seeing that they had effectively bankrupted the company, decided they must raise an additional $400,000 to be permitted to operate the Libertys. "It is obvious that the Commission was responsible for backing this company 'against the wall'." The 11 German reparation ships all turned out to be unsuitable for American operation and the Commission has considered applications for foreign transfer of most of them. In every case it has conditioned its approval on the payment of all profits on the sale (as calculated by the Maritime Administration) into the United States Treasury. In fact, the Maritime Administration recently required payment of $7,500 as a condition of approval of Danish sale of one of these ex-German ships where the sale actually involved a substantial loss. This payment was made under protest and the Maritime Administration's authority to require such payments may be tested in the courts. There is no language in the 1916 act authorizing the Government to charge a fee for approval of foreign transfers and so far there has been no court test of its authority in this respect. In determining to recapture any profits resulting from foreign sale of the exGerman ships, the Commission based its position on the fact that if it had offered the vessels for sale with no restrictions as to flag of operation in the beginning, it would have obtained a much higher price for them. This same consideration of course has considerable weight with the shipowner who wishes to sell his vessel. But oddly enough the Government seems to believe that it should have the benefits of the world market but that the private owner should |