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[H.A.S.C. No. 106–9]








MARCH 16, 1999

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HERBERT H. BATEMAN, Virginia, Chairman
CURT WELDON, Pennsylvania
JIM SAXTON, New Jersey
WALTER B. JONES, Jr., North Carolina
STEVE KUYKENDALL, California, Vice Chairman

GENE TAYLOR, Mississippi
JAMES H. MALONEY, Connecticut

Sheila A. Dearybury, Counsel
Peggy Cosseboom, Staff Assistant



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    Tuesday, March 16, 1999, FY 2000 Maritime Administration Authorization Request and Related Matters and the FY 2000 (First Quarter) Panama Canal Commission Authorization Request and Related Matters

    Tuesday, March 16, 1999


    Bateman, Hon. Herbert H., a Representative from Virginia, Chairman, Merchant Marine Panel

    Underwood, Hon. Robert A., a Representative from Guam, Ranking Member, Merchant Marine Panel

    Aleman, Hon. Alberto, Administrator, Panama Canal Commission

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    Caldera, Hon. Louis, Secretary of the Army, U.S. Department of the Army

    Hart, Hon. Clyde J., Jr., Maritime Administrator, The Maritime Administration, U.S. Department of Transportation

[The prepared statements can be viewed in the hard copy.]

Abercrombie, Hon. Neil, a Representative from Hawaii

Aleman, Hon. Alberto

Bateman, Hon. Herbert H.

Caldera, Hon. Louis

Hart, Hon. Clyde J., Jr.

Saxton, Hon. Jim, a Representative from New Jersey

Underwood, Hon. Robert A.

[The documents submitted can be viewed in the hard copy.]
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[This information is pending.]


House of Representatives,
Committee on Armed Services,
Military Procurement Subcommittee,
Washington, DC, Thursday, March 16, 1999.

    The Special Oversight Panel met, pursuant to call, at 1:05 p.m., in room 2216, Rayburn House Office Building, Hon. Herbert H. Bateman [chairman of the panel] presiding.


    Mr. BATEMAN. If the panel would come to order, I am going to go ahead with the brief opening statement that I have prepared, in the hopes that Mr. Abercrombie, who is on his way, will not object.

    Before we address the business of the panel, and its consideration of the Maritime Administration budget request for Fiscal Year 2000, and the budget request for the Panama Canal Commission for the first quarter of Fiscal Year 2000, I want to welcome the witnesses who have agreed to testify today.
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    I would like to extend the panel's warm welcome to the Honorable Clyde J. Hart, Administrator for the United States Maritime Administration. We look forward with great interest to hearing from you, Mr. Administrator.

    Since 1994, this panel has sought to foster a strong domestic maritime industry as an essential component of our national security. I anticipate that engaging in a full and frank discussion of maritime issues and concerns under the purview of the Maritime Administration, that is, your agency, will further this objective.

    I would also like to welcome the Administrator of the Panama Canal Commission, The Honorable Alberto Aleman, who has traveled a long way to be with us today. We look forward to hearing from you.

    And we also look forward to hearing from our Secretary of the Army, the Honorable Louis Caldera. I understand you will be testifying before the full Armed Services Committee this week, and we are delighted to have you before the panel today in your capacity as Chairman of the Board of Directors of the Panama Canal Commission.

    As this year's legislative package is the final one submitted by the Commission before the transition, I look forward to a candid discussion of this package. This is the time to address any changes needed to support a smooth transition; something this panel has been very interested in facilitating.

    While I am pleased by recent successes in fostering a strong domestic maritime industry, such as the new Maritime Security Program and the recently signed contract to build the first large US-flag cruise ships in the United States in more than 40 years, I remain concerned about several issues which will likely face us again during the 106th Congress.
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    Of continuing concern is the potential introduction of legislation implementing the OECD Shipbuilding Agreement, which does not adequately address the potential detrimental impact of the agreement on the Jones Act or sufficiently define vessels relating to our national security.

    Also of concern are the issues associated with the disposal of obsolete vessels and the state of our nation's Federal Maritime Academy, which is in so desperate need of facilities repair and improvement that the welfare of our future merchant mariners may be impacted. I welcome your views on these important issues.

    [The prepared statement of Mr. Bateman can be found in the Appendix.]

    Mr. BATEMAN. If he is present, we will now call on Congressman Abercrombie for any opening statement he might choose to make. And I guess we will wait for a moment to see if he is on his way.

    If I may, I will now welcome Congressman Abercrombie and thank him for being here. I know the kind of day he must be having, because I have had much of the same myself.

    Let me also, before calling on Mr. Hart, mention the fact that Congressman Taylor would be here but for the fact that he is managing the Federal Maritime Commission legislation, which is on the floor of the House today. So, certainly, we have to give him a pass for not being here, under those circumstances.

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    Mr. Hart, Mr. Administrator, we are delighted to hear from you today.


    Mr. HART. Thank you, Mr. Chairman, and members of the panel. I welcome the opportunity to be with you today for the first time, to discuss the Maritime Administration's (MARAD's) programs for Fiscal Year 2000.

    As you know, Secretary of Transportation Slater has made national security one of his five strategic goals for the Department. He and I recognize and appreciate your continued support for our agency's programs and the important role they play in our nation's security.

    I am pleased to tell you that the Secretary transmitted MARAD's Fiscal Year 2000 authorization proposal to Congress this morning. And I have brought copies here to leave with you this afternoon.

    In addition to MARAD's ongoing programs, we have been tasked with two other areas of responsibility. The 105th Congress enacted the American Fisheries Act as part of the Omnibus Appropriations Act for Fiscal Year 1999. It assigns MARAD new duties and responsibilities in determining compliance with citizenship standards for ownership of certain fishing vessels.

    The 105th Congress also passed legislation authorizing a process for the administrative waiver of the U.S.-built requirement for participation in coastwide trade for vessels carrying 12 passengers or less.
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    I am also pleased to tell you that our Fiscal Year 2000 authorization request contains several provisions which aim to improve the implementation of two of our programs; namely, Title XI and cargo preference.

