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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.







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JUNE 12, 1996

Printed for the use of the

Committee on Transportation and Infrastructure






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JUNE 12, 1996

Printed for the use of the

Committee on Transportation and Infrastructure

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BUD SHUSTER, Pennsylvania, Chairman

WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
WILLIAM H. ZELIFF, Jr., New Hampshire
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
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ZACH WAMP, Tennessee
RANDY TATE, Washington
RAY LaHOOD, Illinois

NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
BOB CLEMENT, Tennessee
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ELEANOR HOLMES NORTON, District of Columbia
PAT DANNER, Missouri
JAMES E. CLYBURN, South Carolina
BOB FILNER, California
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi

Coast Guard and Maritime Transportation
HOWARD COBLE, North Carolina, Chairman
BILL BAKER, California
SHUSTER, BUD, Pennsylvania
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(Ex Officio)

BOB CLEMENT, Tennessee
ROBERT A. BORSKI, Pennsylvania
GENE TAYLOR, Mississippi
(Ex Officio)


    Allegretti, Thomas A., President, American Waterways Operators

    Bermudes, Captain Eulogio C., General Manager, the Port Authority of Guam, and Representing the Governor of Guam

    Bowler, E.T.E., III, President, American Shipbuilding Association

    Bryan, Michael C., Marketing Manager, Parker Ranch, and Vice President, Hawaiian Island Cattleman's Association, and representing the National Cattleman's Beef Association

    Cebollero, Rafael, President, Private Sector Coalition to Exclude Puertco Rico from the Jones Act
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    Collins, James F., President, Steel Manufacturers Association

    Crangle, Charles T., Executive Director, Congressional and Legislative Affairs, American Maritime Officers

    Finnerty, Peter J., Vice President, Public Affairs, Sea-Land Service, Inc., representing the Transportation Institute

    Greene, Robert, President, Jeffboat/Louisiana Dock Company, Chairman and representing the American Waterways Shipyard Conference

    Grill, Philip, Vice President, Government Relations, Matson Navigation Company, Chairman and representing the Maritime Cabotage Task Force

    Herberger, Vice Admiral Albert J., Administrator, U.S. Maritime Administration

    Kleckner, Dean, President, American Farm Bureau Federation

    Kurcina, Richard, Director of International Development, Akzo Nobel Salt, Inc

    Lucas, J. Stephen, Vice President, Louis Dreyfus Corporation, Chairman and representing the National Grain and Feed Association
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    Marcus, Don, Assistant to the President, International Organization of Masters, Mates, and Pilots

    O'Neill, Robert F., Vice President, Shipbuilders Council of America

    Quartel, Rob, President, the Jones Act Reform Coalition

    Roberts, Michael G., Vice President, Government Relations, Crowley Maritime Corporation

    Rogowsky, Robert A., Director of Operations, U.S. International Trade Commission

    Ryan, George J., President, Lake Carriers' Association

    Saunders, William B., Director of Grain and Ingredient Procurement, Murphy Family Farm

    Seidel, Stuart P., Assistant Commissioner, Office of Regulation and Ruling, U.S. Customs Service

    Shandowsky, Alex, President, Marine Engineers' Beneficial Association

    Stehlin, Joseph C., President, Green Cove Maritime, Inc
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    Turner, Terry, Legislative Director, Seafarers International Union

    Volkle, Arthur J., Jr., Associate General Counsel, Maritrans Operating Partners, LP


    Bateman, Hon. Herbert H., of Virginia

    Coble, Hon. Howard, of North Carolina

    Lipinski, Hon. William O., of Illinois


    Allegreti, Thomas A

    Bowler, Tom

    Bryan, Michael C

    Cebollero, Rafael

    Collins, James F
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    Crangle, Charles

    Finnerty, Peter J

    Greene, Robert W

    Grill, Philip

    Gutierrez, Carl T.C. (submitted by Eulogio C. Bermudes)

    Herberger, Albert J

    Kleckner, Dean

    Kurcina, Richard A

    Lucas, J. Steven

    Marcus, Don

    Quartel, Rob

    Roberts, Michael G

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    Rogowsky, Robert A

    Ryan, George J

    Saunders, William B

    Seidel, Stuart P

    Shandrowsky, Alexander

    Stehlin, Joseph C

    Turner, Terry

    Volkle, Arthur J., Jr

    Walpert, Harvey (submitted by Robert F. O'Neill)

Grill, Philip M., Chairman, Maritime Cabotage Task Force:

Supplemental statement

Crowley Maritime Corp., Matson Navigation Co., NPR, Inc., Sea-Land Service, Inc., and Totem Resources Corp., Report, U.S. Domestic Noncontiguous Trades Report, prepared by Mercer Management Consulting, Inc., May 1996*
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    Gutierrez, Carl T.C., Governor of Guam, supplemental testimony

Herberger, A.J., Maritime Administrator, Maritime Administration, U.S. Department of Transportation:

Responses to post hearing questions, dated June 1, 1996

Responses to post hearing questions, dated July 26, 1996

Report, Maritime Subsidies, Maritime Administration, U.S. Department on Transportation, September 1993*

    O'Neill, Robert F., Vice President, Shipbuilders Council of America, additional response to hearing question

    Quartel, Rob, President, Jones Act Reform Coalition, and Former Member, U.S. Federal Maritime Commission, addendum to testimony

    Rogowsky, Robert A., Director of Operations, U.S. International Trade Commission, responses to questions

    Seidel, stuart P., Assistant Commissioner, Office of Regulations and Rulings, U.S. Customs Service, responses to questions

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    American Maritime Congress, Gloria Cantaneo, Executive Director, statement

    Dredging Contractors of America, Mark Sickles, Executive Director, letter, June 28, 1996

    Government of Puerto Rico, Department of Economic Development and Commerce, Luis G. Fortuno, Secretary, statement

    Hansen, Michael N., Executive Director, Hawaii Shippers' Council, statement

Knowles, Tony, Governor, State of Alaska:

Letter, June 11, 1996

Report, The Jones Act: Impact on Alaska Transportation and U.S. Military Sealift Capability, U.S. General Accounting Office

Report, Alaska's Economy and the Merchant Marine Act of 1920 (The Jones Act), Arlon R. Tussing and Associates, Inc., September 20, 1982

    Kramek, Robert E., Admiral, U.S. Coast Guard, responses to questions for the record, July 11, 1996
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    Leighton, Wayne A., Senior Economist for Regulatory Affairs and Trade, Citizens for a Sound Economy, statement

    Maritime Trades Department, statement

    Norquist, John O., Mayor, City of Milwaukee, WI, letter, June 10, 1996

    Patti, C. James, President, Maritime Institute for Research and Industrial Development, statement

    Port of Seattle, M.R. Dinsmore, Executive Director, letter, June 11, 1996

    Seaman, Tobias E., President, Domestic Offshore Shipping Association, statement

    Simpkins, Talmage E., Executive Director, AFL–CIO Maritime Committee, statement

    Underwood, Hon. Robert A., a Delegate in Congress from Guam, statement

    *Retained in subcommittee file


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U.S. House of Representatives,

Subcommittee on Coast Guard and Maritime Transportation

Committee on Transportation and Infrastructure

Washington, DC.

    The subcommittee met, pursuant to notice, at 10:01 a.m. in room 2167 Rayburn House Office Building, Hon. Howard Coble (chairman of the subcommittee) presiding.

    Mr. COBLE. The subcommittee on Coast Guard and Maritime Transportation will come to order.

    The ranking member, the gentleman from Tennessee, is en route, I'm told.

    Let me visit with you all a minute before I give my opening statement. By that time Mr. Clement should be here.

    As you all know, we have conducted several public hearings under the jurisdiction of this subcommittee this session of Congress. At no time have I enforced the 5-minute rule. I have let witnesses know that that is desirable. Witnesses, by their nature, usually don't voluntarily comply with that, and I have not enforced it because we've always had the luxury of time in our corner.
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    Today we do not have that luxury. We have 27 or 28 witnesses who will come to the table today. Folks, bear with me. When that red light illuminates, that is your signal that that light is shining for you.


    Mr. COBLE. And if you all conveniently or otherwise don't recognize it, I will gently remind you.

    For the benefit of the audience, every witness has been advised that the 5-minute rule is in effect, so every witness has had ample time to tailor his remarks to the 5-minute rule.

    Gentlemen, I hate to do this because sometimes folks don't like to be crowded into a 5-minute time frame, but I think the key word here is ''fairness.'' If we are to be fair to the subsequent panels that are to appear, I think we all have to comply with the 5-minute rule.

    Now, your written testimony, of course, will be made part of the record. It will not be casually discarded into some trash can and ignored. As you all know, this is an emotionally charged issue, as evidenced by the packed house.

    I hope we are not too emotionally charged as we go through the exercise of the day. I want to hear from both sides.
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    Having said all of that, let me give my opening statement.

    Admiral, before I do, I would be remiss if I didn't say to you that your staff has been very helpful. They worked by dark of night several nights to help us get everything in tow. If you will convey our appreciation to them, I would be appreciative.

    Admiral HERBERGER. Thank you.

    Mr. COBLE. It's good to have all of you here, and we will commence.

    The subcommittee is meeting today to hear testimony on the impact of U.S. coastwise trade laws on the transportation system in the United States.

    As most of you know, we're going to limit the opening statements to me and to the ranking member. If other members of the subcommittee have statements, they can be included in the hearing record.

    The purpose, as I've said initially, is to discuss the effect of our Nation's coastwise trading laws on the United States' businesses which transport goods throughout this country and on the United States transportation system, generally.

    Under the rules of the House of Representatives, our committee has jurisdiction over measures relating to the Merchant Marine, except for the national security aspects of the Merchant Marine. The National Security Committee has jurisdiction over the national security aspects of the Merchant Marine, including the coastwise trading laws as these matters relate to the national security.
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    Our hearing today will focus on the broader transportation issues related to the coastwise laws or the Jones Act to gather information to determine if current law meets the transportation needs of the country.

    Transportation costs affect not only the price of goods sold in this country, but also the international competitiveness of U.S. businesses.

    The House of Representatives, as many of you know, recently passed H.R. 2149, the Ocean Shipping Reform Act, a bill that would modernize our international ocean shipping system and benefit probably every segment of the U.S. economy.

    I am an avid supporter of that bill for several reasons, mostly because lowering shipping costs will encourage greater trading, providing additional jobs for Americans.

    I want to take this opportunity to thank those who support our goal of lowering international shipping costs for U.S. businesses, including the U.S. carriers who stand with other United States businesses in support of the reasonable changes contained in the Ocean Shipping Reform Act.

    Domestic ocean transportation is different in many respects from international ocean shipping. Laws to protect our domestic shipping industry date from the very beginning of this country. I do not support laws that require United States businesses to compete unfairly with foreign companies, especially if such unfair competition results in lost American jobs.
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    I do believe, however, that we must carefully evaluate any Governmental requirement, including the Jones Act requirements, in light of the current transportation needs of the country.

    In general, I support reasonable legislative changes that lower shipping cost, foster commerce, or increase jobs.

    Now, I am going to do my darndest today to wear my hat of impartiality. The purpose of this hearing is to hear from all sides. I guess everybody who wanted to be here is not here, but every interest is certainly represented here.
    [The prepared statement of Mr. Coble follows:]

    [Insert here.]

    Mr. COBLE.Having said all of that, I am pleased to recognize the distinguished gentleman from Tennessee, the ranking member, Mr. Clement.

    Mr. CLEMENT. Thank you.

    Mr. COBLE. For 5 minutes or less.


    Mr. CLEMENT. Or less. Mr. Chairman, the coastwise laws of the United States go back almost 200 years. This U.S. restriction is not unique. Virtually every nation restricts its domestic transportation system to its own citizens.
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    Today's hearing is really about jobs—jobs for U.S. citizens employed in our domestic shipping industry, jobs for U.S. citizens employed by our Nation's shipyards, and jobs for U.S. citizens employed in our domestic trucking and rail industries who should not have to compete for those jobs.

    Our immigration laws do not allow foreigners to take land-based jobs from U.S. citizens and taxpayers. This should not be allowed in our domestic water transportation system and industries, either.

    Yes, it may be possible to maybe decrease the cost of transportation to other industries, but if we follow that slippery slope, shouldn't we also allow our manufacturers in the United States to employ low-cost wage-earners from Third World countries? Shouldn't we eliminate all of our minimum wage and health and safety laws?

    The United States has been a world leader in improving work place standards. Through international agreements, we're trying to bring the rest of the world up to a level of safety and health. Those who would have us repeal the Jones Act would have us go in the opposite direction. Instead of bringing everyone up to the highest level of safety, they would have us all sink to the lowest common denominator—lowest wages, lowest benefits, and lowest safety standards.

    The attacks over the past 18 months on the Jones Act have done nothing but make investors nervous. Oil companies are hesitant to sign 5-year charters for tankers. Bankers are hesitant to issue mortgage on tankers without these long-term charters unless the Government guarantees the mortgage.
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    I'm hopeful that today's hearing will put all of this behind us. U.S. flag carriers and shipyards will be able to explain their contributions to our national economy and domestic transportation system, and I hope that U.S. shippers will go away with a better understanding of our maritime transportation system and conclude that the Jones Act really isn't a barrier to their companies.

    Chairman Coble said, ''Let's have an open mind,'' and I think that's what we ought to do. I think I've made it rather clear that I'm opposed to the repeal of the Jones Act, but maybe there is a meeting of the minds when it comes to some kind of reform of the Jones Act, and I think that's what basically this hearing is all about, and I'm looking forward to hearing all the witnesses, Mr. Chairman.

    Mr. COBLE. I thank the gentleman.

    Bob, before your arrival, I reminded the witnesses that we will impose 5-minute rule, and that 5-minute rule, gentlemen, will also be imposed against the Chair and the Members. So, as the old saying goes, ''Do as we do and do as we say.''

    I am pleased, ladies and gentlemen, to introduce the first panel: Vice Admiral Albert J. Herberger, Administrator of the U.S. Maritime Administration; Stuart P. Seidel, assistant commissioner, Office of Regulation and Ruling, United States Customs Service; and Robert A. Rogowsky, director of operations, United States International Trade Commission.

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    Admiral HERBERGER. Thank you, Mr. Chairman.

    Mr. Chairman and Mr. Clement, I welcome the opportunity to be with you today at this oversight hearing on the impact of U.S. coastwise trade laws on the U.S. cargo transportation system.

    We have a robust domestic shipping industry providing efficient, environmentally-sound transportation, and supporting thousands of jobs for American citizens. The reservation of a nation's coastwise trade exclusively to that nation's own vessels is called cabotage and it's common among maritime nations. Forty industrialized nations have laws similar to the Jones Act, including most of our major trading partners.

    The Administration supports the Jones Act as an essential element of U.S. maritime policy. The United States supports open markets and competition between nations in commerce; however, the requirement for assured national and economic security in our merchant shipping and sealift are higher order concerns.

    This requirement is fulfilled by the U.S. domestic fleet and the U.S. flag international trade fleet, as well as defense shipping, which are all linked in the national maritime infrastructure to assure U.S. national and economic security.
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    In recent years, there have been dramatic changes in the efficiency and productivity of ocean and intermodal transportation, and the prime innovators have been American domestic and international carriers.

    American entrepreneurs have pioneered specialized ships, containerization, satellite tracking, and just-in-time, door-to-door services which reduce inventory and warehousing costs for American industry.

    The American public, as producers and consumers of raw materials and finished products, greatly benefit from this efficient and expanding global intermodal system. These efficiencies benefit shippers and consumers in both the domestic and international trades.

    One of the most important roles of the Jones Act fleet is its contribution of qualified citizen mariners to the U.S. seafaring labor base. Nearly 8,000 citizen mariners who sail on Jones Act vessels are qualified to crew the Government's controlled fleet in time of national need. The crews who work aboard the ships of both the domestic and international U.S. flag carriers are the primary source of crews for the Maritime Administration's Ready Reserve Force of 92 vessels located throughout the Nation ready for action. The U.S. flag also provides crews for Department of Defense sealift ships, when needed.

    Over 75 percent of oceangoing Jones Act vessels that are 1,000 gross tons and above are militarily useful. Jones Act dry cargo ships and tankers were chartered by the Defense Department for sealift support during the Persian Gulf conflict, the Jones Act seamen proved essential to this effort, as they have in past conflicts. The Jones Act assisted greatly in our ability to deliver military supplies during the Persian Gulf conflict.
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    Jones Act seafarers have continued to volunteer during more recent missions. In 1994, during Operation Uphold Democracy, which helped stabilize conditions in Haiti, the Defense Department used oceangoing Jones Act vessels under 1,000 gross tons to transport equipment.

    After the lessons learned from Desert Storm and Desert Shield and the most recent engagements, there is a new program, a joint initiative by the Department of Defense and the Department of Transportation called ''VISA''—the Voluntary Intermodal Sealift Agreement. This will permit graeter utilization of the commercial intermodal and dry cargo capability.

    There are 20 companies signed onto VISA. Five of the VISA participants operate solely in the Jones Act, and two carriers operate in both the Jones Act and in international trade.

    The domestic maritime industry is deeply rooted in the Nation's economy. Over $26 billion in private funds have been invested in a fleet of 44,000 vessels and barges operating in domestic waters.

    In 1995, 124,000 U.S. citizens were employed directly in the Jones Act maritime industry as vessel crews, other shipboard workers, or in related shoreside jobs. Of this total, about 80,000 represent labor on Jones Act vessel.

    Domestic shipping moves over 30 percent of the cargo in America annually, at less than 2 percent of the entire domestic freight bill, including oil pipelines.
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    A significant—

    Mr. COBLE. Admiral, I hate to do it, but we're going to have to cut you off, and then we'll pick you up—

    Admiral HERBERGER. I was one sentence from the end.

    Mr. COBLE. Okay.

    Admiral HERBERGER. Thank you.

    Mr. COBLE. Thank you, Admiral.

    Mr. Seidel?

    Mr. SEIDEL. Good morning, Mr. Chairman, Mr. Clement.

    I'm pleased to discuss the role of the Customs Service in administering the coastwise laws and the Jones Act.

    Customs was established by the fifth act of the first Congress, July 31, 1789. As the primary border enforcement agency and a major collector of revenue, we enforce 600 laws for 60 different agencies, including the coastwise laws and the Jones Act.

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    In order to ensure uniformity, the Office of Regulations and Rulings, of which I'm in charge, has the responsibility of interpreting and issuing rulings and decisions to the public under the laws and regulations which we administer, including the coastwise laws.

    Actual on-site port presence in the Office of Field Operations enforces and administers the act on a day-to-day basis.

    Violations of the laws that are enforced by the Customs Service, including the coastwise laws, are investigated by our Office of Investigations. In addition, we share marine enforcement responsibility with other Federal agencies, most notably the United States Coast Guard and the Maritime Administration.

    As I mentioned earlier, Customs dates back to July 31, 1789. When the 11th Act of Congress was passed on September 1 of the same year, it established a system of documentation of American vessels. It was natural to assign that responsibility to the collectors of customs, who were located at each of the ports of entry.

    Shortly thereafter, Congress created the Treasury Department and placed both Customs and the documentation responsibilities in that Department.

    Over the next 150 years, the responsibility for enforcing the coastwise laws and the documentation laws, as well as other navigation laws, went back and forth between the Treasury Department and what was later to become the Commerce Department.

    In 1942, the main responsibility was transferred back to the Treasury Department, with safety and other navigation laws becoming the responsibility of the Coast Guard, but the enforcement of the coastwise and Jones Act laws becoming the responsibility of the United States Customs Service.
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    I understand that your hearings focus on the coastwise laws involving transportation of merchandise; however, Customs is also responsible for those coastwise laws which regulate the transportation of passengers, dredging, towing, and salvage operations. My full statement details those responsibilities.

    Section 27 of the Merchant Marine Act of 1920, which became known as the ''Jones Act,'' prohibits the transportation of merchandise by water or by land and water between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation in any vessel which is unqualified.

    Qualified vessels are required to be documented, built in the United States, and manned by U.S. crews.

    The penalties for violating these statutes are fairly severe. There are both monetary penalties and forfeitures of both the vessel and the merchandise under certain conditions.

    One question that Customs is often asked is: what is the authority to waive the coastwise laws? And is there any authority, and under what circumstances?

    With the exception of the salvage laws, which do give some discretion, the only authority for waiving the Jones Act law is found in the act of December 27, 1950, which authorizes the Secretary of the Treasury to waive the coastwise laws upon the request of the Secretary of Defense, to the extent deemed necessary in the interest of national defense, and either on his own initiative or upon the recommendation of the head of any other Government agency whenever the Secretary of the Treasury deems the action necessary in the interest of national defense.
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    As you can see, this criterion is a very tough standard to meet, and absent a request from the Department of Defense, administrative waivers are rarely granted.

    I might add that we're often asked whether a waiver may be obtained if it can be clearly shown that there are no U.S. qualified vessels available to carry out a particular activity. This fact in and of itself does not satisfy the statutorily-mandated national criteria.

    I'll submit the rest for the record, sir.

    Mr. COBLE. You make my job easy, Mr. Seidel. Thank you, sir.

    Mr. Rogowsky?

    Mr. ROGOWSKY. I am pleased to be invited to discuss the findings of the U.S. International Trade Commission's analyses of the economic effects of the Jones Act.

    The Commission's analyses of the Jones Act are presented as part of a larger and more comprehensive series of studies requested by the U.S. trade representative titled, ''The Economic Effects of Significant U.S. Import Restraints.''

    The Senate Finance Committee originally requested in 1988 that the ITC examine the effects of all significant U.S. import restraints in manufacturing, agriculture, and services.
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    This series of studies examines the effects of import restraints on consumers, workers, producers, imports, and exports. The Commission was specifically requested to estimate the overall cost or benefit to the economy from these barriers. For this purpose, we have used a standard measure of economic welfare that measures the change in U.S. consumers' purchasing ability resulting from the elimination of the identified significant import barriers.

    Because the ITC's report of overall economic effects have been a focus of attention, I will direct my comments primarily to these results.

    The analyses conducted by the ITC staff are based on a methodology that has been developed over the past 6 years by world-renowned economists at or who have spent time at the ITC. There exists no more-competent or complete analysis or analytical tool to address the questions presented by USTR to measure the economic effects of import restraints. Nevertheless, the basic analyses are quite straightforward.

    As restrictions on imports are eliminated, increased competition will tend to push prices down, ultimately toward the price in the world market. In the case of the Jones Act sector, permitting competition by foreign shippers will tend to lower the prices. The analysis simply measures the overall economic effect resulting from the increased purchasing power to consumers due to the lower prices.

    In dollar terms, the three studies estimated that consumer purchasing power would increase by approximately $2.8 to $3.8 billion. These estimates do not include any effects of the Jones Act on domestic passenger transportation or to cargo transported on U.S. inland water routes.
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    Commentators have argued that these estimated benefits of opening this market to international competition are overstated because transportation costs are too small to materially benefit U.S. consumers.

    On a per capita basis, a $3 billion benefit to consumers spreads thinly across a $6 trillion U.S. economy; however, the effects tend to be concentrated in a few downstream industries or consumers.

    Consider petroleum. Most of the potential benefits from increased competition in ocean-borne shipping are felt in the petroleum and petroleum products sector.

