Senator HOEY. Admiral, do you have a prepared statement? TESTIMONY OF VICE ADM. E. L. COCHRANE, ADMINISTRATOR, MARITIME ADMINISTRATION, DEPARTMENT OF COMMERCE

Admiral COCHRANE. I do have a prepared statement. I would like to add, however, first, that I am not a financier and not an expert in tanker operations, but I have certain background in this question, which has been developed during my service. I would like to say also that I have no objection to being interrupted as the statement is read if there are some questions which will clarify these matters.

Senator HOEY. We will follow that policy, then, and you may proceed by first giving the reporter your name, position, and so forth. Admiral COCHRANE. I am Vice Adm. E. L. Cochrane, United States Navy (retired), chairman of the Federal Maritime Board, and Maritime Administrator of the Department of Commerce.

Senator HOEY. You may proceed with your statement, Admiral. And any member of the committee may feel free to interrupt to ask a question, if it is felt proper.

Admiral COCHRANE That will be quite satisfactory, Mr. Chairman. I appreciate the courtesy of your committee in allowing me to make a few general observations with respect to the sale of tankers under the Merchant Ships Sales Act of 1946, as amended. My remarks will be confined to a statement on the purposes and the more important provisions of the laws affecting the sale and operation of tankers, with a summary of the conditions affecting the sale of tankers during late 1947 and early 1948.

As you are aware, under the President's Reorganization Plan No. 21 of 1950, the former Maritime Commission was abolished, as of May 24, 1950, and its functions under the Ships Sales Act, among others, were transferred to the Secretary of Commerce. The Secretary of Commerce subsequently delegated the functions of the former Commission under the Ships Sales Act to the Maritime Administrator. I have occupied that office since August 7, 1950.

The sales of T-2 tankers under the act were completed long before I took office. I have had the Administration's staff develop from the records of the former Commission what I believe to be a factual picture of those transactions. In performing this task, the Maritime staff has worked in close cooperation with your staff and with the staff of the General Accounting Office. I believe that our staff has furnished your committee with all of the material and information which we could find, both from a search of the Commission's files and from interviews with certain participants in some of the transactions.

With regard to the Merchant Ship Sales Act of 1946. At the outset I consider it essential to discuss briefly the background, purposes, and more important provisions of the act. As you know, the sales authority under that act terminated on January 15, 1951.

During World War II, the Government requisitioned practically all oceangoing United States flag ships, and all new construction of ships during the period was for Government account. Although some of the ships requisitioned for use were returned to their owners at the close of the war, and a few of the many constructed for the Government during the war had been sold, the privately owned American

merchant marine by 1945 was seriously depleted in number of ships and deficient in quality of ships as well.

The Ship Sales Act became law on March 8, 1946, after being considered by Congress for about 2 years. This law, which covered approximately 4,750 ships, far from being an act merely to dispose of surplus ships, was designed-indeed, one of its principal purposes was-to assist in the establishment and maintenance of a healthy and vigorous privately owned American merchant marine by means of the orderly disposition of the Government-owned merchant fleet. The stated policy of the act emphasizes this purpose and follows verbatim the merchant marine policy set forth 10 years previously in the Merchant Marine Act, 1936, as follows:

It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (a) sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and import foreign commerce of the United States and to provide shipping service on all routes essential for maintaining the flow of such domestic and foreign water-borne commerce at all times, (b) capable of serving as a naval and military auxiliary in time of war or national emergency, (c) owned and operated under the United States flag by citizens of the United States insofar as may be practicable, and (d) composed of the bestequipped, safest, and most suitable types of vessels, constructed in the United States and manned with a trained and efficient citizen personnel. It is hereby declared to be the policy of the United States to foster the development and encourage the maintenance of such a merchant marine.

In line with this policy, the act, while providing for sales to both citizens and noncitizens, provided specifically that citizen applicants were to be given preference over noncitizens, and that citizen applicants to purchase were to be preferred over citizen applicants to charter. This was to assure that the more desirable ships would be available for acquisition by American-flag operators.

The act contained a formula for arriving at the sales price of ships. After World War I, ships were sold at prices which varied considerably, and the operator who came in early and paid a high price later found himself at a serious competitive disadvantage with the operator whose ships had cost him considerably less. Congress, therefore, recognized as essential a pricing policy which prevented large variations in price.