    I would now like to briefly discuss the status of our continuing programs, the progress made in implementing our two new programs, and the remaining proposals in the authorization requests for Fiscal Year 2000.

    Let me start with the Maritime Security Act which was enacted in 1996 with much assistance from this panel, and the Maritime Security Program or MSP.

    This fleet, owned and operated by U.S. citizens and crewed by American seafarers, seeks to serve national security sealift requirements, and to provide a competitive presence in our international commercial trades.

    As you know, all authorized MSP operating agreements were awarded to 10 U.S.-flag companies during Fiscal Year 1997. As of January 1, 1999, all 47 ships enrolled in the MSP were participating in the program under the terms of their operating agreements with MARAD.

    We estimate that MARAD will obligate approximately $97.6 million in Fiscal Year 1999 for MSP payments. In Fiscal Year 2000, we are requesting a total of $98.7 for MSP payments.

    MSP requires participants to enroll in an Emergency Preparedness Program making their commercial transportation systems available to the Department of Defense during a war or other national emergency.
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    This requirement is met by the Voluntary Intermodal Sealift Agreement or VISA program. VISA is a public/private initiative, designed to improve U.S. sealift readiness capabilities by making U.S.-flag commercial intermodal, dry cargo capacity available to meet DOD's contingency deployment. To date, 35 companies and more than 424 vessels are enrolled in VISA.

    The Administration's authorization proposal also contains a provision that we would hope would improve the vessel profile of the U.S.-flag dry bulk fleet, add jobs to the U.S. merchant mariners, and increase the percentage of U.S. foreign commerce carried in U.S.-flag vessels.

    The new proposal would eliminate for one year or until enactment of the OECD Shipbuilding Agreement the three year waiting period that a newly registered bulk or breakbulk vessel must wait in order to carry government-impelled cargo.

    In return, these vessels will be required to have non-emergency shipyard repairs and other repair work necessary to conform the vessels to U.S.-flag standards done in a U.S. shipyard.

    Shipyard revitalization—the Title XI program has been an unquestioned success in meeting the goals of the President's National Shipbuilding Initiative, or NSI.

    Under the NSI, the Title XI program was expanded to include financing for export vessels constructed in U.S. shipyards, and for the modernization of U.S. shipyard facilities.
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    This expansion has enabled MARAD to approve almost $3.7 billion in projects, involving about $2.9 billion in Title XI financing.

    Mr. Chairman, these projects have established the ability of U.S. shipyards to compete internationally. U.S. shipyards are attracting foreign interest and winning orders for many type vessels.

    I would also like to point out that Title XI's impact is national. Title XI shipowners and their operations, as well as their supplier base, cover almost every state in the union.

    Since Fiscal Year 1993, MARAD has approved Title XI financing for 65 applications. The total cost of all these projects, as I said, approaches $3.7 billion, with a related Title XI guarantee amount of approximately $2.9 billion.

    In Fiscal Year 2000, MARAD requests $9.8 million for the Title XI program. This amount covers $6 million in loan subsidy costs and $3.8 million in administrative expenses of the program.

    The authorization program also contains two provisions which amend the way MARAD administers the escrow and reserve funds associated with Title XI loan guarantees.

    These amendments aim to better protect the government's guarantee, and improve the efficiency of the Title XI program by saving administrative costs, speeding up the Title XI closing process, and by reducing the cost to private companies doing business with the government.
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    MARAD's National Defense Reserve Fleet, or NDRF, is funded by DOT's National Defense Sealift Fund. There are currently 237 ships in the NDRF, 91 of which are Ready Reserve Force ships.

    The RRF, the Ready Reserve Force, continues to be a ready and reliable element of our nation's strategic sealift capability during emergencies and military contingencies, providing crucial sealift support during armed conflicts and in recent humanitarian efforts.

    RRF ships can be tendered to the Navy's Military Sealift Command in 4, 5, 10, 20 or 30 days, depending on their location and assigned readiness priority.

    High priority readiness RRF vessels—4 or 5 day status—are located at outport berths near military loading facilities, and have civilian maintenance crews.

    MARAD continually works to assure the fastest possible activation of RRF vessels. The efficiency of the RRF was validated just this past September when DOD ordered the no-notice activation of 29 RRF ships during a nine day period. All of the ships met their DOD-assigned readiness requirement.

    Mr. Chairman, as you know, a serious issue for MARAD continues to be the disposal of obsolete vessels in the National Defense Reserve Fleet. There are currently 93 obsolete vessels in the NDRF eligible for scrapping. MARAD expects to take title to 37 additional merchant type vessels from the Navy, giving us a total of 130 vessels to scrap.
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    MARAD is required by statute to dispose of obsolete vessels with a maximum return for the government. For this reason, and because of the limited capacity of domestic scrapping facilities, MARAD has historically scrapped overseas.

    However, MARAD agreed to refrain from selling any vessels overseas until the Interagency Panel on Ship Scrapping has completed its review of the ship scrapping process in April, 1998, and reconvenes in June to review implementation of the report's recommendations.

    Additionally, in September of 1998, Vice President Gore requested that the Department of Defense and MARAD observe a further interim moratorium on any exports until October 1, 1999, to ensure that the panel's recommendations were fully considered.

    Therefore, MARAD's most recent Invitation for Bid for the sale of 28 vessels was limited to domestic sales. We are in the final stages of evaluating the bids and expect this month to award 17 vessels for scrapping.

    MARAD awarded 12 vessels for scrapping to two scrappers located in Brownsville, Texas on February 26th of this year. We are currently evaluating the bids and conducting a site visit of the bidders for the remaining five vessels.

    In our operations and training account, MARAD requested budget authority of $72 million for the Operations and Training or the O&T account for Fiscal Year 2000, an increase of $331,000 over Fiscal Year 1999.

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    O&T activities are traditionally divided into three primary components: the U.S. Merchant Marine Academy, State Maritime Schools support, and MARAD Operations.

    The proposed Fiscal Year 2000 budget for the Merchant Marine Academy is $34.073 million, a net increase of $1.775 million over Fiscal Year 1999.

