TESTIMONY-BY: CAPTAIN WILLIAM G. SCHUBERT, MARITIME
ADMINISTRATOR
AFFILIATION: DEPARTMENT OF
TRANSPORTATION
BODY: STATEMENT BY
DEPARTMENT OF TRANSPORTATION CAPTAIN WILLIAM G. SCHUBERT
MARITIME ADMINISTRATOR
BEFORE THE OVERSIGHT PANEL ON
THE MERCHANT MARINE OF THE ARMED SERVICES COMMITTEE U.S. HOUSE OF
REPRESENTATIVES
MARCH 14, 2002
Mr. Chairman and Members of the Panel:
I
welcome the opportunity to appear before you today to discuss the Maritime
Administration's (MARAD's) authorization request for Fiscal Year 2003.
Marine transportation is a vital link in the intermodal
transportation system that moves people and goods in support of the Nation's
economic and national security. The marine transportation system (MTS) currently
moves over two billion tons of goods produced or consumed in the United States
through our Nation's ports and waterways each year. Even with our best efforts,
this system is groaning under capacity constraints and congestion in many ports
is increasing. To further complicate matters, container traffic, even with the
current economic slowdown, is predicted to double in the next twenty years.
Improving efficiency is one of the key ways to help solve these capacity and
congestion problems. Yet in light of recent events, efficiency must now be
looked at through a security lens. Our transportation system will need to
operate both efficiently and securely. These twin goals of efficiency and
security need to be addressed simultaneously. Programs administered by MARAD,
such as the Maritime Security Program, the Title XI loan
guarantee program and cargo reservation statutes, help to ensure national
security as well as foster our Nation's economic interests.
To help ensure continued competitiveness, we must tailor our maritime
policy to the challenges of the 21st century. Thus, the Administration proposes
several changes affecting the programs administered by MARAD. At this time, I
would like to address MARAD's operations and training budget, summarize other
provisions contained in our authorization proposal, and mention some of MARAD's
accomplishments during the past year.
Operations and
Training
The total budget request for MARAD for FY 2003
is $211,564,681, $97,221,143 of which is for MARAD operations and training. The
Maritime Security Program (MSP) would continue to be
authorized at its full funding level of $98,700,000, and administered by MARAD.
The budget request includes this amount for MSP.
Operations and training activities include the costs incurred by
headquarters and region staffs in the administration and direction of the
various MARAD programs such as the MSP; port, intermodal and environmental
activities; labor, training and safety activities; monitoring compliance with
cargo reservation statutes; administration of capital construction funds; and
negotiation of agreements, understandings and arrangements to reduce barriers
that restrict American access to foreign ports and markets.
The operations and training funds requested also include $49,716,000
for the operation of the United States Merchant Marine Academy (USMMA) at Kings
Point, New York, and $7,563,000 for continuing assistance to the six state
maritime academies.
The USMMA and the six State
maritime schools are the only educational institutions that produce merchant
marine officer graduates with a four-year bachelors degree which includes
courses in marine engineering and navigation; a U.S. Coast Guard merchant marine
officer's license; and practical shipboard training. These graduates gain
first-hand experience in the mariner's environment, thus enabling them to enter
this professional workforce with confidence and self-reliance. In peacetime,
Academy graduates create and operate efficient, cost- effective marine
transportation systems. In times of conflict, Academy graduates crew the ships
that support our troops.
This year's funding request
for the Academy contains a $1,894,000 increase over funds appropriated in FY
2002 for Federal salary and inflationary increases, and for operational
improvements including electronic classroom technology, meeting certification
requirements and four academic positions recommended by the Middle States
Accreditation Board. Of the total requested for the Merchant Marine Academy,
$13,000,000 is included for capital improvements, to remain available until
expended. The $13,000,000 will provide much needed resources for the Academy to
continue capital improvements based on the Facilities Master Plan completed in
September, 2000. Having these funds available until expended will allow the
Academy to award major construction projects efficiently, and will allow the
Academy to negotiate better pricing by combining construction contract
deliverables that optimize the Government's investment.