Briefly, the pricing provisions of the 1946 act required our predecessors, the former Maritime Commission, (1) to determine the prewar domestic, that is, 1941 cost of building ships of each type, and (2) the average war construction cost of that type of ship during 1944. The sales price, or "statutory sales price," as the law specifies it, of tankers, including the T-2 tankers, was set by the act at 871⁄2 percent of the prewar domestic cost, with more or less ministerial adjustments for class, age-that is, depreciation-and presence or absence of special features of value on a specific tanker, as contrasted with the standard tankers, used as the base for which to compute the prewar domestic cost. The law, however, contained a floor price below which the sales price could not be adjusted, with one exception: That is, under Public Law 269 of the Eightieth Congress and successor appropriation acts, the Commission was authorized notwithstanding the floor price of the 1946 act, to make allowances to purchasers of vessels for the cost of putting such vessels in class. Consequently, to the extent of the class repairs required in particular ships, those ships could

be and were sold at a net price below the floor price. In the case of tankers, this floor price was 50 percent of the average actual construction cost in 1944. For the information of the committee, I am setting forth the relevant sales data of T-2 tankers.

The prewar domestic cost, that is, estimated 1941 cost, was $2,316,000 per vessel.

The domestic war cost, that is, the average construction cost, was $3,010,703.

The unadjusted statutory sales price, namely, 872 percent of the 1941 cost, would be $2,026,500.

And the floor price, or 50 percent of the average construction cost, was $1,505,352.

Subject to their class repair allowances and adjustments for the age and features of particular ships, all tankers, as well as other ships, were sold on a uniform price basis at prices determined in accordance with the above formula. The average selling price of all of the 390 T-2 tankers sold under the act was $1,658,011.95. The average for those sold foreign was $1,706,898.65, and the average for those sold to United States citizens was $1,604,941.96. The figures are after all allowances, including those under Public Law 269, Eightieth Congress, and Public Law 862, Eightieth Congress. You will appreciate, am sure, that my statements with respect to actions of the former Commission are based solely on its records and files and that I have no personal knowledge of the facts on these or any other transactions by the Commission under the Ship Sales Act.

As I stated before, I took office only on the 7th of August of 1950. The record of the former Commission shows that the prices at which the eight tankers were sold to American Overseas Tanker Corp. are as follows:

The Fort George, authorized to be transferred to the Panamanian flag, sales price $1,513,212.60, made with no allowance granted; the Gervais, also authorized to be transferred to the Panamanian flag, $1,584,278.92, likewise with no class allowance granted. The Oywhee, also to Panama, $1,592,606.98, with no class allowance granted. The Umatilla, also to Panama, $1,586,777.34, with no class allowance; the Yamhill, to Panama, $1,589,553.37, again with no class allowance granted; the Antelope Hills, retained under United States registry, including class allowance for repairs, $1,475,375.13; the Kettleman Hills, United States flag, $1,430,097.77, with class allowance; and the Meacham, United States flag, $1,489,883.38, likewise with a class allowance.

Mr. FLANAGAN. Admiral, if I could just clarify a point there: I notice that these eight vessels which were sold in the Casey group were all sold ostensibly to United States citizens, and that the average

price at which the Commission sold ships to United States citizens was $1,604,000. I note that all of these ships are slightly below the average selling price.

Could you explain to the committee why it appears that these ships were sold somewhat below the average price?

Admiral COCHRANE. Yes, Mr. Flanagan. These ships, I believe, were all of the earlier vessels of the type, older vessels, from which the depreciation allowance, which amounted to about a hundred thousand dollars a year, was applied. And, of course, for the United States-flag ships, at the bottom, there is an allowance for repairs to place the ship in class; and by that I mean place the ship in condition where she would get a seaworthy certificate from the American Bureau so that she could operate. So they were the older ships, which got the greater depreciation allowance.

Mr. FLANAGAN. And you think, so far as the prices of these ships are concerned, the prices the Casey group paid to the Commission-you think in view of all the circumstances the prices were fair prices?