    This increase is necessary to, among other things, (1) provide for unavoidable cost adjustments due to government-wide civil servant pay raises and inflation; (2) install a ''part task simulator'' to accomplish Standards of Training and Certification and Watchkeeping, the so-called STCW instruction and assessment, and (3) conduct a study of the barracks utility system renovation for $150,000 in order to better quantify a renovation project for the Academy's barrack's utility system.

    Assistance to the state academies is in the form of direct payments, Student Incentive Payments, to cadets and maintenance and repair of five ships on loan from the NDRF for use as training ships. The proposed Fiscal Year 2000 budget for the states' goals is $7.161 million.

    Pursuant to direction in the House Appropriation's Committee Report, accompanying MARAD's Fiscal Year 1999 appropriation, we are also conducting an indepth evaluation of maritime education and training programs.

    We are working with the Merchant Marine Academy and the State Maritime Academies to provide complete and responsive information that the Appropriations Committee will find useful in assessment of the contribution of maritime education and training programs to the achievement of MARAD and departmental national security strategic goals.
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    Last, the operations and training account funds personnel and administrative costs for virtually all of MARAD's programs and responsibilities—the proposed Fiscal Year 2000 budget for MARAD operations and training is $30.930 million.

    Of this amount, $200,000 is requested for the implementation of MARAD's duties under the American Fisheries Act, which recently tasked MARAD with ensuring that citizenship requirements are adhered to for ownership of vessels 100 registered feet or greater that have, or are seeking, a fisheries endorsement to their documentation.

    An Advance Notice of Proposed Rulemaking will be published in the Federal Register in several weeks. We have also scheduled public meetings in five cities during May to gather public input in the rulemaking process. We expect to issue a proposed rule about September, 1999.

    In our international activities, MARAD is challenged to negotiate directly with foreign governments to eliminate barriers to entry and discriminatory actions or policies which harm the legitimate interests of the maritime industry.

    I recently completed negotiations in Brazil, which I am hopeful will soon end a long dispute over actions taken by that government on behalf of its merchant marine that caused substantial harm to our own.

    In the Far East, China continues to be one of the most important markets for American maritime interests, yet the restrictions on our companies trying to do business there are formidable. We undertake these important efforts on behalf of U.S. companies with a minimum of resources.
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    Today, when we discuss the importance of our transportation system to the economy and to the national security, we use words like ''intermodal, seamless, efficient, and safe.'' The focus is on broadening our vision to include all forms of transportation and their infrastructure.

    As a step in this direction, MARAD and the Coast Guard have undertaken a new initiative called the Marine Transportation System—waterways, ports, and their intermodal connections.

    The goal of this initiative is to assess the adequacy of the nation's marine transportation system, including the aforementioned ports, waterways, and intermodal connections, to operate in a safe, efficient, secure, and environmentally sound manner.

    Last spring, MARAD and the Coast Guard hosted seven regional listening sessions to learn from users, stakeholders, and the public about the current state and future needs of our waterways, our ports and the connections.

    This provided the framework for the National Conference on MTS hosted by Secretary Slater in November of 1998. And just a few days ago, on March 12th, the Secretary hosted the first meeting of the MTS task force, attended by representatives of a broad spectrum of interested parties.

    We believe these efforts have taken us a long way in responding to the Congressional mandate to assess the adequacy of the nation's MTS, established in last year's Coast Guard Authorization Act.
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    I will be pleased to provide you with a copy of the Task Force's report, which is due to Congress July 1 of this year, and keep you updated on the progress of this initiative.

    In summary, MARAD's Fiscal Year 2000 budget request recognizes the importance of sealift readiness and a strong U.S.-flag fleet, embodied in the Maritime Security Program, the VISA Program, and the RRF.

    It also reflects a commitment to strengthened commercial shipbuilding through the Maritime Guaranteed Loan Program, Title XI, and recognizes the benefits of a seamless transportation system, maritime education and training, and other maritime support programs.

    This concludes my prepared statement. I will be pleased to answer any questions that you may have. Thank you.

    [The prepared statement of Mr. Hart can be found in the Appendix.]

    Mr. BATEMAN. Thank you very much, Mr. Administrator. Your entire written statement will be made a part of the record. And we appreciate so much your being here and giving us your comments.

    I have a number of things that I want to inquire about. And some of them, I will submit, so you can answer for the record.

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    Mr. HART. Thank you.

    Mr. BATEMAN. I am going to need some clarification on what it is the Administration is requesting, vis-a-vis the OECD Agreement, and whether it does or does not enter in force, and how it might affect the eligibility of our vessels to become involved in trade that it is not presently authorized to. On this, I will submit to you some questions for the record.

    Mr. HART. That is fine. Thank you.

    Mr. BATEMAN. Your references to Title XI are heartwarming, and I appreciate the positive tone in which you have made them. I am curious, though, to ask if you get the $9.8 million that is requested, would that fund all of the worthy Title XI applications that you have reason to expect?

    Mr. HART. I believe so, Mr. Chairman. In a lot of respects, it is unknowable. But we do know that we do get increasing interest in Title XI, and they do come from foreign, as well as domestic sources. But I believe that that $9 million, the $6 million for the account itself and the $3.8 million, I think it is, the administration should do it.

    Mr. BATEMAN. In terms of the success of the program, have there been any guarantees in recent years that have been made, and which you have had to make good on?

    Mr. HART. No, we have not had a default in some time. I have a good staff. What can I say? We are able to separate the wheat from the chaff.
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    Mr. BATEMAN. And the Congress has allowed you to look at those applications, based upon their actual merit, not with any bias toward making guarantees, when it was not fiscally prudent to do so.

    Mr. HART. That is correct.

    Mr. BATEMAN. Well, we certainly want it to remain that way. And it is your view that you will not have to turn down any worthy application for Title XI loan guarantee, based upon $9.8 million in funding?

    Mr. HART. That is my estimation, and I agree with that.

    Mr. BATEMAN. You made reference to the Reserve Fleet, and the question of obsolete vessels, and a report on the number of bids that were in process, and might be left.

    Are the bids that you are seeing today for scrapping of vessels leaving us in a position where we are paying to get them scrapped, or is the Treasury or your agency actually deriving any revenue from the scrapping process?