Ship Disposal
The disposal of obsolete ships
in the National Defense Reserve Fleet (NDRF) continues to be one of the
Department's "Top 10" management challenges as identified by the Department's
Inspector General. No funding was appropriated for the disposal of obsolete
vessels in FY 2002 despite the Administration's request to provide $10 million
directly to MARAD for this important initiative. MARAD currently has 133
obsolete vessels waiting to be scrapped. Of these 133 vessels, over 60 are WWII
vintage ships, and 28 need to be scrapped immediately as they pose serious
environmental risks while they deteriorate at an accelerated rate.
Our budget contains a request for $11,161,386 in FY 2003
for ship disposal. This funding would enable MARAD to continue disposing of a
small number of vessels in the NDRF that pose imminent environmental risk.
Included in these funds, for the first time, are staff and support costs
associated with program implementation.
By law, MARAD
serves as the U.S. Government's disposal agent for merchant-type vessels of
1,500 gross tons or more. Before 1994, MARAD disposed of obsolete vessels on a
regular basis by selling ships "as is-where is" to the highest bidder, generally
an overseas entity. However, after the Environmental Protection Agency (EPA)
raised concerns regarding the presence of hazardous materials such as
polychlorinated biphenyls (PCBs) in various shipboard components, the sale of
vessels for overseas scrapping was curtailed in 1994, then halted altogether in
1998. The few remaining domestic ship buyers soon found that scrapping under
stringent U.S. worker safety and environmental protection laws was not lucrative
under our conditions of sale. Meanwhile, MARAD was constrained from paying for
scrapping services by both a lack of specific appropriations and statutory
authority. As a result, the Nation's fleet of obsolete vessels grew and
deteriorated further, and we were forced to expend funds to clean up oil
discharges from leaks and remove fuel from a few of the most decrepit vessels.
If obsolete vessels are not disposed of systematically, we may eventually be
forced to drydock vessels to prevent environmental damage while they await
disposal. Drydocking and fuel removal could cost an additional $900,000 or more
per vessel. Specific authority to pay for scrapping provided in the National
Defense Appropriations Act for FY 2001 (P.L. 106- 259), enacted on October 30,
2000, included $10 million for the accelerated scrapping of those vessels in the
"worst condition." This amount was transferred to MARAD from the Navy and has
been the sole source of funding to-date for the disposal of obsolete ships.
Early in FY 2001, MARAD began disposal of the
worst-condition vessels in the fleet. Concurrently, the National Defense
Authorization Act for FY 2001 (P.L. 106-398) extended until September 30, 2006
the deadline to dispose of all vessels in the NDRF that are not assigned to the
Ready Reserve Force or otherwise designated for a specific purpose. P.L. 106-398
also charged MARAD to develop a program for the scrapping of obsolete NDRF
vessels in a timely, safe and environmentally sound manner, and to report to
Congress every six months on the program's progress. The initial report was
transmitted to Congress on June 5, 2001. The first follow-up report is currently
under review in the Office of the Secretary of Transportation and should be
submitted to the Congress shortly.
Since enactment of
P.L. 106-398, nine vessels have been removed from the fleets for disposal. Eight
of these ships were delivered to domestic ship scrapping facilities and one was
transferred, at no cost to the Federal government, to the State of Florida for
sinking as an artificial reef. Of the eight delivered to scrapping facilities,
three were delivered as a result of vessel sale awards made in 1999, and five
were delivered as a result of FY 2001 funded scrapping service contract awards.
MARAD anticipates the delivery of one additional vessel to a scrapping facility
for disposal this year, which will bring the total number of vessels disposed of
with FY 2001 funds to six.
In addition to providing
funding for the scrapping of obsolete vessels, the Administration's proposal
would authorize the use of funds in the Vessel Operating Revolving Fund (VORF)
obtained from the sale of ships, for remediation and disposal of obsolete
government vessels. Currently, funds contained in the VORF may only be used for
vessel operating functions and betterment of merchant vessels. The use of VORF
funds for remediation and disposal could assist MARAD in its mandate to dispose
of these vessels. Similarly, the Administration proposes to allow the use of any
funds generated from the sale of obsolete vessels to be used exclusively for the
abatement or disposal of other NDRF vessels that pose a safety hazard or threat
to the environment, as determined by the Secretary. If the Secretary determines
that no such hazard or threat exists, then any available funds would continue to
be divided between the NDRF, maritime academy training needs, and the National
Maritime Heritage Grants Program.