    In recent years, this sector has accounted for approximately 80 to 85 percent of the total cargo carried by Jones Act carriers on ocean-borne or coastwise routes.

    An independent study estimated that in 1984 the freight difference due to the Jones Act amounted to one-third of a cent per ton mile. During that year, approximately 537 billion ton miles of petroleum and petroleum products were moved on domestic ocean-borne routes. This small freight differential applied to such a large volume of freight amounts to a $1.8 billion increase in transport costs.

    Elimination of this small cost differential could affect the ability of downstream domestic firms to compete in both domestic and export markets.

    Another comment that has been made is that the ITC cost estimates are based on the assumption that foreign workers would be imported to operate in the U.S. trades without incurring increased costs to comply with U.S. laws and regulations. This actually is not an assumption of the Commission's report or its analysis.
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    The ITC analyses do assume that average U.S. cabotage prices will tend to fall towards international levels. According to a Congressional Budget Office study, 62 percent of the total cost differential between U.S. and foreign carriers can be attributed to higher U.S. capital costs—that is, the cost of the ships. Approximately 22 percent of the difference can be attributed to labor. Therefore, even without foreign crews, foreign carriers operating in U.S. domestic routes would still have a large cost advantage over U.S. Jones Act carriers. The cost advantage net of labor will still translate into decline in U.S. freight rates.

    The ITC estimates of the benefits of increased competition are conservative in that they do not fully reflect potential increase in the consumption from carriers that are not now using coastwise transportation.

    I'll end there. Thank you.

    Mr. COBLE. Gentlemen, I thank you all for being here.

    I will start the 5-minute clock on me and let that run. I'll flag myself down.

    Admiral, how many ocean-going Jones Act vessels were built during the last 10 years, if you know? If not, you can get that to us.

    Admiral HERBERGER. Yes, sir. I can give you a rough estimate. There are over 4,000 vessels built in the Jones Act. I'll have to break out those that are specifically oceangoing. We have nine oceangoing double-bottomed tankers under construction now.
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    Mr. COBLE. Okay.

    Admiral HERBERGER. There have been over 4,000 vessels constructed in the last 10 years for the Jones Act.

    Mr. COBLE. If you can break that out, I will be appreciative.

    Admiral HERBERGER. Yes, sir.

    [The information received follows:]

    [Insert here.]

    Mr. COBLE. Are you aware, Admiral, of any United States company that operates vessels in the coastwise trade of any foreign countries?

    Admiral HERBERGER. No, I am not. I know that U.S. companies charter foreign-flag vessels. For example, a company operating between ports of Italy would charter an Italian-flag vessel for that coastwise trade. That's the common practice. Where there are cabotage laws, they charter or buy space on the flag of that nation in that nation's coastwise trade.

    I'm not aware of any U.S. company that operates U.S.-flag vessels in the coastwise waters of a foreign nation.
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    Mr. COBLE. This question can involve complexity. I realize reciprocity comes into here, Admiral. What taxes generally do foreign-flag vessels operating in United States waters pay to the United States?

    Admiral HERBERGER. Foreign-flag operators do not pay U.S. corporate income taxes, and frequently enjoy a tax haven by registering their vessels in flag-of-convenience countries.

    In contrast, U.S. flag operators pay U.S. corporate income tax and payroll taxes for their employees on their vessels.

    Foreign operators who establish a physical presence, a regional office in the United States or headquarters, have payroll tax responsibilities for employees domiciled in the United States.

    The Internal Revenue code exempts from taxation foreign vessels operating under flags of countries with reciprocal tax treaties with the United States.

    U.S.-flag vessels operating in the international trades generally pay taxes in countries where reciprocal agreements do not exist or the operator has established a physical presence, a regional office in the host country.

    Mr. COBLE. I think that's an adequate answer, Admiral. Thank you.
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    Admiral, if you will—and I doubt that you know this now, but if you can provide for the record the number of vessels operating under foreign flags by United States-owned companies that also operate in the Jones Act trade, and, second, provide for the record a specific detailed list of the operating and construction subsidies offered by foreign countries to vessels that operate under their flags—if you could get that to us in due time.

    Admiral HERBERGER. I will submit it for the record.

    [The information received follows:]

    [Insert here.]

    Mr. COBLE. Mr. Seidel, there are 13 different sections or provisos contained in the Jones Act, obviously indicating broad impact. Is there any one of these provisos that you think needs legislative clarification?

    Mr. SEIDEL. I don't think that the clarification relates to the provisos as much as the authority of the Secretary of the Treasury to grant waivers. The provisos basically limit the trade and what can be used for the trade, and the provisos are very specific exceptions that were enacted to meet the needs of certain industries in transporting empty cargo vans and stevedorian equipment and prevent rebuilding.

    I think the real problem there is in the exemptions and the waiver authority.
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    Mr. COBLE. Thank you, sir.

    Mr. Rogowsky, what did the ITC determine to be the major reason for the higher cost of Jones Act transportation?

    Mr. ROGOWSKY. It's really driven by the price difference between freight rates for Jones Act carriers and a world rate for similar transportation differences that are not so regulated.

    Mr. COBLE. The red light illuminates. I yield to the gentleman from Tennessee.

    Mr. CLEMENT. Thank you, Mr. Chairman.

    Admiral, what is your military sealift background? And to what extent do Jones Act vessels contribute to our sealift capacity?

    Admiral HERBERGER. I served in the United States Navy for 32 years. I am a graduate of King's Point. I served in the Merchant Marine actively for 3 years. My last active duty was as the Deputy Commander-in-Chief of the U.S. Transportation Command at Scott Air Force Base.

    Mr. CLEMENT. Admiral, any legislation to repeal the Jones Act, or even the U.S. build requirement of the Jones Act, has to be scored under the Budget Act to determine its impact on the Federal deficit.
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    Of your Title XI loan guarantee portfolio, what is the value of guarantees for vessels in the coastwise trade?

    Admiral HERBERGER. I have the overall number. I'll have to break it down. There are 1,900 vessels that are covered by our loan guarantees. That's about $1.9 billion worth of coverage. I'll break it down and give you the specifics for the Jones Act.

    Mr. CLEMENT. All right, for the record. Thank you.

    [The information received follows:]

    [Insert here.]

    Mr. CLEMENT. Mr. Rogowsky, your study of the Jones Act did not include the inland river trades. Is this because the Jones Act does not substantially increase the cost of this trade?

    Mr. ROGOWSKY. In part. It was very hard to include that specificity in our analytical model in our techniques. It was hard. But also we anticipate that there would not be much change if you got rid of the regulation on the inland waterways or in passenger carrier. It really was going to be in freight along the oceanwise routes.

    Mr. CLEMENT. Mr. Seidel, what types of uses of commercial vessels in the United States are not considered within the coastwise laws, such as cable or pipe laying?
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    Mr. SEIDEL. Well, when it comes to the laying of pipe, it's not considered the transportation of merchandise, because it's not laden on and laden off at a U.S. port, so that's accepted through a series of rulings that the Customs Service has issued.

    There are also certain other activities relating to support vessels where people are not transported and merchandise is not transported, but there are stationery vessels that are attached to other activities, which are not considered to be violative, but otherwise, unless they fall within one of the provisos, if the activity occurs within the U.S. territorial seas, chances are it's going to be regulated if it's transportation between the ports in the United States or between two U.S. ports.

    Mr. CLEMENT. Admiral, do you believe that a substantial portion of these guarantees would go into default if the Jones Act or the U.S. build requirement were repealed?

    Admiral HERBERGER. Yes, I do.

    Mr. CLEMENT. Why?

    Admiral HERBERGER. If we allowed foreign-flag, foreign-built, foreign-crewed vessels to come in, I believe that it would absolutely undermine the U.S.-owned, U.S.-flag, U.S.-built vessel industry.

    As I said a moment ago, the substantial portion of our Title XI loan guarantees are in the Jones Act. I'll give you the exact percent. Therefore, it would put at risk those loans and those vessels. I think it would have a devastating effect if we allowed this to happen.
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    In addition, there would be further litigation because these companies built these ships with the idea that we had the Jones Act, which was a protected market. We would have a lot of litigation as a result of it.

    Mr. CLEMENT. Mr. Rogowsky, your study calculated the $2.8 to $3.8 billion cost to the Jones Act based on the difference between Jones Act rates and the world rates.

    Since foreign-flag vessel operators engaged in the U.S. domestic trade would have to comply with some U.S. laws, such as paying taxes on their U.S.-sourced income, and immigration laws, isn't the cost impact of the Jones Act really much smaller?

    Mr. ROGOWSKY. If there were substantial costs to firms to shippers who are not now shipping in the oceanwise coastal shipping of the United States and they did have to comply with those, it would affect the numbers.

    We have not done a calculation of the exact regulations that they would have to comply with that they don't comply with now to measure that effect.

    Mr. CLEMENT. Mr. Seidel, are U.S.-flag vessels usually used for these services, even though they aren't within the coastwise laws?

    Mr. SEIDEL. If they are within the coastwise laws, there have to be U.S.-qualified vessels to do it, and so right now we don't have that problem because it's the U.S. qualified vessels that are actually transporting the merchandise and the passengers in that trade.
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    Mr. CLEMENT. I was really referring to the cable or pipeline.

    Mr. SEIDEL. I'm sorry. There are occasionally foreign vessels that are used for the laying of cable and pipe.

    Mr. CLEMENT. Right. Excuse me. Thank you.

    Mr. COBLE. The Chair recognizes the lady from Florida, Mrs. Fowler, and I'll ask her to sit in the Chair because I have a Judiciary Committee vote. I'm going to have to run to vote and I'll be right back.

    Mrs. FOWLER [assuming Chair]. Thank you.

    I'd like to call now Mr. Baker for any questions you might have.

    Mr. BAKER. I'll ask the Admiral, to start with, are there firms currently doing business in the United States that aren't part of the Jones Act, such as the Chinese firm named COSCO?

    Admiral HERBERGER. I'm sorry, sir. I didn't hear.

    Mr. BAKER. Are there firms currently doing business outside the Jones Act such as the Chinese firm known as COSCO? Are they doing shipping in and out of the United States?
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    Admiral HERBERGER. The COSCO international fleet operates in and out of the United States. I'm not aware of any——

    Mr. BAKER. Do they pay the same rate as the Jones Act would require?

    Admiral HERBERGER. Are their rates the same?

    Mr. BAKER. Yes.

    Admiral HERBERGER. I'd have to get back to you on that. I do not know, but I suspect that their rates are lower. But, again, it's in the international trade. They operate large container vessels, and they have—COSCO has one of the largest fleets in the world, but they do not operate in our domestic waters.

    Mr. BAKER. Inland waters?

    Admiral HERBERGER. Not in U.S. inland. No. They're forbidden by the Jones Act.

    Mr. BAKER. Mr. Rogowsky, is your study indicating that it would be more efficient to eliminate the Jones Act or not eliminate it?

    Mr. ROGOWSKY. We don't take a stand on whether it should be eliminated or not; we are simply trying to answer a question posed by USTR as what the economic effect of that restriction is.
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    We tried to give them our best estimate of the effect on purchasing power of consumers by imposing the Jones Act, and that's what we gave them.

    Mr. BAKER. And your figures were $1.8 billion?

    Mr. ROGOWSKY. Actually, it was—we did three different estimates, and it was $2.8 billion to $3.8 billion.

    Mr. BAKER. And the gentleman from Customs, Mr. Seidel, are we still granting loans to build ships under the Jones Act?

    Mr. SEIDEL. I would have to defer to the Maritime Administration. The Customs Service doesn't grant loans.

    Admiral HERBERGER. Yes, Mr. Baker. We do have Title XI loan guarantees, and certainly the Jones Act companies are eligible. It's a significant portion of our loan guarantee program.

    Mr. BAKER. Are they the only ones eligible?

    Admiral HERBERGER. No. We now, under an act that was passed in 1993, can provide loan guarantees for export vessels. We build them in the United States and export them to foreign entities, and we also have, as a new part of the program, loan guarantees for the modernization of U.S. shipyards.
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    Mr. BAKER. I'm just interested in your argument that we can't allow more competition because of the loans that we granted in past years that might be subject to default because competition might put some of these shippers or carriers out of business. But if we're still granting loans, then what you're saying is we should never stop fixing the price or allowing the—

    Admiral HERBERGER. Foreign——

    Mr. BAKER.——to be held by American ships only.

    Admiral HERBERGER. The Foreign operators can purchase vessels in their foreign shipyards that are heavily subsidized and supported. This has much more of an impact than our Title XI loan guarantee program. Therefore, they could buy ships, foreign-built ships, and the capitalization won't be anywhere near what would be needed to build in the United States.

    Mr. BAKER. Competition in this emerging Pacific Rim is going to be fierce, not just in shipping but everywhere, but it used to be dominated by Japan, whether it was a transistor radio or whatever, and now we're number one in chips. Through competition we can gain back majority standing.

    If we hold this hearing 100 years from now, there is going to be somebody sitting in your seat saying, ''You must continue the Jones Act because we just granted loans last year and those firms are dependent on our being a monopoly.''
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    Admiral HERBERGER. We're granting loan guarantees. The capital has to come out of the private sector, and these are guarantees that for every dollar we have in the Title XI appropriation we get $14 worth of shipbuilding coverage. But all of the capital is coming from the private sector.

    Mr. BAKER. I understand.

    Mr. COBLE [resuming Chair]. I thank the gentleman from California.

    Gentlemen, we will stand in brief recess. We have a vote on the floor, and I'm sure there are other questions for the panel, so you all stand fast and we'll be back in between 5 and 10 minutes.

    We're in brief recess.


    Mr. COBLE. The subcommittee will come to order and we will resume the questioning.

    The Chair recognizes the gentleman from Minnesota, Mr. Oberstar, for 5 minutes.

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    Mr. OBERSTAR. Thank you, Mr. Chairman.

    I don't have any questions at this time for witnesses. I do want to make a statement I would have made at the outset of the hearings, but from which I was detained by other committee business.

    The hearing you are holding today, Mr. Chairman, goes to the very heart of much of the debate in Congress. The central question is: will the Congress promote U.S. industries and their U.S. employees or support foreign corporations whose primary concerns are not necessarily with the welfare of U.S. citizens?

    For me, the choice is simple. I support investment in U.S. companies that employ U.S. citizens.

    The basic principle of the Jones Act, that our domestic water transportation system is reserved for U.S. companies, is not very different from what we require for other industries. The laws of our States allow only U.S. business entities to operate factories in the United States. Our factories, under U.S. Federal law, are allowed to employ only U.S. citizens or immigrants admitted for permanent residence, unless they're granted a waiver by the Immigration and Naturalization Service.

    Why should ships be treated any differently by allowing foreign-flag vessels to operate between U.S. ports?

    According to a study by Mercer Management Consulting, over 80,000 U.S. citizens are employed under the economic stimulus provided by the Jones Act. Why shouldn't those people be protected against having their jobs taken away by low-cost foreign workers or low-cost foreign vessels produced in government-subsidized foreign shipyards?
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    Other countries offer similar protection to their maritime industry. Of 56 countries surveyed by the Maritime Administration and the U.S. State Department, 53 had cabotage laws restricting their domestic water transportation systems to their own vessels.

    Many people operate under the misconception that the Jones Act trade gets direct subsidies from the Federal Government. That simply is not the truth. Jones Act operators receive no direct Federal subsidies.

    In contrast, U.S.-flag vessel operators in our foreign trade do get direct subsidies and are, therefore, prohibited from competing against unsubsidized Jones Act operators.

    Another factor that has to be considered before any serious thought is given to changing the Jones Act is the impact those changes would have on the title 11 loan guarantee program, which our colleague from California discussed a moment earlier.

    Under the Budget Act, all legislation must be scored to determine its impact on mandatory Federal expenditures and for its impact on the deficit. MARAD has issued over $1.6 billion in loan guarantees for Jones Act-eligible vessels. Major changes in the Jones Act would lead to defaults on many loans and require the Federal Government to make good on its guarantees.

    Now, in response to the questions raised by the gentleman from California, the Government's exposure could approach $1.6 billion, and legislation to repeal Jones Act would have to include appropriate offsets through new taxes or decreases in entitlements. You can deal with it; it would be painful.
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    I look forward to hearing from those witnesses who want to repeal the Jones Act to see what entitlements they would like to terminate and what taxes they'd like to increase to cover the cost of repealing the Jones Act.

    I have long been a supporter of the Jones Act from my very first year in Congress and before that as I served on staff, but I have a message for Jones Act operators. I am nearing an end of patience with those who enjoy the protections of the Jones Act by America, cargo preference acts, and then refuse to serve the ports on the Great Lakes.

    It will also skim the cream off Government-impelled cargo such as food for peace shipments and military cargo operations.

    We are a fourth seacoast on the Great Lakes, and we expect to be treated with the same respect as the East, the Gulf, and the West Coast ports receive.

    My colleagues on the Great Lakes share in very deep feeling that sentiment, and that sentiment is shared on a bipartisan basis.

    I want to leave that impression today.

    As a long-term supporter of the Jones Act and the preferences protecting U.S. operators, we expect to be treated fairly on the Great Lakes, as well.

    Thank you, Mr. Chairman.
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    Mr. COBLE. I thank the gentleman from Minnesota.

    The Chair recognizes—Mr. Lipinski wants to make a 30-second statement. I recognize the gentleman from Illinois, who is a member of the full committee, Mr. Lipinski.

    Mr. LIPINSKI. I thank the chairman very much, and I simply want to say, as a former chairman of the Merchant Marine Subcommittee when it existed as part of Merchant Marine and Fisheries, I was, I am, and I always will be a very strong supporter of the Jones Act, and I think it's good for America, good for the American working man.

    I have a longer statement, Mr. Chairman, that I would appreciate your accepting for me to include it in the record, and I thank you very much.

    Mr. COBLE. I thank the gentleman.

    [The prepared statement of Mr. Lipinski follows:]

    [Insert here.]

    Mr. COBLE. The Chair will now record the gentleman from Texas, Mr. Geren.

    Mr. GEREN. Thank you, Mr. Chairman.
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    Mr. Chairman, I ask unanimous consent that I yield my time to colleague Gene Taylor, who is on the full committee but not on this subcommittee.

    Mr. COBLE. Mr. Taylor, also a member of the full committee, is recognized for 5 minutes.

    Mr. Geren, you have no statement, no questions?

    Mr. GEREN. No, I don't, Mr. Chairman.

    Mr. COBLE. All right. Mr. Taylor, the gentleman from Mississippi.

    Mr. TAYLOR. Thank you, Mr. Chairman. I certainly want to thank Mr. Geren for his assistance.

    Admiral, I want to begin by asking you to make two comparisons. Some of my colleagues have made reference that maybe opening up the Jones Act to foreign competition would lead to reduced pricing and obviously help American business.

    In the cruise ship business, of which about 90 percent of all the people in the world who get on one are Americans, and they will get on at an American port, what percentage of that goes to U.S.-flag ships?

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    Admiral HERBERGER. There are two U.S.-flag cruise ships that operate in and around the Hawaiian islands. Those are the only U.S.-flag ships in the major cruise ship business.

    Mr. TAYLOR. So on a percentage basis, what percentage would go to American-flag vessels, off the top of your head?

    Admiral HERBERGER. Maybe 2 percent, if that. I think there may be up to between 90 and 100 cruise ships that operate out of the United States regularly.

    Mr. TAYLOR. And so about 2 percent of that $10 billion that is generated by Americans getting on ships at our ports goes to American-flag vessels?

    Admiral HERBERGER. These are major cruise ships.

    Mr. TAYLOR. Yes, sir.

    Admiral HERBERGER. There are many other dinner cruise ships. There is quite a healthy U.S. industry out there on the inland waters, but of the major cruise ships, about 2 percent.

    Mr. TAYLOR. And since you made that comparison, how many foreign-flag competitors do the ''Delta Queen'' or the ''Mississippi Queen'' have on the Mississippi River?

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    Admiral HERBERGER. None.

    Mr. TAYLOR. So they do pretty good when competing against other Americans, but it's pretty tough to compete against $0.50 an hour, if that good, foreign wages which they compete with on the off-shore cruises?

    Admiral HERBERGER. Yes. That's a recent change, and it's my understanding that the revitalized cruising on the Mississippi is doing pretty well. Yes.

    Mr. TAYLOR. So the analogy that the gentleman to your left made that opening this up to foreign competition would actually help American business is kind of far-fetched when you're talking the reality of the cruise ship business, isn't it, sir?

    Admiral HERBERGER. Yes.

    Mr. TAYLOR. And, for example, how many dollars do those foreign-flag cruise ships pay in United States corporate taxes? How much do they pump into the Treasury a year?

    Admiral HERBERGER. I would have to get back to you on that. I do not know. I know that many of them have offices, even headquarters, in the United States, and I just don't know the percent.

    [The information received follows:]

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    [Insert here.]

    Mr. TAYLOR. Okay. It's my understanding that neither you nor I could buy a hamburger on what they pay in corporate taxes.


    Mr. TAYLOR. And sometimes it's $0.99 at Burger King.

    I'd like to ask a question that comes to a Jones Act interpretation.

    It is my understanding that the purpose of the Jones Act was for coastwise cruises, and that means a cruise where the vessel never actually goes to a foreign port.

    There are two fairly big exemptions to that. I was wondering what steps Customs or anyone is taking to try to close that loophole.

    The first is, in the case of the cruises to nowhere, which really comes down to a Customs Act interpretation of the law where a foreign-flag vessel can operate out of the port of Miami or the port of Gulfport, Mississippi, sail about 12 miles out to sea, turn around and come back. They never really leave an area where the United States Coast Guard would be called upon to rescue them. They're operating primarily in ports that are dredged by the taxpayers of the United States. If there is a fire at the dock, they're certainly going to call the local fire department.

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    All of these things are burdens on the local economy, yet, because they are foreign flag, they're not really paying any of the cost of our society.

    It has come to my attention that a similar situation exists in the case of tankers that go off-shore to the ultra large crude carriers, and the VLCCs are very large crude carriers.

    They sail between an American port and the supertanker and then back to an American port, never actually make a foreign call, and, if the truth be known, never really leave an American port, yet they are also foreign-flag vessels with, in many instances, foreign crews.

    Is Customs doing anything to tighten up that, because it would seem to me an extremely loose interpretation of the Jones Act, because they're not actually going to a foreign port in either instance.

    Mr. SEIDEL. With regard to the transportation of passengers on the cruises to nowhere, that's based on an interpretation of the statute that it's not transportation between U.S. points. The person who boards the vessel boards at a dock in Miami, travels out to the high seas where they spend some time, and then they come back to the same dock in Miami.

    If they were to land at any other point in the United States, that would be a clear violation of the Jones Act and the Customs Service would take enforcement action.

    On the question of the petroleum, I'm not familiar with that specific interpretation. I could find out and submit it for the committee.
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    Mr. TAYLOR. If you would please, sir.

    Mr. SEIDEL. Okay.

    Mr. TAYLOR. Thank you, Mr. Geren. Thank you, Mr. Chairman.

    Mr. COBLE. I thank the gentleman.

    Gentlemen, thank you all for getting us off to an auspicious start.

    I will announce this subsequent to today. We will keep the record open for 30 days in the event that questions arise that were not propounded to witnesses, so you all stand by for that.