    Mr. HART. We are deriving revenue. Unfortunately, the amount of that revenue is decreasing. A couple of years ago, we would get $108 a ton. The last bids that we got went from 11 cents a ton to, I think, $13 a ton.

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    So we are still getting revenue, but unfortunately, it is decreasing. And that, of course, leaves a hole, because part of that money goes to the state schools and state Maritime Academies, and part of it was to go to King's Point.

    Mr. BATEMAN. If you would, would you submit for the record a run down on what historic experience would dictate in terms of a revenue stream, if we did not have statutory impediments versus what you have actually been able to get as a best bid?

    Mr. HART. I think we can do that, yes, sir.

    Mr. BATEMAN. Thank you.

    You have made reference, of course, to the United States Merchant Marine Academy at King's Point. Tell me whether there is any accumulation or potential problem with deferred maintenance there, that the committee may need to look at.

    Mr. HART. Thank you, Mr. Chairman. Yes, there are some projects that we have not been able to get around to doing yet. There are a couple of barrack's projects that could obviously stand the attention that that money would give them.

    A couple of the hulls are leaking. We could stand to get some additional funds, at some point in the out years, to take care of that.

    There is a retaining wall down by the water where the Academy is and we have been trying to rehabilitate that retaining wall. And we could stand some money on that.
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    I think, altogether—

    Mr. BATEMAN. Let me ask it this way, you have got a retaining wall that is a serious problem, but you do not have any money in this budget to fix it?

    Mr. HART. Well, we do have money. Basically, we put money where we can either get the biggest bang for the buck on the stuff that is going to crumble immediately. If you figure that the stuff is going to last one more year, you try and direct that money to some place where you can fix a more immediate problem.

    Mr. BATEMAN. In terms of the retaining wall, you have got the money to do what, a temporary fix, but not a total fix?

    Mr. HART. It is an ongoing project. And we have been trying to do it in stages over, I think, the last couple of years. So we would like to see if we could accelerate it, and get that out of the way, and then move on to the next one, is what it amounts to.

    Mr. BATEMAN. And you have got buildings at the Academy where the roofs are actually leaking?

    Mr. HART. Oh, yes.

    Mr. BATEMAN. And no money in this budget to take care of that?
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    Mr. HART. And no money that we can—again, if it is an emergency, if the leak becomes so bad that nobody can use the building, obviously we can reprogram money from some other use and do a fix on that.

    What you would like to try and do is, obviously, try to do it in an orderly manner, so that you fix things before they get to that point.

    Mr. BATEMAN. In your statement, you made reference to a study that the Appropriations Committee had asked you to do.

    And I am not quarreling at all with their having asked you to do it. But I certainly want to make sure that when you have done that study and made that report, that you furnish the authorizing committee with that information, too. We have more than a passing interest in it.

    Mr. HART. Mr. Chairman, I assure you, you will definitely get as many copies as you desire.

    Mr. BATEMAN. I did not think that would be a problem.

    With that, let me turn to Mr. Kuykendall, our first panel member. And we appreciate having him as a new member of the panel.

    Mr. KUYKENDALL. Thank you very much.
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    I am particularly interested in the Maritime Academy, as well. I come from California. We have one there.

    I do not know why, it does not sound like you have a great deal of push on getting your physical plant back in shape. And at least from the little notes that I have got here, there are estimates that are almost as big as the annual budgets of this place that need to be spent on capital alone.

    And it is real tough to send people to the Merchant Marine Academy if nobody wants to go there. And they do not want to go there because of the work, and they do not want to go there because of the facility.

    I have better success convincing them to go to the California Maritime Academy, which is part of our CSU system in California, than I do the others.

    What program do you have? I mean, I would really like to know, you know, where are you? What is it going to cost to get that campus back up to the level that it ought to be? Because in my area, the production of people skilled in Merchant Marine activities is critical to our industrial base.

    We have got the largest port complex in America. It has thousands of jobs that have to be filled by people who drive everything from deep draft vessels to tugboat operations, pilots, harbor operations. And all of those folks are trained at these Maritime Academies.
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    And if I am having such a poor physical plant that people do not want to go, how do I convince them to come back, unless I think there is at least the sense of priority on the part of the administration to bring that campus up to speed?

    So elaborate more on that issue, because that is a very important one, if you can not fix it right now, how much is it going to take?

    Mr. HART. Let me start out this way. We have, at MARAD, for the last several years, attempted to put in our budget more money towards King's Point. And sometimes it just does not make it through the process. We all know what that is like.

    We have a priority at MARAD for King's Point for a couple of reasons, some of which you mentioned. Number one, it is the prime training ground for our Merchant Marine officers. Number two, it is a magnificent institution with magnificent people.

    Frankly, I am not aware of anybody who did not want to go there because of the physical plant. But I guarantee you, if that is happening, that will not be allowed to happen very long, because we need—

    Mr. KUYKENDALL. As I said, where that is happening is in the high schools and freshmen in college, who look at potential opportunities. And they just say, you know, I think I will go to an ROTC program somewhere, or I will go somewhere else.

    Mr. HART. Well, then, by all means, I will start to address that in-house at MARAD. But to answer your particular question, I would—and this is an estimate on my part right now, for which I will give you more precise figures, as soon as I can. But I would estimate that it may be $14 million to fix what is needed to be fixed at the Maritime Academy.
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    But let me give you this caveat. It is not that all of that could be spent in one year. There are projects that depend on other projects being done. And you know how that is, when you start project A at point A, and then you go to project B at point D. And you obligate the money as you need it.

    So it is not like $14 million, if you gave $14 million to King's Point, that it could use it, all of it, right away.

    Mr. KUYKENDALL. It might be three or four years.

    Mr. HART. It might be three or four years. But I think we are talking in that range of about $14 million over that three or four or five years.

    Mr. BATEMAN. If I might interject here, would you, for the record, furnish the committee or the panel with this set of data. What was your request that did not make it through the process?

    And I understand, you have your requirements. There is a Presidential budget. It has gone through the OMB and all the rest. And we can not promise you anything, but we would like to look at what were the perceived needs and priorities.

    Mr. HART. Fine.