The Administration's
proposal would also allow the Government, for the first time, to expend funds to
prepare obsolete NDRF vessels for use as artificial reefs, if a determination is
made by the Secretary that such an expenditure is the most cost- effective use
of available funds relative to other disposal options available. Under current
law, such vessel transfers must take place at no cost to the Government. This is
another option that could potentially assist MARAD in using limited funds to
dispose of the growing backlog of obsolete vessels. This spending flexibility
could act to ease the current constraint on demand for ships to be used as
artificial reefs by coastal States.
Currently, MARAD
must provide to Congress a report on ship disposal activities each six months.
Our authorization proposal would change this requirement to every 12 months. The
12-month period would be more practical given the deliberative nature of the
contracting and disposal processes as well as the annual budgeting and
appropriations cycle. A less frequent reporting cycle would also ease the
administrative burden on MARAD's small ship disposal staff, allowing more time
to focus on disposal efforts.
Complementary to the
Administration's proposal are MARAD's current ship disposal efforts and plans
for the future, which include the aggressive pursuit of other disposal
alternatives and initiatives such as:
- The export of
ships for recycling (through sales and gov't purchase of services) through a
joint teaming effort with the EPA and the State Department, which considers
environmental and worker health/safety issues
- Changes
to the artificial reefing program including the establishment of national
remediation standards through a joint teaming effort with the EPA and the
Navy
- Solicitation for the sale of obsolete vessels
that have a recyclable material value sufficient to offset scrapping costs and
provide a profit to recycling companies
- The Program
Research & Development Announcement (PRDA) that solicits innovative
proposals from industry for ship disposal solutions, and which will determine
the current market for vessel sales and disposal services
- Seeking funding sources and partnerships (domestic and international)
associated with environmental, safety and training aspects of ship disposal with
the goal of assessment and mitigation of the environmental threat represented by
hazardous materials on many of our obsolete vessels
Each of these alternatives and initiatives has the potential to realize
cost savings and an increase in the number of vessel disposals than could be
achieved through the government purchase of conventional, domestic scrapping
services alone.
MARAD will continue to investigate all
alternatives to expedite the disposal of its obsolete vessels at the least cost,
and where possible on a cost-recovery basis, while giving consideration to
worker safety and the environment. Without a consistent and appropriate level of
funding, however, MARAD's ship disposal problem grows and the immediate
environmental threat increases. The increased threat was most recently
illustrated by an incident in November 2001 (just 4 months ago) where one of our
ships under tow to a scrapping contractor facility in Texas began taking on
water, 12 miles off Miami Beach, due to a breach in the underwater hull. While a
rapid response and emergency repairs prevented a potential sinking and discharge
of oil, without adequate funding it is likely only a matter of time before
additional incidents occur involving significant discharges of hazardous
materials and vessel sinkings.
As you can see, Mr.
Chairman and Members of the Panel, we have put a great deal of thought and
effort into determining the best options for disposing of the backlog of
obsolete NDRF vessels. I appreciate your continued interest and request your
support in this matter, and assure you that ship disposal is of utmost
importance to the Department.
The National Defense
Reserve Fleet and the Ready Reserve Force
The National
Defense Reserve Fleet (NDRF) was established in 1946 in order to meet reserve
sealift requirements for national defense purposes. NDRF vessels are primarily
located at three major sites: James River, Virginia; Beaumont, Texas; and Suisun
Bay, California. There are currently 276 ships in the NDRF, 76 of which comprise
the Ready Reserve Force (RRF). RRF ships are maintained in various states of
readiness by commercial ship managers, and can sail in either 4, 5, 10 or 20
days.
The majority of RRF ships are outported along the
East, West and Gulf coasts of this country in proximity with likely loadout
ports established by the Department of Defense. When activated, RRF ships are
fully crewed by civilian merchant mariners working to support DOD missions.
MARAD's RRF ships are called upon to play a critical role delivering supplies to
support our troops and to provide assistance during other crises. In the Gulf
War, Somalia, Haiti, Bosnia, and hurricane-ravaged Central America, the RRF
carried out the DOD mission. Four RRF ships are currently operational and
assigned to DOD pre-positioning missions. Two are stationed in Guam and two in
Diego Garcia, which permit rapid response to regional conflicts throughout the
world. Ten other ships were activated in FY 2001 for various military exercises
in the Continental United States, Caribbean and in Korea.