Admiral COCHRANE. I am sure, Mr. Flanagan, that they were prices that were determined very accurately, in conformity with the specification provisions of the law, which, as I say, made allowance for age, for any particular features which that individual ship might have which made her more or less valuable than the base ship of the class. I haven't been over the details of these things, but my staff has, and I am sure that the answer to your question is in the affirmative, that these were carefully prepared, and that these were proper prices in the provisions of the law.

Mr. FLANAGAN. Then you would say, based on the inquiries which your staff has made and which our staff also has made, that insofar as the prices of the ships themselves are concerned, they appear to be fair prices?

sir.

Admiral COCHRANE. The answer to that is clearly in the affirmative,

Mr. FLANAGAN. Thank you.

Senator MCCLELLAN. Were these separate sales, Admiral, or were they all included in one transaction?

Admiral COCHRANE. It is my recollection that they were in two transactions, but that the price of the ships was individually determined.

Senator MCCLELLAN. I understand. What I am trying to determine now is whether we are inquiring into one transaction, or two separate transactions, or how many.

Admiral COCHRANE. There were two, I am quite clear, Senator, one for the ships transferred to the Panamanian flag, and another for the ships held under the United States flag.

Senator MCCLELLAN. In other words, the first five were in one transaction, and the last three in a separate transaction?

Admiral COCHRANE. That is my understanding, sir.

Senator MCCLELLAN. What is the difference in the dates? What is the date of the first transaction and the date of the second?

Admiral COCHRANE. I haven't that immediately to hand. I will have my staff check it, and we will add it.

Senator MCCLELLAN. That is all.

Admiral COCHRANE. The Ship Sales Act of 1946, in section 4, provided that any citizens of the United States could make application

to purchase a ship at its adjusted statutory sales price, and provided further, and I quote:

If the Commission determines that the applicant possesses the ability, experience, financial resources, and other qualifications, necessary to enable him to operate and maintain the vessel under normal competitive conditions, and that such sale will aid in carrying out the policies of this act, the Commission shall sell such vessel to the applicant at the statutory sales price.

Senator MUNDT. Admiral, I wonder if you would dilate on that phase of the law a little bit. Would you indicate whether it seemed to be the intention of the lawmakers of the Commission to sell to actual operators rather than speculators and jobbers?

Admiral COCHRANE. It was quite clear from the wording of the act, Senator, that they expected the sales to be made to applicants who possessed the ability, experience, and financial resources and other qualifications necessary. Now, I will develop those individual points a little bit further in the statement.

Senator MUNDT. That was the impression I got, and I wondered if that was the information you had, that that was the intent of the law, that it was to be sold to operators and not to speculators.

Admiral COCHRANE. I will come in just a minute to that, Senator. It was agreed that the purchaser could qualify as to ability by appointing an agent. But I will develop that in just a minute.

Senator MUNDT. The intent of the law was to sell to operators and not to speculators?

Admiral COCHRANE. I think that is quite clear, Senator.

Senator MCCLELLAN. What control was retained over the sale, or the sale agreement? What provision was contained in it to insure that the policy of the act would be carried out by the purchaser?

Admiral COCHRANE. Well, I think that will develop in a minute, Senator, if I may come to that point.

Senator MCCLELLAN. All right.

Admiral COCHRANE. The Commission was likewise authorized by this section to sell ships on credit terms after having attained at least 25 percent of the sales price in cash. The balance, covered by a preferred mortgage, was made payable in not more than 20 equal annual installments with interest at the rate of 32 percent per year. Additionally, section 4 provided, and I think this bears on the point Senator Mundt was just making: "The contract of sale, and the mortgage given to secure the payment of the unpaid balance of the purchase price, shall not restrict the lawful or proper use or operation of the vessel." And that last is quoted from the act itself.

On April 23, 1946, the former Commission published in the Federal Register its rules and regulations covering sales of ships under the act. This order, known as General Order 60, set forth the prices of various ships and a form of application which, among other things, called for the submission by the applicant of certain information with respect to its citizenship.

Section 4 of the act provided for sales to "citizens of the United States," and defined that term to include a corporation, partnership, or association only if it were a citizen of the United States within the meaning of section 2 of the Shipping Act of 1916, as amended. Briefly, that section of the 1916 act provides that no corporation shall be deemed a citizen of the United States unless