    Mr. BATEMAN. So if you would furnish us with that data.
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    Mr. HART. I will be glad to.

    Mr. BATEMAN. The other data that I think we need, in terms of the very, very good questions, could you supply us with some data as to the number of positions available at the Merchant Marine Academy, and the number of students who have applied, and what the SAT scores are, and that kind of data.

    Mr. HART. I would be glad to do that.

    Mr. BATEMAN. So we can see any trend. My personal observation is that the quality of your students there is inordinately high, and their records of accomplishment are the envy of most colleges and universities in America.

    But give us the data, because I think you have some very interesting data to share.

    Mr. HART. I agree with you, and I also agree with your assessment. I will be glad to supply that data to the committee.

    Mr. BATEMAN. Sorry for the interruption.

    Mr. KUYKENDALL. And by no means did I mean to cast dispersions on the quality of your graduates from the Merchant Marine Academy. It is extraordinarily high, and I do know that.
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    My job is trying to find some very high quality folks who want to go there; and all the other service academies, as well, not only yours.

    This is a short question. The $150,000 for a feasibility study is that in your budget?

    Mr. HART. It is in the request.

    Mr. KUYKENDALL. That is in your request, will that study give you a pretty well documented estimate of what it is you need to fix to bring, for instance, your living facilities up to the standards that they ought to be at?

    Mr. HART. It will give us, that $150,000 study will give us a piece of what is needed in what is called the utility for the barracks system alone.

    That does not cover the rest of the grounds. It does not cover some of the training halls. But we are just talking about the barracks system, itself. And, of course, that is where we think the more crucial need is right now.

    Mr. KUYKENDALL. Well, I guess then, to kind of piggyback on what the Chairman had to say, the point that I think, if you have already done it, you could probably just provide it.

    But would you just provide back for the record, perhaps, the cost of doing your analysis of your physical plant. Because it is real tough to start putting in a multi-year budgeting, if you ever get to that point, to fix the physical plant, if you do not know what it is that has to be fixed.
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    And I am assuming you have got that done somewhere. If you have not already done it, or if it has not been done, what would be the cost to have such a physical plant study done, so that we would have some empirical evidence to go on what it is going to cost, besides your $14 million estimate, or maybe it is $15 million; I do not know.

    Mr. HART. I will be glad to.

    Mr. KUYKENDALL. Thank you. That is all I have, Mr. Chairman.

    Mr. BATEMAN. Thank you. Mr. Abercrombie?

    Mr. ABERCROMBIE. Mr. Chairman, I think I had the questions right along the same lines that you have. And I just want to indicate that I will certainly support you.

    You can have my personal guarantee of support, and I am sure of other members in the minority, as well, if we are able to get a hold of that figure, with respect to the facilities at King's Point.

    If we can add money into that, I have an idea, Mr. Chairman, that this is one of those situations where some of the more high profile academies do not seem to have this problem.

    And it is probably up to us, Mr. Hart, to make sure that those of us members in the House of Representatives who are not as familiar with the work being done at King's Point as we are, get informed about it. That is our job.
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    So I just want to reiterate the request here. You get us the numbers, get us the background material, and we will get that information out to our colleagues, and see if we can not take care of that. We can surely find room in this year's budget to address that question.

    Mr. HART. I will certainly get you the numbers.

    Mr. ABERCROMBIE. Just one other point, is there a separate analysis or paper on the Maritime Security Program? Has MARAD put out a white paper or something of that nature on the Maritime Security Program?

    Mr. HART. I do not—

    Mr. ABERCROMBIE. I mean, your summary in here is excellent. I was just thinking to myself, again, this is something that passed pretty much on the recommendations of people like the Chairman and Mr. Dellums at the time. This was a non-partisan National Security Committee and Armed Services Committee push.

    And I think a lot of the other members—and I am certainly not speaking for the Chairman—but my belief is that a lot of other members in the House of Representatives took our word for that, particularly when you had someone like Mr. Bateman and Mr. Dellums, whose expertise in this area was well known.

    They took our word, but they did not even necessarily know what we were talking about, as opposed to the present company, which obviously knows what it is talking about, right. But they did not know the full implications.
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    And so my point is, if there is not a summary of what the Maritime Security Program is all about, what it has done, and where it is going, I think it would be a good idea if we could get that. And I am certainly not speaking for the Chairman.

    But I have an idea that we could disseminate such information to our colleagues, so that we could continue to get support for the program, and perhaps even expand it.

    Mr. HART. I would be glad to.

    Mr. BATEMAN. Well, I thank the gentleman for those observations.

    I think it would be good if you included in that information some background on what the former program, the Operation of Differential Subsidiary Program, cost so that our colleagues and the general public would understand that we have done more with less, in terms of meeting the national security objectives through this program.

    Mr. HART. I am sure we will be able to put that together.

    Mr. BATEMAN. Thank you, Mr. Abercrombie. Is there anything further?

    Mr. ABERCROMBIE. Just one further point, Mr. Chairman.

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    Part of the reason for that request, and I appreciate your supporting it, Mr. Chairman, is that I have realized, more and more, Mr. Hart, that sometimes we talk to one another. People in the Merchant Marine community, if you will, talk to one another, and it is kind of ''we happy few.''

    And what I want to do is have the background to be able to start reaching out to some of the other constituent groups that I have an opportunity to speak to and with, and utilize this program as a key point in speeches and commentary that I am making as an example of the positive relationship between government and business in this country.

    Mr. HART. We will do anything we can to support you.

    Mr. ABERCROMBIE. Thank you, Mr. Chairman.

    Mr. BATEMAN. My colleague from California, Mr. Hunter.

    Mr. HUNTER. Thank you, Mr. Chairman. I think you and my colleagues have covered the waterfront pretty effectively here. Thank you for your testimony, sir.

    Mr. HART. Thank you, sir.

    Mr. BATEMAN. Thank you for being with us, Duncan.

    Now, my colleague from North Carolina, Mr. Jones, and a new member of the panel.
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    Mr. JONES. Mr. Chairman, thank you. I am delighted to be on your committee and this panel to serve my colleagues.

    I think my father was the last Chairman of the Merchant Marine and Fisheries Committee—

    Mr. BATEMAN. Yes, indeed, he was.