    Thank you again, gentlemen.

    Mr. COBLE. I will introduce the second panel as they come to the podium: Robert Quartel, Jr., President of the Jones Act Reform Coalition; Dean Kleckner, president, American Farm Bureau Federation; J. Stephen Lucas, vice president of the Louis Dreyfus Corporation, chairman and representing the National Grain and Feed Association; William B. Saunders, director of grain and ingredient procurement, Murphy Family Farm; and Michael C. Bryan, Marketing Manager, Parker Ranch, and vice president of the Hawaiian Island Cattleman's Association, and representing the National Cattleman's Beef Association.

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    Gentlemen, good to have you all with us today.

    Why don't we start from my left working to my right, or if you all have other—if you have a better choice among yourselves—Mr. Quartel, you want to start? I'll let you all dictate the order of preference.

    It's good to have you with us, gentlemen.


    Mr. QUARTEL. Thank you, Mr. Chairman.

    My name is Rob Quartel, and I'm here to represent the Jones Act Reform Coalition.

    For the record and Admiral Herberger, who has called us ''shills'' for foreign interests in shipyards and operators, the coalition I represent, in fact, is made up of nearly 860,000 American companies, millions of employees, all of which have endorsed the reforms contained in our proposed prepared testimony.
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    Those of you on this panel concerned about taxpayers, Federal budget deficit, consumers, responsible government, for the record, we were endorsed yesterday by five organizations representing over one million politically-active taxpayers: the National Taxpayers' Union, Americans for Tax Reform, Citizens Against Government Waste, Citizens for a Sound Economy, and the Competitive Enterprise Institute, all of which rate the Congress on some of these issues.

    One speaker described the Jones Act as a classic case of diffused cost and highly-concentrated benefits. Another described it as a hidden tax of roughly one half of one percent on every dollar and every good, passenger moved in the United States.

    The shippers you'll hear today, notwithstanding the rhetoric of those who stand in the way of reform, are patriotic Americans representing American companies, hiring American workers, paying American taxes, obeying U.S. environmental health and safety laws. The foreign companies against which they compete every day inside the United States neither pay U.S. taxes, use American labor, or obey American safety, health, and other laws when they make the products that they sell here in the United States to Americans.

    So we are here because, while our foreign competitors can get cheap transportation to carry their products to our customers in the United States, we cannot. The Jones Act ties our hands behind our backs, puts our companies' employees on the line every single day.

    In many of our markets, Jones Act qualified ships are simply not available, not timely, not the right vessel, or just too expensive.

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    This is a simple question: fairness. A few carriers benefit at the expense of 240 million of the rest of us.

    Mr. Chairman, our foreign competitors can use cheap, water-borne transportation to get their products here, wherever they live. No laws on our books prevent foreign ships from coming in. So the really sorry, bizarre fact is that the only people in the United States who cannot get ships to sell or buy from Americans are Americans.

    It doesn't have to be this way. Americans own the third-largest fleet in the world, some 1,190 ships, but the Jones Act prohibits nearly 90 percent of these ships, these American-owned ships, from trading in the United States.

    The Jones Act, which reduces the number of ships available, increases the cost not only of ships, but truck and rail, since it shifts cargo and reduces their direct competition, costs Americans billions each year in lost production, foregone competitiveness, sales lost to foreign competitors. Tens of thousands of Americans lose their jobs in steel, autos, agriculture, timber, mining, and energy—all jobs effectively exported overseas to cheap foreign labor.

    The carriers who benefit from the Jones Act subsidy—and it is that—the shipyards which benefit not at all but haven't figured it out yet, even the Maritime Administration all seem to think we're either a pretty ignorant or alternatively greedy bunch, to quote Mr. Sako, who I think you'll hear from later. After this hearing, I hope you'll be able to judge for yourself which group best fits that description.

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    Mr. Chairman, you've already heard part of the story. Mr. Saunders will tell you and the rest of the committee how the Jones Act affects his ability to buy American feed grain.

    Senator Grassley would be able to tell this committee how it affects his farmers in Iowa.

    Mr. Chairman, it also affects the port of Wilmington, reduces the number of ships that can call there and might in the future.

    There is not a single coastal freighter operating off the east coast of the United States. One ship of only 100 TEUs would create 70 jobs in every one of your ports in a single year.

    Mr. Oberstar, who was here earlier—his farmers are members of my group because they can't transport their grain to Mr. Coble's District. North Star Steel in that District faces a shortage of gondola cars it uses to carry scrap for the mills because the Jones Act shifts waterborne cargoes from ships to rail and fills them up elsewhere.

    In Mrs. Fowler's District in Florida—we'll be hearing from Green Cove Maritime—Jacksonville Electric Authority brings in all of its coal from Colombia because the Jones Act makes it too expensive to bring it to the United States.

    In Oklahoma we have two major members, W.B. Johnson Grain and Guthrie Corporation, members of our group.
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    In New York—Dick Kurcina will bring you his story, but let me note for you that the 1,200 members of the American Association of Exporters and Importers endorsed us yesterday, saying that their companies cover textiles, apparel, chemicals, machinery, electronics, footwear, food, and many other items from all across this country, from Pennsylvania to California to Mississippi and every single one of the Districts represented on this panel.

    The Jones Act, they said, restricts our ability to compete.

    In Ohio, similar things. In California, American President Lines has a substantial operation in the 10th District of California. When they wanted to enter the Jones Act trade in Hawaii, a billion-dollar trade, Sea-Land and Matson Navigation Company, who will testify later, and which enjoy, respectively, a 32 and 68 percent market share, kept them out.

    Mr. Chairman, this is a law that affects every single District. We have example after example.

    We thank you for the opportunity.

    Mr. COBLE. I thank the gentleman.

    As you want to, in order of appearance. Mr. Kleckner?

    Mr. KLECKNER. Thank you, Mr. Chairman.

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    I'm Dean Kleckner, president of the American Farm Bureau, the largest organization of farmers and ranchers in the country.

    My farm is in north-central Iowa. I grow corn, soybeans, and hogs on my farm.

    I'm here to express our support for the long overdue reforms desperately needed in maritime shipping laws. Two of these are distorting trade and pricing for American agriculture.

    First, cargo preference has been mentioned this morning. Currently 75 percent of food aid shipments must be transported on U.S.-flag vessels. The companies that operate U.S.-flag vessels routinely charge the Federal Government from 100 to 300 percent over market rates to transport the Government cargoes.

    According to OMB, all cargo preference requirements will cost the Government, the taxpayers, $592 million this year. Of this amount, $126 million will be the additional cost for food aid.

    It is estimated that all cargo preference costs of $592 million is enough to feed half a million children in Africa each year.

    The second piece of legislation, the one most of us are concerning today, is the Merchant Marine Act of 1920, the Jones Act.

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    U.S. farmers are major users of water transportation, including bulk shipping and containers. By raising the cost of transporting our products, these maritime laws substantially undermine the ability of American farmers to compete with foreign producers, all of whom move their products into our markets on competitive foreign vessels. The result is lost sales and lost American jobs.

    International shippers appear to be efficient and market-driven in a way that domestics are not.

    The Jones Act is perhaps the prime example of Government regulation of an industry that should be allowed to function according to market forces. It has failed to compete because the Government has provided a monopoly that shelters it from market competition. They simply don't have to.

    We strongly support market-driven freedom of choice in transportation options for our farmers.

    We oppose laws such as the Jones Act and cargo preference regulations which deny them the opportunity to seek the most cost-effective and efficient means of transportation.

    We favor the development of the most economical and energy-efficient methods of meeting our transportation needs. Water transportation is environmentally friendly. It's the most environmentally friendly of the major transportation modes. It can be cost effective with reform of the Jones Act and an end to cargo preference.
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    American maritime companies claim the Jones Act lets them operate on a level playing field with foreign companies, but, in fact, it gives them a captive market.

    There is something wrong with a law when American livestock farmers in one region of the country cannot get water transportation access to American grain grown elsewhere. For some ports, like the Great Lakes, Jones Act vessels are just not available for bulk transportation; thus, Mr. Coble, in your District you can't access grain from that region by water.

    They are, however—your farmers, other farmers—free to purchase grain from Canada or Argentina, our competitors, again creating loss of sales and American jobs.

    It makes no sense for a cattle producer in Hawaii—they can ship their cattle for processing cheaper than they can to the mainland. U.S. processing jobs are lost.

    Our potato producers on Long Island are kept out of the market in Puerto Rico because Canada can underprice them with cheaper shipping costs.

    It's no wonder American farmers are frustrated with subsidizing the shipping industry, and I think that's what it is.

    These examples confirm there is a fundamental problem inherent in the system. The bottom line is that cargo preference and the Jones Act are simply bad economic policies.
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    It is often argued that it would be unfair to American water carriers to make them compete with international competitors not subject to the same environmental, safety, and tax laws to which they are subject, but American farmers compete every day with foreign aid producers, none of whom are subject to EPA, OSHA, or U.S. labor and tax laws.

    We do have concern about the economic viability of the U.S. merchant marine. We're willing to work with the domestic maritime industry to arrive at mutually advantageous solutions, but American agriculture is forced every day to consider the bottom line in a competitive international market. The maritime industry should do no less.

    Jones Act reforms are needed that will enhance the competitive position of American agriculture and the other sectors by making the domestic carriers more cost competitive with international providers. In the meantime, until the U.S. merchant marine makes the changes necessary for it to be truly competitive, limited and controlled access to domestic markets by foreign shipping lines should be allowed for the good of all industries, including the maritime industry, itself.

    Thank you, Mr. Chairman.

    Mr. COBLE. Thank you, Mr. Kleckner.

    Who wants to go next? Mr. Bryan?

    Mr. BRYAN. Good morning. My name is Michael Bryan. I'm from the State of Hawaii. Aloha to you all.
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    I represent the Hawaii Cattleman's Council Transportation Committee and am the livestock marketing manager for Parker Ranch.

    We appreciate this opportunity to testify before this committee this morning. The Hawaii Cattleman's Council is a State-wide organization made up of 110 cattle ranches from all over the State.

    Since the late 1980s, the Hawaii beef cattle industry has undergone profound change. No longer are the majority of the State's beef cattle fed and processed in the State. Instead, the State's calf crop is exported to North America. Currently, our industry exports approximately 70 percent of its production, in excess of 46,000 head a year.

    There are several reasons for this change in marketing. The most significant was the closure of the largest processing and feeding company in Hawaii, the Hawaii Meat Company.

    Another thing that happened was that the largest bulk feed and milling company in the State also closed, partially due to cost of transportation of feed grains to the State of Hawaii under the Jones Act.

    The economies of scale that exist on the mainland U.S. are not available to us in Hawaii. We looked very extensively at replacing these facilities for processing and feeding, but under today's situations they were not economically feasible.

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    To give you an example, if all the cattle in Hawaii were killed in one plant, it would be a total of only 300 a day. Here on the mainland they kill 300 an hour.

    Rather than raise our calves to market size, we must now ship them out of State, and mostly to the mainland U.S, which is our best market, for finishing and processing. As such, ocean transportation has become a very, very important part of our process.

    Only by developing cost-effective, efficient shipping of our calf crop can the cattle producers in Hawaii hope to stay in business. In fact, if we were able to get a good shipping situation from Hawaii to the mainland, we'd probably be able to expand our cow herds by about one-third.

    There are three main ways that we do ship cattle to North America today. One is the ''cow-tainer.'' It's a container that was built by the cattle industry using 40-foot high cube containers using Matson Navigation's existing container ship service to the U.S. west coast ports.

    Number two is air cargo, as a back-haul on regularly-scheduled freight planes out of Honolulu to the west coast.

    Number three is livestock carrier ships, which are specially designed and built vessels to carry livestock, used all over the world, but there are no such ships in the U.S. fleet. Due to Federal shipping laws, they are unavailable to Hawaii cattle producers to ship cattle to the U.S. mainland, which is the best market.

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    There are inherent restrictions on the cow-tainer and air cargo options. Limitations using the cow-tainer include limits on the height and size of cattle that can be shipped, limited numbers of containers per voyage on container ships, thus limiting the number of animals—usually not more than 1,200 head per voyage that can be transported in a given period of time.

    Three, large investment in equipment and maintenance cost of that equipment by the cattlemen, themselves, not the carrier.

    Four, limited ports of call on the west coast and many other logistical and scheduling problems which are not the case when you use a contract shipping boat.

    It is interesting to note that the white pineapple producers are charged less than $1,200 per container provided by the carrier to send their product to the mainland. Hawaii cattle producers are charged over $2,400 for a container or a cow-tainer, or double the cost per container that is owned and build by the cattle producers, themselves.

    Initially, during the development of the cow-tainer system, the charge was $1,200, but by some magical, unknown reason it has now become $2,400 to ship our calves to the mainland in containers owned and built by cattlemen.

    The air transportation is limited by the air conditioning system on these 747s and also by the amount of empty crates that can be returned on a front haul back to the State of Hawaii.

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    The only mode of transportation that would allow the industry to ship the majority of its cattle when market and weather conditions are most favorable is the livestock carriers.

    The concept of getting these calves to the spring and fall grass seasons on a timely basis is extremely important.

    On a broader view, a law enacted in 1920 that was created to guarantee the use of rail transport between Washington State and the then territory of Alaska has limited competition and created higher cost for doing business in the State of Hawaii.

    We appreciate being able to testify before this committee this morning and will be happy to answer any questions you may have.

    Thank you.

    Mr. COBLE. Thank you, Mr. Bryan.

    Before we recognize the next witness, I will—Mr. Shuster, I was just getting ready to recognize you.

    The chairman of the full committee has joined us. Did you want to say a word, Bud?

    Mr. SHUSTER. I'm just happy that you're holding these hearings, Mr. Chairman. I've reviewed all the material in the book and I think we're going in the right direction.
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    Thank you.

    Mr. COBLE. Thank you, Mr. Chairman.

    Mr. Saunders?

    Mr. SAUNDERS. Thank you, Mr. Chairman and members of the subcommittee. My name is William B. Saunders. I'm a ninth-generation American. All of my ancestors have lived in the middle Cape Fear region of North Carolina since colonial times. I am a veteran of the U.S. Air Force, having served in the defense of our Nation during the mid-1960s at home and overseas.

    I'm appearing today on behalf of Murphy Family Farms and a coalition of five other eastern North Carolina farming businesses that are engaged in the production of livestock and poultry in North Carolina.

    Pork and poultry production generates over $3 billion in cash receipts per year in North Carolina and provides for over 52,000 jobs in North Carolina, alone.

    North Carolina farms and businesses consume far more grain and oilseed meals than we or our fellow North Carolina farmers are able to produce. Currently, the group that I represent here today consumes some 116,000 tons per week of total feed ingredients, the majority of which, 90 percent or more, consists of grains and oilseed meals. Annually, we consume over 6 million tons of feed, or the contents of over 60,000 covered hopper cars, or over 200 30,000-ton ships.
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    Our organizations represent only a portion of the demand base for these products in North Carolina, yet last year our farmers produced less than 2.1 million tons of corn and 0.8 million tons of soybeans in North Carolina. This is less than half enough to meet the annual demand of the six farming enterprises that I represent here today, leaving no local production to address the needs of other consumers in our State, and they are many.

    Thus far, we have relied upon rail transportation originating in the eastern grain belt States to augment local supplies. As our demand increases, we will likely continue to use rail transportation as our primary source of grains and oilseed meals from production areas outside North Carolina; however, we are beginning to experience the symptoms of over-taxing the capacity of the rail carriers who serve us to consistently deliver high volume, uninterrupted service year-round.

    Additionally, realization of the risk inherent in relying too heavily on a single source of dry bulk transportation to feed live animals and poultry is becoming far too real when we have had major service interruptions on several occasions within the past year.

    We're convinced that the only other viable transportation route that can practically and regularly supply the volumes that we require must include some movement by water. Yet, after some 5 years of diligent effort, the only reasonably competitive cargo of these raw materials that we have been able to procure via water has been foreign cargoes delivered to the port of Wilmington on foreign vessels.

    This seems illogical to us because we know that the United States is the most efficient and prolific producer of grains and oilseed meals in the entire world, and that our country serves as the world's repository of supply of these invaluable resources.
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    Why can we not access these domestic resources via water consistently and competitively?

    We believe that a major impediment lies within the constraints imposed upon us and others by the Merchant Marine Act of 1920, more commonly known as the Jones Act.

    We believe that fair and reasonable reform of this law is desperately needed the help rebuild a viable, competitive United States domestic shipping industry and to enhance the competitive position of ours and other American agricultural producers and businesses.

    In America we are blessed with abundant natural resources, favorable climate, and unmatched productive capacity for producing food. However, these resources exist in disparate quantities and locations within our country and must continue to be connected by a modern, reliable, and highly-efficient transportation infrastructure which incorporates all modes of transport.

    Without a coastwise component in this modern, competitive transportation infrastructure, we believe that we will experience the not-so-gradual erosion of the economic viability of our existing capital asset base in North Carolina.

    That erosion would further lead to the economic demise of thousands of our good citizens who depend upon the animal and poultry production industry of North Carolina for their livelihoods.
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    Thank you for this opportunity, Mr. Chairman.

    Mr. COBLE. Thank you, Mr. Saunders.

    Mr. Lucas?

    Mr. LUCAS. Thank you, Mr. Chairman.

    I'm Steve Lucas. I'm vice president of Louis Dreyfus Corporation. I'm a seventh-generation American and, contrary to what you may hear later on in testimony or may read, I am employed by a company that was incorporated in the State of New York in 1940, which I will dare say is 56 years ago next week.

    We are an American company, employing Americans, paying American taxes, complying with all American laws.

    I appear before the committee today on behalf of the National Grain and Feed Association, which is composed of more than 1,000 grain feed and processing firms nationwide and represents 38 affiliated State and regional associations, with more than 10,000 member firms.

    I have the honor to serve as chairman of the NGFA's Waterborne Commerce Committee.

    The NGFA wishes to commend you, Mr. Chairman, for your courage and interest to hold this hearing on the Jones Act and other aspects of the maritime policies vital to the agricultural community in the United States.
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    The three pillars of U.S. maritime policy—the Passenger Ship Act of 1898, the Jones Act of 1920, and the Merchant Marine Act of 1936—have not been subjected to any meaningful Congressional scrutiny in over 40 years. In the last 18 months, the producers, shippers, and processors of America have joined together to attempt to reform these policies that date from the Administrations of William McKinley, Woodrow Wilson, and Franklin Roosevelt.

    I'm proud to say that my company and the National Grain and Feed Association have been leaders in this movement.

    The debate which this movement has provoked throughout the maritime industry, however, has often been marked with personal attacks, inaccurate statements, and misleading assertions. The time has come to examine some of these arguments in the cold, hard light of Congressional scrutiny.

    One of the foremost arguments given for preserving the Jones Act is that the advocates of reform of American maritime policy are merely greedy shippers and shills for foreign interest. Let me give you a quote from the most recent issue of the American Maritime Officers' Service Report. ''Politically powerful domestic and multi-national business interests see domestic maritime markets as a source of substantial new profit derived from the use of unregulated, cut-rate, foreign-flag ships such interests own, operate, or hire. They have everything to gain and nothing to lose from cracking the cabotage barrier.

    ''However, the immediate goal of those hoping to force repeal of the Jones Act is to force lower freight rates from railroads carrying feed grains from midwest points to pig and poultry farm interests on the east coast by exposing the rail lines to competition from foreign-flag vessels.''
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    Mr. Chairman, nothing is further from the truth. As you have heard and will hear from other witnesses today, the advocates of maritime policy reform are a wide cross-section of the American business community. All of us are Americans whose patriotism should not be questioned for advocating a change in the outmoded transportation policies.

    Another assertion you will hear is that we are opening America to cheap foreign labor. Mr. Chairman, I will tell you that no witness on this panel or the following panels are advocating that marine, rail, truck, air, or bus jobs be given over to illegal immigrants.

    What we are advocating today is a reform of the present U.S. maritime policy.

    We are advocating a new era of deregulation and desubsidization for the maritime transportation industry like we have seen in the rail and truck sectors in recent years.

    We are advocating that the producers, shippers, and processors of America be allowed to avail themselves of the most efficient, environmentally-friendly, and safest method of transporting their goods at rates which are competitive in the global marketplace.

    With thank you, Mr. Chairman. We'll take any questions you may have.

    Mr. YOUNG [assuming Chair]. I'm was just filling in until the chairman can get back. I'm glad he got back because I'm loaded for bear. Go ahead.

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    Mr. COBLE [resuming Chair]. As I said before, gentlemen, we have simultaneous committee meetings going on. I have to run back and forth to Judiciary, and I apologize for the abrupt departure.

    Thank you all, gentlemen, for being here.

    Let me start with Mr. Quartel.

    Mr. Quartel, would foreign-flag vessels operating in U.S. waters have to employ United States labor? And would these vessels have to comply with U.S. laws governing the environment and the work force, health, and safety?

    Mr. QUARTEL. Mr. Chairman, thank you. As you know, there are no laws at all today that forbid foreign vessels from being in the United States waters, including up our rivers. Of what goes to and from the U.S., 92 percent is on foreign flag.

    When they are in our rivers, when they are in our harbors, when they are on our coasts, they are required to obey U.S. Coast Guard laws on safety, environmental, etc.

    The performance we propose, which is in our testimony, proposed two things. One is, we actually propose a number of things that the ship owners have, themselves, requested, including in the Coast Guard bill requesting that ship owners and operators comply with the international rules that this committee has already said is an important thing, rather than being disadvantaged by the differences.

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    Secondly, we would require and the Helms bill requires in the Senate, that on ships operating on a regular basis in the United States, that they hire American workers.

    Today we have not a single coastal freighter running off the east cost, none intercoastal, one dropping by in California. We're trying to get more ships into the coasts and to save those jobs for Americans.

    Mr. COBLE. Thank you, Mr. Quartel. I've got a 5-minute rule, too, so I have to move along.

    Mr. Saunders, I assume—strike that. Let me reframe that. Am I correct in assuming that most of your grain and feed come to you by rail and/or truck over land?

    Mr. SAUNDERS. Most of it comes by rail from the eastern growing areas of our Nation.

    Mr. COBLE. Now, assume for the moment, Mr. Saunders, that the Jones Act will be repealed today. Would you all at Murphy Farms make an effort to try to get more of your feed stuff delivered by water?

    Mr. SAUNDERS. Yes, sir, we would. We have been making that effort for some extended time unsuccessfully.

    Mr. COBLE. Would there be adequate storage at Morehead City and Wilmington, which would be the two primary ports for Murphy, maybe Charleston in the alternative? Would there be adequate storage facilities at those three ports?
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    Mr. SAUNDERS. Sir, for the grain and oilseed meal products that we bring in, there is not existing storage. We have brought in foreign ships and unloaded them in a very short period of time and moved this grain inland 50 to 70 miles as the vessels were unloaded and put them in the storage repositories that we do have at our manufacturing facilities.

    It would be—part of an efficient system would be a surge capacity to offload the vessel and extend the time for drawing it away from the port, which I think would be an instrumental part of new construction at our ports should we be able to come out from the constraints of movement.

    Mr. COBLE. Mr. Kleckner, some opponents to the Jones Act reform have argued that water transportation costs are such a small part of the final cost of goods that the rates have little effect on the goods' domestic or international competitiveness. How would U.S. farmers respond to that?

