The Chairman of the Maritime Commission (Kennedy) to the Secretary of State

My Dear Mr. Secretary: I have received your letter of June 18, 193799 transmitting a memorandum entitled “Shipping Situation in the Tasman Sea,” left by Mr. Chalkley and Mr. Keith [Officer] of the British Embassy on the occasion of their meeting with Mr. Dunn of the State Department on June 16th last. I have read that memorandum with much interest, and enclose herewith a memorandum in reply, which is self-explanatory.

The New Zealand statute and the proposed Australian legislation, if put into effect, would by its discriminatory provisions divert a disproportionate flow of passenger business to the new liners which the British are contemplating building for the south trans-Pacific service. The British memorandum states that the Australian Government now proposes to introduce amendments to the pending legislation to insure that it will not affect through-traffic on the Matson Line. While in view of the present itinerary of the Matson Line, no American line would be affected by the restriction in the New Zealand statute it [Page 99] would be desirable as pointed out in the enclosure, that the New Zealand statute be similarly amended.

With respect to the suggestion contained in the British Embassy’s memorandum that the Matson Line withdraw voluntarily from the local trade between Australia and New Zealand, in which passengers only are carried, the enclosed memorandum also sets forth reasons why such action is deemed inadvisable.

The Commission now is effecting the change from the mail contract disbursements as a means of assistance to American merchant vessels to payments under operating differential contracts under the Merchant Marine Act of 1936,1 and it is probable that under the new plan there will be no grounds for allegations of discrimination and unfair competition due to the amount of Government-paid subsidy. The proposal that the Matson Line withdraw from the Tasman Sea trade is one with which the Government is concerned both as a matter of policy and in connection with the maintenance of an essential trade route. Of course, the Matson Line is vitally concerned due to the fact that the Tasman Sea route constitutes an important branch of its south trans-Pacific service, built up over a considerable period of time.

Yours very sincerely,

Joseph P. Kennedy

Observations Upon a Memorandum From the British Embassy Dated June 16, 1937, Entitled “Shipping Situation in the Tasman Sea”2

The expressed purpose of the British Embassy’s Memorandum is to make clear to the Chairman of the United States Maritime Commission “the whole situation in which the Australian and New Zealand Governments have felt impelled to enact legislation giving restrictive powers in the latter country and to introduce it in the former.” The legislation of New Zealand referred to was enacted in October 1936, and, upon the issuance of an Order in Council, would prohibit (with heavy penalties for violation) the embarkation or disembarkation of passengers under certain circumstances, by vessels of the foreign country to which the Order in Council would apply. A similar act has been introduced into the Australian Legislature, but is understood not to have been enacted as a law, up to the present time.

At a recent conference with representatives of the British Embassy, the Chairman of the Commission pointed out that the New Zealand law and the proposed Australian law were both so phrased that, if an Order in Council were issued, the laws might very readily be interpreted as prohibiting the embarkation of through passengers from [Page 100] either country in American vessels if stops were to be made in the other. Such a situation would constitute a serious restriction upon the operation of American vessels in foreign trade. On that point, the Embassy’s memorandum contains the following paragraph:

“4. As regards the point raised by Mr. Kennedy with reference to the effect of the Australian legislation on the New Zealand call of the Matson Line, the Australian Government have already realized that the Bill introduced into the Commonwealth Parliament might be interpreted in the way Mr. Kennedy indicates. They propose, therefore, to introduce amendments to ensure that the Bill will not prevent the Matson Line disembarking or embarking in New Zealand passengers with through tickets from or to Australia. It is understood that the New Zealand Act does not create any such difficulty.”

With respect to the last sentence of that paragraph, it should be pointed out that the provisions of the New Zealand statute are identical with those of the proposed Australian law and that whereas the New Zealand law would not create the difficulty mentioned under the present itinerary of the American line serving New Zealand and Australia, the difficulty would arise in case the itinerary were changed or extended. It would appear to be essential that there be no question whatever but that the laws in question should not “restrict the through traffic carried on American ships,” as the Embassy’s memorandum states “they do not propose” to do.

The explanation offered as to the reasons impelling the two governments in question to enact the legislation in question appears to be summarized in the following portion of the Embassy’s memorandum:

“5. In this whole situation the Commonwealth and New Zealand Governments feel strongly that Dominion shipping is not getting a fair deal in that it is prevented by United States law from participating in the Honolulu–United States traffic and as a result of United States subsidies is being seriously prejudiced not only in the trans-Pacific trade but also in the Tasman trade. They realize the political difficulties in the way of the admission of other than American ships to the trade between Honolulu and the United States. As indicated in the preceding paragraph they do not propose to restrict the through traffic carried on American ships. But they are not prepared to see the situation continue under which, by reason of subsidies paid by the United States Government, the most valuable part of the local traffic between Australia and New Zealand is diverted from the unsubsidized Australian and New Zealand lines.”