    Mr. JONES.—that ended in 1995, so this is a special honor for me to be on this panel. And I do have a tremendous interest in the future of our Merchant Marine fleet.

    And, Mr. Hart, I apologize, I was late getting here, so I missed most of your presentation. But I have a couple of things, or at least one thing. How much money is needed to renovate the barracks that you made reference to just a few minutes ago that were in need of renovation, if we just specify the barracks?

    Mr. HART. If we specify the one barracks, I think the last figures I saw were about $3.5 million. That is the last figure I saw, Congressman.

    Mr. JONES. Mr. Chairman, with that, I do not have any other questions.

    But, again, I do have great respect for the Merchant Marine Academy. It is an academy, as has been stated by other members, that I think has been left out of consideration. And I want to work with you and other members to be sure that they are treated fairly.
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    Thank you.

    Mr. BATEMAN. Thank you, Mr. Jones. Do any other members have questions for Mr. Hart.

    [No response.]

    Mr. BATEMAN. Mr. Hart, we will have some questions for the record that get into some of the more esoteric aspects, the OECD Agreement and perhaps follow-up on Title XI.

    But we thank you very much and appreciate your being here and for your testimony today.

    Mr. HART. Thank you. I appreciate being invited.

    Mr. ABERCROMBIE. Mr. Chairman?

    Mr. BATEMAN. Yes?

    Mr. ABERCROMBIE. May I have permission to enter an opening statement?

    Mr. BATEMAN. Oh, indeed, you may.
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    Mr. ABERCROMBIE. Thank you.

    Mr. BATEMAN. The gentleman's statement will become a part of the record, with unanimous consent.

    [The prepared statement of Mr. Abercrombie can be found in the Appendix.]

    Mr. BATEMAN. And now, let us see, I have got too much paper up here.

    The second panel that I am very pleased to recognize consists of the Honorable Louis Caldera, Secretary of the Army and Chairman of the Board of Directors of the Panama Canal Commission; and the Honorable Alberto Aleman Zubieta, Administrator of the Panama Canal Commission.

    Gentlemen, we are very pleased to have you here today, and we look forward to your testimony. We have your written statements, and they will be made a part of the record. You may proceed as you see fit.


    Mr. CALDERA. Thank you very much, Mr. Chairman. I appreciate you making my statement a part of the record. It is an honor to have the opportunity to appear before this panel. I would like to make a few brief remarks and summation of some of those comments in that opening statement.
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    First of all, of course, we are in the last year of the transition of the Panama Canal, consistent with the Panama Canal treaties that the United States and the Republic of Panama entered into over 20 years ago. Most of the work getting ready for that transition has been done, and we are now in the last phases of making sure that we are ready to hand off on December 31, 1999.

    I am confident that Panama is ready to take over the administration of this canal. Already 95 percent of the work force in the canal is Panamanian. The Administrator of the canal, who is sitting here with me, Mr. Alberto Aleman, very ably has been running the administrative management portion of the canal enterprises.

    We are on our way to completing what was a billion dollar capital improvement program that was started in 1997, that is now on its way to completion, including the most important part of that program, the expansion of the Gaillard Cut, which increases the throughput capacity for the canal.

    There is just one issue related to that capital improvement program, that we may need to come to this panel with later.

    We are trying to work it out through an interagency process. And that is that in the capital reserve account, which is held at the Department of the Treasury, the tolls that are collected and the toll increase that was specifically put in place to finance the capital improvement program, those monies have been deposited in that account.

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    And it was always contemplated that as part of the transfer, that account would transfer to Panama as part of a going concern. At this point in interagency discussions, in just trying to set up the mechanisms for the transfer, some of the lawyers have said it is not clear that the authority for the transfer is there.

    We are trying to work that out on a interagency basis. But if it requires specific statutory authority to be able to transfer monies that were specifically collected and deposited for the purposes of completing that capital improvement, then we will need to be able to come back to this panel.

    That is the sum of the testimony that I wanted to provide to you today, Mr. Chairman. I would like to save the majority of the time to be available for your questions.

    [The prepared statement of Mr. Caldera can be found in the Appendix.]

    Mr. BATEMAN. Thank you, Mr. Secretary.

    Mr. Aleman, we are delighted to have you.


    Mr. ALEMAN. Thank you, Mr. Chairman.

    I want to begin my testimony by thanking you and the committee for the opportunity to appear here today to give you a report on current canal operations and our preparations for the future.
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    I request that my written testimony be made part of the record, and will summarize at this time.

    As we all know, this is a very historic year for the canal, as well as for the United States, Panama and the world shipping community.

    Our main purpose today is to inform you of our preparations, both for that event, and for the management, operation, and maintenance of the Panama Canal under Panamanian stewardship in the 21st century.

    I feel sure that as you understand the extent of those preparations, you will share our confidence that the transfer will be accomplished without disruption, and will result in continuing the world-class service that has been the standard at the canal since it first opened in 1914.

    In his testimony a few moments ago, Chairman Caldera gave you an overview of the canal's long-range capital program.

    My written testimony provides you with substantial details on the various components of this $1 billion effort. I will not repeat them here, but will gladly address any of the components you may be interested in during the question and answer period.

    Suffice it to say, at this time, all of these projects are designed to ensure that the canal remains in operating condition at the time the waterway is delivered to Panama, and in the years following that transfer.
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    When the entire $1 billion, seven year program has been completed, moving vessels through the Panama Canal will be a substantially safer and easier proposition. Our sustained throughput capacity will have increased from 37 to 42 vessels per day, and our maintenance costs will be reduced.

    We also have been addressing the Y2K issue within the canal. And I can confidently report that we will be prepared to make that transition without interruption to operations.

    Because the treaty requires the canal to be transferred free of liens and debts, this program is being financed through the two step toll increase, which took effect in 1997 and 1998. Consequently, a substantial capital reserve has been accumulated for expenditure as the various projects are executed.

    Thus, I would emphasize the importance of Chairman Caldera's reference to the need to ensure that there is no technical obstacle to this reserve passing with the canal when it transfers at the end of the year.