    Mr. KLECKNER. They wouldn't agree. It is one part of the cost, Mr. Chairman, as you point out, but it is one part and it would be—if you can get rates lower, it makes us more competitive.

    I think the food aid issue that I mentioned, 75 percent requirement now under cargo preference has to go on American-flag ships at tremendous higher rates, which means less food aid dollars than are used for the food aid.

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    So whether it's cargo preference or the other Jones Act requirements that make rates higher, it is a part of less competitive American farmers' products.

    Mr. COBLE. Mr. Bryan, in your testimony you indicated that the largest bulk food and feed milling company in Hawaii shut down or closed, in part due to cost of transporting feed grains under the Jones Act.

    Elaborate a little more in detail about the relationship between the closure of that facility and the imposition of the Jones Act.

    Mr. BRYAN. Well, the particular company involved had a contract to use a barging operation out of the Pacific northwest, and they had to use that barge, and that barge was a Jones Act vessel, so it had to comply with the various other laws. At the same time, I was running a feed yard which is right next door to that particular facility, and I was bringing in grain from Canada, because in a foreign bottom, beating their freight rates by over $20 a ton.

    Mr. COBLE. Mr. Lucas, I have a question for you, but the red light has my name on it so I will withdraw and recognize the gentleman from Tennessee.

    Mr. CLEMENT. Mr. Quartel, the Budget Act requires that any legislation that costs the Federal Government money include new revenues to offset these expenses.

    The Maritime Administration has guaranteed over $1.6 billion in mortgages for U.S.-flag vessels engaged in the coastwise trade. Since a bill to repeal the Jones Act must include new revenues to pay for this $1.6 billion, whose taxes should be increased to pay for the repeal of the Jones Act?
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    Mr. QUARTEL. Congressman, I'm a republican. I don't believe in raising taxes or anything but cutting expenditures.

    Walter Heller, during the Kennedy Administration, proposed that if you eliminated or reformed the Jones Act some 35 years ago, that what you would do, first of all you would find an increase in tax revenues to the Treasury because of the impact of the act on consumers. The ITC said that it may cost $3.8 billion, which translates into roughly $1.2 billion in lost tax revenues.

    The way they would have handled it then is given a 3-year carry-forward or a 3-year carry-back, so you basically would have paid off the residual Jones Act asset value, remaining value, that $1.8 billion, probably about $900 million of that is Jones Act.

    So you would neither have to raise taxes, you wouldn't have to cut expenditures. After 1 or 2 years, it would keep returning to the Treasury billions of dollars.

    Mr. CLEMENT. Well, the Budget Act does not allow that, but let me ask you this: if it comes down to it, is your number one priority to balance the budget or reduce taxes?

    Mr. QUARTEL. I think you can do both.

    Mr. CLEMENT. Mr. Quartel, the ITC study which you have quoted also found that repeal of the Jones Act leads to a loss of jobs in our Nation's agricultural and forestry sectors. Do you agree with that conclusion?
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    Mr. QUARTEL. Number one, let me make it clear, we are not supporting repeal. We support reform, in spite of what others have said about us.

    If you talk to the ITC, actually, what they show, when you go into the details of the model, is substantial job losses to agriculture, farming, and all the rest of these sectors if you do not reform the Jones Act. You may want to ask them to clarify that for you.

    Mr. CLEMENT. Mr. Saunders, I understand that you used a foreign vessel to move feed from Canada to North Carolina and then had it trucked to your farm. Was this successful? And have you done it again?

    Mr. SAUNDERS. It was successful at the time. We were able to unload it in a very short period of time. Contrary to some of the thought processes and dissertations that were made at the time, it didn't—it lasted us less than 4 days, so yes, we would like to do it more often and we can do it. There are no constraints to us for buying foreign grains and oilseed meals on foreign vessels. We can do that today, tomorrow, next week, and forever.

    What we would like to be able to do, frankly, is to buy our own production because our own production, quite frankly, is less costly, higher quality, and more abundant year round, year in and year out, by water.

    We buy it by rail. We are faced with some constraints. The railroad system actually is at the mercy of the weather a considerable number of times during the year, and one reason we can't take those risks is these animals are alive and they eat 7 days a week, 52 weeks a year, and we just must have an effective backup transportation system to keep them fed.
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    Mr. CLEMENT. Mr. Saunders, other witnesses are going to testify concerning their willingness to work with you to get U.S.-flag bulk service to move your grain. I'd like to ask you to keep the subcommittee informed on the schedule and progress of these negotiations.

    Mr. SAUNDERS. Certainly, sir. We have already been visited, and we have invited them for some time, and they have visited us, but we have yet to be presented with a solution to our problem, and we have yet to be quoted a commercial competitive rate by a Jones Act carrier.

    Mr. CLEMENT. Mr. Lucas, how many foreign-flag vessels does Louis Dreyfus Company own or operate, and under what flag do they operate?

    Mr. LUCAS. Louis Dreyfus Corporation does not own or operate any foreign-flag vessels. We are a U.S. company.

    Mr. CLEMENT. Mr. Lucas, if the Jones Act is repealed, does Louis Dreyfus Company stand to financially gain by operating their foreign-flag vessels in the coastwise trade, because I think you do have some subsidiary companies, don't you?

    Mr. LUCAS. No. We have sister companies with whom we conduct arm's-length transactions in the shipping business. Yes, that is true. However, I will tell you—and I have been on the record many times before when people have asked me what is in this for Louis Dreyfus Corporation, and I will give you the same answer that I have given them on the record: not one dime. Reform of the Jones Act will not put one dime in our pockets.
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    Mr. CLEMENT. All right. Thank you.

    Mr. COBLE. Thank you.

    We've been joined by an additional member of the subcommittee. The gentleman from Alaska, Mr. Young, is recognized for 5 minutes.

    Mr. YOUNG. Thank you, Mr. Chairman.

    This is an interesting subject. As one that has a little bit to do with maritime, I'm always interested about those that would like to get the foreign industries and the foreign companies and the foreign shipping interests into our waters.

    I have watched this over the years, watched the crews, watched the condition of their ships, and I'm not terribly impressed.

    But I just want to ask you, Mr. Quartel, I'm deeply involved in the military end up at my State, and I just received a letter from 61 retired Navy admirals, five former chiefs of operations, and they all say that the domestic fleet is crucially important to our security. Would you agree with that?

    Mr. QUARTEL. Mr. Young, I might point out something about that letter. It's from the American Security Council. There are actually 52 admirals on it. The people referenced at the rear of it, five of them are dead. One of the key people listed on the letterhead is one of my members—
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    Mr. YOUNG. You have one great habit. I'm not going to put up with it. You answer my question. Do you agree or do you not agree the domestic fleet is important? That's the question. Don't—

    Mr. QUARTEL. It is not important. It was not used during the Gulf War.

    Mr. YOUNG. It wasn't used?

    Mr. QUARTEL. No.

    Mr. YOUNG. So you don't think it's important?

    Mr. QUARTEL. Not in the Gulf War it wasn't.

    Mr. YOUNG. Now, you would also disagree with the Members of Congress and Merchant Marine panel that have signed the military importance about the Jones Act?

    Mr. QUARTEL. Yes, sir, I would, as with the military people.

    Mr. YOUNG. You would disagree with them. You also disagree with Admiral Herberger?

    Mr. QUARTEL. Yes, I do, sir.
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    Mr. YOUNG. You do. Have you had any military time? Have you spent any time in the military?

    Mr. QUARTEL. I had 2 years in ROTC, like many people my age.

    Mr. YOUNG. ROTC. That reminds me of our President.


    Mr. QUARTEL. Unlike the President, I did do it.

    Mr. YOUNG. Just out of curiosity, would you also agree with the ITC that the probably nine additional—

    Mr. QUARTEL.—60 shipyards were closed in the last 10 years.

    Mr. YOUNG. I didn't say closed. &&&

    Mr. QUARTEL.—might well, but I doubt it.

    Mr. YOUNG. You do agree there would be nine more closed?

    Mr. QUARTEL. I said I doubt it, based on the historical—
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    Mr. YOUNG. You doubt if they'd be closed. That's interesting. ITC—but you do recite ITC figures. You do use them in your testimony?

    Mr. QUARTEL. Yes, sir.

    Mr. YOUNG. But now you disagree with them closing the shipyards?

    Also, on your home page, you note the Jones Act may cost the U.S. Treasury about $21 billion in lost revenues. Whose statistics are these?

    Mr. YOUNG. These are developed from the earlier ITC numbers that said there were $10 billion plus lost a year. If you take dynamic scoring, that's $3 billion a year lost in tax revenues times 7 years.

    Mr. YOUNG. Has the Congressional Committee on Joint Taxation confirmed this figure?

    Mr. QUARTEL. I haven't asked them to, but I suspect they'd confirm part of it.

    Mr. YOUNG. Part of it? What part of it?

    Mr. QUARTEL. They would take the lower of the upper estimate. And we have talked to staff members, sir.
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    Mr. YOUNG. You also cite a number of supporters for your reform coalition of 860,000, even though only 80 organizations are on your public documents. Where are those 860,000 coming from?

    Mr. QUARTEL. They are members of these organizations and we are now joined by a million taxpayers in NTU, CGS, etc.

    Mr. YOUNG. What company organization is the source of many of your members?

    Mr. QUARTEL. I'm sorry? Say that again?

    Mr. YOUNG. What is the most of your members? What company organization is the source of most of your members?

    Mr. QUARTEL. I don't think there is a single sector that is unrepresented now. We have steel, auto in Tennessee—

    Mr. YOUNG. What is the number—the most members belong to your organization?

    Mr. QUARTEL. I don't think I'm quite following you.

    Mr. YOUNG. Which members are numbered the most that belong to this so-called 860,000? Which groups? Which group?
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    Mr. QUARTEL. Probably taxpayers now.

    Mr. YOUNG. Which taxpayers?

    Mr. QUARTEL. Independent taxpayer groups.

    Mr. YOUNG. Independent taxpayers groups?

    Mr. QUARTEL. Yes. The National Taxpayers' Union, Citizens Against Government Waste, Americans for Tax Reform, Citizens for a Sound Economy, and the Competitive Enterprise Institute.

    Mr. YOUNG. With all due respects, they don't impress me a whole lot, because they are also doing some other things that I don't totally agree with.

    You frequently charge American shipping companies with looking out for their own economic interests. Don't you think that a company like Louis Dreyfus, with all those foreign-registered vessels, also has a little interest?

    Mr. QUARTEL. I suspect their sister company has, but I understand they deal with them in an arm's-length relationship and they hire as many from—in fact, they would probably hire many more from—

    Mr. YOUNG. Mr. Lucas, how far is your length away from your sister?
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    Mr. LUCAS. How far?

    Mr. YOUNG. Yes. I mean, I've heard this. This is very interesting to me if you've got a sister that you don't really talk to. How close is she?

    Mr. LUCAS. I will tell you that I cannot remember the last time that we had a ship-owning division vessel chartered by the American company to come to the U.S. to load grain. Frankly, the rates are better in other employment for those vessels, and they would just as soon not talk to us.

    Mr. YOUNG. But you have some interest or it wouldn't be your sister, correct?

    Mr. LUCAS. I'm not following your question, Congressman.

    Mr. YOUNG. You have some interest in their well-being, correct?

    Mr. LUCAS. We have an intellectual interest, but they—

    Mr. YOUNG. You have no financial interest at all?

    Mr. LUCAS. Not in that—

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    Mr. YOUNG. In your stock or nothing? There is no relationship at all? Remember, you're before this committee now, so be very careful how you answer this question. There is no relationship at all?

    Mr. LUCAS. I believe there is no stock relationship, no ownership relationship between the ship-owning division—

    Mr. YOUNG. No financial relationship?

    Mr. LUCAS.—and the corporation for which I work. I believe that to be true.

    Mr. YOUNG. We will be reviewing that, Mr. Chairman.

    Mr. COBLE. Gentlemen, I'm going to get the Wolf Man off your back and get him on my back by reminding him that the red light shines.

    Gentlemen, thank you all for being here. This concludes the second panel.

    We have a vote on the floor and we will return imminently, so we'll stand in recess.

    Thank you again, gentlemen.

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    Mr. COBLE. The subcommittee will come to order.

    I'm pleased to welcome you gentlemen with us this morning—this afternoon now, I guess. The third panel consists of: Mr. Philip Grill, Vice President, Government Relations, Matson Navigation Company, Chairman and representing the Maritime Cabotage Task Force; Peter J. Finnerty, Vice President, Public Affairs, Sea-Land Service, Inc., representing the Transportation Institute; Arthur J. Volkle, Jr., Associate General Counsel, Maritrans Operating Partners, L.P.; Thomas A. Allegretti, President, American Waterways Operators; George J. Ryan, President, Lake Carriers' Association; and Michael G. Roberts, Vice President, Government Relations, Crowley Maritime Corporation.

    Gentlemen, I permitted the preceding panel to name their own poison as to order of appearance, so I will extend the same courtesy to you all.

    Mr. Grill?


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    Mr. GRILL. Good afternoon, Mr. Chairman.

    My name is Philip Grill. I'm vice president of government relations for Matson Navigation Company. Matson is a Jones Act liner operator that's served the west coast-Hawaii trade for the last 114 years.

    I'm pleased to appear before you today as chairman of the Maritime Cabotage Task Force. This task force is a coalition of over 400 American maritime companies, labor unions, trade associations, and pro-Defense groups that have joined together in support of the Jones Act. These companies represent every facet of the American maritime industry.

    I'm also pleased to report that our task force membership includes the Air Line Pilots Association, the Locomotive Engineers, the Teamsters, and the American Trucking Association. These organizations are members because what is involved here is not just a maritime issue. What we're talking about involves a much broader principle of providing a level playing field to any company or any person that does business solely within our domestic economy.

    If foreign ships, exempt from American law, employing Third World crews, are allowed to carry America's domestic water-borne commerce, there is no reason why a similar principle cannot extend to other forms of transportation or other American business.

    The U.S. ownership requirement of the Jones Act is based in national security. A nation needs control over its own domestic transportation system.

    Speaking of national security, I am informed that all signers of the letter from the American Security Council are alive and well, contrary to the testimony that you heard here a few minutes ago.
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    The U.S. built requirement is also based on national security considerations. Of course, the shipbuilder panel will address that.

    But it is the U.S. registration requirement, particularly from the standpoint of the operators, that is the fundamental issue here.

    U.S.-flag ships employ American citizen crews. We're subject to the full application of American law, including corporate taxation, the National Labor Relations Act, the Fair Labor Standards Act, and so on. We also build our ships to a higher U.S. Coast Guard standard to ensure vessel safety.

    Foreign ships are subject to the laws of the country whose flag they fly. They employ Third World crews. They enjoy other advantages from direct subsidy to outright tax exemption.

    Bringing these foreign ships with these advantages into the domestic American economy would be completely unprecedented in any other sector of American business.

    I would like to say or point out that when Congress deregulated the airline industry, the trucking industry, the railroad industry, this was economic deregulation, but there was no consideration given at that time for allowing foreign transportation companies into the United States to compete for domestic commerce.

    Finally, I'd like to say I think there is a great deal of confusion on one issue I'd like to clear up, and that is that the open skies agreements and NAFTA strictly apply to the movement of international passengers and cargo. They do not affect the domestic cabotage requirements and would not allow foreign truckers or airlines to move passengers—domestic passengers or cargo.
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    That concludes my opening statement, Mr. Chairman, but since I still have the green light I would like to take one comment and say that 3 or 4 years ago they closed the slaughterhouse in Hawaii, the immediate reaction causing the demand for the movement of live cattle eastbound from Hawaii to the mainland. The immediate reaction of the cattle industry in Hawaii was to repeal the Jones Act because no service exists. The reason no service existed was because there had never been a need for it before.

    When those circumstances changed 3 or 4 years ago, we worked with the industry, and now Matson moved in 1995 34,000 head of cattle, essentially going from 1,500 or 3 or 4 years ago. We moved those cattle at the same rate as the foreign-flag cattle ship that employs Third World crews and pays I don't know what taxes and complies with whatever safety standard I don't know.

    We moved those animals at the same rate.

    One more point, since it's still green. One more point is that this vessel right here moves bulk cargo from Tacoma, Washington, to Honolulu at $25 a ton. That's the same rate. And it moves sugar back from Honolulu to the west coast at $20 a ton. That's essentially the same rate as the foreign-flag rate for movement of grain out of Vancouver, B.C., to Honolulu.

    Mr. COBLE. Mr. Grill, I'm going to ask you to conduct classes on how you stay within the 5-minute time frame. You done good, as we say in the rural south.

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    Mr. GRILL. Thank you.

    Mr. COBLE. Whoever would like to be second, step to the plate.

    Mr. FINNERTY. I guess I'll go next. I think I'm listed as the second person, Mr. Coble.

    Mr. CLEMENT. Good to see you, Peter.

    Mr. FINNERTY. Good morning, Mr. Chairman. I am Peter Finnerty, vice president, public affairs, for Sea-Land Service, and vice president, maritime affairs, CSX Corporation.

    Thank you for this opportunity to testify today.

    I am representing the Transportation Institute, on whose board of directors Sea-Land serves. The Transportation Institute is comprised of over 140 U.S.-flag vessel operators engaged in all aspects of maritime transportation, both in the foreign and domestic trades.

    These include companies operating solely on the Great Lakes, serving the off-shore trades, dredging the Nation's ports and waterways, operating passenger vessels on the inland waterways and among the Hawaiian islands, and companies operating tugs and barges along the coastal and inland waterways.
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    The domestic Jones Act fleet transports about 1.1 billion tons of cargo annually, valued at about $222 billion. The cost of that water transportation is about $12 billion, or only about 6 percent of the value of the cargo.

    America's Jones Act transportation system is efficient and competitive. Service standards are world class.

    Sea-Land pioneered containerization in the Jones Act trades 40 years ago this year. Today Sea-Land operates throughout the world, with over 105 container ships, including service to Alaska, Guam, Hawaii, and Puerto Rico.

    Jones Act carriers, we wish to note and to emphasize, are privately-owned companies. They are not Government-owned or Government-controlled entities, as in many foreign fleets.

    American carriers have invested about $26 billion of private capital in the Jones Act fleet. These investments could be increased at any time if Wall Street or any American entrepreneur decides to expand the U.S. fleet.

    The Jones Act trades are completely open to new investment and expanded service by any American willing to compete against existing water carriers and competing modes on the mainland. They are free to compete with one vessel or with hundreds. There is no license, there is no barrier, there is no monopoly hindering them, and I defy the opposition to explain what they mean by this mythical monopoly.
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    They may charter or they may own these vessels, and they may carry their own cargo or they may seek cargo from others, but in all instances they must, of course, comply with U.S. laws at the Federal and local level.

    The existing domestic shipping industry is healthy, innovative, and responsive to our customers. In recent years, service has improved and rates have declined. American Jones Act carriers have sought improvements to U.S. Government laws and regulations for years. Prime opportunities for needed reform are U.S. Coast Guard regulations and taxation of American vessels.

    I might point out here, Mr. Chairman, that an earlier response to a question was flatly wrong. Foreign-flag vessels on coastal waters and inland waters do not comply with U.S. Coast Guard requirements. They only comply with the rules and laws of their own country.

    Early this year U.S. carriers finally succeeded in amending the law to allow proper and competitive use of satellite communications aboard U.S.-flag ships. It took years to achieve that advance in Congress. It is one step forward and, as you know, we are seeking others, including changes in Coast Guard regulations.

    I would emphasize that the critics of the Jones Act in all these years have not helped with any of these efforts to improve U.S.-flag shipping. Instead, they have focused their energies on transfer of this vital American enterprise to foreign interests and foreign nations. In some cases it would be to their own foreign ships.
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    That goal of foreign-flag ships in U.S. domestic trade is wrong for our country and it should be rejected by the Congress.

    Mr. Chairman, our companies remain anxious to work with you and the members of this subcommittee to improve and strengthen the U.S.-flag Jones Act fleet. We strongly oppose misguided and unjustified proposals to transfer America's domestic commerce to foreign-flag ships.

    Thank you for your attention, and I would be anxious to respond to your questions.

    Mr. COBLE. Thank you, Mr. Finnerty. I appreciate that.

    Next in line, Mr. Volkle.

    Mr. VOLKLE. Thank you, Mr. Chairman. My name is Skip Volkle. I'm testifying on behalf of Maritrans Operating Partners.

    Maritrans owns a fleet of petroleum vessels and towing vessels and oil terminals. We are proud to say that we are a U.S.-flag operator operating in the Jones Act.

    I would also note that, looking at one of Mr. Quartel's graphs submitted in his testimony today, given our 30 vessels of over 1,000 gross tons, all ocean-going, it appears that Maritrans owns about half of the U.S. merchant marine.
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    I would also note that 20 percent of our seagoing employees live in your State, North Carolina, and we are proud to say that one of our captains, Captain Chris Lupton, with over 42 years in the American Merchant Marine, was asked to sign the letter on behalf of the North Carolina chapter of the Maritime Cabotage Coalition.

    We stand together with our employees in support of the Jones Act.

    Just by way of overview, it seems to me that the Jones Act stands for a simple proposition: people who work in the United States should be U.S. citizens, obey U.S. laws, and pay U.S. taxes. This is not a novel proposition. This is a law that applies to every business that does business in the United States.

    I'm sure if you asked General Motors if they would like the opportunity to build cheaper cars by using cheap foreign labor in the United States, they would probably jump at the chance, but I don't think anyone would have the audacity to even ask for that exemption.

    We've heard that U.S. operators are not competitive, and I'm here to tell you that there is no more-competitive trade than the Jones Act oil transportation industry. Today we make the same rates, the same rate for carrying a barrel of oil today, that we made in 1978. That's not adjusted for inflation. That's actual dollars.

    We compete against pipelines, we compete against trucks, and we compete against foreign-flagg operators every day.

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    There is no doubt that U.S. operators like Maritrans are more expensive than foreign operators, but it's not because we're bloated or because we're protected or because we're inefficient; we are more expensive because, unlike our foreign competitors, we must comply with U.S. laws and we must pay U.S. taxes. We are more expensive because Congress made us that way.

    Just as a point of interest, we looked at establishing a foreign subsidiary, and we were quite surprised to learn that if we set up a Bahamian corporation, flagged in the Marshall Islands, we'd pay zero taxes.

    As a petroleum carrier, we find this discussion about the Jones Act extremely disturbing. Mr. Clement mentioned before—and you're dead right, sir—even these discussions raise the cost of our capital.

    This committee well knows that under the Oil Pollution Act of 1990 we are required to throw away our single-hull fleet, a capital investment of hundreds of millions of dollars. The cost to replace that fleet is going to be a half a billion dollars.

    The threat to the Jones Act raises the cost of capital and makes our ability to comply with Congress' increased costs that much more difficult.

    I would also note that the ITC study makes a tremendous thing about the effect on the American consumers of a cut in oil—in the price of transportation. When we came to Congress and said the double-hull requirement would result in a 25 to 50 percent increase in the cost of oil transportation, we were told that the impact on the American consumer was so negligible because the percentage of the consumer prices represented by transportation was essentially irrelevant.
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    Well, my question is: which is it?

