Copyright 2002 FDCHeMedia, Inc. All Rights Reserved.  
Federal Document Clearing House Congressional Testimony
July 16, 2002 Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1133 words

COMMITTEE: HOUSE ARMED SERVICES

HEADLINE: MARITIME SECURITY PROGRAM

TESTIMONY-BY: JOSEPH T. "JAY" KEEGAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF U.S. SHIP

AFFILIATION: MANAGEMENT INC.

BODY:
STATEMENT OF JOSEPH T. "JAY" KEEGAN PRESIDENT AND CHIEF EXECUTIVE OFFICER OF U.S. SHIP MANAGEMENT INC.

BEFORE THE HOUSE ARMED SERVICES COMMITTEE SPECIAL OVERSIGHT PANEL ON MERCHANT MARINE

JULY 16, 2002

Mr. Chairman and Members of the Panel:

My name is Joseph T. "Jay" Keegan. I am President and Chief Executive Officer of U.S. Ship Management, Inc. (USSM), and pleased to be here today to provide brief testimony concerning the importance of maintaining the Section 2 citizenship policy of the Maritime Security Program. Congress may decide in the future to expand the number of ships that participate in the MSP. Congress may decide in the future to change the amount to be paid for each of these ships for their guaranteed readiness in the event of a national defense emergency. However, Congress should not now or in the future modify a well entrenched policy which limits eligibility in the MSP to American-flagged vessels, with American crews, and which, most importantly, are controlled by Americans citizens. Whatever limited exceptions that are provided in the law regarding priorities should, if they are to continue, certainly not be expanded.

In 1999, A.P. Moller/Maersk of Denmark purchased the international business of Sea-Land Service, Inc. which had 19 U.S. flag vessels, 15 of which were enrolled in the MSP. Since Maersk could not qualify as a Section 2 citizen - Maersk entered into time charter contracts with my company for these vessels. My company has 42 dedicated and talented shoreside employees and 380 seagoing positions. We are headquartered in Charlotte, North Carolina and have offices in Edison, New Jersey and Long Beach, California. We are ISM certified by the American Bureau of Shipping for all nineteen vessels which we operate and for our shoreside operations. As an operator our company is in actual and legal control of the vessels. Simply put, we operate the vessels. This is consistent with traditional maritime law and practice. In fact, I understand that approximately half of A.P. Moller/Maersk's fleet is time-chartered and therefore operated by other foreign companies.

A.P. Moller/Maersk is a $35 billion conglomerate headquartered in Copenhagen, Denmark, which is equivalent to 20% of Denmark's GDP.

We understand that legislation is being advocated by companies like Maersk which demeans companies like mine as "unjustified middle men" which increase Maersk's costs and add little value to the MSP. Simply because they have existing relationships with the Department of Defense, Maersk believes it is entitled to an exception or a change in the law which would eliminate or substantially modify the Section 2 citizenship policy. Their existing defense contracts required Maersk to sign Special Security Agreements (SSA's) which essentially provide that classified material will not be made available to those who do not have appropriate security clearances. However, this is not the same as citizenship. The agreement, in a vacuum, not to engage in unlawful, unauthorized sharing of sensitive material is not a guarantee which would preclude conflicts between a foreign company's commercial interests with our national security interests.

I will be happy to answer questions in more detail after my testimony. However, in summary there are several reasons which should cause Congress to conclude that the Section 2 citizenship policy is too critical to our national security to change.

A.P. Moller/Maersk has financial interests and conducts business in many countries, some of which could have strong policy conflicts with the United States. Commercial relationships between Maersk and such countries could present a clear conflict in the event of a national defense contingency. Will a foreign controlled company such as Maersk be primarily concerned about its commercial relationships with such countries or will it primarily be concerned with our national security? Let's consider a hypothetical: if our government determines to deploy MSP enrolled ships to the Taiwan Straits in the event of a national security contingency, I can unequivocally represent to this Panel that my company will unhesitatingly and willingly do as asked. However, please consider the factors which a company like Maersk, which does a huge amount of business with the Peoples Republic of China, would be forced to consider in the event of such a contingency. For example, I understand that Maersk has built more ships in China in recent years than any non-Chinese company. How would such a contingency affect relationships between Denmark and the Peoples Republic of China? More specifically, how would such a sealift impact the commercial relationship between Maersk and the Peoples Republic of China?

There is no good policy reason for our government to voluntarily inject even the slightest possibility of such a risk into the Maritime Security Program. When ships in the MSP are controlled and operated by United States citizens, our national security interests are paramount. The United States government cannot afford to be vulnerable to quandaries between a foreign owned company's commercial interests and our national interests. The citizenship policy guarantees to the DoD that the vessel will be available under any national defense contingency - including conflicts in which the United States may become involved that may or may not be internationally popular. The Section 2 policy is essentially a national security check and balance which should not be altered. Our companies are not shams. Our control of these ships is vital to our national security. We provide real jobs to real people and provide exactly the type of protection intended by Section 2 to ensure our national security.

Section 2 companies bear the "burdens" of citizenship and should at least continue to exclusively receive the "benefits" of priority in MSP participation. Foreign controlled companies are not subject to the full range of U.S. corporate taxes and are subject to substantially less U.S. regulation.

Equating foreign controlled "documentation citizens" with Section 2 citizens could be the first step in undermining the Jones Act.

The Merchant Marine Act of 1936 states that "it is necessary for the national defense and development of its foreign and domestic commerce that the United States have a merchant marine . . . owned and operated under the United States flag by citizens of the United States". The Section 2 citizenship policy of the MSP is based on that foundation. It is a policy that has served our country well, and I would respectfully submit that it should not be modified.

Thank you for this opportunity to testify and I look forward to answering any questions which you or any other Panel Member may have.



LOAD-DATE: July 17, 2002