    Last year, the Commission established a special office to address the canal's longer-term capacity issues and the challenges associated with resolving them. This new office will prepare a progressive, time-phased master plan for the future, that will parallel traffic growth, will provide for continuous and expanded service to our customers, and will keep the canal at the forefront of world trade routes.

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    I would now like to turn to our operating results for Fiscal Year 1998.

    Fiscal Year 1998 was characterized by currency and financial instability in Asia and severe economic recession in that region. Canal cargo flows, however, were not affected significantly, in part, due to sustained moderate economic growth in the United States and Latin America, combined with increased flows of Asian low-priced goods.

    Ocean-going transits totaled 13,025 or 35.7 daily, down one percent from Fiscal Year 1997. However, there was a 4.8 percent increase in the number of transits by Panamax vessels. Those are the largest ones that can travel the canal.

    Consequently, ocean-going commercial cargo increased 1.2 percent to 192.1 million long tons, and total PC/UMS net tons increased 2.2 percent to 222.8 million tons, compared to Fiscal Year 1997.

    Toll revenue rose 10.6 percent to a record $545.7 million, and our total operating revenues for Fiscal Year 1998 were $638 million, some $37.6 million over the previous year's revenue.

    This large increase was due, in part, to the 8.2 percent and 7.5 percent toll increases implemented, respectively, in January of 1997 and January of 1998.

    On the other side of the ledger, our operating expenses for Fiscal Year 1998 totaled $621.7 million, an increase of 3.2 percent over the previous 12 month period.

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    These results produced a net operating income for the year of $12.6 million, a figure which takes into account our recovery of accumulated prior year losses of $3.7 million and accelerated funding of liabilities scheduled for Fiscal Years 1999 and 2000.

    When I reported to you last March, we were in the midst of the world-wide weather phenomenon known as El Nino, which had produced the longest dry spell on record in Panama, and ultimately forced us to impose draft restrictions on vessels for 109 days.

    I have noted in my written testimony various measures we took to mitigate the effects of El Nino. As a result of these measures, we were able to remove all draft restrictions by June 30. Reservoirs are now at their normal levels, and we anticipate no new draft restrictions in the foreseeable future.

    In this year's budget submission, I provided an estimated tolls revenue for Fiscal Year 1999 of $561.6 million.

    Canal traffic and tolls revenues now are expected to remain strong, following average historical levels, with a moderate increase relative to Fiscal Year 1998.

    The Asian crisis has apparently bottomed out, with most countries in the region showing some economic improvements. As most Asian economies begin recovery, exports to that region should improve and help re-orient to normal levels their trade imbalance with the rest of the world.

    In fact, during the first five months of Fiscal Year 1999, 84 long tons of commercial cargo tonnage passed through the canal, a 1.9 percent increase, relative to last year.
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    Toll revenues have increased 7.5 percent to $245.4 million, mainly due to ocean-going transits having risen 1.6 percent to 5,596, and a greater number of Panamax vessels transitting the canal, compared to the same period of Fiscal Year 1998.

    Increases in cargo shipments were observed for grains, containerized cargo, petroleum products, manufacturers of iron and steel, and refrigerated products. Commodity cargoes showing declines included crude oil, coal and coke, and lumber products.

    For the entire year, we now forecast ocean-going transits to increase 1.7 percent to 13,247. And toll revenue is estimated to be $567.2 million, up 3.9 percent, compared to Fiscal Year 1998.

    Because of that improved forecast and because, as I earlier noted, we used some of last year's revenues to pre-fund some liabilities schedule for this year and next, there is the likelihood that this year's performance will lead to a net operating margin.

    The first quarter of Fiscal Year 2000 will be the final period of U.S. stewardship of the Panama Canal. According to the information now available to us, we anticipate moderate traffic growth during that three month time frame.

    Based upon all of the foregoing financial data and our latest available forecasts, I am fully confident that, as the Commission's tenure as operator of the Panama Canal draws to a close on December 31st of this year, the United States will be able to meet its treaty requirements to turn over the canal to Panama in operating condition, and free of liens and debts, and do so at no cost to the American taxpayer.
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    Mr. Chairman, I would like to close my remarks with a few words on a subject important to a successful canal operation, both now and in the future. I am referring to the establishment and maintenance of close and continuous contact with our customers.

    To this end, we have gone to various areas of the world to visit with senior officials of some of the most important shipping companies which use the canal, as well as with ports and other maritime service providers.

    I believe that the personal contacts we made during these trips have done much to strengthen our relationships, improve understanding, and expand lines of communications with elements of the international shipping community that are important to us.

    Finally, in the post-1999 era, there is a provision in the organic law of the Panama Canal Authority requiring that agency to have an international advisory board.

    Recently, the authority has sent letters to 15 distinguished representatives of various segments of the maritime industry from different regions of the world inviting them to participate on this board.

    I expect this group to be a primary source of advice and counsel to the Panama Canal Authority on all aspects of canal operations.

    Mr. Chairman, that concludes my remarks. Again, I appreciate the opportunity you have afforded me to appear before the committee. And now, Mr. Chairman, I will try to answer those questions that you or members of the committee might have for us.
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    Thank you very much.

    [The prepared statement of Mr. Aleman can be found in the Appendix.]

    Mr. BATEMAN. Thank you, Mr. Aleman. We are appreciative of your being here and testifying today, along with Secretary Caldera.

    Let me comment that this is a bit of a sentimental occasion, for at least this member who, since 1983, has been involved in one committee or this committee, which had the primary jurisdiction and authorization authority over the Panama Canal Commission.

    This is only one quarter of one fiscal year. It is the final wrap-up year. Certainly, I think this panel has demonstrated that it wanted to be affirmatively and actively promoting the smooth transition that takes place on December 31st, 1999.

    I have every confidence that the canal can and will continue to operate on a smooth and orderly basis, serving the needs of international shipping.

    I would not be frank if I did not volunteer my view that it is a great misfortune for the United States and the people of Panama who are negotiating a continued American presence in Panama after December 31st, 1999 did not do a better job, and that we did not reach an agreement that was in the mutual best interests of both countries. Because I think such an agreement should have been attained, and was attainable.