    Finally, I'd like to just say that, in response to those people, and particularly Mr. Saunders, who say they can't get U.S.-flag transportation, I went to Rose Hill, North Carolina—and I would ask for a show of hands of those people in the room representing American carriers who represent American carriers who went to North Carolina to attempt to get that business down there in North Carolina or contacted them, at least.

    [Show of hands.]

    Mr. VOLKLE. Six American carriers went down to North Carolina. I can tell you that we went down there. We asked Mr. Saunders, ''Where do you want us to pick it up? Where do you want us to drop it off? We'll give you a rate.'' He wouldn't give us an answer, and now he won't return our phone calls.

    There was a U.S.-flag operator who had a grain ship who offered it in for that service, could not get returns to his phone calls, wound up selling the ship because it couldn't be employed.

    The Jones Act operators are eager to do this business. We're eager to do business with any shipper in the United States. We can do it effectively and cost-competitively.

    Thank you very much, Mr. Chairman. I'd be happy to answer your questions.

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    Mr. COBLE. Thank you, Mr. Volkle.

    Mr. Allegretti?

    Mr. ALLEGRETTI. Good afternoon, Mr. Chairman. As you can tell by my last name, I am neither a seventh-or a ninth-generation American. My family has only been here for 93 years but, nonetheless, I'm speaking to you this morning on behalf of Americans. I'm speaking to you on behalf of the American men and women who own tugboat, towboat, and barge companies that do business in the domestic commerce of the United States.

    Your subcommittee considers today a law which goes to the very foundation of the industry which AWO represents. Several hundred companies in the barge and towing industry, the more than 6,000 towing vessels, and the 30,000 barges they operate, which move over half a billion tons of cargo each year, the more than 30,000 people which they employ, they all owe their livelihoods to the level playing field on which they compete with one another.

    It's the Jones Act that provides that level playing field. Without it, the capital assets, the investments they've made personally and which families have made over many generations and over decades, are devalued and wiped out overnight.

    You can understand why there is no issue that is more important to them than this one.

    My 5-minute message to you this morning is very simple. It only has two parts.
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    First, the subcommittee must understand that the barge and towing industry is an integral part of the Jones Act fleet. We're very much aware of the argument of Jones Act critics that suggest that the repeal of this law is directed at a narrow band of ships operating in America's non-contiguous trades, which only impact a few vessel owners and a few hundred merchant seamen. Nothing could be further from the truth.

    The industry which AWO represents is the single largest segment of the Jones Act fleet, both in terms of number of vessels and in terms of the number of people employed.

    Our industry relies on the integrity of this act every bit as much as do the other segments of the American-flag merchant marine. The suggestion that we are somehow insulated from these repeal efforts is fallacious.

    The second message is this: the barge and towing industry and the other components of the modern Jones Act fleet play a critical role in advancing key societal goals—the security of our Nation and the protection of our natural environment—goals which are, themselves, the basis for much of the legislation which Congress passes every year.

    The Jones Act ensures that we have control of vital transportation assets in both peacetime and wartime.

    And of particular note to this subcommittee, the Jones Act affords our Nation a high standard of safety and environmental protection that minimizes risk to people and to our natural resources. It does so by ensuring that all domestic operators comply with statutory and regulatory standards which are among the world's most rigorous.
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    It also does so because Jones Act operators, as U.S.-based companies with U.S. employees, with roots in U.S. communities, simply have a greater stake in the preservation of our waters and our coastline.

    AWO's members voluntarily comply with our responsible carrier program, which is a code of practice which exceeds Federal statutory and regulatory operating standards. A further example of that commitment is found in our safety partnership with the U.S. Coast Guard, which is an innovative way of looking for non-regulatory solutions to environmental protection and marine safety problems that face us as a Nation.

    Both of those are very tangible examples of the kind of thing that you get when you have a domestically-based industry with roots in your community.

    The risks that we incur as a Nation with repeal of the Jones Act are not convenient arguments for its maintenance; they are very real public policy questions with which Congress needs to deal when you consider elimination of our cabotage laws.

    After a quarter century of increasingly progressive laws which are meant to provide us as a Nation with greater environmental protection, is it not fundamentally inconsistent to roll back those standards in one narrow area in the pursuit of speculative cost reductions for some shippers?

    Thank you for your attention.

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    Mr. COBLE. Thank you, Mr. Allegretti.

    Mr. Ryan?

    Mr. RYAN. Thank you, Mr. Chairman.

    My comments today deal with the efficiency, the productivity, customer service that we provide to the industry in the United States, and a moment to talk about national security.

    I, with Tom, am a first-generation American. My mother was born in Ireland, but I think I'm as American as anyone who testified before me. Thank you very much.

    The test, we think, of a Jones Act carrier is how well he serves the customers. To meet the customers' needs for efficiency and timely transportation of raw materials, the Great Lakes' Jones Act fleet represents the largest collection of self-unloading vessels in the maritime registry in the world.

    Here is a photo of a self-unloading boom of a ship that discharges at 10,000 tons per hour and can put 70,000 tons on the ground or in a hopper in about six hours.

    I think Mr. Saunders' acceptance of 4 days to discharge 20,000 or 30,000 tons would not be acceptable in our industry.

    We are able to do this the very little investment on the part of our customers. We just need a place to tie up to, and most of our cargo does go on the ground, except for grain, of course, and some other cargoes.
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    Maximizing efficiency is one of the other demands of our customers. We have to go up very narrow rivers, almost like the Mississippi River. Here's a photograph of the ''American Republic,'' a ship that carries Iron Ore up the Cuyahoga River, a river that's known for its twisting turns. This ship also carried the flame for the Olympics last week from Detroit to Cleveland, and we're very proud that that's a symbol of the kind of fair competition between sportsmen in the international trade, not what some of our opponents are suggesting.

    It has been suggested by this Jones Act repeal group—and I mean the Jones Act repeal. It can call it anything else—that on the lakes they can't find any lakers that carry salt. Well, here's a ship—photograph of a ship, the ''John J. Bollen,'' that certainly has carried salt for AKZO Salt. During the past ten navigation seasons, we've carried one heck of a lot of salt, probably averaging a million tons a year, on American-flag Jones Act carriers for the salt industry.

    There are many of our members who have offered additional service on the Great Lakes.

    Somehow, that falsehood that is being created by the Jones Act Repeal Coalition has to be countered.

    We've carried another 1.2 billion tons in that past 10 years of other cargoes, of course, for our customers.

    While I'm on the subject of falsehoods, I'm glad that Skip did bring up the issue that Mr. Saunders, of the Murphy Farms, I think made a misquote, a misstatement. Certainly he was quoted in the ''Greensboro News and Record'' that says, ''There ain't a damn ship out there that I can bring corn and wheat on that's got an American flag hanging on it.'' Well, that's another falsehood.
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    As Skip rightly pointed out, there are a number of carriers who have offered service to him, but he has ignored them, and I think that has to be noted for the record. We can't have those falsehoods being created by the Jones Act Reform Coalition.

    Our members respond to changing needs of our customers in a variety of ways. Two of the ways are represented in this chart, which is contained in the testimony I provided to you.

    In 1920, when the Jones Act came about, one ship could carry about 460,000 tons per year. Today, the largest ship can carry 3.2 million tons per year. That's an increase in productivity seven-fold.

    In the same time frame, we had to recognize that we couldn't operate in the short time frame that we have on the lakes without ice, so we had to find ways to invest capital and invest training money to get the ships to operate longer, and now our ships can operate for 342 days last year, where in 1920, when the Jones Act was enacted, it was 226 days. These are ways to serve the customer.

    Now, we face daunting competition from the railroads, and I think that's what the Murphy Farms are faced with—daunting competition. We lose cargo to the railroads, and we don't want to lose one. If we lose a cargo to the railroads, we probably never get it back. Nevertheless, there is a lot of business that we do in conjunction with the railroads, intermodal moves.

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    Let me point out the ''Journal of Commerce'' the other day had a very interesting advertisement for the port of Virginia. It called it the ''American Connection,'' and it said that railroads and highways to the port of Virginia can reach two-thirds of the American population within 24 hours. This is the kind of intermodal movement the American way, which American flag carriers, working with the railroads, can bring about increased grain moves.

    I'd like to also point out one statement that was made in error by Mr. Saunders. When they were missing out on some grain movements it was in the winter time, and in the winter time the Great Lakes happens to be closed. The seaway closes around December 20th and doesn't open until April 1st, so they cannot count on that source during that time.

    Thank you, sir.

    Mr. COBLE. Thank you.

    Mr. Roberts?

    Mr. ROBERTS. Good afternoon, Mr. Chairman. My name is Michael Roberts. I'm the vice president for Crowley Maritime Corporation. Thank you very much for the opportunity to appear here today and discuss the cabotage laws of the United States.

    Crowley Maritime provides perhaps more services and earns more revenue in the domestic maritime commerce of the United States than any other for-hire carrier. Our company and its 5,000 employees have a very great interest in the subject of this proceeding, and we appreciate this opportunity.
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    The Jones Act Reform Coalition has fostered so many misconceptions about the American maritime business that we cannot, in 30 minutes, do much more than begin to clean up the mess.

    My colleagues have picked through the rubble and identified many of the key points, and I'd like to elaborate on two or three.

    Mr. Quartel says, for example, that the domestic maritime trades are not competitive. That is nonsense. Take the Puerto Rico liner trade, which happens to be the largest Jones Act trade. Within the past 10 years, nine carriers have tried to operate in that trade, and four failed because it was too competitive. The five remaining carriers provide 150 percent of the needed capacity southbound and 500 percent northbound.

    What kind of market structure is that? Very simply, for shippers it's like having five telephone lines into your house. You could do very well on your local and long distance rates if you had five lines coming into your house.

    While Crowley's service is clearly the best, having five options helps explain why real rate in the Puerto Rico trade have dropped by 40 percent over the past 10 years, more than in the trans-Atlantic and trans-Pacific trades, and why rates between the mainland and Puerto Rico are lower than between the mainland and the Dominican Republic, which is right next door to Puerto Rico and which is served by both U.S.-and foreign-flag carriers.

    To be sure, all five carriers in the Puerto Rican trade must compete with each other under the common requirements of American law. Unlike our services in the foreign trades, we carriers are not free, in the services we provide within this country, to declare the laws, for example, of Liberia applicable to our vessels; to hire workers from Bangladesh and pay them $100 or $200 a month, feed them gruel, and keep them at sea for 350 days out of the year; to avoid much more stringent and costly American safety environmental requirements; to avoid American tax laws; to avoid American immigration laws; to avoid every social and commercial law this Congress and its predecessors for the past two centuries have fought elections and wars over.
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    And let's not be fooled by what we heard earlier today. This is precisely, exactly what the Jones Act Reform Coalition advocates when they talk about increasing competition in the domestic trades. This is where the savings they tout would come from.

    While I'm sure Mr. Quartel would argue with me, it is an incontestible point when you understand the domestic maritime markets.

    Let me emphasize what Peter Finnerty said earlier. From an operator's standpoint, there are no legal barriers to entry. Anyone in this room, any of 260 million American citizens, could get into the domestic shipping business if the market was there.

    So if the service to a given domestic shipper is inadequate or the price is too high, there is probably not much Congress can do about it. The volumes the shipper has to offer and the prices he is willing to pay simply don't make economic sense in the transportation marketplace.

    The shipper may not be happy about it, but that's how the free market works.

    This is not to say that improvements to underlying American laws could not be made—improvements that would lower cost and improve efficiency. Crowley's written testimony outlines some of these reforms, and including a very dramatic change to the U.S. ownership requirement of the Jones Act.

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    It's flat wrong to suggest, as they did in the earlier panel, that the 1920 law, the 1936 law have to be addressed, haven't been addressed forever. This committee addressed a very important part of it last year.

    In closing, and to repeat something said last month, good or bad, too strict or too lenient, America's laws must apply to work done in this country, to the services provided in our domestic trades. The Jones Act is not protectionism, it is simply an affirmation of American sovereignty over services performed in this country.

    Thank you very much, Mr. Chairman.

    Mr. COBLE. Thank you, Mr. Roberts.

    The Chair would like to express appreciation to all the panels. You have made my job easy. You have complied pretty much with our earlier request.

    Again, I hate to have to confine you that way, but because of the number of witnesses we had to do it.

    We are permitting questioning only by members of the subcommittee. I earlier recognized Mr. Lipinski of Illinois, who is not a member of the subcommittee, to make a 30-second opening statement. Since he could not question you all, we have, in the interim, been joined by the gentleman from Washington, who is not a member of the subcommittee but is a member of the full committee, and I will extend to him the 30-second courtesy I did to Mr. Lipinski.

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    Mr. Tate?

    Mr. TATE. Thank you, Mr. Chairman.

    It's correct. I do not sit on the committee.

    I have submitted a written statement for the record.

    One wonders when these sort of hearings occur—and I was a bit concerned, but I think it's a positive hearing because it gives us an opportunity to tell just how important the Jones Act really is.

    You can look at two facets that I think are most important. First, it creates family-wage jobs right here in America. You don't have to look any further than—I've got 124,000 employees related to this domestic trade.

    I guess it's appropriate that I'm sitting in Mr. Young's chair, because the relationship between Alaska and the Puget Sound region is key. There are 90,000 jobs directly related to that trade, and it's very important to my particular region.

    Also, looking at national security issues as well, Mr. Chairman, we could go on and on about the broad, bipartisan, ignoring ideological beliefs, from liberals to conservatives to moderates to everywhere in between have voiced strong support of this act, including past Presidents.

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    I just want to add my name to that list in strong support of the Jones Act. It's standing up for working families in this country and protecting our shores.

    Thank you very much.

    Mr. COBLE. I thank the gentleman. I thank the gentlemen thus far. This has been a productive hearing. Convincing arguments have been submitted by both sides, and I guess your conclusion may well be subject to interpretation, but that's the purpose of the hearing—to hear everybody out.

    So let me start with my line of questioning, then I'll yield to the gentleman from Tennessee.

    Mr. Ryan, if—hypothetical. Hypothetical questions oftentimes pose problems. I don't mean to do that, but, hypothetically, if a foreign-flag vessel were allowed to—well, I'll use the plural—if foreign-flag vessels were allowed to transport goods between two U.S. ports on the Great Lakes, but were required to satisfy all U.S. environmental, labor, and immigration laws that your members must comply with, do you think your member companies could effectively compete?

    Mr. RYAN. No, sir, I do not. We operate—our members operate quite a bit on the margin. All you'd need to have is somebody come in, either with a low-cost ship—and you mentioned hypothetically a foreign-flag ship, so I'm assuming it was built overseas, many of which are built with foreign subsidies, so that would be a lower-cost vessel, so the capital costs would be lower.
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    Second, the hypothetical—you said all U.S. laws, but presently we understand there are some laws which foreign-flag ships would not have to adhere to. They do add costs—Fair Labor Standards Act, for one, National Labor Relations Act, for another, doesn't apply. So they do add cost.

    Once you marginally reduce the cost, then that will drive out the other higher-cost competitors, even though it may be a penny or two a ton.

    Mr. COBLE. What's the average age, or how old is the average lake carrier, Mr. Ryan?

    Mr. RYAN. We're blessed with fresh water on the Great Lakes and we don't rust, other than when we carry salt and we rust from within, but we're able to keep ships going for 100 years. We just have to re-engine them. We just change their navigation system and communication systems and make sure that those ships serve the customer.

    Mr. COBLE. The average age wouldn't be 100 years. What do you think the average age would be?

    Mr. RYAN. I'd say—and I'll give you details for the record, but I think 37 years.

    Mr. RYAN. And, sir, guess what? That keeps the cost down because we haven't had to buy new ships, so it keeps the freight rate down.
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    Mr. COBLE. Mr. Roberts, what's the average age of the Crowley fleet?

    Mr. ROBERTS. I would have to submit the exact figure for the record.

    Mr. COBLE. Okay.

    Mr. ROBERTS. I'd be glad to do that.

    [The information received follows:]

    The average age of Crowley's domestic fleet, counting vessels of 100 gross tons or larger and including self-propelled vessels, tugs, barges and other vessel types, is approximately 25 years. The company is, however, in the process of disposing of a large number of older vessels, some of which were built in the 1940's. At the conclusion of this process the average age of Crowley's fleet will be substantially lower than it is today.

    Mr. COBLE. And, Mr. Grill, Matson? The reason I'm asking these questions, I am concerned that little construction other than barges and perhaps product tankers is going on in this country, and that's why I put these questions in. If you could get those, Mr. Grill?

    Mr. GRILL. I would just say that there has been some comment about the small number of ocean-going ships serving the domestic off-shore trades. I think you have to answer the next question: how many do you need?
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    There are right now in the west coast-Hawaii-Guam trade, there are 11 ships of Matson and seven, plus Sea-Land, there are 18 ships there. Now, Matson built a ship in 1992 from Nasco. It was delivered in the summer of 1992.

    But you look at what the needs of the trade are. Matson has a westbound sailing 4 days a week, Sea-Land has a westbound sailing 2 days a week. We're going back eastbound 4 or 5 days a week. There is excess capacity in that trade.

    These ships are highly maintained. We have put—we have reinvested money in existing ships. I guess our oldest was probably 1980.

    Mr. COBLE. Was that 1980?

    Mr. GRILL. No, 1970. We have a couple of them that were built in 1970. The rest of them are up through the 1980s, and the 1992.

    Mr. COBLE. So 36 years old.

    Mr. GRILL. But those ships have been—a lot of money has been reinvested in those ships to upgrade those things, and they're very highly maintained, and they provide all the service that can possibly be used in that Hawaii trade.

    Mr. COBLE. Thank you, Mr. Grill.

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    I have other questions, but I will likely submit them in writing.

    At this time I will yield to the gentleman from Tennessee, Mr. Clement.

    Mr. CLEMENT. Thank you, Mr. Chairman.

    These first three questions are for all of you on the panel.

    How many people do each of your companies employ in operations related to the coastwise trade? We'll start at the end.

    Mr. VOLKLE. Maritrans employs about 500 people.

    Mr. RYAN. I will check with our members and get it for the record, sir.

    Mr. FINNERTY. I will do likewise, Mr. Clement.

    We have a fairly substantial number of people because we serve all four of the domestic non-contiguous trades, and, in turn, the intermodal connections throughout the continental United States are involved in that service, but I will submit the number for the record.

    [Mr. Finnerty's responses follows:]

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    Sea-Land provides container transportation service in the domestic non-contiguous trades of Alaska, Guam, Hawaii and Puerto Rico with fourteen containerships. Our intermodal network throughout the continental Untied States connects inland points with eleven port terminals on three coasts of the mainland and six non-contiguous port terminals. Sea-Land employs thousands of people in providing these services. Sea-Land employs about 5, 000 people in the United States, but the majority of their activity relates to U.S. foreign commerce.

    Mr. ROBERTS. I'll also submit a more precise number for the record. We, as I mentioned, have 5,000 employees altogether. We have a substantial international service also, so we'd have to subtract out of that.

    [The information received follows:]

    Crowley directly employs 3,860 people who work on operations related to the domestic trade.

    Mr. GRILL. I'd say in the neighborhood of 1,000. I'll have to supply an accurate number.

    Mr. ALLEGRETTI. In the barge industry, sir, there are 33,000 people employed on the vessels, themselves, nationally. That includes the inland river system. I'll give you a precise number for the record. I'd guess that about a third of those, about 10,000, are in the coastwise trade.

    Mr. CLEMENT. For all of you, as well, could you estimate how much each of your companies has invested over the years in vessels and equipment in the coastwise trade?
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    Mr. VOLKLE. I think the existing value of our fleet is about $150 million. To go back to a point that I referred to you before, under the Oil Pollution Act we're required to throw away that entire capital base and to rebuild. To rebuild our fleet, we conservatively estimate that it's going to cost us half a billion dollars.

    To refer to, along the same line, Mr. Coble's question before—why nobody is building any new vessels—we've looked—we've got to build new vessels, and I can tell you that at current rates you cannot build a new vessel in the petroleum business and make money. You're going to need a 25 to 50 percent increase in rates to break even.

    Mr. RYAN. Lake Carriers will get something for the record, but it's in excess of $1 billion.

    [Mr. Finnerty's response follows:]

    Sea-Land has invested hundreds of millions of dollars in vessels and equipment serving the domestic non-contiguous trades. We presently operate fourteen containerships in these trades. Thousands of containers and chassis, port terminals, computer systems, maintenance facilities and other equipment are serving these trades. Sea-Land is the largest operator in the domestic non-contiguous trades.

    Mr. ROBERTS. Crowley—over $400 million alone, and I can get you other figures.

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    [The information received follows:]

    Crowley's investments in the vessels and equipment currently in use in the domestic trade total about $700 million.

    Mr. GRILL. I can tell you that Matson and Sea-Land together have made direct capital investments in the west coast-Hawaii trade over the last 10 years of over $1 billion. That includes terminal expansions and enhancements of around $150 million, and $450 million in new ships and ship repairs and vessel upgrades.

    As I said, there was some new construction, but a lot of that was refurbishment and reconstruction of and upgrading of those vessels, as well.

    Mr. ALLEGRETTI. In excess of $6 billion for the barge industry. I'll give you a precise figure on which piece of that is coastwise.

    Mr. CLEMENT. This is for all of you, as well. What would be the impact of repealing the U.S. build requirement on your companies and its book value?

    Mr. VOLKLE. Repealing the U.S. build would probably reduce our book value by 25 to 35 percent. That's about the cost differential between building U.S. and building foreign.

    Mr. RYAN. We'll get back to you on that, but I would estimate, because some of our ships are locked in above the Wellen Canal and there are no foreign ships of that size that could even come in, it's just a matter of how much the value of those ships would be reduced by the lower freight rate return on the smaller vessels that would come in. I'll get you that number, sir.
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    Mr. FINNERTY. Mr. Clement, your question, if I heard you correctly, is repeal only the U.S. build requirement and what the impact would be on the company and the book value. I would imagine that the potential impact on the company and the domestic trades would be very dramatic and very significant in the context of the incentive for new competition that would want to seize the advantage of that change in the law.

    In terms of the book value of the existing assets, which are fairly modern and provide fairly good service, it would be to consider the change. Certainly a write-off would be in order, I should think. I'm deferring, of course, to my financial experts, but I think it would be a dramatic impact, that change, alone, because it would—there is no barrier to new competition, and that would open the door to a dramatic set of new competitors.

    Mr. ROBERTS. I will have to submit for the record that response.

    [Mr. Robert's response follows:]

    The impact of repealing the U.S.-build requirement on Crowley would be substantial. It would not be accurate to measure the impact with reference to the book value of the Company or its assets. While the book value of Crowley's vessels and equipment employed in domestic trades exceeds $200 million, the fair market value of this equipment is substantially higher. Moreover, the infrastructure developed to support this equipment, in terms of human resources, information systems, etc., would also be put at risk by repeal of the U.S.-build requirement.
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    [Mr. Finnerty's response follows:]

    The impact of a repeal of the U.S.-build requirement on Sea-Land would be very significant. Sea-Land's ships operate in the domestic non-contiguous trades and their book value is hundreds of millions of dollars. If U.S. law simply repealed the U.S.-build requirement, it could induce new competition using foreign-built vessels with a decided competitive advantage. Access to the Jones Act market is open and unrestricted for new competitors and additional vessels.