Readiness and reliability are the benchmarks for ships in the RRF.
Readiness is demonstrated by conducting maintenance sea trials during the year,
and tested by conducting "No-Notice" turbo activations at the order of the
Department of Defense. MARAD's goal is to successfully activate the RRF ships
under no- notice conditions 100% of the time. In FY 2001, there were 13 such
tests with all of them meeting or exceeding their activation timelines.
Consistent, high operational reliability is also essential for effective support
of DOD. MARAD's goal is to maintain 99% operational reliability. During FY 2001,
the RRF achieved a reliability of 99.2% -- with 14 ships operating for 2009 days
with only 15 days of unscheduled downtime.
At this
time, there are four RRF ships participating in various military training
exercises. We also have one of our RRF craneships in operational status deployed
to actively support special logistics needs of Operation ENDURING FREEDOM. Just
last week, DOD ordered the no-notice test activation of six RRF ships assigned
readiness priorities of 4 or 5 days. No machinery or crewing problems were
encountered, the turbo activations were successful; and all six ships conducted
successful sea-trials.
MARAD's authorization proposal
for FY 2003 contains an amendment to the Harmonized Tariff Schedule of the
United States to provide for the duty free treatment of emergency war materials
imported for use by MARAD. Twenty-four of the vessels that make up the RRF are
foreign-built. Another seven vessels that are not foreign- built, are equipped
with foreign-made items. To maintain the vessels in a constant state of
readiness, MARAD must regularly import foreign-made spare parts, repair parts,
equipment and supplies. Because MARAD berths vessels along all U.S. coasts,
these importations can occur in any Customs regions or district.
The imports necessary to maintain such a large fleet of vessels cause
MARAD to incur large sums of Customs duties. Since MARAD vessels are maintained
for the operational control of the Military Sealift Command, and are required
for rapid deployment during national emergencies, the supplies and equipment
needed to maintain the vessels should be accorded the same type of duty free
exemption for emergency war materials that is extended to the Department of
Defense (DOD).
Similarly, because of the varying nature
of their missions, NDRF/RRF vessels are frequently deployed overseas for
extended periods of time making periodic foreign repairs unavoidable. Because
these vessels are documented under U.S. law, they are required to pay an ad
valorem tax of 50 percent of the cost of any repairs received abroad. Payment of
the tax from one Government entity to another is an unnecessary drain on MARAD,
DOD and U.S. Treasury resources. Moreover, these vessels do not engage in
commercial activities and are prohibited from making foreign repairs other than
voyage repairs because they fall under the operational control of the Navy.
Thus, the Administration proposes to exempt activated RRF/NDRF vessels from
paying ad valorem duties on repairs made in foreign countries, thereby
streamlining and making MARAD's performance of vital national security functions
in its support of DOD more efficient.
Cargo
Preference
U.S. cargo preference laws are an important
part of the overall statutory mandate to support the U.S.-flag merchant marine.
These laws require that a certain percentage of cargo generated by the U.S.
government agencies be carried on U.S.-flag vessels. The laws are important to
the financial viability of U.S.-flag vessel operating companies. MARAD monitors
federal agency compliance with the U.S. cargo preference laws as part of our
overall effort to encourage them to maximize the use of U.S.-flag vessels, and
we provide an annual compliance report to the Congress.
The Administration's FY 2003 proposed authorization bill contains
several provisions designed to increase compliance with cargo preference
requirements and to improve the vessel profile of our bulk and breakbulk fleet.
The bill contains a provision which would suspend, for a period of three years,
the existing requirement that foreign-built vessels brought under the U.S. flag
must wait three years before carrying government-impelled cargoes.
The current drybulk fleet has been reduced to 10 vessels.
Two of these were built in 2001 in a foreign shipyard. The remaining eight which
were built in U.S. shipyards have an average age of 26 years, significantly
older than the world fleet and beyond a normal economic life. The resulting
decrease in the U.S.-flag bulk fleet could adversely affect defense readiness,
since the bulk fleet provides jobs for mariners needed to crew our reserve fleet
vessels activated in time of national emergency. Due to inherently higher
U.S.-flag operating costs and low world charter rates, it is also unlikely that
a vessel newly transferred to U.S. registry could support itself in U.S. foreign
commercial trades during the three- year waiting period.