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    Having said that, there is a great deal of regret on my part that we will have to see the termination of our operations at Howard Air Force base on May 1st, I believe it is.

    And Fort Sherman, of course, is being phased out. The last class is either going through or has already finished training at the Jungle Warfare Center. And, of course, Rodman Naval Facility was closed within the past week or 10 days.

    These are very, very significant things that represent very significant operational capacity and mission accomplishment for the United States, that I am not at all sure we have arranged for alternative ways to meet all of the commitments or all of the things that the mission would require of us. And that is, indeed, unfortunate.

    I am sure we are going to have some questions for the record. I guess the primary question that I need to raise is, your legislative package is just being delivered, as I understand it, today.

    I trust that there will be no surprises for us in it regarding liability insurance or new toll structures that would affect any decision making that we have any responsibility for between now and the end of the year, or the first quarter of the next fiscal year.

    Am I correct in that?

    Mr. CALDERA. I think you will find no legislative surprises. I know of none, Mr. Chairman. I believe the Foreign Minister of Panama says he does not anticipate any toll increases for the next fiscal year.
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    And the insurance liability provisions that you and I have discussed have resulted in lots of discussion and deliberation. If those were to proceed anywhere further, they would certainly go out for additional comment from all of the affected commercial industry sectors, even further comment than the comment that has been received.

    And you would be notified of the manner in which that would go forward; although at this time, we do not contemplate that that is going to be the case, in any case.

    Mr. BATEMAN. Thank you, Mr. Secretary.

    We have a vote on. Mr. Abercrombie, I think you have—


    Mr. BATEMAN.—it is on the final passage of the Federal Maritime Commission Authorization Act.

    Let me recognize you if you have comments or questions you would like to make, and we can get done before we have to vote.

    Mr. ABERCROMBIE. Yes. Mr. Chairman, perhaps for the record. You need not comment on it now, given the vote, the restrictions that we have.

    I just want to make certain that we have on the record what your assessment is with respect to modernization in the canal, with respect to capacity issues.
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    That is the main thing that concerns me right now, because the whole question of the size of the bulk capacity, all the rest of it, comes up. And I know you are working on that right now. I do not believe the report is issued, yet, right?

    Mr. ALEMAN. That is correct.

    Mr. ABERCROMBIE. Is there a timetable on the report?

    Mr. ALEMAN. No, sir. We have established, as I mentioned in my report, a canal capacity office. They are studying all of the elements on future enhancement of the canal.

    At this time, after we finish the Gaillard Cut, we will have a 20 percent more capacity. What we are addressing is the issue of larger ships that have been built at this time. So we are looking at that.

    Mr. ABERCROMBIE. Will that report also deal with the question of additional locks or something of that nature?

    Mr. ALEMAN. Yes, it will deal with what should be the next price that we have to put forward to enhance the capacity of the canal.

    Mr. ABERCROMBIE. Is that something we can expect before our jurisdiction ends?
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    Mr. ALEMAN. No, I think that it will be finished by some time in the year 2001.

    Mr. ABERCROMBIE. I see. Could we get some kind of an interim—Mr. Chairman, is that in order, to ask for some kind of interim assessment?

    Mr. BATEMAN. Mr. Aleman has always been very cooperative in furnishing the panel with information; of course, bearing in mind that we are in a juncture where our jurisdiction endures only for the first quarter of the Fiscal Year, but as much of a forecast as you are comfortable with making.

    Mr. ABERCROMBIE. Yes, just so that we—

    Mr. ALEMAN. We can do that.

    Mr. ABERCROMBIE. You understand why I am asking the question. It is not so much to try and dig into it as it is, when we close out our situation, close out our jurisdictional side, questions will be raised—okay, what does the future hold? I would like to be able to give an educated guess as to what is being dealt with, that is all.

    Mr. CALDERA. Congressman, we will provide that information. The management actually has been doing quite a good job of going out, talking to the shipbuilding community, the shipping community, itself, talking about what the future of shipping is.

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    So we know that there is a certain amount that are already out there, post-Panamax ships that do not fit through the canal. That volume will increase.

    In order to have locks that would take that kind of ship, that is a tremendous capital investment that you would have to make.

    And so you have got to be very careful about figuring out whether there is a return on that investment, or whether those ships will just have to find alternative routes, and you continue to focus on those ships that will make it through the canal, but try to find other ways to increase capacity by being more efficient in the way you use the water that it takes to move every vessel that goes through there.

    And so they are actually doing a very good job of weighing all of those options out, and trying to plot through the most reasonable way of increasing capacity, without doing it at such a level where you have got to raise the tolls so high that you are no longer a viable business concern.

    Mr. BATEMAN. If I might interject, we are running close on the vote. But Mr. Kuykendall has a question that I think he wants to pose. And you can respond for the record, or we could come back.

    But in view of the fact we may have more than one vote, it may be more practical for him to pose his question and you all can respond for the record. And with that, we would need to have you here waiting for us.

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    Mr. KUYKENDALL. And from my perspective, I would just as soon have you send it back in writing, as opposed to come back and have it orally.

    There is a great deal of controversy in my area, particularly people worried about the People's Republic of China having ownership of port facilities at both ends of the Panama Canal.

    I know Mr. Hunter has an interest in that. It is probably not as pressing an issue to me, personally, as it is to Mr. Hunter, but it is one that I would like to have.

    For the record, if you could send us back what is the ownership status? Has any property that controls the ingress and egress to the port facilities or to the Panama Canal been transferred to Chinese ownership? Has it been on long term lease to Chinese ownership?

    And, I mean, I could keep asking the different variables. But you hear the point that I am trying find out.

    Mr. CALDERA. Yes.

    Mr. KUYKENDALL. And I would like to have, once and for all, something in the record that would maybe put this to rest and leave it at that so we can make it to our vote.

    Mr. BATEMAN. Yes. We are at the very end of the string, so we dash out that way, because it is the nearest in distance, with our thanks to both of you.
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    Mr. CALDERA. Thank you very much. We certainly will respond to that question.

    [Whereupon, at 2:10 p.m., the panel was adjourned.]



March, 16 1999