    Mr. GRILL. Well, it would have a dramatic detrimental impact. We built a ship, as I mentioned, in 1992, a container ship, the ''R.J. Fifer,'' at Nasco in Southern California, for a shipyard contract price of $129 million.

    If you were talking about immediately allowing any foreign-built ship, any foreign-built container ship sitting anywhere in the world today into these domestic trades to compete with relatively new construction, that would have a devastating impact.

    Mr. ALLEGRETTI. I think the answer is two-fold. It would have a dramatic impact on the book value, devaluing those assets to the cost of their construction in a foreign yard, and, secondarily, and perhaps more importantly, would allow new entrants into the market to come in with a capital cost basis that bears no resemblance to the capital cost basis of those who have built their vessels in U.S. yards.

    Mr. CLEMENT. Thank you.
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    Mr. COBLE. Thank you, Mr. Clement.

    Gentlemen, I appreciate you all being here. Much has been said this morning about Murphy Farms, which is located in North Carolina, my State.

    Mr. Finnerty, since your company recently relocated your headquarters in our State of North Carolina—and, by the way, it's good to have Sea-Land in Carolina—I think it's appropriate, if I put the final question with a North Carolina flavor.

    Mr. Finnerty, let me ask you this: in Sea-Land's experience, how much more does it cost to construct a container ship in a U.S. shipyard as opposed to a foreign shipyard? If you don't know that, you can get it to me. I'm curious to know that, what that disparity would be.

    Mr. FINNERTY. Well, I think I would like to answer the question now, Mr. Coble, although I'll be happy to research it further, if you wish.

    Our last brand new construction in the United States was between 1984 and 1987, and we built three diesel-powered vessels that now provide and since 1987 have provided service in the Alaska marketplace. Those ships were approximately, all told for the three, approximately $200 million.

    The vessels in terms of their size are not very extraordinary, as are some of the ships in trans-Pacific or trans-Atlantic trade today where you're reaching sizes of 6,000 TEU. These vessels are much smaller. If I recall correctly, they're about 700 FEU, so they're dramatically smaller.
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    I think that the economies of scale in foreign yards are certainly such that it is less expensive at this time to purchase a large container ship overseas.

    On the other hand, I am led to believe by many of the U.S. shipyards that we have been working with in recent months on other legislative matters that there are growing yards in the United States that are quite competitive on a world class basis, and, in fact, are exporting numbers of vessels.

    I don't know—and you'll have to ask the shipbuilding panel—whether they are container ships or not, but they are very competitive and have exported vessels, so that the cost could conceivably be comparable if a carrier sought to build in the United States.

    Mr. COBLE. Thank you, Mr. Finnerty.

    Gentlemen, thank you all for being with us.

    Mr. TAYLOR. Would the gentleman yield?

    Mr. COBLE. Yes.

    Mr. TAYLOR. Mr. Coble, I would like to point out something that has not mentioned that this group would reform is the use of ocean-going barges, the integrated tug-barge concept, and I can assure you that our Nation is extremely competitive in the world's building and sale of ocean-going barges.
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    I would like to also, being nearby Avondale shipyard, make you aware that they're getting very, very competitive on the price of their container ships as a result of the medium-speed roll-on/roll-off ships that are being built for the national defense fleet. They're getting the economies of scale that have been referred to previously.

    Mr. COBLE. I thank the gentleman.

    Reclaiming my time, when I put that question to you, you may recall I said, Gene, with the exception of barge and product tanker. I admitted that is done here.

    Thank you, gentlemen.

    Mr. COBLE. As we say in the rural south, it's dinner time—not luncheon time, but dinner time. We will stand in recess until 2:00, and then we will welcome the fourth panel at that time.

    [Luncheon recess.]

    Mrs. FOWLER [assuming Chair]. We'll resume. I'd like to call the meeting to order.

    I want to introduce the fourth panel for today. We have with us: Mr. Charles T. Crangle, Executive Director, Congressional and Legislative Affairs, American Maritime Officers; Mr. Alex Shandowsky, President, Marine Engineers' Beneficial Association; Mr. Terry Turner, Legislative Director, Seafarers International Union; Captain Don Marcus, Assistant to the President, International Organization of Masters, Mates, and Pilots; Mr. R.T.E. Bowler, III, President of the American Shipbuilding Association; Mr. Robert F. O'Neill, Vice President, Shipbuilders Council of America; Mr. Robert Greene, President, Jeffboat/Louisiana Dock Company, Chairman and representing the American Waterways Shipyard Conference.
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    I want to welcome you all this afternoon. I think most of you who have been here during the day know the rules under which Chairman Coble has been running the meetings, and this way we can get everyone in, because we still have another panel after you, so what we'd like to ask each of you to do is to hold your remarks to 5 minutes. We do have your written remarks for the record that we will each review, also, but if you could hold your testimony to 5 minutes, and we'll also ask each of us here to do the same.

    I'd like now to record Mr. Crangle to start us off.

    Mr. CRANGLE. Madam Chairman, Mr. Shandowsky would like to—

    Mr. BOWLER. Madam Chairman, we decided we'd like the shipbuilders to go first, and then followed by maritime labor, if that's okay with you.

    Mrs. FOWLER. Whatever order you would like to go in, that's fine with me.

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    Mr. BOWLER. Madam Chairwoman, thank you for this opportunity to testify on behalf of the American Shipbuilding Association.

    We strongly advocate retaining the Jones Act in its present form. The Jones Act benefits our economy and transportation system, but, most importantly, it is a critical component of our national security.

    The American Shipbuilding Association represents the sixth largest shipbuilders in the United States, employing over 67,000 workers in the shipyards and over 250,000 workers in industries providing materials and services to the shipyards. Five of these shipyards are the largest private sector employer in their respective States. Of the U.S. Navy's shipbuilding budget, 98 percent is spent on ships built in these six shipyards.

    Historically, these shipyards have relied on Navy and commercial shipbuilding, much of which has been for the Jones Act trade, to sustain our Nation's shipbuilding industrial base.

    From the mid-1950s to the late 1970s, the U.S. shipbuilding industry delivered an average of 20 ocean-going commercial ships per year, and an annual average of 19 U.S. Navy ships.

    For national security reasons, the U.S. needs a robust shipbuilding industrial base to meet our future combatant shipbuilding needs of the U.S. Navy, the sea-lift needs of the U.S. Army and U.S. Marine Corps, and commercial shipbuilding requirements, such as the replacement of single-hulled oil tankers operating in U.S. waters with environmentally safe double-hulled tankers, as required by OPA 1990.
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    This shipbuilding base is also essential in meeting contingency national security requirements such as activating reserve sea-lift vessels in times of national emergency or repairing battle-damaged ships.

    U.S. shipbuilders are once again building large ocean-going ships for the Jones Act trade. Thanks to Congressional initiatives such as OPA 1990 and the revitalized title 11 loan guarantee program, two of our shipyards—Avondale Industry of New Orleans and New Port News Shipbuilding of Newport News, Virginia—are building between them nine double-hulled oil tankers for the Jones Act trade.

    Not only are environmentally safe ships being constructed, these ships are playing a pivotal role in allowing our industry to transition that into building large ocean-going commercial ships.

    In closing, the Jones Act, in its current form, is an absolute bedrock requirement to sustain the U.S. shipbuilding industrial base, a critical national security asset.

    Thank you, Madam Chairwoman.

    Mrs. FOWLER. Thank you, Mr. Bowler.

    Mr. O'Neill?

    Mr. O'NEILL. Thank you very much, Madam Chairwoman and members of the committee. Thank you for the opportunity to appear before you today on a very important issue—the Jones Act and its relationship to the transportation system of the United States.
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    I am Robert O'Neill, vice president of the Shipbuilders Council of America. I represent member companies of the Shipbuilders Council. SCA was formed in 1920 to promote the establishment of the Merchant Marine Act, the statute we now know today as the Jones Act.

    The Shipbuilders Council of America represents 37 member companies, including 17 shipyard companies which build and repair military and commercial vessels.

    With your permission, Madam Chairwoman, I would like to submit a list of SCA member companies for the record. And, as a matter of fact, Madam Chairwoman, I would like to submit for the record the minutes of the SCA board meeting on December 30, 1920, in which Mr. Joseph Powell of Bethlehem Shipbuilding Corporation describes a conversation on the importance of the U.S. shipbuilding industry with Senator Jones, the sponsor of the Jones Act.

    I am pleased to continue SCA's longstanding support of this beneficial statute.

    The purpose of the Jones Act common to most other countries is to ensure reliable domestic shipping service and the existence of a maritime capability that is completely subject to U.S. control, especially in times of national emergency.

    Vessel construction and repair in U.S. shipyards sustains this critical economic and national mobilization capability.

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    The United States is not unique in this regard. Fifty of the most advanced economies in the world have cabotage statutes that reserve their domestic transportation for their own citizens. This includes major trading partners like Canada, Mexico, Japan, Taiwan, and Germany.

    I'm not aware of any major country with substantial domestic transportation requirements that allows U.S. vessels and crews or U.S. trucks or U.S. air carriers to engage in the carriage of their domestic commerce.

    It is the rule, not the exception. The nations reserve these trades for the companies within their own borders.

    The Jones Act is not a cash subsidy and does not provide a handout from the U.S. Government to a vessel owner, operator, or builder. It merely puts in place a stable, dependable infrastructure for the transport of cargo on the inland river system, the Great Lakes, and the coasts.

    The Jones Act flows from the principle that cargo carried between two U.S. ports is an intrinsic part of the U.S. economy and should not be turned over to non-U.S. interests.

    I'd like to emphasize two important points that I'd like to have taken into consideration when discussing the Jones Act.

    First, vessel safety and environmental protection on U.S. waterways depends upon the use of reliable, structurally-sound vessels. If the Jones Act were not in place, foreign-owned vessels that do not conform to the strict safety, environmental, and structural standards of the United States would pose a danger to our rivers and waterways.
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    Further, on behalf of U.S. shipbuilders that compete in the international market, I want to point out that foreign-owned and-operated vessels are built with the aid of massive government subsidies. These shipbuilding subsidies are unfair and deny U.S. shipyards many opportunities.

    If the Jones Act is repealed or seriously amended, foreign-flag owners would not only operate sub-standard vessels in U.S. waters at a risk to the American public and our natural resources, but they would do so with the help of unfair government subsidies.

    Second, all components of the Jones Act are critical to maintaining a reliable transportation system. U.S. ownership requirements, U.S. crew requirements, and U.S. build requirements together form the backbone of the U.S. maritime industry.

    All elements of the Jones Act represent national assets that contribute directly to national security and economic prosperity. Repealing one or more of these elements would result in the continual weakening of the Jones Act. As a result, our country would lose a key asset.

    Madam Chairwoman, over the past few years I've been involved in shipyard technology development programs. I know from firsthand experience that U.S. yards have made strong advances in productivity, quality, and innovation. I take exception with the common characterization of U.S. yards as slow, uncreative companies that charge prices way beyond our foreign competitors.

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    U.S. shipyards are capable of building and delivering vessels that are priced competitively, on schedule, and within budget.

    The U.S. shipyard industry has a lot of progress to make and a long way to go, but it is competitive in many commercial sectors, including the construction and repair of vessels that transport cargo and passengers in the U.S. domestic trades.

    Madam Chairwoman and members of the committee, on behalf of the members of SCA I want to express our appreciation for the invitation. You are performing an important public service by providing a forum in which the contributions of the Jones Act are described and discussed.

    I'd be very happy to answer any questions.

    Mrs. FOWLER. Thank you, Mr. O'Neill. We will submit in the record the items that you asked us to include. Thank you.

    Mr. O'NEILL. Thank you very much.

    Mrs. FOWLER. Mr. Greene?

    Mr. GREENE. Thank you, Madam Chairwoman, members of the committee. Thank you for the opportunity to testify today on the importance of the cabotage provisions of the Jones Act, both to the United States shipyard industry and I believe to this country.
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    I'm Bob Greene. I'm president of Jeffboat Shipyard in Jeffersonville, Indiana. We operate a shipyard at that location with about 1,200 employees. There has been shipbuilding there since 1938 within our company, and shipbuilding there in total since 1834. We build a great many barges and towboards for the inland domestic industry, as well as ocean-going equipment.

    I'm also here today to testify in my capacity as chairman of the American Waterways Shipyard Conference. AWSC is the national trade association representing small-and medium-sized commercial shipyards. AWSC yards build and repair all kinds of barges, towboats, tugboats, commercial vessels of a number of kinds, including fishing vessels and off-shore supply equipment.

    AWSC represents 47 companies located in 17 States, with about 70 shipyard facilities.

    Madam Chairwoman, the Jones Act is the cornerstone of our domestic maritime industry. It helps assure continued employment for thousands of American commercial shipyard workers, it aids in maintaining our national defense capabilities, and ensures that the vessels that operate on our waters are safe for both workers and the environment.

    Currently, over 17,000 Americans in 33 States are directly employed in building and repairing Jones Act vessels. Another 14,000 are employed in the maintenance of Jones Act vessels, and no Government construction subsidies are paid.

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    These American shipyards generate over $500 million in annual payrolls for shipyard employees. The purchases of materials for the building and repairing of Jones Act vessels generates another 30,000 jobs with manufacturing companies. In addition, U.S. shipyards keep thousands of American steel industry workers employed through our steel purchases.

    A 1995 analysis performed by Mercer Management Consulting found that maintaining the Jones Act fleet at its current size over the next 20 years will require that an average of 2,000 replacement vessels of all kinds are built each year. This level of building will increase the current shipyard-related employment level by 10 to 20 percent.

    Removing the U.S. build requirements from the Jones Act would put these jobs in peril.

    I'll certainly let Mr Bowler address the national security implications of modifying the U.S. build provisions of the Jones Act, but I want to mention that small-and mid-sized shipyards represent 40 percent of shipyard-related jobs. These commercial shipyards train and retain the skilled people that are necessary in times of national emergency to build vessels and to convert commercial vessels to military use.

    Finding and keeping skilled employees, particularly welders, is particularly difficult at this time. My own shipyard's experience has been quite rough. With employment now reaching the 1,200 mark, our biggest difficulty is finding skilled employees. They are essentially not available.

    We have established an extensive training facility for welders and other crafts on our premises, but it's a very slow process.
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    Without the domestic build requirements to help maintain the U.S. commercial shipyard employment base, the Federal Government will be forced to shoulder the cost of maintaining a national shipbuilding and repair capability. This could entail reopening and maintaining Navy shipyards or creating new worker training programs or finding new ways to keep the workers employed during peace time.

    With the help of the Jones Act, America's commercial shipyards will continue to maintain and upgrade their facilities, as well as train and employ a skilled work force without any Federal outlay.

    While I recognize that this is an oversight hearing, I would like to bring to your attention provisions in the Ocean Shipping Competition Act that was recently introduced by Senator Helms, and which could be particularly harmful to the American Waterways Shipyard Conference members, because many of our shipyards build and repair vessels that operate both in the inland and coastal trades.

    This provision defines inland waterways in the domestic trades as only those waterways not accessible by ocean-going vessels. I see ocean-going ships at the Louisville, Kentucky, front on a regular basis, and we build them across the river in Jeffersonville. That's 1,300 miles from the mouth of the Mississippi.

    The proposed legislation is clearly aimed at eliminating the Jones Act through the back door. If enacted, it would effectively repeal the domestic build requirements in the Jones Act throughout the entire inland waterways system.
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    I've run out of time. I'll submit the balance of my remarks with my written comments.

    Thank you.

    Mrs. FOWLER. Thank you, Mr. Greene. We appreciate it.

    We'll have all of your comments in the record.

    Who is next? You all decided your order. Mr. Shandowsky?

    Mr. SHANDOWSKY. Yes.

    Mrs. FOWLER. Thank you.

    Mr. SHANDOWSKY. Madam Chairwoman and members of the Coast Guard and Maritime Transportation Subcommittee, my name is Alex Shandowsky. I'm the president of the Marine Engineers' Beneficial Association.

    I'd like to thank you for this opportunity to express my views on the value of the U.S. coastwise trade laws and their impact on my organization, domestic maritime industry, and the citizens of this country.

    The Marine Engineers' Beneficial Association, the oldest maritime labor organization in the United States, represents thousands of mariners employed in the shipping industry. MEBA has been in the forefront of the fight to improve professionalism, working conditions, and the safety standards aboard U.S.-flag vessels. Since 1875 our organization has been dedicated to this purpose, to the overall improvement of the U.S.-flag fleet.
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    I would like to begin by emphasizing the safety and environmental protection aspects of this issue, whose economic impact cannot be under-valued.

    Any proposal that would allow substandard foreign vessels into our coastwise trades would undo the work of generations of men and women who have labored to raise the safety and environmental standards of the U.S.-flag fleets from its current high levels and would be an insult to American values and traditions to the citizens of this country should we cast aside the fruits of that labor.

    It is a disturbing fact that most of the international flag of convenience fleets operate at safety levels that would not be permitted under the United States flag today. The most highly-publicized examples of this phenomenon lies in the foreign flag cruise industry.

    With the explosive growth of this business we have seen a spate of near disasters that belie the image offered by Cathy Lee Gifford in her glitzy TV commercials.

    What you won't see on those commercials is panic-stricken passengers fleeing for their lives, while under-paid and under-trained crew members compete for the best seats in the life boats.

    One significant reason for this disgraceful situation is that the flag of convenience countries permit ship owners to deny shipboard workers the rights that we Americans take for granted.

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    The most serious effect of crippling our current coastwise trade laws is that it will encourage American companies and American labor to operate on those same pitiful levels that we have seen on flag of convenience vessels.

    Indeed, the effort to undermine the coastwise trade laws would degrade all citizens of this country. Repeal of these laws would have a devastating effect on their national security, on our domestic commerce, on the tax revenue base, and, I repeat, on safety and environmental protection.

    The importance of the Jones Act to the American merchant marine, itself, ought to be self-evident. Of all vessels in the U.S. fleet, 80 percent operate in the domestic trades. Seven out of eight U.S. seafaring jobs are on those vessels.

    Loyal, taxpaying American mariners employed on vessels operating in these trades provide the largest and most ready source of highly-trained men and women willing to serve aboard ships in times of national emergency, and that's good for the country, as a whole.

    It is appalling that a group shrouding itself in the popular cloak of reform attempt to undermine America's single most important maritime law. Should they be successful, what becomes of the U.S. merchant marine? They would have it destroyed merely to maximize their corporate profit.

    The Congress should resist attempts by large corporations, foreign or domestic, whose agenda, if implemented, would destroy jobs for American workers. The proposal, itself, is preposterous if only because of the naked greed of the special interests promoting that agenda.
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    Undermining our coastwise laws will adversely affect the transportation system of the United States by destroying jobs across the entire spectrum of the transportation infrastructure: shipping, trucking, railroads, airlines, you name it. Even worse, it jeopardizes the national security of the United States of America, upon which all else rests.

    As president of the MEBA, I'm proud to defend the Jones Act because it safeguards the American maritime industry and the jobs of American seamen, shipyard workers, and those in the associated maritime trades. And why not? These are American workers, working within their own borders, raising American families, paying American taxes, and all the while providing a service to this Nation with so great a historical significance that America's security literally depends upon it.

    Madam Chairwoman, thank you very much for this opportunity to express my views.

    Mrs. FOWLER. Thank you, Mr. Shandowsky.

    Mr. Turner, are you next?

    Mr. TURNER. I believe it's Mr. Crangle.

    Mrs. FOWLER. Okay. Mr. Crangle?

    Mr. CRANGLE. My name is Charles Crangle. I'm the legislative director for American Maritime Officers, which is a union of licensed officers in the American merchant marine. Our sailors, our officers serve in the domestic trades and in the international trades, Ready Reserve Force and on the Great Lakes.
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    Before we get into our formal presentation, I would like to read this committee, and offer into the record a joint statement by the unions concerning section 430 of the Coast Guard authorization bill.

    ''The four unions invited to testify on the impact of the coastwise laws of the United States wish to call to the attention of the members of the Coast Guard and Maritime Subcommittee our opposition to section 430 of that bill.

    ''If section 430 became law, seamen on vessels in the international trades of the United States will be denied the right to seek compensation for injuries which occurred on those vessels. The right of such seamen to use the Federal courts to seek compensation is of ancient origin, is recognized in statute, has been approved by the United States Supreme Court, and is recognized by commercial treaties.

    ''We oppose section 430 of 1361 because no hearings were held on the matter, no facts have been produced to justify the passage of section 430. The change in the law will harm generally disadvantaged mariners in the rest of the world.

    ''The change in the law will benefit many companies which do not pay taxes in the United States, and the change in the law will, most of all, and the impact on the domestic trades will have a negative impact on U.S.-flag companies by giving additional benefits to foreign-flag operators and increase the gradient between what it costs to operate a foreign-flag vessel and what it costs to operate an American-flag vessel.''

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    So we ask that this committee and those members here who are—we'd like to offer this statement into the record.

    We'd ask you to reexamine the position of this subcommittee on section 430. We think that it is not properly vented, and we would stand ready at some future time to discuss it in a hearing with you.

    Can I offer that statement?

    Mrs. FOWLER. Yes, you certainly can. While that's not the issue before us today, we'll certainly add it in.

    Mr. CRANGLE. Well, the reason I brought it up, Madam Chairman, is because it has not been the topic before this subcommittee ever.

    Mrs. FOWLER. We'll be sure to add it in. Thank you.

    Mr. CRANGLE. The impact of the coastwise laws, as we like to explain it, it is responsible for the basic maritime infrastructure, the shipyards, the commercial shipping activity, the regimen of licensed and unlicensed seamen.

    The other reason that we support the present law is because—and we'll skip down—because the coastwise law established a system of safety and crewing standards upon this subcommittee can reasonably rely and which the subcommittee can use to judge the operation of the vessels that are presumably to be allowed into the domestic trades of the United States—at least so we've heard today.
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    If we were to allow foreign-flag vessels into the coastwise trades, you have before you and we had delivered last week copies of the National Transportation Safety Board study in 1989, which cited as the most important and critical safety problem on foreign-flag vessels carrying American passengers—and I stress the carrying of American passengers because 90 percent of the passengers are Americans. These ships depart from American ports and report to them and return to those ports.

    The language problem was probably the most serious problem that faced the safe operation of the vessels because the crew members could not communicate with one another, they could not communicate with the officers, and they could not communicate on a general basis with the passengers.

    We had a recent case we are still trying to get, and I suppose that this subcommittee has jurisdiction. There was a fire on May 9th on the ''Discovery II'' where there were serious allegations of crew misbehavior based upon the language problem. We have been unable to get a copy of the study.

    I think it should be something that should be before this committee. The lives of 800 Americans were placed in jeopardy because of language problems, if for no other reason. There was a fire on the vessel, which was not serious. It was lying off the Bahamas.

    But the reports that were initially published in a number of newspapers—and I have them in my study and in our testimony—was that the crew members were unable at all times to help the passengers seek safety—put on their life jackets and fight the fire. I think it's a matter that this subcommittee has jurisdiction over and should look into.
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    The NTSB has warned of this problem in the past, and we'd like to bring it to your attention once more.

    The history of the maritime industry in this country is replete with exactly those situations the NTSB spoke about. There have been clear-cut warnings of safety matters on vessels carrying American passengers and American citizens.