In regard to first point mentioned therein, it may be pointed out that New Zealand and Australia cannot logically be considered in the same category as Hawaii and the mainland of the United States. There is certainly a difference between coastwise traffic within actual administrative territory of one country and between two political entities each of which is a self-governing unit and each of which has [Page 101] a mutually exclusive set of coastwise and tariff regulations. New Zealand is understood to have coastwise laws which do not permit the carrying of cargo or passengers between any ports of that Dominion except by New Zealand shipping. Australia has similar laws which include also the Island of Tasmania. The Matson Line is excluded from that service, and has never carried any local cargo or passengers between the ports of Sydney and Melbourne. There does not exist, so far as is known, any restriction against the carriage of traffic between different dominions, commonwealths or colonies of the British Empire in any part of the world, and such traffic is continuously engaged in by ships of all nationalities. On the other hand, the extension of the coastwise laws to Hawaii was the natural consequence of the annexation of Hawaii to the United States. It is in the same status with respect to coastwise shipping laws as the Island of Tasmania is to the mainland of the Australian Commonwealth.

With respect to the second point mentioned in the paragraph quoted above, that is that “Dominion shipping” is not getting a “fair deal,” and is “seriously prejudiced” as a result of United States subsidies, “not only in the trans-Pacific trade but also in the Tasman trade,” the following important factors must be taken into consideration. The present exchange of views on this matter relates, of course, to the future. Such aid as has been heretofore given to the Matson line by the Government of the United States was terminated on June 30, 1937. The government assistance available to that line after that date will be in accordance with the provisions of the Merchant Marine Act of 1936. It is clearly laid down in that Act that the amount of an operating differential subsidy shall not exceed the difference in the cost of insurance, maintenance repairs, wages and subsistence of crew, and such other items with respect to which the American operator may be found to be at a disadvantage in competition with vessels of foreign countries. The Commission has every intention of granting financial aid to American ship-owners only in strict accordance with the terms of the Act. In these circumstances the suggestion that Dominion shipping is discriminated against as the result of American subsidies, is without foundation as to the future.

While the Matson Line will receive henceforth “parity” payments, the Canadian-Australasian Line (which is engaged in the Tasman Sea trade as well as the trans-Pacific trade) is understood to be receiving fixed amounts of mail pay from New Zealand, Australia, Fiji and Canada totaling substantial amounts.

In connection with the events leading up “to the present situation” as contained in the Embassy’s memorandum, consideration should be given to the fact that American companies have been operating in the south trans-Pacific trade route for many years, and almost continuously [Page 102] since 1885 have received compensation for the carriage of mails either on a lump sum basis or a fixed amount per mile. The value of the foreign trade between the Dominions and the United States for the last sixty years has shown a constant, large, and healthy expansion upward. In 1880 the total of imports and exports amounted to $7,670,000, in 1900 $33,427,000, in 1910 $55,692,000, in 1930 $134,889,000 and in 1935 $98,000,000. The southern trans-Pacific route is considered an essential trade route and warrants adequate, suitable, and modern ships. Figures indicate that the Matson Line has not carried an undue proportion of the cargo business available. Prior to the initiation of the new Matson service in 1932 the three American ships then in the trade were constructed in 1900, while the four British ships were built in 1908, 1911, 1913 and 1924. It was inevitable that new and modern ships would eventually be placed in service on this important route. It so happened that the Matson ships were the first replacements.

The Matson Line has used every means to promote and cultivate friendly relationships not only with the commercial interests of Australia and New Zealand but with the competing British lines serving that territory, and has consistently refrained from quoting any rates or fares which could be construed as endeavoring through these means to attract business away from other lines. It has maintained its position in the shipping conferences and has made rates, fares, rules and regulations in cooperation with those interests. Furthermore, the Matson Line vessels carrying passengers in the local trade make one round trip only between New Zealand and Australia each month while the Canadian-Australasian Line, Huddart Parker, Ltd., and the Union Steamship Company, have a joint schedule in this trade with five ships. Doubtless, much of the Tasman Sea passenger traffic carried by the Matson Line, is created by the character of the service rendered. The Thirty-fifth Report of the Imperial Shipping Committee stated:

“The important fact to be borne in mind is that the Matson Line has won its present position not by cutting rates but by superiority of amenities and speed.”

The general tourist business built up by the Matson Line during the last few years has been a distinct benefit to New Zealand. While information regarding the total amount disbursed in the Dominion is not available, this business is certainly of an attractive nature, and indications from the Dominion point to a full appreciation of its value. It is conceivable that the Matson Line, as a result of a prohibition on the carrying of passengers on their present itinerary, may find it necessary to alter their service.

In view of the circumstances set forth above, especially the change in the type of assistance provided for American vessels by the provisions [Page 103] of the 1936 Merchant Marine Act, the purpose of which is to place the merchant fleet on a parity with foreign competitors, it would appear to be unfortunate, in the interests of all concerned, if the Matson Line were to withdraw from the passenger service in the Tasman Sea, either voluntarily, as suggested in the last paragraph of the Embassy’s memorandum, or as a result of the application of law, as apparently contemplated by the New Zealand statute and by the proposed Australian legislation.

  1. Not printed.
  2. Approved June 29, 1936; 49 Stat. 1985.
  3. A notation on the file copy of this memorandum indicates that a copy was sent to Mr. Keith Officer, Counselor of the British Embassy.