This amendment would provide a limited opportunity for new,
foreign-built bulk and break bulk vessels to register under the U.S.-flag and be
immediately eligible to carry preference cargo in international trade. It would
allow the U.S. fleet to grow and add jobs for U.S. merchant mariners, the same
mariners we rely on to crew sealift ships in a mobilization. The proposal would
also increase the percentage of U.S. foreign commerce carried in U.S.- flag
vessels. Additional modern vessels in the U.S.-flag fleet would increase the
competition for carriage of government- impelled cargoes. Because these vessels
would only be eligible for foreign trade, this proposal has no impact on the
Administration's firm commitment to the Jones Act.
The
Administration also proposes changing the cargo preference year for determining
compliance so that it coincides with the Federal Government fiscal year. This
would simplify record keeping and management of the program without impact on
any involved agencies or shippers.
The Administration's
bill would also eliminate Ocean Freight Differential reimbursement. The Food
Security Act of 1985 authorized the Secretary of Transportation to finance an
increase in the U.S.-flag requirement for certain export programs operated by
the Department of Agriculture (USDA), the Commodity Credit Corporation and the
U.S. Agency for International Development (USAID) by issuing obligations to the
Secretary of the Treasury to fund the arrangements. The amendment would
eliminate the intergovernmental transfers between MARAD, the USDA and USAID.
Funding for such programs, including the cost of using U.S.-flag vessels, will
instead take place through the normal budgeting process for those agencies
affected. The U.S.-flag requirement applicable to these programs will remain the
same. For MARAD to continue to be actively engaged and consulted to oversee the
rules and regulations of the cargo preference program, we have proposed
strengthening our authority to assure compliance with cargo preference laws.
Marine Transportation System Initiative/Port Security
Over two billion tons of goods produced or consumed in the
United States move through our Nation's ports and waterways each year. This
volume is expected to more than double over the next 20 years. The number of
waterway recreational users is also expected to grow by over 65 percent to more
than 130 million annually in the next 20 years, and high-speed ferry
transportation is experiencing rapid growth in response to land-transport
congestion. Cruise ships anticipate attracting 6.5 million passengers annually
by the year 2002. Military reliance on the Marine Transportation System (MTS)
for force projection and sustainment is also expected to grow in the new
millenium.
The MTS initiative was launched by the
Department over two years ago. MARAD welcomes its continued leadership in this
initiative. We look forward to continuing our partnership with the U.S. Coast
Guard and many others involved in this important effort. America's marine
transportation system has always been there to deliver the goods and we intend
to help make sure that this tradition not only continues, but improves.
An integral aspect of our MTS is port infrastructure, and
port security has become an important front in the war on terrorism. The
Department of Defense Appropriations Act for FY 2002 (Act) appropriated $93.3
million to the newly-established Transportation Security Administration (TSA) to
award competitive grants to critical national seaports to finance the cost of
enhancing facility and operational security.
On
February 28th, Secretary Mineta announced the implementation of a new Port
Security Grants Program to finance security enhancements at critical national
seaports. This program will accelerate the installation of enhanced security
measures for passengers and cargo that pass through our vital ports." A
selection board consisting of the Under Secretary of Transportation for
Security, myself as the Maritime Administrator, and the Commandant of the Coast
Guard will base awards on consideration of the most urgent needs from a homeland
security perspective.
To expedite the grant process, we
have developed a web-based system. This system allows applicants to access all
pertinent information via the internet. In addition, all applications will be
submit through the grant website. We are accepting preliminary applications
immediately, and hope to begin making awards in June.
The program establishes two categories for grants: (1) Security
assessments and mitigation strategies, based on proposed port or terminal
security assessments that ascertain vulnerabilities and identify mitigation
strategies, and (2) Enhanced Facility and Operational Security, including but
not limited to facility access control, physical security, cargo security and
passenger security.
As part of the grant evaluation
process, MARAD, TSA, and the USCG will be considering a number factors to ensure
that the grant funding addresses critical port security needs. The applicants
will provide information as to why they should be considered a critical national
seaport. For applications requesting funds for enhancements, the applicant will
provide us with information identifying the nature of the security
vulnerabilities, a proposed solution to address them and the consequences if we
fail to act. Given the broad range of port security needs, nationally, it will
be challenging to select grant awards from the large number of worthy
applications that I expect we will receive.