    I just saw the light go on.

    It's in the record, and we would like to repeat that it is a safety problem that this committee should look into post haste.

    Mrs. FOWLER. Thank you, Mr. Crangle. Your full statement will be incorporated into the record.

    Thank you.

    Captain Marcus?

    Mr. MARCUS. Madam Chairwoman and members of the subcommittee, I am Donald Marcus, special assistant to the president of the International Organization of Masters, Mates, and Pilots, a maritime union that represents 6,700 men and women.

    The policy we are discussing is as old as our national government. On the opening day of Congress, April 8, 1789, Representative James Madison introduced legislation that promoted American shipping. Common sense has prevailed since 1789, and it must continue to prevail.
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    The United States is the world's greatest trading nation. The overwhelming majority of this trade is carried by sea. It is common sense that the United States retain the ability to carry a portion of this trade aboard vessels built, owned, and operated by its citizens.

    It is common sense that the United States maintain the maritime infrastructure and technical knowledge necessary for its self-defense.

    Domestic trade has always been the core of our maritime industry. It has served as the basis for maritime expansion during times of national emergency.

    The Jones Act and the cabotage laws that preceded it are products of national self-interest that demands control over the commerce within our territorial waters.

    The first Congress understood that the benefits of safeguarding domestic maritime trade and perpetuating an American merchant marine outweighed the associated costs. The first Congress would not let cheaper British vessels destroy our merchant marine. This Congress must not let substandard vessels flying the flags of fictional maritime nations destroy what is left of our industry.

    The Jones Act costs the American taxpayer nothing and results in the direct employment of 124,000 Americans. This includes 80,000 vessel personnel and 44,000 shipyard and other shore-side workers whose livelihoods are directly tied to the construction, repair, supply, and operation of the 44,000 vessels and barges in the Jones Act fleet.
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    Our domestic fleet ensures U.S. control of essential transportation assets and our maritime infrastructure. In times of peace, the Jones Act helps to sustain military useful shipyards, equipment suppliers, training facilities, and a critical pool of skilled maritime workers. In times of war, the Jones Act fleet keeps goods moving reliably and securely between U.S. ports. This fleet supports the domestic economic base needed to maintain military action overseas.

    No one is guaranteeing that seamen will be available from the fleets of the Marshall Islands, Liberia, Cyprus, Panama, or Vanuatu to answer the call during the next American military crisis.

    I do not expect there will be any volunteers from the dishonestly-named Jones Act Reform Coalition to sail vessels into war zones. The Coalition's promise of an economic bonanza will ring hollow when we find ourselves without the ability to support our military or our economy with American shipping.

    It makes no sense for the United States to maintain the world's largest Navy and the world's most potent military force and to ignore the critical element of logistical supply. In the event of serious national emergency, thousands of seamen will be required. A primary source for these seamen is our domestic merchant marine.

    This pool of manpower is preserved at no cost to the taxpayer. In fact, domestic maritime employees generate $1.4 billion in annual tax revenue. Their wages inject some $4.2 billion into the national economy.
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    Companies engaged in domestic maritime industries have invested heavily in our economy. Their investment in vessels is valued at $26 billion. These companies should not be penalized for this commitment. They should not be penalized for taking seriously our laws regarding safety, the environment, employment, and financial responsibility.

    Who will benefit if we sacrifice this national asset? The Coalition's new era of deregulation and desubsidization is a fraud. The Reform Coalition's only reason for being is to fabricate a partial or complete escape from American labor and regulation. Working Americans will not benefit by the loss of another industry. American consumers will not even detect the promised savings in transportation costs, assuming they did occur and were passed along to them.

    Common sense dictates that our economic and military security requires an American-owned,-built, and-crewed domestic fleet.

    Common sense has prevailed for 200 years. It should not be lost in a storm of misinformation.

    Thank you.

    Mrs. FOWLER. Thank you, Captain Marcus.

    I believe, Mr. Turner, you're finishing up.

    Mr. TURNER. Thank you, Madam Chairman.
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    In the interest of time, I have gone through my oral testimony. I'm far over the 5 minutes, so what I'll do, if it's okay, is submit it for the record and make some general observations about what we've heard here today.

    I think we've heard a lot of very cogent testimony today. We've heard from the Government. We've heard from Admiral Herberger, who is a very articulate, dedicated public servant. We've heard from the shippers, I think who are behind me here, some of them. I was particularly impressed with Mr. Quartel's ability to keep the numbers in his head. He's a very distinguished and articulate gentleman. Those numbers came out of his tongue like water over Niagara Falls. It was incredible.

    The pedigree—I was very impressed with the pedigree of the shippers' panel. They go back many, many, many more generations I think than we had anticipated.


    Mr. TURNER. It was a very distinguished presentation. Again, they made their case very articulate.

    We heard from, of course, our operators, and our operators are in the business every day, day in and day out, competing with one another. What they had to say I think was very helpful hopefully to the committee.

    And we've heard again from our shipbuilders and our union brothers and sisters here.
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    I think, all in all, it has been a very interesting, informative day.

    But you boil all of that testimony down, all of these six or seven hours of testimony down, and what it comes down to is a pretty simple proposition: can we, in this country, transport cargo from Point A to Point B cheaper?

    Obviously we can. We can do it cheaper. I mean, if we want to sail under U.S. law, we can do it very cheap, and there is money to be made doing it cheaper. That's why these guys are here. They're not here because they have the best interests of the American maritime sailor at heart; they're here because there is money to be made and they want to make it, and I understand that. This is a capitalist society, and that's what gives us jobs. Our operators make money. But that's why we're here.

    But what I hope the committee will struggle with and try to answer is: at what cost is it cheaper? At what cost? What do we give up when we go to the lowest price?

    This country and this Government has a history of protecting its workers. That's why we're so strong. That's why everyone wants to come into this country—because we have protections, we have a high standard of living.

    We can't afford, on the basis of profit, to be moved back, and that's what this whole debate is about.

    So I hope the committee would consider that. It's central in its findings.
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    Again, we have plenty of testimony to go by, and I'm sure, with the deliberations of the committee, that you will come up with some recommendations, but keep that in mind: at what cost are we talking about?

    Thank you very much.

    Mrs. FOWLER. Thank you, Mr. Turner. I think you've done a great synopsis.

    I'd like to welcome today Mr. Herb Bateman. Congressman Bateman has joined us. As you know, he's the chairman of the Special Oversight Panel on Merchant Marine of the National Security Committee. He came in earlier, but he wanted to hear the panel, and then I believe he had a statement he'd like to submit for the record.

    Mr. BATEMAN. Yes, Madam Chairman. I appreciate your giving me the opportunity just to say a word, and I will make it very, very brief.

    I am here to register my support for retention of the Jones Act and the importance of doing so because of its national security implications, and ask unanimous consent that my prepared statement in support of the Jones Act be made a part of the record.

    Mrs. FOWLER. That will be made part of the record. Thank you, Chairman Bateman, for being with us.

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    [The prepared statement of Mr. Bateman follows:]

    [Insert here.]

    Mrs. FOWLER. We would like now to go to questions. I have a few, and then I would like to turn to Mr. Clement, also.

    I have pretty much almost the same question for the four of you, so we'll just start with Mr. Crangle, I guess.

    Mr. Crangle, could you tell me how many members do you have serving on ocean-going Jones Act vessels? Do you know?

    Mr. CRANGLE. At this present moment?

    Mrs. FOWLER. Yes, sir.

    Mr. CRANGLE. I'd have to respond for the record.

    Mrs. FOWLER. Could you submit that for the record?

    Mr. CRANGLE. Yes, ma'am.

    Mrs. FOWLER. I would be interested in that.

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    [The information received follows:]

    Approximate 1,700 officers are serving in the coastwise trade who are now members.

    Mrs. FOWLER. Also, for Mr. Shandowsky, do you know how many members of the Marine Engineers' Beneficial Association serve aboard ocean-going Jones Act vessels?

    Mr. SHANDOWSKY. At any one time I would estimate 700 to 800.

    Mrs. FOWLER. That's 700 to 800?

    Mr. SHANDOWSKY. Over a period of a year, probably 3,000 members at some point or another probably sailing.

    Mrs. FOWLER. So at any one time 700 to 800, and then over the period of a year you said 3,000?

    Mr. SHANDOWSKY. Yes, 3,000.

    Mrs. FOWLER. Okay. And then, Mr. Turner, would you tell me how many members of the Seafarers International Union serve aboard these vessels?

    Mr. TURNER. Yes, ma'am. I'd be glad to submit that for the record.
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    Mrs. FOWLER. Would you submit that?

    Mr. TURNER. It's in the files. It's a very significant number.

    Mrs. FOWLER. It would be interesting to get these in the record, if you could.

    And then also, Captain Don Marcus, the same question on your organization.

    Mr. MARCUS. I would like to submit that for the record.

    Mrs. FOWLER. Okay.

    Mr. MARCUS. It would be a number in the thousands, as well.

    Mrs. FOWLER. Okay. If you could submit that for the record, I think it would be interesting for us to have that information.

    Mrs. FOWLER. I'd also like to go back—Mr. Shandowsky, in your written testimony you had stressed the importance of our U.S. safety and environmental laws and how substandard foreign vessels could move into the U.S. should the Jones Act be amended, while the Coast Guard has been informing us that any foreign-flag vessels that operate in our waters have to comply with State and Federal environmental laws.
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    If you don't have it now, could you provide us with any additional information you might have on that point as to where the problems could be in their non-compliance and not having to comply?

    Mr. SHANDOWSKY. I certainly could, Madam Chairwoman. I can give you a practical answer to that.

    If it was strictly up to me, if I want to try to skirt the laws I can do it. We do not do that. We live in this country. We don't pollute the water because you have a law that says, ''Don't pollute the water.'' We don't do it because it's my kids that may be swimming there, or yours, or whatever, or it may poison the fish that we catch. That's why.

    We have a stake in this thing, and that stake goes a whole lot deeper than the stake that would be held by any foreign company.

    There is just no comparison.

    Mrs. FOWLER. But as far as the law goes, they do have to comply. The Coast Guard is correct then in the information they're giving us?

    Mr. SHANDOWSKY. I would say that for the environmental regulations they would have to comply technically.

    Mrs. FOWLER. Okay. If you come up with anything further, please let us know.
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    Mr. Bowler, you had commented in your testimony about how many Jones Act qualified vessels are currently under construction. I believe you said nine; is that correct?

    Mr. BOWLER. Nine. Yes, ma'am.

    Mrs. FOWLER. And at this point are they being constructed with title 11 loan guarantees?

    Mr. BOWLER. Are they being financed?

    Mrs. FOWLER. Yes. How many of these are being constructed with—

    Mr. BOWLER. All of them.

    Mrs. FOWLER. All of them?

    Mr. BOWLER. Right.

    Mrs. FOWLER. Okay. And can you build the same vessel that you're building for the Jones Act at the same price that you could build it for the export market?

    Mr. BOWLER. Newport News is building nine vessels themselves, and they're building right now five vessels, double eagle oil tankers, for the Jones Act market. They are also building four nearly identical vessels for a Greek ship owner, Eletson Corporation. Those export vessels are also financed with title 11. I believe the prices of those vessels, about the same size, are the same.
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    Mrs. FOWLER. Okay. That's what I wondered. Sometimes people say there is a difference, and so I was wondering, since you've got those to compare, that's a great comparison in the same shipyard, pretty much the same vessels as to what's going on with them.

    Mr. Greene, your company manufacturers barges. Do you export those barges?

    Mr. GREENE. On a very limited basis, but in 1994 we did deliver 50 barges that are about 200 feet long. They went to an English company operating on the Paramount Paraguay River above Buenos Aires.

    Mrs. FOWLER. So you feel like you can still be competitive then with the foreign market, as well as making them for the U.S. market?

    Mr. GREENE. It depends on when a foreign country decides to subsidize its shipyard and its steel industry, because the barges we build are two-thirds the price of—the cost is two-thirds steel, and so it depends on what the foreign countries decide to do in reaction to the competition.

    Mrs. FOWLER. Thank you. I see they have the light on me so I'd like to turn to Mr. Clement.

    Mr. CLEMENT. Thank you, Madam Chairman.

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    Mr. O'Neill, Mr. Bowler, Mr. Greene, on the next panel a representative of a foreign-flag carrier will testify that the cost of building a small coastal freighter in a U.S. shipyard is cost-prohibitive. Are U.S. shipyards able to build these types of 4,000 deadweight ton coastal freighters at the non-subsidized world price?

    Mr. BOWLER. Was that 4,000 deadweight tons? Is that the figure?

    Mr. O'NEILL. Let me take a crack at that, Mr. Clement.

    I think that you'll find that in that particular size category of vessel and others like it, I think you'll find several U.S. yards that could compete. I don't think that the characterization that it would be prohibitively expensive in a U.S. yard would be entirely accurate.

    I could get some information and submit it for the record. I'd be glad to do that, sir, but I believe that U.S. yards could be very competitive in that market.

    Mr. CLEMENT. Please submit that for the record.

    Mr. BOWLER. And if I could just add one comment, sir, I think there is a big difference between cost and price. The price that a foreign owner might pay from a foreign shipyard might, in fact, be lower, but included in that price are heavy subsidies from foreign governments. Foreign shipyards over the last 10 to 15 years have been subsidized to the tune annually of $5 to $8 billion a year, and that is reflected in the price of their vessels.
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    Mr. CLEMENT. Mr. Greene, did you have a comment?

    Mr. GREENE. No comment.

    Mr. CLEMENT. Okay. Also, for the same three, could you give us your views on the impact on the shipbuilding industry if the U.S. build requirement of the Jones Act were repealed? I think you all have commented on that some already, but if you want to add your thoughts, please do.

    Mr. O'NEILL. Basically, I think it would have a dramatic impact. I think it will be an unfortunate and tragic development.

    I think that there are yards in the United States that provide not only the capability and the facilities to build vessels, but also a cadre of trained and skilled workers and artisans and designers in their employ.

    If many of those individuals and jobs were to be lost and were to be scattered out into other industries, I think the United States would lose a very key asset that would really be needed in times of a national emergency.

    So I think it would have an economic impact, I think directly on the lives of the individuals who are affected and the companies, but also in terms of our national security capability.

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    Mr. BOWLER. I'll comment from the large ocean-going commercial market. For instance, the double-eagle tankers that Newport News are building are 45,000 tons, and that's in the large range.

    Certainly, for the six largest shipyards, who primarily have been building U.S. Navy ships—and, of course, the U.S. Navy shipbuilding budget has gone down 75 percent since 1990—these yards are looking very much to commercial shipbuilding to help sustain that base.

    An important element of that is Jones Act shipbuilding, just as those nine double-hulled tankers are being built by Avondale and Newport News.

    Mr. CLEMENT. All right.

    Mr. Shandowsky and Mr. Turner, Captain Marcus and Mr. Crangle, how does the training of seamen compare between the U.S. and foreign countries?

    Mr. MARCUS. I think there is a wide variety in foreign countries. You've got some of the best-trained people in the world in certain countries, and you've got some people that are not trained at all in other countries.

    If we open our trade, we're going to get more of the last kind than the first kind. I mean, Japanese seamen and Norwegian seamen are well-trained, but the majority of people are Third World nationals that are surviving on substandard wages and they get substandard training, if any.
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    Mr. SHANDOWSKY. Congressman, in this country we have the best-trained merchant seamen on the face of the earth, bar none, and that is the reality of the situation.

    Here today you have the finest product available anywhere. Regardless of how well-trained a foreign crew member may or may not be, you cannot find better than what you already have. That is the fact of the matter.

    Mr. TURNER. Congressman, I'd like to second President Shandowsky's remarks. We have, we think, the finest training facility in the world in Piney Point, Maryland, about 60 miles from here. It turns out the best seamen available.

    I have a son who has gone through that facility about a year and a half ago and is currently sailing, and I can tell you first-hand that it's not only provided a living for him, it's given him the ability and the training needed to further his career.

    Mr. CRANGLE. I might interject, Mr. Clement, all four of the unions here maintain schools—some of them more than one school—for the upgrading from one license to another, but also the United States Government has made an investment in the training of American merchant seaman in that we have the United States Merchant Marine Academy at King's Point.

    At the present time, the Government partially subsidizes the State Maritime Academies in six States: Maine, Massachusetts, New York, Texas, California, and one in Michigan.
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    There is a national policy of training seafarers, of which the unions are a part because our members attend schools that we operate in joint operations with the steamship companies with whom we have collective bargaining agreements.

    We have a school in Florida right now that probably has 30 to 40 men and women who are in training on a variety of topics, not only upgrading their licenses, but also fire fighting, refrigeration—all of the basic things that make a ship able to continue to operate under adverse conditions or just under regular conditions. It is a tradition since we started.

    Mr. CLEMENT. All right. Thank you.

    Mrs. FOWLER. I want to thank the members of the panel for your testimony, for your being here with us today. We will make sure all of your remarks are in the record.

    We might have some other questions we think of that we would like to submit to you in writing, if that's acceptable, or other members of the subcommittee who are not able to be here with us.

    Thank you so much. We appreciate it.

    I'd like now to call the fifth panel to come forward.

    I want to thank you for being with us. This is our last panel today. I know most of you have been sitting here throughout the day listening to the other panels. We appreciate it, and I want to introduce the members before we begin.
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    We have with us: Mr. James F. Collins, President of the Steel Manufacturers Association; Mr. Richard Kurcina, Director of International Development for AKZO Nobel Salt, Incorporated; Mr. Joseph C. Stehlin, President of Green Cove Maritime, Incorporated; Captain Eulogio C. Bermudes, General Manager of The Port Authority of Guam; and Rafael Cebollero March, Director, Marketing, Industrial, and Food Distribution Association, Board of Directors, representing the Puerto Rico Jones Act Reform Coalition.

    Welcome. Unless you've decided otherwise, we'll start off with Mr. Collins.


    Mr. COLLINS. Thank you, Madam Chairwoman.

    I'm here on behalf of the 49 U.S. member companies of the Steel Manufacturers Institute. We have 49 U.S. companies with about 105 steel plants across North America operating in about 35 States, with about 63,000 steel workers, about half of whom are union workers.

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    Our members consume about 42 million tons of ferrous scrap each year, which is a huge volume of scrap. It's the equivalent of about 40 million junk cars each year.

    The Jones Act has been a very serious problem to our industry. We cannot buy scrap from the coastal areas of the United States and ship it to other areas of the U.S. because of the Jones Act. It is cheaper to ship ferrous scrap to Turkey or to Taiwan or to China than to ship it on a Jones Act vessel to the lower eastern part of the United States coast, the gulf coast, up the Mississippi River, or to west coast ports.

    As a consequence, when scrap in our coastal cities is collected an piles up, much of it—10 million tons of scrap goes into export each year, and much of that is due to the fact that the Jones Act makes it impossible to ship scrap economically to other parts of the country.

    We are concerned about the Jones Act because we look at the jobs in the coastal and Great Lakes Jones Act fleet—you asked a question about that previously. We have heard estimates that there are 5,000 or 6,000 jobs left in the Great Lakes fleet, and over the 76 years under the Jones Act more than 60 shipyards have gone out of business, eliminating 200,000 jobs.

    Additionally, 40,000 merchant seamen and 40,000 longshoremen have lost their jobs, despite Jones Act protection.

    Of U.S.-flag vessels, 3,644 were on our waterways in 1948. There are only 351 now. Only 128 are ocean-going, over 1,000 tons.
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    And only three nations have fleets with an average age older than that of the United States.

    In 1950, we had 43 percent of the world's shipping market; now we have 4 percent of the world's shipping market. Foreign-flag ships carry 97 percent of all the cargo between U.S. ports and foreign ports.

    What puzzles me, Madam Chairwoman, is the desire of many of the witnesses here today, and obviously in very good faith, to support the continuance of the Jones Act. They are suffering badly from the Jones Act. I would think, if they looked at their numbers over the past 75 years, they would have found that the Jones Act was a total failure in terms of maintaining both a cargo fleet, a military capability, and employment in the maritime trades in the United States.

    The fact is the Jones Act has not done this. It has probably contributed to the decline of the U.S. merchant fleet and the U.S. shipbuilding capability.

    Now, we've had a lot of experience with import protection in the steel industry, and the Jones Act, boiled down to its essentials, is import protection. Foreign-flag vessels can't offer a service from one coastal port to another in the U.S.

    We argued for 20 years that we needed import protection because of $60 billion of European Community subsidies and other subsidies around the world in the steel sector, but that didn't work. What worked in the steel industry was competition—competition from imports, competition from the mini mills—and my organization has resulted in a highly efficient and effective steel industry in a world context today. This was an industry that was about to die 20 years ago.
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    Same in the automobile industry. The automobile industry had enormous amount of competition from foreign automobile producers, particularly Japanese automotive producers. The American automobile industry is strong today because it rose and met the challenge of that competition, and it's a world-class industry today.

    I look at the Jones Act protected industries in the United States and, frankly, there's not much left to protect.

    We don't understand the argument that if a foreign-flag vessel is required to meet U.S. labor laws, U.S. environmental laws, why it can't operate in U.S. waters and provide a service that we desperately need.

    Our steel companies cannot ship to other U.S. markets. This is the biggest market in the world, but American steel companies can't ship not just to Puerto Rico or Guam or some place like that, but they can't ship from one east coast producing area to another area of the United States by water transportation because of the Jones Act.

    So what happens? Imports come in. Imports take those jobs. So for 6,000 maritime jobs, you're probably trading a lot more steelworkers' jobs in the United States.

    The point being that once you start to distort markets with artificial restraints, there is no telling where the injury will end.

    There is industry after industry that will provide infinite amounts of data—oil, steel, automotive, agriculture—to the effect that they are being injured by the Jones Act.
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    Two final points.

    If this committee is concerned about the various elements of the arguments on both sides of the fence on this, why don't you go to an independent source? Get McKenzie and Company to come in here and look at the Jones Act and the effect on the American economy, the pros and cons, the pluses and minuses, and let a mutual arbiter do a really effective first-class study of the Jones Act.

    We'd support it. I don't think the Jones Act proponents would support it because I don't think they can withstand the cold light of day with respect to the facts of the Jones Act.

    Thank you, Madam Chairman.

    Mrs. FOWLER. Thank you, Mr. Collins. We will incorporate your complete statement into the record. Thank you.

    Mr. Cebollero, do you want to go next?

    Mr. CEBOLLERO. Good afternoon, Madam Chairman. My name is Rafael Cebollero. I am president of the Private Sector Coalition to Exclude Puerto Rico from the Jones Act.

    This coalition is composed of the Puerto Rico Manufacturers' Association, the Puerto Rico Chamber of Commerce, and the Food Industry Association of Puerto Rico.
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    Madam Chairman, we are here to express our support for any effort that would unburden the economy of the Commonwealth of Puerto Rico from the unfair and unreasonable restrictions that stem from the dispositions of the Merchant Marine Acts of 1920 and 1936 on trade conducted between the Commonwealth and the United States mainland.

    The cabotage laws impose significant restrictions on commerce between Puerto Rico and the U.S. mainland by requiring that merchandise and produce shipped by water between United States ports be shipped only on U.S.-built, U.S.-manned, U.S.-flag, and U.S.-citizen-owned vessels.

    By the way, I failed to mention the fact that I am a co-owner of an American-flag small shipping company.

    The world's shipping business is rife with ineffective and expensive protection. America's Jones Act is one. Indeed, the 1920 Jones Act generally restricts us trading to ships that not only fly the U.S. flag, but must also be built in the United States, are owned by U.S. citizens, and employ U.S. workers.

    Because such restrictions boost shipping costs, American consumers pay the price.

    An analysis by the U.S. Trade Commission suggests a repeal of the Jones Act would cause U.S. shipping prices to fall by 57 percent, and swell national income by about $3 billion a year.
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    The most recent victim of this rule was the Federal Government, itself, when it decided to tap its strategic petroleum resource in January 1991. The oil had to be shipped from storage in Louisiana and Texas, but there were no American tankers available, so the Government found itself in the absurd position of having to waive its own law.

    The essential geographical characteristics of Puerto Rico as being an island, its essential economic characteristics as being open to commercial and capital flows, Puerto Rico is one of the most open economies in the world; yet, this openness is also characterized by being overwhelmingly dominated by its commerce with the United States mainland.

    The Commonwealth of Puerto Rico's dependence on external trade is clearly reflected by the following micro-economic indicators.

    GDP in fiscal year 1995 has been reported by the Puerto Rico Planning Board in its annual report to the governor at approximately $42.4 billion. Exports and imports were, respectively, estimated at $23.8 and $18.9 billion. That year, 89 percent of our exports, or $21.8 billion, went to the mainland United States.

    Manufacturing represents 41.8 percent of GDP.

    Imports of Puerto Rico from the United States mainland are so significant that the Commonwealth ranks 12th among all nations as an importer of United States goods and services. Of our $42.4 billion GDP in fiscal year 1995, $18.8 billion were imports and $12.2 billion were exports. Almost 90 percent of exports, or $21.1 billion, went to the mainland United States.
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    When analyzed by weight, 96.7 percent of exports were shipped by vessel to the United States mainland.

    A very significant portion of imports are used by Puerto Rico's industries as inputs in the manufacture of products exported. Moreover, of the products imported from the United States in fiscal year 1995, 98.5 percent by weight and 63 percent by value were transported by vessel.

    In fiscal year 1995, personal consumption expenditures of food totaled 4,247,000,000. The government estimates that at least 50 percent of total personal consumption expenditures in food are supplied by imports.

    Since I'm out of time, I'll submit the remainder, but I just want to make one closing statement.

    As I said before, I'm part of a small American-flag shipping company. I'm very much worried about our existence in the future, because we started out with one barge about 25 years ago that at that time cost us $400,000. The same barge which used the same architectural design, we bought an additional barge 15 years later and it cost us $4 million.

    These barges are getting old now and we have to replace them because right now the cost of maintaining these barges is extremely high because the U.S. Coast Guard requires that as the ship gets older the inspections get stricter. The last maintenance that we performed on the two barges cost us over $400,000.
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    It's getting to the point where it is no longer economically feasible to maintain these barges. We will have to build new ones. But if the last barge that was built over 10 years ago cost us over $4 million, we estimate that that same barge would cost us now about $6 million.

    We would have to increase the freight we charge, and we transport raw material from the States to Puerto Rico, basically corn oil and soybean oil from Illinois and Tennessee.

    We will have to raise those costs so high that they would be cheaper for the manufacturers that process these products in the island to bring them in from either Brazil or other points in South America.

    The same thing has been happening to coal. The coal users in Puerto Rico are buying coal from Colombia, even though the cost of that coal at the point of origin is higher than the cost of coal in Virginia, because the cost of transporting that coal from Colombia is so much cheaper than transporting it from Virginia that they are importing it from Colombia.

    Mrs. FOWLER. Thank you. We will incorporate your whole statement in the record. Thank you.

    Mr. Kurcina?

    Mr. KURCINA. Madam Chairwoman, my name is Dick Kurcina. I'm a U.S. citizen. I work for a U.S. company, AKZO Salt. We pay U.S. taxes.
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    I want to talk today about lost jobs, lost investments because of Jones Act.

    As shippers, we are not necessarily qualified or disqualified from judging the Defense benefits of the Jones Act. Others may well determine whether or not these benefits exist or, if so, whether impending the function of the domestic economy is the most efficient means of providing it.

    However, we shippers are fully capable of determining its effects on the availability of shipping assets and its impact on our business.

    We are free traders, but we cannot trade freely in the United States.

    Shipper understand very well that the Merchant Marine Act of 1920, the Jones Act, an early maritime status, created a common bonding among a number of maritime groups. Each benefits from it, and the benefits are enough to ensure that the group will remain in place and mutually-supported, even under the most trying political and economical times.

    No law regulates other U.S. domestic modes like the Jones Act restricts water-borne shipping and trade.

    The producer and final consumer subsidized the higher transportation cost resulting from the Jones Act. For example, last winter in Washington, D.C., the State of Maryland and Virginia, the salt used on the roads was imported, mined in Chile, mined in Mexico, mined in the Bahamas, which paid no taxes. It was bought by the U.S. Government and bought by local municipalities because the cost of transportation.
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    The cost of transportation of my business is not nickels per gallon, it's 50 percent or more of the total cost.

    The DOT Maritime Administration report, November 1991, ''Domestic Waterborne Trade of United States, 1987 to 1989, page 19 and 20, reflects the high cost of coastwise and intercoastal shipping. No U.S.-flag ships today, no service, no domestic trade. I have no transportation, Madam Chairman.

    U.S. maritime policies have not kept pace with changes in the world trade or the maritime industry. They remain aimed at conditions that prevailed in the decades past. This is 1996.

    The Jones Act increases the cost of construction and operations of our vessels in the U.S. coastwise trade and in movements of our off-shore States and territories. Many shippers believe the time is right to amend or seek repeal of the Jones Act.

    Madam Chairwoman, AKZO Salt operates a mine in Cleveland, Ohio, that has the capacity of two million tons per year, expandable; however, there is no U.S. bulk vessel operating in the Great Lakes trade that can transport salt from Cleveland, Ohio, through the St. Lawrence Seaway System to the U.S. east coast.

    You saw a picture of a vessel being held up. That vessel cannot transmit the seaway system and it cannot, by law, operate in the ocean. It's land-locked.

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    AKZO's southern mine is located in Avery Island, Louisiana. Today there is no U.S. vessel, flag vessel, bulk self-unloader, available to transport salt from the U.S. gulf coast to the U.S. east coast. There are a number of foreign-flag owners who have an interest in transporting salt if they are given the chance.

    We have a customer. We have no service. We have no ship.

    Because transportation on the Great Lakes to the U.S. east coast is not available at economic cost, the U.S. salt industry is forced to import large quantities of de-icing chemical salt from foreign locations. Salt shipped by water on the Great Lakes averages 5.3 million tons annually; however, the U.S.-flag operators only participate in less than three-quarters of a million tons per year over the last 10 years, or 16 percent of the total. This is attributed to the high cost of U.S.-flag operators versus Canadian flag, and the reluctance of many carriers not to transport salt, or restrictions in their trade patterns that prevent a company like AKZO from moving to market.

    In 1980, we were unable to find any carrier on the Great Lakes at any cost to handle our product. We had to so-call revert to chartering in, retrofitting a 1917 coal-fired ship. It didn't work. We lost the mine. We closed our Detroit mine—180 miners at $20 an hour, low-cost operations in 1980.

    Mrs. FOWLER. Mr. Kurcina, if you could wind up, then we'll submit it all for the record. Go ahead, if you can finish, that would be fine.

    Mr. KURCINA. I'm sorry, Madam Chairwoman. When you refer to jobs and U.S. jobs, I can't sit here and wait and wait and wait.
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    Mrs. FOWLER. We will incorporate—

    Mr. KURCINA. I want to get our message out.

    I thank you very much, and I will submit the full text.

    Mrs. FOWLER. We will make sure your full text is in the record. Thank you, Mr. Kurcina.

    Mr. Stehlin?

    Mr. STEHLIN. Madam Chairwoman, ladies and gentlemen, my name is Joseph C. Stehlin. I'm President of Green Cove Maritime. We're a family-owned shipping agency.

    I'd like to briefly give you a little background of how we started and what we are.

    We started as a family of six—three sons, a daughter, Mom, and Dad. We've now grown, 142 associates. We are in two ports—Jacksonville and Port Everglades.

    We started back in the late 1970s, and this was our first encounter with the Jones Act. Inadvertently, I bought a ship—a little Chesapeake Bay oyster bi-boat, a wooden boat built in Roarke, Virginia. Only one problem: it was out in the Bahamas and it had a Bahamian flag on it, and when I found out that I couldn't run it from Port Everglades to Key West—I thought it was a good idea, but it seems there was a law 120 years old that said I couldn't reflag it and bring it back into the United States.
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    So with that we went foreign, and we started with that meager beginning, and then the Yeocomico was too small. We went to Germany and we looked at the coastal freighters, and I found out there were thousands of coastal freighters in Europe, all over the rest of the world.

    We bought a little ship. My son worked on it for 6 months. He and his brothers and sisters sailed out of Travemunde in the Baltic Sea, Kiel Canal, English Channel, Azores, Bermuda, and all of the sudden on the 4th of September 1980, this little 400-ton 1950-built German ship was the beginning of a full-time operation However, we learned the hard way that it wasn't that easy.

    So with the beginning of a small vessel it wasn't long. The Yeocomico, we found out that nobody would do anything for us—I'm sorry, the Karibic Sun. So we then formed in 1985 Green Cove Maritime, an agency to handle our own ship, do our own stevedoring, do our own ship repair, find our own cargo. We just had to do it all ourselves.

    With that we grew. Our first liner service out of Jacksonville to Nassau, Bahamas, we had one 40-foot container and one used truck. We were embarrassed so badly we put six empty 20s on, and I think everybody sort of laughed at us, but that's the way we got started.

    My youngest son said, ''We know the liner business. We built it one box at a time.''

    Last year we moved 15,000 containers and over 300,000 tons of cargo, all going foreign out of the United States.
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    We're American. I'd love to be in the United States in business. But the one thing I did find out is that in order to start a business I have to buy a used coastal freighter. We're just little people. I don't have millions in my pocket. I've got to buy a used coastal freighter, and it has to be, unfortunately, built in the United States.

    I've heard a lot of comment here today, and if somebody can show me a used coastal freighter, 4,000 tons, modern diesel engine, 254 TEUs at a reasonable price, I'll buy it at the drop of a hat. There aren't any.

    We have on our ships American officers, American crew members. My sons are captains, engineers. We have Canadian, we have German, Croatian, Dutch, and Polish. I think we've got some damn good crew members. That's the way our ship works.

    Entrepreneurial skills in the maritime industry can compete with anybody. There is no such thing as ''we can't compete in the world.''

    The Jones Act hasn't protected the U.S. maritime industry. It has been one of the causes for its decline and destruction.

    The thing is, we've got to restart a coastal freighting business. We need to put hundreds of coastal freighters like this right here on our coast. We could create thousands of new jobs. We could double or triple the tonnage going through our ports. I can't understand that, because what we need to do is put the cargo through the ports, not over our highways and on the railroads. Railroads won't like to hear that.
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    On the horizon we have new ships—all right, Madam. I guess I have to quit, but just think on the horizon you've got 6,000 TEU ships coming.

    Thank you very much, Madam Chairman.

    Mrs. FOWLER. Thank you, Mr. Stehlin.

    Mr. Stehlin is a neighbor in Jacksonville, so we are glad to have you with us today. We will incorporate your whole statement for the record.

    Mr. STEHLIN. Thank you.

    Mrs. FOWLER. Thank you.

    Now, Captain Bermudes.

    Mr. BERMUDES. Good afternoon, Madam Chairwoman, Congressman Clement, and members of the committee. I thank you for saving the best for last.


    Mr. BERMUDES. My name is Eulogio C. Bermudes. I'm a retired Navy captain. I'm the general manager of the Port Authority of Guam.

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    I am here today on behalf of the Honorable Carl Gutierrez, Governor of Guam, to present the views of the people of Guam on the Jones Act and related coastwise laws of the United States that directly affect Guam.

    The Territory of Guam is the most remote destination of the domestic off-shore jurisdictions of the United States subject to its coastwise laws. It is 6,000 miles west of California, 3,700 miles west of Hawaii. It takes 17 hours of flying time, ten time zones, and a terrible case of jet lag to arrive in Washington, D.C.

    As an island economy, Guam is heavily dependent on ocean transportation. The two major ocean carriers now that serve the Guam trade are Sea-Land and Matson. Matson replaced American President lines in February 1996, this year.

    These two carriers effectively control the Guam trade and are not subject to competition from foreign-flag services. The carriers do not compete on rates, preferring to copy each other's rates to the public tariff system, a practice known as parallel pricing.

    The two carriers have effectively formed a non-competitive duopoly. We calculate that the additional cost of the Jones Act on the Guam economy amounts to approximately $40 million annually. That means that each family in Guam pays about $1,139 per year to the carriers.

    It is our view that if the restrictions of the Jones Act were lifted, more carriers would serve our trade with the mainland. More carrier competition would reduce the freight rates.
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    As an example, in 1993 the average freight cost of a 40-foot container shipped to Guam via a U.S.-flag carrier was $4,451. That same container, when shipped by the same carriers to Japan or Korea, where there is foreign competition, costs an average of $1,644.

    Because ocean freight costs have a significant impact on the Guam economy, the government of Guam requests that Guam be granted an exemption from the Jones Act.

    While an exemption to the Jones Act is clearly preferred, any relief to ease the financial burden imposed on our economy would be greatly welcomed. If Guam is not granted an exemption to the Jones Act, it is absolutely essential that it not be burdened with excessive and unreasonable freight rates by the carrier duopoly.

    Recently, Congress directed the Department of Transportation to study the domestic off-shore trades and recommend additional shipper protection against the abuse of market power by the Jones Act carriers. The government of Guam filed extensive comments in that proceeding.

    We believe that most of those recommendations should be adopted and implemented in the non-competitive domestic off-shore trades, including Guam, to protect ratepayers from being overcharged for essential ocean transportation services.

    Essentially, our recommendations are very straightforward. The SDB should evaluate each domestic off-shore trade to determine which ones have so little competition as to warrant rate regulation. We believe that Guam is clearly one of those trades.
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    In those non-competitive trades, regulatory authority must be comprehensive. The SDB should evaluate at regular intervals the rates charged by the carriers on the basis of their actual cost of service and restrict the rate levels to that which produces a reasonable profit.

    Profit is not a dirty word. Profit is good. But excessive profit is a sin.

    In summary, it is the position of the government of Guam that Guam be exempted from the Jones Act in fairness to the people of Guam; however, if that is not the work or the result of this committee, then steps must be taken to ensure that the people of Guam do not bear an unfair burden from the application foreign the Jones Act. In that case, the committee should amend the ICC Termination Act to ensure that the people of Guam are charged only the fair cost of serving the island and are not forced to pay excess freight costs.

    Madam Chairwoman, thank you very much.

    Mrs. FOWLER. Thank you. We will submit your full statement for the record, too. Thank you.

    I just have a few questions for some of you.

    Mr. Collins, I wanted to ask, have any of your member steel companies attempted to work with our U.S.-flag vessel owners in some effort to establish a U.S. coastal freight service, because your testimony said there was no way to do this. Has there been any—
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    Mr. COLLINS. They have looked at the rates quoted, and they know they cannot absorb those rates in the product price in the market for which the product would be destined. There is no way they can do it, either with raw materials or with finished products.

    Mrs. FOWLER. You said they've looked at the rates. Have they sat down with any of these U.S.-flag vessel owners and tried to negotiate some deal?

    Mr. COLLINS. These are individual company decisions, and I know they have all investigated the potential for coastal shipping, the ones that need to do it, and they would—they have done so and will continue to welcome any representations from coastal shippers with respect to their ability to bring the product to market at competitive prices.

    Mrs. FOWLER. Do you have any estimate of how much—you had mentioned in your full testimony, I believe—not what you read, but in what you've submitted—about the business that our domestic steel makers are losing because of our annual high U.S. domestic water transportation costs. Do you have any estimate of how much that is?

    Mr. COLLINS. I don't have numbers. I do know that many of our steel producers, even those in States like Arkansas, can get—could, if there were no Jones Act prohibitions, could get raw materials into those Arkansas plants and ship products out to the coast by water transportation. It's too expensive to do it by rail or truck, but they are prohibited from doing so by the Jones Act.

    Also, the one company I know of on the east coast has indicated it could sell products in Puerto Rico, but it's impossible to get there with Jones Act shipping costs, and therefore Puerto Rico supplies itself with steel from Venezuela.
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    There are innumerable examples of this in our industry, and we'd be glad to try to compile some of these cases for you.

    Mrs. FOWLER. That would be helpful if you could submit it for the record.

    Mr. COLLINS. All right.

    Mrs. FOWLER. Thank you, Mr. Collins.

    Mr. COLLINS. I would be glad to do that.

    Mrs. FOWLER. Mr. Stehlin, what do you find to be, from your point of view, the most expensive restriction of the Jones Act?

    Mr. STEHLIN. Well, I guess on a critical path basis, the first thing we had to have were ships, and in order to get started we were required to look around the world to find some used coastal freighters, because we certainly couldn't afford to buy a new ship, even with guarantees or anything. Actually, nobody would guarantee a start-up anyway.

    Mrs. FOWLER. Thank you.

    Mr. Cebollero, I wanted to just ask you, has the governor of Puerto Rico estimated the effect of the Jones Act on the price of consumer goods to the citizens of Puerto Rico?
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    Mr. CEBOLLERO. I don't think there is any precise way of asserting that cost. I've seen estimates that range from $100 million to $500 million a year.

    Mrs. FOWLER. If you find something, I know from Guam you had some figures that you were using. If you have anything like that in Puerto Rico, if you could submit that for the record it would be interesting to have.

    Mr. CEBOLLERO. Sure.

    Mrs. FOWLER. Thank you.

    Mr. CEBOLLERO. I would like to make just one further point.

    Mrs. FOWLER. Yes.

    Mr. CEBOLLERO. With the advent of NAFTA, the commercial relation between the island and the United States is in jeopardy because, even though we were burdened with the additional cost of American-flag vessels, we were also under the protective tariff protection of U.S. Customs duties. But with free access of these markets, these countries—like especially Mexico—with lower production costs and the use of foreign-flag vessels, will start substituting the imports of the island from the mainland and vice versa, will start substituting our exports to the mainland with their products, because they are able to use foreign-flag vessels, they are able to use land transportation, and, of course, they have much lower wages and none of the restrictive regulations of the environment, etc., etc.
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    Mrs. FOWLER. Well, any information you might have on that, if you could submit that for the record I think it would be good to have, too. Thank you very much.

    Mr. COBLE. Mr. Kurcina, what type of ships are used to transport salt? I know it's so corrosive, and when you're taking it by—

    Mr. KURCINA. A bulk carrier of 25,000 to 45,000 tons, self-unloader—in other words, a self-unloader has its own conveyor, therefore the vessel can unload at 2,000 or 3,000 tons per hour, similar to what was shown and held up as an exhibit by Mr. Ryan earlier.

    These ships are readily available to transport salt on the open market. They are not available in the trade patterns I wish to participate in.

    Mrs. FOWLER. So could you tell me the reason why you all ended up buying the salt that was used here on the roads last winter elsewhere?

    Mr. KURCINA. If I could find this transportation and if the cabotaged United States was open, I would move salt from Louisiana to Baltimore and everywhere else on the east coast where it snows. I would make the investment. My company would make the investment.

    Mrs. FOWLER. Thank you. I see my time is up.

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    Mr Clement?

    Mr. CLEMENT. Mr. Stehlin, what changes do you believe are necessary for you to be able to operate a U.S.-flag vessel in the coastwise trade of the U.S.?

    Mr. STEHLIN. Well, the first thing that we have to do, Mr. Congressman, is to establish a viable market coastwise. There is, on the east coast, no coastal freighting, and we couldn't go into the industry by buying a new vessel built in the United States.

    We really are caught in a catch 22. We can prime the pump by getting this thing started with some foreign-flag vessels, foreign-flag capital. Those ships would all be repaired by the shipyards up and down the east coast, because no German is going to pull a ship back to Germany for a dry dock and the paint and the sand sweep.

    And then, by being able to look at those ships in a year or two, our U.S. shipyards could then quote on the new builds.

    But you've got to get the industry up and going. Right now it's zero.

    Mr. CLEMENT. Let me ask you this: I know you state that most of your problem with the Jones Act is based on the U.S. build and transfer foreign restrictions. Have you ever taken bids to build a ship?

    Mr. STEHLIN. No, sir. I said I cannot afford a new ship. Every airline that starts up—there are 22 start-up airlines this year in the United States—they didn't buy new airplanes from Boeing or Douglas. I've got a few hours of flying. What they did is they bought used airplanes.
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    You go bankrupt by Tuesday if you try to start with new build. You have to start up an industry with used ships.

    If anybody can show me some used U.S. coastal freighters, I'll buy them.

    Mr. CLEMENT. Mr. Collins, on page three of your statement you say that the Jones Act direct subsidized total about $1 billion annually. Since vessels in the coastwise trade area are prohibited from receiving direct Federal subsidies such as operating differential subsidies, what Federal subsidies are you referring to?

    Mr. COLLINS. That number came out of the ITC report, Mr. Clement, and that was an estimate of the total subsidies accorded by the Jones Act—annual subsidies.

    Mr. COBLE. Mr. Collins, when I was on the Merchant Marine and Fisheries Committee, the U.S. scrap steel industry was seeking an amendment to require that all ships owned by the Maritime Administration be scrapped in the United States.

    Since you are opposed to the Jones Act, are you also opposed to this type of protectionist domestic scrapping?

    Mr. COLLINS. Our group has never taken a position on that or requested the scrapping of ships in U.S. yards. We recognize the realities of international commerce and the fact that it's a lot cheaper to scrap in foreign yards than in U.S. yards, so we have not advocated that as a position.
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    Mr. CLEMENT. Captain Bermudes, if the Jones Act were repealed, isn't it possible that you would continue to have high rates to Guam since you don't need more than two carriers to transport the amount of cargo shipped to Guam for the 130,000 people living there?

    Mr. BERMUDES. Congressman Clement, that is entirely possible, but we believe that the free enterprise system will take over the freight rate issue, and that more carrier competition will drive that rate down.

    Mr. CLEMENT. And I know it has to be difficult for Guam because you're in sort of a so-called ''special category'' because of how far you are from the United States.

    Mr. BERMUDES. It certainly is.

    Mr. CLEMENT. Yes. Thank you.

    Mrs. FOWLER. Thank you, Mr. Clement.

    I want to thank each of the witnesses for your being with us today and for your valuable testimony.

    I want to thank Mr. Clement for being here all day and all of his good questions.
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    Some of the members of the subcommittee still may have some questions they would like to submit in writing to you, and so if we do, if you could answer those, we will hold the hearing record open for those responses.

    Mrs. FOWLER. Is there any other business to come before the subcommittee?

    [No response.]

    Mrs. FOWLER. If not, again I want to thank the members of the subcommittee and the panel.

    The subcommittee is adjourned. Thank you.

    [Whereupon, at 4:02 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]

    [The witnesses prepared statements follow:]