MARAD has
also taken a lead role in Administration efforts to improve container security
and transportation worker credentialing. An interagency Container Working Group,
co-chaired by the Departments of Transportation and Treasury (U.S. Customs), was
established in December 2001. The group's activities are focused on Information
Technology, Security Technologies, Business Practices, and International
Affairs. Just this month, the Working Group provided recommendations to the
Office of Homeland Security on Ensuring the Security of Cargo Container
Transportation. Recommendations addressed improving the coordination of
government and business efforts as they relate to container security; enhancing
data collection; improving the physical security of containers; initiating
activities on the international front; and considering all possible uses of
advanced technologies to improve the profiling and inspection of containers.
MARAD is also working jointly with U.S. Customs,
exporters, importers, carriers, and governments to establish business and
security practices which will push the nation's virtual borders outward to the
point of loading of the containers. Security must be established before the
vessel carrying the container or cargo begins its international travel.
Technology and information are also essential to container security.
The Department has also established an interagency
"Credentialing Direct Action Group" (CDAG), co-chaired by MARAD, to examine the
feasibility and process for potentially conducting background checks and issuing
an identification card for all transportation workers and other persons who
require access to secure areas of transportation facilities.
The most difficult issue is to define the appropriate levels of
security for the broad spectrum of transportation facilities and operations and
how these should be applied.
There have also been some
concerns regarding the anticipated background check process. Various models are
being investigated by several groups to try and improve responsiveness, lower
cost and improve consistency over present practices for credentialing. We must
also resolve the privacy issues presented by the collection and maintenance of
databases containing personal information.
Under a
maritime cooperative program called the Ship Operations Cooperative Program
(SOCP) administered by MARAD, industry, in partnership with multiple government
agencies, is currently working to evaluate and test a Mariner Administrative
Smart Card credentialing system to reduce fraud, track mariner training,
facilitate shipboard sign on/sign off and enhance shipboard security.
Shipbuilding
As this Panel knows,
MARAD administers a Government guaranteed loan program, commonly referred to as
the Title XI program. Title XI loan guarantees enable shipowners and shipyards
to borrow private sector funds on more favorable terms than might otherwise be
available. As part of the Administration's continued effort to reduce corporate
subsidies, the President's budget request for FY 2003 seeks no new funding for
Title XI loan guarantees. MARAD will continue to manage the existing loan
portfolio and associated financial activity in the program with $4,482,152
million of funds requested for administration of the program.
However, in an effort to free up capital already set aside, the
Administration proposes some improvements to the Capital Construction Fund
program. The Capital Construction Fund (CCF) Program was established under the
Merchant Marine Act of 1970. It assists operators in accumulating capital to
build, acquire and reconstruct vessels through the deferral of Federal income
taxes on certain deposits, as defined in Section 607 of the Merchant Marine Act,
1936.
The CCF Program enables operators to utilize
private funds from company earnings to build vessels for the U.S. foreign trade,
Great Lakes, noncontiguous domestic trade, and the fisheries of the United
States. It aids in the construction, reconstruction, or acquisition of a wide
variety of vessels, including container- ships, tankers, bulk carriers, tugs,
barges, supply vessels, ferries and passenger vessels. Currently, there are
approximately 151 CCF fund holders, with an aggregate balance of approximately
$1 billion.
Our bill would also permit the use of
deposits into a CCF for the construction or reconstruction of vessels to be used
in the contiguous coastwise domestic trade. This amendment would make it
possible to use capital already deposited in CCF for vessels for coastwise
trade. These vessels, such as ferries and cargo ships, will help alleviate
passenger and freight congestion on major U.S. highways and commuter routes. CCF
deposits, however, could not be used for vessels participating in the inland
river trade. The proposal would also permit the use of CCF deposits for mobile
offshore drilling units (MODUs). MODUs are currently not classified as vessels.
The availability of CCF for MODUs would be consistent with the Administration's
effort to enhance the exploration and production of energy in America.
Currently, taxpayers must include income for which a tax
deferral would otherwise be available through the CCF in their calculation of
alternative minimum tax, thereby diminishing the effectiveness of the CCF
program in fostering construction of new vessels. The Administration's bill
would eliminate this alternative minimum tax requirement with respect to the
CCF, thus restoring the full use of the CCF for vessel construction. It also
proposes several "housekeeping" changes conforming the CCF program to the Tax
Code and Committee Report language.
Maritime Security Program
The Maritime
Security Act of 1996 established a Maritime Security Program
(MSP) whose goal is to ensure the continued competitive presence of a fleet of
U.S.-flag vessels engaged in international trade that are also able to meet
national security sealift requirements in times of war or national emergency.
The MSP has had 47 ships enrolled and participating in the program according to
their operating agreements with MARAD since January 1997.
Authorization for the MSP expires at the end of FY 2005.
MARAD believes that an MSP follow-on program should be
approved in order to assure the continued availability of U.S.-flag commercial
ships and U.S. citizen crews to meet U.S. national security interests. Any
follow-on program should consider a variety of factors. Of primary importance is
the establishment of a program that will provide militarily useful vessel
capacity composed of modern and efficient vessels to meet national security
requirements. In addition, renewal should assure the availability of a U.S.
citizen seafaring pool to crew both the commercial and government sealift
fleets. One primary concern for the new program will be the total cost. It is
important that the new program focus on a realistic level of financial support
to ensure continued fleet availability. The program should provide incentives to
ensure that the most modern and efficient vessels are available throughout the
program.
MARAD is currently participating in
discussions with DOD and meeting with maritime industry representatives to
explore options for MSP renewal. Other areas that will need to be addressed are:
the number and mix of vessels; the length of the program; maximum vessel ages,
the level of financial support; and citizenship.
American Fisheries Act
Under the American
Fisheries Act (AFA), enacted as part of the Omnibus Appropriations Act of 1999,
MARAD was assigned the responsibility to ensure that proper citizenship
standards are adhered to for ownership of fishing vessels 100 feet or longer.
Implementation of our new duties is well under way. The new ownership and
control requirements for fishing industry vessels became effective on October 1,
2001. There are over 550 fishing industry vessels that are greater than 100 feet
in registered length and subject to MARAD's jurisdiction. We have reviewed
citizenship affidavits and supporting documents related to most of these vessels
and notified the Coast Guard's National Vessel Documentation Center that the
vessels are eligible to be documented with fishery endorsements. We are
continuing to work with a small percentage of the vessel owners to obtain
additional supporting information required under our regulations and to
effectuate necessary changes in the ownership structure of the vessels to ensure
that the vessels are owned and controlled by U.S. Citizens. A small percentage
of vessels will be subject to the loss of their fishery endorsement.
After consulting with the Departments of State and
Treasury and other agencies of the Federal Government with responsibility for
the interpretation of international investment agreements, MARAD issued
decisions on nine petitions in which we determined that the Treaties of
Friendship, Commerce and Navigation (FCN) with Japan, Korea and Denmark were
inconsistent with the American Fisheries Act. Consequently, the owners of the 16
vessels covered by the petitions will be subject to the ownership and control
standard that was in place prior to the passage of the American Fisheries
Act.
MARAD has drafted amendments to its regulations
for the American Fisheries Act to implement changes to the lender and preferred
mortgage provisions for fishing industry vessel that were passed as part of the
Supplemental Appropriations Act for 2001. A Notice of Proposed Rulemaking was
scheduled for publication during the middle of March. We expect to publish final
rules in August. Our budget contains an increase of $156,000 for staff costs to
ensure compliance with the Act.
War Risk Insurance
Recently, MARAD has been active in the area of war risk
insurance. The Merchant Marine Act, 1936 (Act), authorizes the Secretary of
Transportation to ensure the availability of adequate insurance for vessels
engaged in the waterborne commerce of the United States. This authority,
delegated to MARAD, provides coverage for vessels, their cargoes, crews, and
third- party liabilities against war risks, including acts of terrorism, if
commercial insurance is not available on reasonable terms and conditions. The
insurance may be made available to both U.S. and foreign flag vessels.
There are two basic forms of war risk insurance. Section
1202 of the Act addresses vessels in commercial trade while, Section 1205
pertains to vessels that are under charter or in the employ of the Department of
Defense. Recently, President Bush authorized DOT to provide war risk insurance
under Section 1202. The insurance is available for areas currently excluded in
commercial war risk trading warranties: the Persian or Arabian Gulf and adjacent
waters, Israel, Lebanon, Gulf of Aqaba and the Red Sea, Yemen, Pakistan, Oman,
Syria, and Egypt. Authority under Section 1205 for the Middle East has remained
in effect since it was authorized by Then-President Bush in August 1990. Since
February 20, 2002, MARAD has written Section 1205 insurance on five vessels in
the employ of the Military Sealift Command.
Terrorism
coverage is still available for vessels and cargoes under war risk policies, but
the cost has increased significantly. For example, war risk underwriters issued
cancellation notices on war risk policies on all vessels worldwide on September
19th, (which they were permitted to do under their seven-day cancellation
clauses). They reinstated these policies on September 26th with increases of
annual premium of 200 to 300 percent on most fleets, except for cruise vessels,
which we understand faced a 1,000 percent increase in annual premiums. In
addition, war risk underwriters published new excluded zones, extending from
Egypt to Pakistan, where vessels and cargoes may not enter without paying
thousands or even hundreds of thousands of dollars of additional premium. Marine
war risk/terrorism insurance is still available from the commercial market,
although at much higher premium rates and with much more limited coverage on the
liability side since September 11th. The Protection and Indemnity Clubs, a
mutual arrangement of shipowners, which provide vessel liability coverage, now
limit coverage for terrorism risk as of February 20th to $200 million per
vessel--an amount far lower than previously. Vessels and cargoes are still
moving worldwide, but the cost is higher and the terms more limited. In
addition, we understand that one of the mutual clubs that provides insurance for
terminals, stevedores, port authorities and transport and logistics companies
for handling equipment and property was able to reinstate terrorism cover as of
February 1st, but it is not clear on what terms or cost. Insurance covering
risks of terrorism is still in a state of flux and we expect this to continue
for some time to come.
While the Secretary of
Transportation is fully indemnified by the Department of Defense when writing
Section 1205 war risk insurance, that is not the case under Section 1202. When
MARAD provides war risk insurance for commercial vessels under Section 1202, the
Department of Transportation is at risk for any losses. Currently, MARAD has
only $35 million in reserve for such losses. Any losses exceeding $35 million
would result in a deficiency. It is conceivable that MARAD could have billions
of dollars at risk under a full-scale activation of U.S. and allied ships and
utilization of Section 1202 authority, which would require an emergency
supplemental appropriation. Thus, the Administration is proposing the
establishment of borrowing authority to be used in the event that the money
available to pay for any losses covered by war risk insurance is insufficient to
pay any amount that the Secretary is required to pay out. This would provide the
Secretary with a definite mechanism to fund any deficiencies that may arise.
International Activities
MARAD
will continue its efforts to increase U.S. carriers' participation in the
carriage of international trade by negotiating improved access to foreign
maritime markets. A major area of activity is China, where government controls
restrict the ability of U.S. carriers to deploy their vessels, market their
services and conduct intermodal operations. New regulations issued in December
2001 impose significant additional restrictions on the operations not only of
shipping companies, but also of shippers and intermediaries. I will be
travelling to Beijing the week of March 18th for consultations on these issues.
I hope to make sufficient progress to subsequently begin negotiations on a new
maritime agreement. We allowed the previous agreement reached in 1988 to expire
in 1998 because of China's failure to implement its basic terms relating to port
access.
Other focal points of bilateral activity
include: Brazil- monitoring our 1999 equal access agreement; Japan-continuing to
press for long overdue real reform of port practices; Russia- implementing our
2001 maritime agreement; and Ukraine-working toward a new maritime agreement.
We are also working to safeguard U.S. maritime interests
in a number of multilateral discussions, including those of the World Trade
Organization (WTO) and the Organization for Economic Cooperation and Development
(OECD).
Conclusion
As you can
see, FY 2002 has presented MARAD with significant challenges, which I expect to
continue in FY 2003. I welcome the opportunity to continue our role in
preserving both economic and national security. Your continued support will help
us to do our part in our mission. This concludes my prepared statement. I would
be happy to address any questions you may have at this time.
Document 27 of 37. 